10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 3, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                to                               

Commission file no. 1-9659

The Neiman Marcus Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	95-4119509
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
One Marcus Square
1618 Main Street
Dallas, Texas	75201
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (214) 741-6911

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange
Title of each class	on which registered
Class A Common Stock, $.01 par value	New York Stock Exchange
Class B Common Stock, $.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x                      No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

         As of September 25, 2002, the aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant was approximately $1,389,072,321.

         As of September 25, 2002, the registrant had outstanding 28,034,916 shares of its Class A Common Stock and 19,941,833 shares of its Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE.

Part III of this report incorporates information from the registrant’s definitive Proxy Statement relating to the registrant’s Annual Meeting of Shareholders to be held on January 21, 2003, which will be filed on or about November 29, 2002.

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
EX-3.2 Bylaws of the Company
EX-4.4 Amended and Restated Rights Agreement
EX-10.1 1987 Stock Incentive Plan
EX-10.5 Supplemental Executive Retirement Plan
EX-10.6 Description of Executive Life Insurance
EX-10.7 Supplementary Executive Medical Plan
EX-10.8 Key Employee Deferred Compensation Plan
EX-10.12 Three-Year Credit Agreement
EX-12.1 Computation: Ratio of Earnings to Charges
EX-21.1 Subsidiaries of the Company
EX-23.1 Consent of Deloitte & Touche LLP

THE NEIMAN MARCUS GROUP, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 3, 2002

TABLE OF CONTENTS

		Page No.
PART I
Item 1.	Business		2
Item 2.	Properties		4
Item 3.	Legal Proceedings		5
Item 4.	Submission of Matters to a Vote of Security Holders		5
PART II
Item 5.	Market for the Registrant’s Common Equity and Related Shareholder Matters		5
Item 6.	Selected Financial Data		6
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		17
Item 8.	Financial Statements and Supplementary Data		18
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		18
PART III
Item 10.	Directors and Executive Officers of the Registrant		18
Item 11.	Executive Compensation		19
Item 12.	Security Ownership of Certain Beneficial Owners and Management		19
Item 13.	Certain Relationships and Related Transactions		20
PART IV
Item 14.	Exhibits, Financial Statement Schedule and Reports on Form 8-K		20
Signatures	Signatures		24
Certifications	Certifications of Chief Executive Officer and Chief Financial Officer		25

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PART I

ITEM 1. BUSINESS

Business Overview

The Neiman Marcus Group, Inc. (the Company) is a high-end specialty retailer operating principally through specialty retail stores, consisting of 34 Neiman Marcus stores, two Bergdorf Goodman stores and twelve clearance centers and through direct marketing operations.

The Neiman Marcus stores are in premier retail locations in major markets nationwide and the Bergdorf Goodman stores are located in Manhattan at 58th Street and Fifth Avenue. Both Neiman Marcus and Bergdorf Goodman stores offer high-end fashion apparel and accessories, primarily from leading designers.

Neiman Marcus Direct, the Company’s direct marketing operation, offers a mix of apparel and home furnishings which is complementary to the Neiman Marcus stores’ merchandise through catalogues under the Neiman Marcus brand name. Neiman Marcus Direct also publishes the world-famous Neiman Marcus Christmas Book; the Horchow catalogue, offering quality home furnishings, linens, decorative accessories and tabletop items; and the Chef’s catalogue, offering gourmet cookware and high-end kitchenware. In addition, Neiman Marcus Direct operates the NeimanMarcus.com, Horchow.com and ChefsCatalog.com websites.

For more information about the Company’s business segments, see Note 14 to the Consolidated Financial Statements in Item 14 below.

The Neiman Marcus Group, Inc. is a Delaware corporation which commenced operations in August 1987. Prior to October 22, 1999, Harcourt General, Inc. (Harcourt General), a Delaware corporation based in Chestnut Hill, Massachusetts, owned approximately 54 percent of the outstanding common stock of the Company. On October 22, 1999, Harcourt General distributed to its shareholders approximately 21.4 million of the 26.4 million shares of the Company’s common stock held by Harcourt General and subsequently divested itself entirely of any holdings in the Company’s stock.

Copies of this Annual Report on Form 10-K may be obtained at the Company’s website, www.neimanmarcusgroup.com.

Description of Operations

Specialty Retail Stores. Neiman Marcus stores offer women’s and men’s apparel, fashion accessories, shoes, cosmetics, furs, precious and fashion jewelry, decorative home accessories, fine china, crystal and silver, epicurean gifts, children’s apparel and gift items.

As of October 2, 2002, the Company operated 34 Neiman Marcus stores, located in Arizona (Scottsdale); California (five stores: Beverly Hills, Newport Beach, Palo Alto, San Diego and San Francisco); Colorado (Denver); the District of Columbia; Florida (five stores: Coral Gables, Fort Lauderdale, Palm Beach, Tampa and Bal Harbour); Georgia (Atlanta); Hawaii (Honolulu); Illinois (three stores: Chicago, Northbrook and Oak Brook); Missouri (St. Louis); Massachusetts (Boston); Minnesota (Minneapolis); Michigan (Troy); Nevada (Las Vegas); New Jersey (two stores: Short Hills and Paramus); New York (Westchester); Pennsylvania (King of Prussia); Texas (six stores: two in Dallas, one in Plano, one in Fort Worth and two in Houston); and Virginia (McLean). The average size of these 34 stores is approximately 137,000 gross square feet and they range in size from 53,000 gross square feet to 224,000 gross square feet.

The Company will open a new Neiman Marcus store in Orlando, Florida in October 2002 and plans to open new Neiman Marcus stores in San Antonio, Texas in the third quarter of fiscal year 2005 and Atlanta, Georgia in the third quarter of fiscal year 2006.

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The Company also has stores operating under the name The Galleries of Neiman Marcus in Cleveland, Ohio and Phoenix, Arizona. The Galleries of Neiman Marcus feature precious and fashion jewelry, gifts and decorative home accessories to extend the Neiman Marcus brand into markets that may not be large enough to support full-line stores. In March 2002, the Company closed its Galleries of Neiman Marcus store in Seattle, Washington. The Company continues to evaluate the concept based on the remaining Galleries of Neiman Marcus stores.

The Company operates two Bergdorf Goodman stores in Manhattan at 58th Street and Fifth Avenue. The main Bergdorf Goodman store consists of 250,000 gross square feet and features high-end women’s apparel and unique fashion accessories from leading designers, traditional and contemporary decorative home accessories, precious and fashion jewelry, gifts and gourmet foods. The Bergdorf Goodman Men’s store consists of 66,000 gross square feet and is dedicated to fine men’s apparel and accessories.

The Company operates twelve clearance centers which average approximately 25,000 gross square feet. These stores provide an efficient and controlled outlet for the sale of end-of-season clearance merchandise from Neiman Marcus and Bergdorf Goodman stores and Neiman Marcus Direct. Additionally, the Company purchases off-price merchandise directly from existing vendors to supplement the assortments of the clearance stores.

Direct Marketing. Neiman Marcus Direct, the Company’s upscale direct marketing operation, primarily offers women’s apparel, accessories and home furnishings under the Neiman Marcus name. It also publishes the world-famous Neiman Marcus Christmas Book. Neiman Marcus Direct’s Horchow division offers quality home furnishings, linens, decorative accessories and tabletop items. In January 1998, the Company acquired Chef’s Catalog, a leading direct marketer of gourmet cookware and high-end kitchenware and integrated its operations, including its online business, into those of Neiman Marcus Direct.

In 1999, the Company launched Neiman Marcus Online as an extension of its direct marketing division. Neiman Marcus Direct currently operates the NeimanMarcus.com, Horchow.com and ChefsCatalog.com websites, offering luxury goods, high quality cookware and home furnishings to the online consumer. Through its various divisions, Neiman Marcus Direct provides the Company with a multi-brand, multi-channel focus.

Brand Development Companies. In November 1998, the Company acquired a 51 percent interest in Gurwitch Bristow Products, LLC, which distributes and markets the Laura Mercier cosmetic line, for $6.7 million. In February 1999, the Company acquired a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories, for $33.6 million.

Competition

The specialty retail industry is highly competitive and fragmented. The Company competes with large specialty retailers, traditional and upscale department stores, national apparel chains, designer boutiques, individual specialty apparel stores and direct marketing firms. The Company competes with other retailers for real estate opportunities principally on the basis of its ability to attract customers.

The Company competes for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and, in the case of Neiman Marcus and Bergdorf Goodman, store ambiance.

Vendor Relationships

The Company competes for quality merchandise and assortment principally based on relationships and purchasing power with designer resources. The Company’s apparel and fashion accessories businesses are especially dependent upon its relationships with these designer resources. The Company also secures certain merchandise, primarily precious jewelry, on a consignment basis in order to expand its product assortment. From time to time, the Company makes advances to certain of its vendors. These advances are typically deducted from amounts paid to vendors at the time merchandise is received or, in the case of advances made for consigned goods, at the time the goods are sold by the Company. As of August 3, 2002, the Company had net outstanding advances to vendors of approximately $35 million.

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Employees

As of September 5, 2002, the Company had approximately 14,300 employees. Neiman Marcus stores had approximately 12,100 employees, Bergdorf Goodman stores had approximately 800 employees, Neiman Marcus Direct had approximately 1,300 employees and Neiman Marcus Group had approximately 60 employees. The Company’s staffing requirements fluctuate during the year as a result of the seasonality of the retail industry. None of the employees of Neiman Marcus stores or Neiman Marcus Direct are subject to collective bargaining agreements. Approximately 19 percent of the Bergdorf Goodman employees are subject to collective bargaining agreements. The Company believes that its relations with its employees are good.

Quarterly Data and Seasonality

For information on quarterly data and seasonality, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below.

Regulation

The Company’s operations are affected by numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. In addition to the Company’s proprietary credit cards, credit to the Company’s customers is provided primarily through third parties such as American Express®, Visa®, MasterCard®, Diners Club®, Novus® and Carte Blanche®. Any change in the regulation of credit that would materially limit the availability of credit to the Company’s customer base could adversely affect the Company’s results of operations or financial condition.

The Company’s and its competitors’ practices are also subject to review in the ordinary course of business by the Federal Trade Commission and the Company’s and other retailers’ credit card practices which are subject to numerous federal and state laws. The Company believes that it is currently in material compliance with all applicable state and federal regulations.

Additionally, the Company is subject to certain customs, truth-in-advertising and other laws, including consumer protection regulations, that regulate retailers generally and/or govern the importation, promotion and sale of merchandise. The Company undertakes to monitor changes in these laws and believes that it is in material compliance with applicable laws with respect to such practices.

ITEM 2. PROPERTIES

The Company’s corporate headquarters are located at the Downtown Neiman Marcus store location in Dallas, Texas. The operating headquarters for Neiman Marcus, Bergdorf Goodman and Neiman Marcus Direct are located in Dallas, New York City and Irving, Texas, respectively. As of October 2, 2002, the aggregate gross square footage used in the Company’s operations was approximately as follows:

			Owned
			Subject to
	Owned		Ground Lease		Leased		Total
Specialty Retail Stores		348,000		2,239,000		2,733,000		5,320,000
Distribution, Support and Office Facilities		1,207,000		119,000		807,000		2,133,000

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Leases for substantially all of the Company’s stores, including renewal options, range from 30 to 99 years. The lease on the Bergdorf Goodman Main Store expires in 2050 and the lease on the Bergdorf Goodman Men’s Store expires in 2010, with two 10-year renewal options. Leases are generally at fixed rentals and a majority of leases provide for additional rentals based on sales in excess of predetermined levels. The Company owns approximately 34 acres of land in Longview, Texas, where its National Service Center is located. The National Service Center occupies a 502,000 square foot facility and is the principal merchandise processing and distribution facility for Neiman Marcus stores. The Company also owns approximately 50 acres of land in Irving, Texas, where its 705,000 square foot Neiman Marcus Direct warehouse and distribution facility is located.

For further information on the Company’s properties, see “Operating Leases” in Note 12 of the Notes to the Consolidated Financial Statements in Item 14 below. For more information about the Company’s plans to open additional stores, see “Description of Operations” in Item 1 above.

ITEM 3. LEGAL PROCEEDINGS

The Company presently is engaged in various legal actions that 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, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the Company during the quarter ended August 3, 2002.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company’s Class A Common Stock and Class B Common Stock are currently traded on the New York Stock Exchange under the symbols NMG.A and NMG.B, respectively. As of September 5, 2002, there were 9,902 record holders of the Company’s Class A Common Stock and 3,596 record holders of the Company’s Class B Common Stock. Beginning with the third quarter of fiscal year 1995, the Company eliminated the quarterly cash dividend on its common stock. The Company currently does not intend to resume paying cash dividends on its common stock.

The following table indicates the quarterly stock price ranges for the past two fiscal years:

	NMG.A				NMG.B
Fiscal Year 2002
Quarter	High		Low		High		Low
First	$	33.25	$	23.76	$	31.75	$	22.85
Second		34.05		25.95		31.95		24.80
Third		38.95		32.50		36.87		30.80
Fourth	$	39.55	$	24.88	$	37.33	$	22.65

	NMG.A				NMG.B
Fiscal Year 2001
Quarter	High		Low		High		Low
First	$	37.63	$	29.69	$	35.13	$	26.75
Second		39.31		29.88		37.13		27.81
Third		40.18		29.21		37.10		26.80
Fourth	$	40.10	$	31.00	$	36.50	$	29.25

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data is qualified in its entirety by the Consolidated Financial Statements of the Company (and the related Notes thereto) contained elsewhere in this Annual Report on Form 10-K and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The operating results and financial position data for each of the fiscal years ended August 3, 2002, July 28, 2001, July 29, 2000, July 31, 1999 and August 1, 1998, have been derived from the Company’s audited Consolidated Financial Statements. Additionally, fiscal year 2002 includes fifty-three weeks of operations while the other years presented consist of fifty-two weeks of operations.

	Years Ended
(in millions, except	August 3,			July 28,			July 29,		July 31,		August 1,
per share data)	2002			2001			2000		1999		1998
OPERATING RESULTS
Revenues	$	2,948.3		$	3,015.5		$	2,926.4	$	2,580.4	$	2,337.7
Gross margin		951.0			994.6			1,008.1		831.6		769.2
Operating earnings		177.7	(1)		193.6	(2)		248.4		182.6		198.6
Earnings before income taxes and minority interest		162.2			178.4			223.0		157.6		176.7
Net earnings	$	99.6		$	107.5		$	134.0	$	94.9	$	106.0
Earnings per share:
Basic	$	2.10		$	2.28		$	2.77	$	1.93	$	2.13
Diluted	$	2.08		$	2.26		$	2.75	$	1.93	$	2.12

	August 3,		July 28,		July 29,		July 31,		August 1,
	2002		2001		2000		1999		1998
FINANCIAL POSITION
Cash and equivalents	$	178.6	$	97.3	$	175.4	$	29.2	$	56.6
Merchandise inventories		656.8		648.9		575.3		545.3		499.1
Total current assets		1,127.6		1,063.3		1,069.3		841.8		833.4
Property and equipment, net		653.2		586.6		539.7		513.4		479.3
Total assets		1,907.5		1,785.9		1,762.1		1,518.9		1,437.8
Current liabilities		518.5		497.6		492.3		396.2		388.3
Long-term liabilities	$	327.2	$	338.9	$	435.1	$	381.3	$	392.8

(1)	For fiscal year 2002, operating earnings reflect 1) a $16.6 million gain from the change in vacation policy made by the Company in the third quarter and 2) $13.2 million of impairment and other charges, related primarily to the impairment of certain long-lived assets.
(2)	For fiscal year 2001, operating earnings reflect a $9.8 million impairment charge related to the Company’s investment in a third-party internet retailer.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS
Matters discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements, including statements regarding the Company’s objectives and expectations concerning, among other things, its:

• productivity and profitability;

• merchandising and marketing strategies;

• inventory performance;

• store renovation and expansion plans;

• capital expenditures;

• liquidity; and

• development of its management information systems.

These forward-looking statements are made based on management’s expectations and beliefs concerning future events, as well as on assumptions made by and data currently available to management. Therefore, these forward- looking statements involve a number of risks and uncertainties and are not guarantees of future performance. A variety of factors could cause the Company’s actual results to differ materially from the anticipated or expected results expressed in these forward-looking statements. Factors that could affect future performance include, but are not limited, to:

• current political and economic conditions;

• changes in political and economic conditions that may occur in the future;

• continued terrorist activities in the United States, as well as the potential escalation in the international war on terrorism;

• changes in consumer confidence resulting in a reduction of discretionary spending on goods that are, or are perceived to be, “luxuries”;

• changes in demographic or retail environments;

• changes in consumer preferences or fashion trends;

• competitive responses to the Company’s marketing, merchandising and promotional efforts and/or inventory liquidations by vendors or other retailers;

• seasonality of the retail business;

• adverse weather conditions, particularly during peak selling seasons;

• delays in anticipated store openings;

• natural disasters;

• significant increases in paper, printing and postage costs;

• litigation that may have an adverse effect on the financial results or reputation of the Company;

• changes in the Company’s relationships with designers, vendors and other sources of merchandise;

• the financial viability of the Company’s designers, vendors and other sources of merchandise;

• changes in foreign currency exchange rates;

• changes in the Company’s relationships with certain of its key sales associates;

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• changes in key personnel who have been hired or retained by the Company;

• changes in the Company’s proprietary credit card arrangement that adversely impact its ability to provide consumer credit; or

• changes in government or regulatory requirements increasing the Company’s cost of operations.

The Company undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statements to reflect subsequent events, new information or future circumstances.

CRITICAL ACCOUNTING POLICIES
The Company’s accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements. As disclosed in Note 1 of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, actual results will differ from those estimates. Management makes adjustments to its assumptions and judgments when facts and circumstances dictate. The amounts currently estimated by the Company are subject to change if different assumptions as to the outcome of future events were made. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Management of the Company believes the following critical accounting policies, among others, encompass the more significant judgments and estimates used in preparation of its Consolidated Financial Statements.

Revenue recognition. Revenues from the Company’s retail operations are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues from the Company’s direct marketing operations are recognized when the merchandise is delivered to the customer. Both retail and direct marketing revenues are reduced by a provision for anticipated returns primarily based on the Company’s historical trends related to returns by its customers.

Cost of sales and merchandise inventories. The Company utilizes the retail inventory method of accounting for substantially all of its merchandise inventories. Merchandise inventories are stated at the lower of cost, determined using the first-in, first-out basis, or market using the retail inventory method. The retail inventory method is widely used in the retail industry due to its practicality.

Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of inventories. The cost of the inventory reflected on the consolidated balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale.

The areas requiring significant management judgment related to the valuation of the Company’s inventories include 1) setting the original retail value for the merchandise held for sale, 2) recognizing merchandise for which the customer’s perception of value has declined and appropriately marking the retail value of the merchandise down to the perceived value and 3) estimating the shrinkage that has occurred between physical inventory counts. These judgments and estimates, coupled with the averaging processes within the retail method can, under certain circumstances, produce varying financial results. Factors that can lead to different financial results include 1) setting original retail values for merchandise held for sale incorrectly, 2) failure to identify a decline in the perceived value of inventories and to process the appropriate retail value markdowns and 3) overly optimistic or conservative shrinkage estimates. The Company believes it has the appropriate merchandise valuation and pricing controls in place to minimize the risk that its inventory values would be materially misstated.

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Income and expenses related to securitization. Pursuant to applicable accounting principles, the Company’s current credit card securitization program qualifies for sale treatment related to those receivables transferred to third-party investors (Sold Interests). As a result, the Company recognizes a gain or loss equal to the difference between the consideration received for the Sold Interests and the allocated cost basis of the receivables sold. The portion of the credit card receivables that continue to be held by the Company (Retained Interests) are shown as “Undivided interests in NMG Credit Card Trust” on the Company’s consolidated balance sheet.

Assumptions related to the future performance of the Company’s credit card portfolio have a significant impact on the calculation of the gain or loss on the sale of the Sold Interests, the carrying values of Retained Interests and the recognition of income on the Retained Interests. Determining the fair value of the Sold and Retained Interests requires estimates related to: 1) the gross future finance charge collections to be generated by the total portfolio; 2) future finance charge collections allocable to the Sold Interests; 3) future credit losses and 4) discount rates. Items that were considered in making judgments and preparing estimates and factors that might lead to future variations in consolidated financial results in the event of differences between actual and estimated results are as follows:

• Finance charge income is billed at a contractual rate monthly and warrants little judgment or estimation. The expected credit card customer payment rate is based on historical payment rates adjusted for recent payment rate trends. To the extent credit card customers pay off their balances sooner than estimated, the income earned by the Company is reduced. Conversely, should the credit card customers pay off balances over a longer period of time, the income earned by the Company may increase.

• The finance charge collections are estimated using the current portfolio yield experience and estimated short-term interest rates over the estimated life of the receivables. To the extent current portfolio yield experience decreases and short-term interest rates increase beyond the estimates, the finance charge collections may be reduced.

• Credit losses expected from the portfolio are based on historical write-off rates, adjusted for recent write-off trends and increased or decreased to reflect management’s outlook of future trends. To the extent there are positive or negative factors affecting the credit card customers’ ability or intent to pay off the outstanding balance (e.g., level of discretionary income, level of consumer debt, bankruptcy legislation), the actual bad debts to be realized could exceed or be less than the amounts estimated. Credit losses in excess of those embedded in the estimates reduce the income earned by the Company. Conversely, credit losses less than those embedded increase the income earned by the Company.

• The assumed cash flow discount rates are based on prevailing market interest rates and management’s estimate of an appropriate risk premium for each respective Retained Interest. The actual discount rates used are subject to interest rate fluctuations.

The most sensitive assumptions in calculating the fair values are the credit card customers’ payment rate, the estimate for credit losses, relative interest spreads and the assumed cash flow discount rates.

Impairment of long-lived assets. In evaluating the fair value and future benefits of its long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the estimated undiscounted future cash flows, the Company reduces the carrying value to its fair value, which is generally calculated using discounted future cash flows. Various factors, including future sales growth and profit margins, are included in this analysis. To the extent these future projections or the Company’s strategies change, the conclusion regarding impairment may differ from the Company’s current estimates.

Advertising and catalogue costs. The Company’s direct response advertising relates primarily to the production, printing and distribution of catalogues. These costs are amortized during the periods the expected revenues from such catalogues are expected to be generated, generally three to six months. All other advertising costs, including costs incurred by the Company’s online operations related to website design and advertising, are expensed in the period incurred.

9

Loyalty program. The Company maintains customer loyalty programs in which customers receive points annually for qualifying purchases. Upon reaching certain levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed no later than ninety days subsequent to the end of the annual program period. The Company accrues the estimated costs of the anticipated redemptions of the points earned by its customers at the time of the initial customer purchase and charges such costs to selling, general and administrative expense. The estimates of the costs associated with the loyalty programs require the Company to make assumptions related to customer purchasing levels, redemption rates and costs of awards to be chosen by its customers.

Income taxes. The Company does business in various jurisdictions that impose income taxes. Management determines the aggregate amount of income tax expense to accrue and the amount currently payable based upon the tax statutes of each jurisdiction. This process involves adjusting income determined using generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities are reflected on the Company’s balance sheet for temporary differences that will reverse in subsequent years. If different judgments had been made, the Company’s tax expense, assets and liabilities could have been different.

Other estimates. Management uses estimates in the determination of the required accruals for general liability, workers’ compensation and health insurance as well as short-term disability, pension and postretirement health care benefits. These estimates are based upon examination of historical trends, industry claims experience and, in certain cases, calculations performed by third-party experts. Projected claims information may change in the future and may require management to revise these accruals.

The Company is periodically involved in various legal actions arising in the normal course of business. Management is required to assess the probability of any adverse judgments as well as the potential range of any losses. Management determines the required accruals after a careful review of the facts of each legal action. The Company’s accruals may change in the future due to new developments in these matters.

OVERVIEW

The Company, together with its operating divisions and subsidiaries, is a high-end specialty retailer. The Company’s operations include the Specialty Retail Stores segment and the Direct Marketing segment.

The Specialty Retail Stores segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. Approximately 83 percent of the Company’s revenues were generated by its Specialty Retail Stores in fiscal year 2002. The Company opened new stores in Palm Beach, Florida in November 2000 and Tampa, Florida in September 2001 and opened a replacement store in Plano, Texas in August 2001. In September 2002, the Company opened a new store in Coral Gables, Florida and in October 2002, the Company expects to open a new store in Orlando, Florida. The Company currently plans to open two new Neiman Marcus stores, one in fiscal year 2005 and one in fiscal year 2006. In fiscal year 2002, average store revenues per gross square foot were $481, down from $511 for fiscal year 2001. The Company has consistently focused on renovating and modernizing its stores to improve productivity. The Company’s strategy is to improve average transaction amounts and comparable revenue growth with carefully edited assortments and marketing and customer loyalty programs that are designed to increase its customers’ awareness of merchandise offerings in its stores.

The Direct Marketing segment conducts both print catalogue and online operations under the Neiman Marcus, Horchow and Chef’s Catalogue brand names.

In November 1998, the Company acquired a 51 percent interest in Gurwitch Bristow Products, LLC, which distributes and markets the Laura Mercier cosmetic line, for $6.7 million. In February 1999, the Company acquired a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories, for $33.6 million.

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The Company’s fiscal year ends on the Saturday closest to July 31. All references to fiscal year 2002 relate to the fifty-three weeks ended August 3, 2002; all references to fiscal year 2001 relate to the fifty-two weeks ended July 28, 2001 and all references to fiscal year 2000 relate to the fifty-two weeks ended July 29, 2000.

The following table sets forth certain items expressed as percentages of net sales for the periods indicated.

	Years Ended
	August 3,			July 28,			July 29,
	2002			2001			2000
Revenues		100.0	%		100.0	%		100.0	%
Cost of goods sold including buying and occupancy costs		67.7			67.0			65.5
Selling, general and administrative expenses		26.3			26.2			26.0
Effect of change in vacation policy		(0.5	)		—			—
Impairment and other charges		0.5			0.4			—
Operating earnings		6.0			6.4			8.5
Interest expense		0.5			0.5			0.9
Earnings before income taxes and minority interest		5.5			5.9			7.6
Income taxes		2.1			2.2			2.9
Earnings before minority interest		3.4			3.7			4.7
Minority interest in net earnings of subsidiaries		—			(0.1	)		(0.1	)
Net earnings		3.4	%		3.6	%		4.6	%

Set forth in the following table is certain summary information with respect to the Company’s operations for the most recent three fiscal years.

OPERATING RESULTS

	Years Ended
	August 3,			July 28,			July 29,
(dollars in millions)	2002			2001			2000
REVENUES
Specialty Retail Stores	$	2,433.2		$	2,504.8		$	2,458.1
Direct Marketing (1)		444.0			437.9			405.5
Other (2)		71.1			72.8			62.8
Total	$	2,948.3		$	3,015.5		$	2,926.4
SEGMENT OPERATING EARNINGS (3)
Specialty Retail Stores	$	170.5		$	201.0		$	248.5
Direct Marketing (1)		22.8			11.1			1.7
Other (2)		(19.0	)		(8.7	)		(1.8	)
Total	$	174.3		$	203.4		$	248.4
OPERATING PROFIT MARGIN
Specialty Retail Stores		7.0	%		8.0	%		10.1	%
Direct Marketing (1)		5.1	%		2.5	%		0.4	%
Total		6.0	%		6.4	%		8.5	%

(1)	Direct Marketing includes the operations of Neiman Marcus Direct and the Company’s online operations. During fiscal year 2002, the Company reclassified its Neiman Marcus Online operations to the Direct Marketing segment from Other. Prior year amounts have been reclassified to conform to the current year presentation.
	(notes continued on following page)

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(2)

Other includes the operations of Kate Spade LLC, Gurwitch Bristow Products, LLC and corporate expenses.

(3)

Segment operating earnings for fiscal year 2002 exclude 1) a gain of $16.6 million from the change in vacation policy made by the Company in the third quarter and 2) $13.2 million of impairment and other charges, related primarily to the impairment of certain long-lived assets. Segment operating earnings for fiscal year 2001 exclude a $9.8 million impairment charge related to the Company’s investment in a third-party internet retailer.

FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

Revenues. Revenues for fiscal year 2002 of $2.95 billion decreased $67.2 million, or 2.2 percent, from $3.02 billion in the prior year. Total revenues for fiscal year 2002 included sales of approximately $36.6 million for the fifty-third week of fiscal 2002.

The decrease in revenues in fiscal year 2002 was primarily attributable to a 4.6 percent decrease in comparable revenues for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001. The comparable sales decrease was offset, in part, by the revenues from one new Neiman Marcus store in Tampa, Florida and one new clearance store in Atlanta, Georgia, each of which was opened during the first quarter of fiscal year 2002. In addition, the Company opened a new clearance store in Grapevine, Texas in April 2002.

Comparable revenues for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001 decreased 5.3 percent for Specialty Retail Stores, offset, in part by an increase of 0.2 percent for Direct Marketing. The Company believes the decline in comparable revenues for Specialty Retail Stores for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001 was due, in part, to 1) the elimination of certain promotional events conducted in fiscal year 2001 in order to lower inventory levels, 2) general economic conditions, 3) the softening in the retail industry that began in fiscal year 2001 and 4) a decrease in retail spending after the events of September 11, 2001. The net increase in comparable revenues for Direct Marketing reflects an increase in revenues from the Company’s online operations offset, in part, by a decline in revenues from the Direct Marketing catalogue operations. As to the Direct Marketing catalogue operations, the Company believes the decrease in its comparable revenues for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001 was impacted by 1) the planned reduction in circulation schedules, 2) the elimination of certain catalogues, 3) general economic conditions and 4) a decrease in retail spending after the events of September 11, 2001. Comparable revenues for the Brand Development companies declined in fiscal year 2002 with a decrease for Kate Spade LLC being offset, in part, by an increase for Gurwitch Bristow Products, LLC.

Gross margin. Gross margin was 32.3 percent of revenues for fiscal year 2002 compared to 33.0 percent for fiscal year 2001. The decline in gross margin was primarily due to increases, as a percentage of revenues, in buying and occupancy costs and markdowns offset, in part, by favorable inventory count results in the fourth quarter of fiscal 2002.

A significant portion of the Company’s buying and occupancy costs are fixed in nature. As a result, buying and occupancy costs increased as a percentage of revenues for fiscal year 2002 compared to fiscal year 2001 as a result of the decline in revenues. Additionally, buying and occupancy costs as a percentage of revenues were higher for new stores than for mature stores.

Markdowns increased, as a percentage of revenues, by approximately 0.6 percent in fiscal year 2002 compared to fiscal year 2001. The Company incurred a higher level of markdowns in the first and second quarters of fiscal year 2002 than in the corresponding periods in the prior year in connection with additional and more aggressive promotional events. These fiscal year 2002 events were necessary to clear inventories in response to declines in retail sales. However, markdowns were lower in the third quarter and fourth quarter of fiscal year 2002 than in the same periods in fiscal year 2001. In the third and fourth quarters of fiscal year 2002, the Company was able to eliminate certain markdowns taken in connection with promotional events that were held in the prior year to lower inventory levels in response to the lower-than-anticipated sales levels achieved in the third and fourth quarters of fiscal year 2001.

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Selling, general and administrative expenses.    Selling, general and administrative expenses (SG&A) were 26.3 percent of revenues in fiscal year 2002 compared to 26.2 percent of revenues in fiscal year 2001. The increase in SG&A as a percentage of revenues in the current year was primarily due to 1) higher health care and various tax expenses, 2) a higher ratio of SG&A to revenues for the Company’s less mature stores, 3) an increased level of incentive compensation and 4) higher preopening costs.

The increases in SG&A were partially offset by 1) a lower level of SG&A as a percentage of revenues for the Company’s more mature stores due, in part, to various cost reduction strategies initiated by the Company, 2) lower catalogue production and circulation costs due to the elimination of certain unprofitable catalogues by Direct Marketing and 3) higher income received in connection with the Company’s undivided interests in the NMG Credit Card Master Trust as a result of a decline in interest rates.

Segment operating earnings.    Operating earnings for the Specialty Retail Stores segment were $170.5 million in fiscal year 2002 compared to $201.0 million in fiscal year 2001. This decrease was primarily the result of lower sales and an increase in both buying and occupancy expenses and SG&A expenses as a percentage of revenues derived from the Company’s less mature stores in fiscal 2002. Operating earnings for Direct Marketing increased to $22.8 million in fiscal year 2002 from $11.1 million in fiscal year 2001 primarily as a result of an improvement in the operating performance of the Company’s online operations and the elimination of certain unprofitable catalogues. Operating losses reported as Other were $19.0 million compared to losses of $8.7 million in fiscal 2001. The increase in loss related to Other was primarily due to lower earnings for the Brand Development companies as a result of a decline in earnings at Kate Spade LLC and increased expenses for professional fees, medical expenses and incentive compensation.

Effect of change in vacation policy.    During the third quarter of fiscal year 2002, the Company terminated its prior vacation plan and the Board of Directors of the Company approved a new policy related to vacation pay for its employees. The new policy was communicated to employees during the third quarter of fiscal 2002. Pursuant to the new policy, which was effective as of April 28, 2002, eligible employees earn vacation pay ratably over the course of the year in which the services are rendered.

Pursuant to the previous plan, eligible employees received an annual vacation grant at the beginning of each service year. Such grants were made in anticipation of future service; however, eligible employees were allowed to take vacation time to the extent of the vacation grant as of the grant date. Further, in the event of termination, an employee was entitled to receive cash compensation to the extent of the untaken balance of the annual grant. As a result, the Company recorded vacation expense ratably over the twelve months prior to each annual grant such that the liability for the annual grant was fully recorded as of the grant date.

With the termination of the prior vacation plan, the previously recorded vacation liability of $16.6 million, which amount represented the vacation time that would have been granted to employees on April 28, 2002 pursuant to the previous plan, was eliminated and credited to operating earnings in the third quarter of fiscal year 2002. The new policy will not have a material impact on the amount of vacation expense recorded by the Company on an annual basis in the future.

Impairment and other charges.    In the fourth quarter of fiscal year 2002, the Company recorded a $3.1 million pretax impairment charge. The charge related to the write-down of the net carrying values of the fixed assets of three Kate Spade LLC stores to estimated fair value.

In the third quarter of fiscal year 2002, the Company recorded an $8.2 million pretax impairment charge. The charge related to 1) the write-off of the remaining net carrying value of its cost method investment in WeddingChannel.com, Inc. in light of its continued operating losses, 2) the write-down of the carrying values of the fixed assets of two Neiman Marcus Galleries stores to estimated fair value and 3) the accrual of the estimated loss associated with the abandonment of excess warehouse space held by the Company pursuant to a long-term operating lease.

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In the second quarter of fiscal year 2002, the Company incurred expenses of approximately $2.0 million in connection with certain cost reduction strategies. These expenses consisted primarily of severance costs and lease termination expenses incurred in connection with the closing of the Neiman Marcus Galleries store in Seattle, Washington.

Interest expense, net.    Interest expense was $15.4 million for fiscal year 2002 compared to $15.2 million for fiscal year 2001. The increase in net interest expense of $0.2 million was primarily due to increased interest costs associated with borrowings on the Company’s Revolving Credit Facility in the second quarter of fiscal year 2002 and by lower investment interest income offset, in part, by an increase in capitalized interest charges associated with store development.

Income taxes.    The Company’s effective income tax rate was 38 percent in both fiscal year 2002 and fiscal year 2001.

FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000

Revenues. Revenues in fiscal year 2001 increased $89.2 million to $3.02 billion from $2.93 billion in fiscal year 2000. The 3.0 percent increase was primarily attributable to increased comparable revenues and revenue generated by one new store added during the fiscal year. Comparable revenues for fiscal year 2001 increased 1.2 percent for Specialty Retail Stores and 8.0 percent for Direct Marketing.

The Company began to experience a decline in its comparable revenues beginning in the second quarter of fiscal year 2001. Comparable revenues increased by 10.4 percent in the first quarter, increased by 1.7 percent in the second quarter, decreased by 1.4 percent in the third quarter and decreased by 1.5 percent in the fourth quarter. The Company believes the comparable revenue decreases were due primarily to economic conditions and a general softening in the retail industry.

Gross margin.    Gross margin was 33.0 percent of revenues for fiscal year 2001 compared to 34.4 percent of revenues for fiscal year 2000. As a percentage of revenues, the decline in gross margin was primarily due to higher inventory markdowns taken in the fourth quarter of fiscal year 2001 as a result of a general decline in retail sales.

Selling, general and administrative expenses.    As a percentage of revenues, SG&A increased to 26.2 percent for fiscal year 2001 from 26.0 percent for fiscal year 2000. The increase in SG&A as a percentage of revenues was primarily the result of higher marketing costs associated with the selling of markdown inventories, transition costs of approximately $3.0 million related to the corporate headquarters relocation from Chestnut Hill, Massachusetts to Dallas, Texas and the deleveraging of the fixed cost component of SG&A on lower sales in the third and fourth quarters of fiscal 2001. These increases were partially offset by lower incentive compensation in fiscal year 2001 and lower costs incurred in connection with the Company’s online operations conducted by NeimanMarcus.com. NeimanMarcus.com was launched in October 1999.

Segment operating earnings.    Operating earnings were $193.6 million for fiscal year 2001 compared to $248.4 million for fiscal year 2000. Total operating earnings, excluding a $9.8 million impairment charge related to an investment in a third party internet retailer, were $203.4 million in fiscal year 2001.

Operating earnings for Specialty Retail Stores were $201.0 million in fiscal year 2001 compared to $248.5 million in fiscal year 2000. This decrease in operating earnings for Specialty Retail Stores was primarily due to higher inventory markdowns at both Neiman Marcus and Bergdorf Goodman stores in fiscal year 2001. Operating earnings for Direct Marketing were increased to $11.1 million in fiscal year 2001 from $1.7 million in fiscal year 2000 primarily as a result of an improvement in the operating performance of the Company’s online operations.

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Impairment of investment in third-party internet retailer.    During the fourth quarter of fiscal year 2001, the Company recorded an impairment charge of $9.8 million, which represents the Company’s adjustment to state the carrying value of its cost method investment in WeddingChannel.com, Inc. at its estimated fair value. WeddingChannel.com, Inc. is a bridal registry service that supports the Company’s strategic initiative to expand its gift business. At July 28, 2001, the carrying value of the Company’s investment in WeddingChannel.com, Inc. was approximately $3.0 million.

Interest expense, net.    Net interest expense was $15.2 million for fiscal year 2001 compared to $25.4 million for fiscal year 2000. The decrease of $10.2 million was principally due to lower average borrowings and reduced interest rates. In the prior year, the Company had higher average borrowings which resulted primarily from borrowings incurred to repay the Company’s securitization upon maturities during the second half of fiscal year 2000.

Income taxes.    The Company’s effective income tax rate was 38 percent in both fiscal year 2001 and fiscal year 2000.

QUARTERLY DATA AND SEASONALITY

The specialty retail industry is seasonal in nature and a disproportionately higher level of the Company’s revenues and earnings are generated in the fall and holiday selling seasons. The Company’s working capital requirements and inventories increase substantially in the first quarter in anticipation of the holiday selling season.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash requirements consist principally of funding inventory growth, capital expenditures for new store growth and renovations, upgrading its management information systems and debt service. As of August 3, 2002, the Company had cash and equivalents of $178.6 million. The Company’s working capital requirements fluctuate during the year, increasing substantially during the fall season as a result of higher planned seasonal inventory levels.

Net cash provided by operating activities was $212.4 million for fiscal year 2002 and $131.9 million for fiscal year 2001. The net cash provided by operating activities in fiscal year 2002 increased from the prior year primarily due to a decline in the growth in the Company’s investment in inventories and increases in accounts payable and accrued liabilities.

Net cash used for investing activities was $137.1 million for fiscal year 2002 and $129.1 million for fiscal year 2001. The net cash used for investing activities increased in fiscal year 2002 principally as a result of increased capital expenditures.

The Company’s capital expenditures in fiscal year 2002 primarily included costs related to the construction of new stores and the renovation of existing stores. Capital expenditures were $149.2 million in fiscal year 2002, $120.0 million in fiscal year 2001 and $89.0 million in fiscal year 2000. During fiscal year 2002, the Company invested approximately $46.3 million to renovate its existing stores. In fiscal year 2002, major projects included store renovations in San Francisco, California; Las Vegas, Nevada; Newport Beach, California and the construction of new stores in Orlando, Florida and Coral Gables, Florida. The Company currently projects capital expenditures for fiscal year 2003 to be approximately $120 million to $130 million primarily for new stores, store renovations and upgrades to information systems.

Net cash provided by financing activities was $6.1 million in fiscal year 2002. Net cash used for financing activities was $80.9 million in fiscal year 2001. In fiscal year 2002, the Company borrowed and repaid $130 million on the Company’s revolving credit facility. During fiscal year 2001, the Company repaid $80 million of borrowings on the Company’s revolving credit facility borrowed in the prior year.

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Effective August 26, 2002, the Company entered into a three-year unsecured revolving credit agreement (the Credit Agreement) with a group of eleven banks that provides for borrowings of up to $300 million. The rate of interest payable is based on one of two pricing options selected by the Company, the level of outstanding borrowings and rating of the Company’s senior unsecured long-term debt by Moody’s and Standard & Poor’s. The pricing options available to the Company are based on either LIBOR plus 0.525 percent to 1.625 percent or a base rate, based on either the Prime Rate or Federal Funds Rate, plus up to .625 percent. Changes in the ratings of the senior unsecured long-term debt do not represent an event of default, accelerate repayment of any outstanding borrowings or alter any other terms of the Credit Agreement. The Credit Agreement contains covenants which require the Company to maintain certain leverage and fixed charge ratios. The Credit Agreement replaces a previous $450 million unsecured credit facility. At August 3, 2002, the Company had no borrowings outstanding under its previous unsecured credit facility.

Pursuant to a revolving credit card securitization program that begins to expire in September 2005, the Company sold substantially all of the Company’s credit card receivables through a subsidiary to the NMG Credit Card Master Trust in exchange for certificates representing undivided interests in such receivables. The Class A Certificates, which have an aggregate principal value of $225 million, were sold to investors. The holders of the Class A Certificates are entitled to monthly interest distributions at the contractually-defined rate of one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable from the finance charge income generated by the credit card receivables held by the Trust.

In May 1998, the Company issued $250 million of unsecured senior notes and debentures to the public. The debt is comprised of $125 million of 6.65 percent senior notes, due 2008 and $125 million of 7.125 percent senior debentures, due 2028. Interest on the securities is payable semiannually. Based upon quoted prices, the fair value of the Company’s senior notes and debentures was $249.9 million as of August 3, 2002 and $220.6 million as of July 28, 2001.

The following tables summarize significant contractual obligations of the Company as of August 3, 2002:

		Amount of Commitment Expiration Period
										Fiscal Year
				Fiscal Year		Fiscal Years		Fiscal Years		2008 and
(in thousands)		Total		2003		2004 - 2005		2006 - 2007		Beyond
Contractual obligations
	Senior notes	$	125,000	$	—	$	—	$	—	$	125,000
	Senior debentures		125,000		—		—		—		125,000
	Operating leases		634,832		40,002		75,461		64,714		454,655
	NMG Credit Card Master Trust Class A Certificates		225,000		—		150,000		75,000		—
		$	1,109,832	$	40,002	$	225,461	$	139,714	$	704,655

			Amount of Commitment Expiration Period
											Fiscal Year
					Fiscal Year		Fiscal Years		Fiscal Years		2008 and
(in thousands)			Total		2003		2004 - 2005		2006 - 2007		Beyond
Other commercial commitments
	Revolving credit facility:
		Outstanding commitment at August 3, 2002	$	450,000	$	450,000	$	—	$	—	$	—
		Replacement facility executed August 26, 2002		300,000		—		—		300,000		—
	Letters of credit			8,663		1,783		6,880		—		—
			$	758,663	$	451,783	$	6,880	$	300,000	$	—

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As of August 3, 2002, the Company may repurchase up to 1,924,600 shares of common stock pursuant to a prior authorization of the Board of Directors.

Management believes that operating cash flows, currently available vendor financing and amounts available pursuant to its $300 million revolving credit agreement and its credit card securitization program should be sufficient to fund the Company’s operations, debt service and currently anticipated capital expenditure requirements through the end of fiscal year 2003.

IMPACT OF INFLATION

The Company believes changes in revenues and net earnings that have resulted from inflation and changing prices have not been material during the periods presented. The Company adjusts selling prices to maintain certain profit levels and will continue to do so as economic conditions permit. There is no assurance, however, that inflation will not materially affect the Company in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

During June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142, upon adoption, eliminates goodwill amortization and the amortization of other indefinite-lived intangible assets. However, goodwill and indefinite-lived intangibles will be subject to at least an annual assessment for impairment by applying a fair value-based test. The Company will adopt the provisions of SFAS No. 142 as of the beginning of fiscal year 2003. The Company is in the process of finalizing the valuations of its intangible assets established in connection with prior acquisitions. Based upon its review of the procedures and preliminary valuation results of its third party appraisal experts, the Company anticipates recording a pretax charge of approximately $25 to $30 million in the first quarter of fiscal year 2003 as a result of implementing the fair value model of the new accounting standard.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of” and Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale, resolves implementation issues related to Statement No. 121 and expands the reporting of discontinued operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not expect the implementation of SFAS No. 144 to have a material impact on the Company’s consolidated financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company’s financial instruments represents the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. The Company does not enter into derivative financial instruments for trading purposes.

The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities. The Company is exposed to interest rate risk through its securitization and borrowing activities, which are described in Item 14 below.

Future borrowings under the Company’s Credit Agreement, to the extent of outstanding borrowings, would be affected by interest rate changes. As of August 3, 2002, the Company had no borrowings outstanding under this facility. The Company does not believe that a change of 100 basis points in interest rates would have a material effect on the Company’s consolidated financial condition.

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The Company’s outstanding long-term debt as of August 3, 2002 is at fixed interest rates and would not be affected by interest rate changes. Based upon quoted prices, the fair value of the Company’s senior notes and debentures was $249.9 million as of August 3, 2002 and $220.6 million as of July 28, 2001.

Pursuant to a revolving credit card securitization program that begins to expire in September 2005, the Company sold substantially all of the Company’s credit card receivables through a subsidiary to the NMG Credit Card Master Trust (the Trust) in exchange for certificates representing undivided interests in such receivables. The Class A Certificates, which have an aggregate principal value of $225 million, were sold to investors. The holders of the Class A Certificates are entitled to monthly interest distributions from the Trust at the contractually-defined rate of one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable from the finance charge income generated by the credit card receivables held by the Trust. At August 3, 2002, the Company estimates a 100 basis point increase in LIBOR would result in an approximate annual decrease of $2.25 million in the income to the Company from its Retained Interests in the credit card portfolio held by the Trust.

The Company uses derivative financial instruments to manage foreign currency risk related to the procurement of merchandise inventories from foreign sources. The Company enters into foreign currency contracts denominated in the euro and British pound. The Company had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $32.7 million as of August 3, 2002 and approximately $46.2 million as of July 28, 2001. The market risk inherent in these instruments was not material to the Company’s consolidated financial condition, results of operations, or cash flows in fiscal year 2002, fiscal year 2001 or fiscal year 2000.

Based on a review of the Company’s financial instruments outstanding at August 3, 2002 that are sensitive to market risks, the Company has determined that there was no material market risk exposure to the Company’s consolidated financial position, results of operations, or cash flows as of such date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Consolidated Financial Statements of the Company and supplementary data are included as pages F-1 through F-29 at the end of this Annual Report on Form 10-K:

	Page
Index	Number
Independent Auditors’ Report		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Earnings		F-4
Consolidated Statements of Cash Flows		F-5
Consolidated Statements of Shareholders’ Equity		F-6
Notes to Consolidated Financial Statements		F-7

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Registrant

The information set forth under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

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Executive Officers of the Registrant

Set forth below are the names, ages at October 2, 2002 and principal occupations for the last five years of each executive officer of the Company. All such persons have been elected to serve until the next annual election of officers or until their earlier resignation or removal.

Burton M. Tansky — 64
         President and Chief Executive Officer since May 2001. Mr. Tansky served as President and Chief Operating Officer of the Company from December 1998 until May 2001; he served as Executive Vice President of the Company from February 1998 until December 1998 and served as Chairman and Chief Executive Officer of Neiman Marcus Stores from May 1994 until February 1998. He also served as Chairman and Chief Executive Officer of Bergdorf Goodman from 1990 until 1994.

James E. Skinner — 49
         Senior Vice President and Chief Financial Officer since June 28, 2001. Prior to joining the Company, Mr. Skinner served as Senior Vice President and Chief Financial Officer of Caprock Communications Corp. from August 2000 through December 2000; and served as Executive Vice President, Chief Financial Officer and Treasurer for CompUSA Inc. from 1994 until 2000.

Nelson A. Bangs — 49
         Senior Vice President and General Counsel since April 17, 2001. Prior to joining the Company, Mr. Bangs engaged in a private consulting and law practice from January 1999 to April 2001; served as Senior Vice President and General Counsel of Pillowtex Corporation from April 1998 until January 1999; and served as Senior Vice President, General Counsel and Secretary of Dr Pepper/Seven Up, Inc. (and predecessors) prior thereto.

Marita O’Dea — 53
         Vice President, Human Resources since June 19, 2001. Also, Ms. O’Dea has served as Senior Vice President of Human Resources of Neiman Marcus Stores since 1995.

Gerald A. Sampson — 61
         President and Chief Operating Officer of Neiman Marcus Stores for the previous nine years.

Ronald L. Frasch — 53
         Chairman and Chief Executive Officer of Bergdorf Goodman since April 2000. Prior to joining the Company Mr. Frasch served as President of GFT, USA, a manufacturer of designer apparel, from July 1996 until December 1999; and served as President and Chief Executive Officer of Escada USA prior thereto.

Karen W. Katz — 45
         President and Chief Executive Officer of Neiman Marcus Direct since May 2000. Ms. Katz served as Executive Vice President of Neiman Marcus Stores from February 1998 until May 2000; served as Senior Vice President and Director of Neiman Marcus Stores from September 1996 until February 1998; and served as Vice President and General Manager of the Dallas NorthPark Neiman Marcus store prior thereto.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the heading “Executive and Director Compensation” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the heading “Stock Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

19

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the headings “Certain Relationships and Transactions” and “Executive Compensation – Compensation Committee Interlocks and Insider Participation” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         The following documents are filed as part of this report.

1. Financial Statements

         The list of financial statements required by this item is set forth in Item 8.

2. Index to Financial Statement Schedules

	Page
	Number
Independent Auditors’ Report		F-2
Schedule II — Valuation and Qualifying Accounts and Reserves		26

All other financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable.

3. Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended August 3, 2002.

20

4. Exhibits

Exhibit
No.	Description
3.1(a)	Restated Certificate of Incorporation of the Company, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 26, 2002.
3.1(b)	Certificates of Designation with respect to Series A Junior Participating Preferred Stock, Series B Junior Participating Preferred Stock and Series C Junior Participating Preferred Stock, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 1999.
3.2	Bylaws of the Company. (1)
4.1	Indenture, dated as of May 27, 1998, between the Company and The Bank of New York, as trustee (the “Indenture”), incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
4.2	Form of 6.65 percent Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
4.3	Form of 7.125 percent Senior Note Due 2028, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
4.4	Amended and Restated Rights Agreement, dated as of August 8, 2002, between the Company and Mellon Investor Services LLC, as Rights Agent. (1)
*10.1	The Neiman Marcus Group, Inc. 1987 Stock Incentive Plan. (1)
*10.2	The Neiman Marcus Group, Inc. 1997 Incentive Plan, as amended, incorporated herein by reference to the Company’s Definitive Schedule 14A dated November 23, 2001.
*10.3	Termination and Change of Control Agreement between the Company and Burton M. Tansky dated October 6, 1999, as supplemented by Letter Agreement dated November 11, 1999, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.
*10.4	Termination and Change of Control Agreement between the Company and Gerald A. Sampson dated October 6, 1999, as supplemented by Letter Agreement dated November 17, 1999, incorporated herein by reference to the Company’s Quarterly Report or Form 10-Q for the quarter ended October 30, 1999.
*10.5	Supplemental Executive Retirement Plan. (1)
*10.6	Description of the Company’s Executive Life Insurance Plan. (1)
*10.7	Supplementary Executive Medical Plan. (1)
*10.8	Key Employee Deferred Compensation Plan. (1)

21

Exhibit
No.	Description
*10.9	Deferred Compensation Plan For Non-Employee Directors, as amended, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
*10.10	Termination and Change of Control Agreement between the Company and Ronald Frasch dated April 27, 2000, incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
*10.11	Termination and Change of Control Agreement between the Company and Karen W. Katz dated May 22, 2000, incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.12	Three-Year Credit Agreement dated as August 26, 2002 among the Company, the Lenders parties thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JP Morgan Chase Bank, as Administrative Agent. (1)
10.13	Neiman Marcus Group Credit Card Master Trust Series 2000-1 Class A Purchase Agreement, dated July 12, 2000, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.14	Receivables Purchase Agreement dated as of July 2, 2000 between Bergdorf Goodman, Inc. and Neiman Marcus Funding Corporation, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.15	Receivables Purchase Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 between the Company and Neiman Marcus Funding Corporation, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.16	Pooling and Servicing Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 between Neiman Marcus Funding Corporation, the Company and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.17	Series 2000-1 Supplement, dated as of July 21, 2000, to the Pooling and Servicing Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 among Neiman Marcus Funding Corporation, the Company and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.18	Trustee Resignation and Agent Appointment Agreement dated as of July 2, 2000 by and among the Company, Neiman Marcus Funding Corporation, The Chase Manhattan Bank and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.

22

Exhibit
No.	Description
10.19	Amended and Restated Agreement and Plan of Merger, dated as of July 1, 1999, among The Neiman Marcus Group, Inc., Harcourt General, Inc. and Spring Merger Corporation, incorporated herein by reference to the Company’s Definitive Schedule 14A dated August 10, 1999.
10.20	Amended and Restated Distribution Agreement, dated as of July 1, 1999, between Harcourt General, Inc. and The Neiman Marcus Group, Inc., incorporated herein by reference to the Company’s Definitive Schedule 14A dated August 10, 1999.
10.21	Agreement, dated as of September 1, 1999, among the Company and certain holders of the Company’s Class B Common Stock, incorporated herein by reference to the Company’s Annual Report on From 10-K for the fiscal year ended July 31, 1999.
10.22*	Termination and Change of Control Agreement between the Company and Nelson A. Bangs dated April 17, 2001, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2001.
10.23*	Termination and Change of Control Agreement between the Company and James E. Skinner dated June 28, 2001, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2001.
10.24*	Termination and Change of Control Agreement between the Company and Marita O’Dea Glodt dated October 31, 2001, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 27, 2001.
12.1	Computation of Ratio of Earnings to Fixed Charges (Unaudited). (1)
18.1	Letter regarding Change in Accounting Principle, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.
21.1	Subsidiaries of the Company. (1)
23.1	Consent of Deloitte & Touche LLP. (1)

(1)	Filed herewith.
*	Management contract or compensatory plan or arrangement filed pursuant to Item 14(c) of Form 10-K.

23

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Independent Auditors’ Report		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Earnings		F-4
Consolidated Statements of Cash Flows		F-5
Consolidated Statements of Shareholders’ Equity		F-6
Notes to Consolidated Financial Statements		F-7

F-1

INDEPENDENT AUDITORS’ REPORT

Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Dallas, Texas

We have audited the accompanying consolidated balance sheets of The Neiman Marcus Group, Inc. and subsidiaries as of August 3, 2002 and July 28, 2001, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended August 3, 2002. Our audits also included the financial statement schedule of The Neiman Marcus Group, Inc. and subsidiaries, listed in the Index in Item 14. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of The Neiman Marcus Group, Inc. and subsidiaries as of August 3, 2002 and July 28, 2001, and the results of their operations and their cash flows for each of the three years in the period ended August 3, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/DELOITTE & TOUCHE LLP

Dallas, Texas
September 10, 2002

F-2

THE NEIMAN MARCUS GROUP, INC.
CONSOLIDATED BALANCE SHEETS

			August 3,		July 28,
(in thousands, except shares)			2002		2001
ASSETS
CURRENT ASSETS
	Cash and equivalents		$	178,638	$	97,291
	Undivided interests in NMG Credit Card Master Trust			208,602		220,717
	Accounts receivable, less allowance for doubtful accounts of $398 and $355			19,778		20,707
	Merchandise inventories			656,844		648,867
	Deferred income taxes			17,746		27,327
	Other current assets			46,018		48,420
		TOTAL CURRENT ASSETS		1,127,626		1,063,329
PROPERTY AND EQUIPMENT
	Land, buildings and improvements			558,330		547,228
	Fixtures and equipment			507,289		438,974
	Construction in progress			177,721		122,402
				1,243,340		1,108,604
	Less accumulated depreciation and amortization			590,174		521,986
		PROPERTY AND EQUIPMENT, NET		653,166		586,618
OTHER ASSETS, NET				126,754		135,923
			$	1,907,546	$	1,785,870
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Notes payable and current maturities of long-term liabilities		$	1,098	$	858
	Accounts payable			269,403		270,897
	Accrued liabilities			247,957		225,805
		TOTAL CURRENT LIABILITIES		518,458		497,560
LONG-TERM LIABILITIES
	Notes and debentures			249,710		249,686
	Other long-term liabilities			75,222		68,269
	Deferred income taxes			2,251		20,975
		TOTAL LONG-TERM LIABILITIES		327,183		338,930
MINORITY INTEREST				6,592		6,640
COMMITMENTS AND CONTINGENCIES
COMMON STOCKS
	Class A Common Stock — $.01 par value; Authorized – 100 million shares; Issued and outstanding – 28,029,763 shares and 27,766,173 shares			280		278
	Class B Common Stock — $.01 par value; Authorized – 100 million shares; Issued and outstanding – 19,941,835 shares and 19,941,835 shares			200		200
ADDITIONAL PAID-IN CAPITAL				443,788		432,726
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)				906		(1,029	)
RETAINED EARNINGS				610,139		510,565
TOTAL SHAREHOLDERS’ EQUITY				1,055,313		942,740
			$	1,907,546	$	1,785,870

See Notes to Consolidated Financial Statements.

F-3

THE NEIMAN MARCUS GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS

		Years Ended
		August 3,			July 28,			July 29,
(in thousands, except per share data)		2002			2001			2000
Revenues		$	2,948,332		$	3,015,534		$	2,926,364
Cost of goods sold including buying and occupancy costs			1,997,378			2,020,954			1,918,298
Selling, general and administrative expenses			776,647			791,189			759,712
Effect of change in vacation policy			(16,576	)		—			—
Impairment and other charges			13,233			9,763			—
Operating earnings			177,650			193,628			248,354
Interest expense			15,406			15,188			25,375
Earnings before income taxes and minority interest			162,244			178,440			222,979
Income taxes			61,653			67,807			84,732
Earnings before minority interest			100,591			110,633			138,247
Minority interest in net earnings of subsidiaries			(1,017	)		(3,149	)		(4,236	)
Net earnings		$	99,574		$	107,484		$	134,011
Weighted average number of common and common equivalent shares outstanding:
	Basic		47,444			47,120			48,460
	Diluted		47,835			47,586			48,721
Earnings per share:
	Basic	$	2.10		$	2.28		$	2.77
	Diluted	$	2.08		$	2.26		$	2.75

See Notes to Consolidated Financial Statements.

F-4

THE NEIMAN MARCUS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended
			August 3,			July 28,			July 29,
(in thousands)			2002			2001			2000
CASH FLOWS — OPERATING ACTIVITIES
Net earnings			$	99,574		$	107,484		$	134,011
Adjustments to reconcile net earnings to net cash provided by operating activities:
	Depreciation and amortization			82,093			79,009			68,878
	Deferred income taxes			(10,335	)		(11,784	)		(4,791	)
	Effect of change in vacation policy			(16,576	)		—			—
	Impairment and other charges			13,233			9,763			—
	Minority interest			1,017			3,149			4,236
	Other			13,987			(211	)		4,457
Changes in current assets and liabilities:
	Decrease (increase) in accounts receivable			929			(1,428	)		(11,103	)
	Increase in merchandise inventories			(7,977	)		(73,523	)		(30,092	)
	Decrease (increase) in other current assets			2,402			13,251			(8,569	)
	Increase in accounts payable and accrued liabilities			34,047			6,177			98,035
NET CASH PROVIDED BY OPERATING ACTIVITIES				212,394			131,887			255,062
CASH FLOWS — INVESTING ACTIVITIES
Capital expenditures				(149,246	)		(119,987	)		(89,032	)
Transactions related to undivided interests in NMG Credit Card Master Trust:
		Purchases of held-to-maturity securities		(946,936	)		(997,863	)		(969,393	)
		Maturities of held-to-maturity securities		959,051			988,727			963,104
NET CASH USED FOR INVESTING ACTIVITIES				(137,131	)		(129,123	)		(95,321	)
CASH FLOWS — FINANCING ACTIVITIES
Proceeds from borrowings				130,240			—			55,000
Repayment of debt				(130,000	)		(80,000	)		—
Repayment of credit card securitization				—			—			(246,000	)
Proceeds from credit card securitization				—			—			225,000
Proceeds from exercises of stock options				7,532			6,125			1,181
Repurchase of common stock				—			—			(49,930	)
Distributions paid by subsidiary				(1,690	)		(7,320	)		(2,435	)
Other financing activities				2			337			3,637
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES				6,084			(80,858	)		(13,547	)
CASH AND EQUIVALENTS
Increase (decrease) during the year				81,347			(78,094	)		146,194
Beginning balance				97,291			175,385			29,191
Ending balance			$	178,638		$	97,291		$	175,385
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
	Cash paid during the year for:
		Interest	$	18,434		$	15,772		$	24,777
		Income taxes	$	62,858		$	76,462		$	88,784

See Notes to Consolidated Financial Statements.

F-5

THE NEIMAN MARCUS GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

									Additional			Accumulated Other					Total
			Common Stocks						Paid-In			Comprehensive			Retained		Shareholders'
(in thousands)			Shares			Amount			Capital			Income (Loss)			Earnings		Equity
BALANCE – JULY 31, 1999				49,039		$	490		$	467,283		$	—		$	269,070	$	736,843
	Repurchase of common stock			(2,075	)		(21	)		(49,909	)		—			—		(49,930	)
	Exercises of stock options			81			1			1,180			—			—		1,181
	Other equity transactions			414			5			3,632			—			—		3,637
	Comprehensive income:
		Net earnings		—			—			—			—			134,011		134,011
BALANCE – JULY 29, 2000				47,459			475			422,186			—			403,081		825,742
	Exercises of stock options			299			3			6,122			—			—		6,125
	Other equity transactions			(50	)		—			4,418			—			—		4,418
	Comprehensive income:
		Net earnings		—			—			—			—			107,484		107,484
		Unrealized loss on derivative financial instruments, net of tax		—			—			—			(1,029	)		—		(1,029	)
	Total comprehensive income																	106,455
BALANCE – JULY 28, 2001				47,708			478			432,726			(1,029	)		510,565		942,740
	Exercises of stock options			339			3			7,529			—			—		7,532
	Other equity transactions			(75	)		(1	)		3,533			(10	)		—		3,522
	Comprehensive income:
		Net earnings		—			—			—			—			99,574		99,574
		Unrealized loss on derivative financial instruments, net of tax		—			—			—			1,531			—		1,531
		Other, net of tax		—			—			—			414			—		414
	Total comprehensive income																	101,519
BALANCE – AUGUST 3, 2002				47,972		$	480		$	443,788		$	906		$	610,139	$	1,055,313

See Notes to Consolidated Financial Statements.

F-6

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Summary of Significant Accounting Policies

BASIS OF REPORTING
The consolidated financial statements of The Neiman Marcus Group, Inc. and subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles. The Company’s businesses consist of specialty retail stores, primarily Neiman Marcus Stores and Bergdorf Goodman, and Neiman Marcus Direct, the Company’s direct marketing operations. The consolidated financial statements include the accounts of all of the Company’s majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The Company’s fiscal year ends on the Saturday closest to July 31. All references to fiscal year 2002 relate to the fifty-three weeks ended August 3, 2002; all references to fiscal year 2001 relate to the fifty-two weeks ended July 28, 2001 and all references to fiscal year 2000 relate to the fifty-two weeks ended July 29, 2000.

USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements.

Since future events and their effects cannot be determined with absolute certainty, actual results will differ from those estimates. Management makes adjustments to its assumptions and judgments when facts and circumstances dictate. The amounts currently estimated by the Company are subject to change if different assumptions as to the outcome of future events were made. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances.

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.

PROPRIETARY CREDIT CARD PROGRAM AND CREDIT RISK
The Company extends credit to certain of its customers pursuant to its proprietary retail credit card program. Concentration of credit risk with respect to the credit card receivables is limited due to the large number of customers to whom the Company extends credit. Ongoing credit evaluations of customers’ financial conditions are performed and collateral is not required as a condition of extending credit.

UNDIVIDED INTERESTS IN NMG CREDIT CARD MASTER TRUST
The Company utilizes a credit card securitization program as part of its overall funding strategy. Securitization allows the Company to benefit from a lower cost of borrowing than it would otherwise enjoy. Under the securitization program, the Company transfers substantially all of its proprietary credit card receivables to a wholly-owned subsidiary, Neiman Marcus Funding Corporation, which in turn sells such receivables to the NMG Credit Card Master Trust (the Trust). The Trust is a “qualifying” special purpose entity and therefore is not consolidated as part of the Company’s consolidated financial statements.

F-7

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Summary of Significant Accounting Policies (continued)

The Trust has issued $225 million of certificates (Class A Certificates) representing undivided interests in the credit card portfolio (Sold Interests) to third-party investors. In addition, the Company holds various certificates issued by the Trust representing its undivided interests in the credit card portfolio (Retained Interests) and rights to certain residual cash flows comprised of excess finance charge collections (IO Strip). Pursuant to applicable accounting principles, the Company’s current securitization program qualifies for sales treatment related to the Sold Interests. As a result, the Company recognizes a gain or loss equal to the difference between the consideration received for the Sold Interests and the allocated cost basis of the receivables sold.

The Retained Interests are shown as “Undivided interests in NMG Credit Card Trust” on the Company’s consolidated balance sheets. Recourse to the Company with respect to the sale of assets is limited to the Retained Interests held by the Company. The certificates representing the Retained Interests are securities that the Company intends to “hold to maturity” and are carried at amortized cost. The IO Strip is treated as an “available-for-sale” security and is carried at its estimated fair value. Changes in the fair value of the IO Strip are reflected as a component of other comprehensive income. Such amounts, net of tax, approximated a gain of $0.4 million as of August 3, 2002.

Income is recorded on the Retained Interests and the IO Strip on the basis of their estimated effective yield to maturity and is recorded as a reduction of selling, general and administrative expenses. The Retained Interest and the IO Strip are also evaluated for impairment and are deemed to have suffered an other-than-temporary impairment if their fair values have declined below amortized cost and the discounted value of the remaining future cash flows has decreased from the prior period, when holding the discount rate constant. If the assets are deemed impaired, they are written down to fair value, which establishes a new cost basis, with a corresponding charge to earnings.

Determining the fair value of the Sold and Retained Interests requires estimates related to: 1) the gross future finance charge collections to be generated by the total portfolio; 2) future finance charge collections allocable to the Sold Interests; 3) future credit losses and 4) discount rates. Items that were considered in making judgments and preparing estimates and factors that might lead to future variations in consolidated financial results in the event of differences between actual and estimated results are as follows:

• Finance charge income is billed at a contractual rate monthly and warrants little judgment or estimation. The expected credit card customer payment rate is based on historical payment rates adjusted for recent payment rate trends. To the extent credit card customers pay off their balances sooner than estimated, the income earned by the Company is reduced. Conversely, should the credit card customers pay off balances over a longer period of time, the income earned by the Company may increase.

• The finance charge collections are estimated using the current portfolio yield experience and estimated short-term interest rates over the estimated life of the receivables. To the extent current portfolio yield experience decreases and short-term interest rates increase beyond the estimates, the finance charge collections may be reduced.

• Credit losses expected from the portfolio are based on historical write-off rates, adjusted for recent write-off trends and increased or decreased to reflect management’s outlook of future trends. To the extent there are positive or negative factors affecting the credit card customers’ ability or intent to pay off the outstanding balance (e.g., level of discretionary income, level of consumer debt, bankruptcy legislation), the actual bad debts to be realized could exceed or be less than the amounts estimated. Credit losses in excess of those embedded in the estimates reduce the income earned by the Company. Conversely, credit losses less than those embedded increase the income earned by the Company.

• The assumed cash flow discount rates are based on prevailing market interest rates and management’s estimate of an appropriate risk premium for each respective Retained Interest. The actual discount rates used are subject to interest rate fluctuations.

F-8

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Summary of Significant Accounting Policies (continued)

The most sensitive assumptions in calculating the fair values are the credit card customers’ payment rate, the estimate for credit losses, relative interest spreads and the assumed cash flow discount rates. Assumptions related to the future performance of the Company’s credit card portfolio have a significant impact on the calculation of the gain or loss on the sale of the Sold Interests, the carrying values of Retained Interests and the recognition of income on the Retained Interests.

MERCHANDISE INVENTORIES
The Company utilizes the retail method of accounting for substantially all of its merchandise inventories. Merchandise inventories are stated at the lower of cost, determined using the first-in, first-out basis, or market.

Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of inventories. The cost of the inventory reflected on the consolidated balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale.

The areas requiring significant management judgment related to the valuation of the Company’s inventories include 1) setting the original retail value for the merchandise held for sale, 2) recognizing merchandise for which the customer’s perception of value has declined and appropriately marking the retail value of the merchandise down to the perceived value, and 3) estimating the shrinkage that has occurred between physical inventory counts. These judgments and estimates, coupled with the averaging processes within the retail method can, under certain circumstances, produce varying financial results. Factors that can lead to different financial results include 1) setting original retail values for merchandise held for sale incorrectly, 2) failure to identify a decline in perceived value of inventories and process the appropriate retail value markdowns, and 3) overly optimistic or conservative shrinkage estimates. The Company believes it has the appropriate merchandise valuation and pricing controls in place to minimize the risk that its inventory values would be materially misstated.

DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward exchange contracts to hedge forecasted inventory purchases denominated in foreign currencies for periods and amounts consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on cash flows. The forward exchange contracts represent derivative instruments and are recorded at fair value in the accompanying consolidated financial statements. Gains and losses related to the Company’s foreign currency exchange contracts that qualify as hedges are deferred and recognized in cost of sales in the period the inventory is sold.

As of August 3, 2002, the Company had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $32.7 million. The contracts have varying maturity dates through August 2003. The settlement terms of the forward contracts, including amount, currency and maturity, correspond with the payment terms for the merchandise inventories. These contracts have been designated and accounted for as cash flow hedges.

At August 3, 2002, the fair value of the Company’s outstanding foreign currency exchange contracts was an asset of approximately $0.8 million. This amount, net of taxes, is reflected in other comprehensive income (loss) in the accompanying consolidated statements of shareholders’ equity.

F-9

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Summary of Significant Accounting Policies (continued)

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 10 to 30 years, while fixtures and equipment are depreciated over two to 15 years. Gains or losses arising from dispositions are reported as income or expense.

Intangibles, which consist of goodwill, trademarks and customer lists, are amortized on a straight-line basis over their estimated useful lives, ranging from four to 40 years.

The Company periodically evaluates the fair value and future benefits of its long-lived assets by performing an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the estimated undiscounted future cash flows, the Company reduces the carrying value to its fair value, which is generally calculated using discounted future cash flows. Various factors, including future sales growth and profit margins, are included in this analysis. To the extent these future projections or the Company’s strategies change, the conclusion regarding impairment may differ from the Company’s current estimates.

During June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142, upon adoption, eliminates goodwill amortization and the amortization of other indefinite-lived intangible assets. However, goodwill and indefinite-lived intangibles will be subject to at least an annual assessment for impairment by applying a fair value-based test. The Company will adopt the provisions of SFAS No. 142 as of the beginning of fiscal year 2003. The Company is in the process of finalizing the valuations of its intangible assets established in connection with prior acquisitions. Based upon its review of the procedures and preliminary valuation results of its third party appraisal experts, the Company anticipates recording a pretax charge of approximately $25 to $30 million in the first quarter of fiscal year 2003 as a result of implementing the fair value model of the new accounting standard. Amortization of goodwill and intangible assets was $5.3 million for fiscal year 2002, $5.9 million for fiscal year 2001 and $6.3 million for fiscal year 2000.

INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.

The Company does business in various jurisdictions that impose income taxes. Management determines the aggregate amount of income tax expense to accrue and the amount currently payable based upon the tax statutes of each jurisdiction. This process involves adjusting income determined using generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities are reflected on the Company’s balance sheet for temporary differences that will reverse in subsequent years. If different judgments had been made, the Company’s tax expense and liabilities could have been different.

OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist primarily of certain employee benefit obligations, postretirement health care benefit obligations and the liability for scheduled rent increases.

REVENUE RECOGNITION
Revenues from the Company’s retail operations are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues from the Company’s direct marketing operations are recognized when the merchandise is delivered to the customer. Both retail and direct marketing revenues are reduced by a provision for anticipated returns primarily based on the Company’s historical trends related to returns by its customers.

F-10

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Summary of Significant Accounting Policies (continued)

PREOPENING EXPENSES
Costs associated with the opening of new and replacement stores are expensed as incurred. Preopening expenses were $5.2 million for fiscal year 2002, $2.2 million for fiscal year 2001 and $1.9 million in fiscal year 2000.

ADVERTISING AND CATALOGUE COSTS
The Company’s direct response advertising relates primarily to the production, printing and distribution of catalogues. These costs are amortized during the periods the expected revenues from such catalogues are expected to be generated, generally three to six months. All other advertising costs, including costs incurred by the Company’s online operations related to website design and advertising, are expensed in the period incurred. Net direct response advertising expenses were $103.1 million in fiscal year 2002, $113.9 million in fiscal year 2001 and $112.9 million in fiscal year 2000. Deferred direct response advertising amounts included in other current assets in the consolidated balance sheets were $7.2 million as of August 3, 2002 and $9.1 million as of July 28, 2001.

LOYALTY PROGRAMS
The Company maintains customer loyalty programs in which customers receive points annually for qualifying purchases. Upon reaching certain levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed no later than ninety days subsequent to the end of the annual program period. The Company accrues the estimated costs of the anticipated redemptions of the points earned by its customers at the time of the initial customer purchase and charges such costs to selling, general and administrative expense. The estimates of the costs associated with the loyalty programs require the Company to make assumptions related to customer purchasing levels, redemption rates and costs of awards to be chosen by its customers.

STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations.

BASIC AND DILUTED NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. The dilutive effect of stock options and other common stock equivalents, including contingently returnable shares, is included in the calculation of diluted earnings per share using the treasury stock method.

RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of” and Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale, resolves implementation issues related to Statement No. 121 and expands the reporting of discontinued operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not expect the implementation of SFAS No. 144 to have a material impact on the Company’s consolidated financial position or results of operations.

F-11

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. Effect of Change in Vacation Policy

During the third quarter of fiscal year 2002, the Company terminated its prior vacation plan and the Board of Directors of the Company approved a new policy related to vacation pay for its employees. The new policy was communicated to employees during the third quarter of fiscal 2002. Pursuant to the new policy, which was effective as of April 28, 2002, eligible employees earn vacation pay ratably over the course of the year in which the services are rendered.

Pursuant to the previous plan, eligible employees received an annual vacation grant at the beginning of each service year. Such grants were made in anticipation of future service; however, eligible employees were allowed to take vacation time to the extent of the vacation grant as of the grant date. Further, in the event of termination, an employee was entitled to receive cash compensation to the extent of the untaken balance of the annual grant. As a result, the Company recorded vacation expense ratably over the twelve months prior to each annual grant such that the liability for the annual grant was fully recorded as of the grant date.

With the termination of the prior vacation plan, the previously recorded vacation liability of $16.6 million, which amount represented the vacation time that would have been granted to employees on April 28, 2002 pursuant to the previous plan, was eliminated and credited to operating earnings in the third quarter of fiscal year 2002. The new policy will not have a material impact on the amount of vacation expense recorded by the Company on an annual basis in the future.

NOTE 3. Impairment and Other Charges

In the fourth quarter of fiscal year 2002, the Company recorded a $3.1 million pretax impairment charge. The charge related to the write-down of the net carrying values of the fixed assets of three Kate Spade LLC stores to estimated fair value.

In the third quarter of fiscal year 2002, the Company recorded an $8.2 million pretax charge. The charge related to 1) the write-off of the remaining net carrying value of its cost method investment in WeddingChannel.com, Inc. in light of its continued operating losses, 2) the write-down of the carrying values of the fixed assets of two Neiman Marcus Galleries stores to estimated fair value and 3) the accrual of the estimated loss associated with the abandonment of excess warehouse space held by the Company pursuant to a long-term operating lease.

In the second quarter of fiscal year 2002, the Company incurred expenses of approximately $2.0 million in connection with cost reduction strategies. These expenses consisted primarily of severance costs and lease termination expenses incurred in connection with the closing of the Neiman Marcus Galleries store in Seattle, Washington.

During the fourth quarter of fiscal year 2001, the Company recorded an impairment charge of $9.8 million, which represented the Company’s adjustment to state the carrying value of its cost method investment in WeddingChannel.com, Inc. at its estimated fair value.

F-12

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. Securitization of Credit Card Receivables

Pursuant to a revolving credit card securitization program, the Company transfers substantially all of its credit card receivables to a wholly-owned subsidiary, Neiman Marcus Funding Corporation, which in turn sells such receivables to the Neiman Marcus Credit Card Master Trust (Trust). The Trust issued certificates representing undivided interests in the credit card receivables to both third-party investors (Sold Interests) and to the Company (Retained Interests). The Retained Interests are recorded by the Company at the date of the sale to the Trust by allocating the original carrying costs of the credit card receivables held by the Company between the Sold Interests and the Retained Interests based on their relative fair values. The gain or (loss) on sale of the Sold Interests is the difference between net proceeds and the allocated carrying amount of the Sold Interests. The Company also holds the rights to certain residual cash flows from excess finance charge collections by the Trust (the IO Strip).

The Company continues to service the credit card receivables and receives a contractually defined servicing fee. Total credit card receivables held by the Trust and serviced by the Company aggregated $437.1 million as of August 3, 2002. Servicing fees earned by the Company were $6.3 million in each of the fiscal years 2002 and 2001.

The Sold Interests are represented by Class A Certificates, aggregating $225 million at face value. The holders of the Class A Certificates are entitled to monthly interest distributions at the contractually-defined rate of one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable from the finance charge income generated by the credit card receivables held by the Trust.

The Retained Interests held by the Company are represented by the Class B Certificate ($23.8 million face value), the Class C Certificate ($68.2 million face value) and the Seller’s Certificate (representing the excess of the total receivables sold to the Trust over the Sold Interests and the Class B and Class C Certificates). Pursuant to the terms of the Trust, the Company’s rights to payments with respect to the Class B Certificate, the Class C Certificate, the Seller’s Certificate and the IO Strip are subordinated to the rights of the holders of the Class A Certificates. As a result, the credit quality of the Class A Certificates is enhanced, thereby lowering the interest cost paid by the Trust on the Class A Certificates. The Company’s credit risk associated with Trust is limited to the carrying value of the Retained Assets.

In order to maintain the committed level of securitized assets, cash collections on the securitized receivables are used by the Trust to purchase new credit card balances from the Company in accordance with the terms of the revolving credit card securitization program. Beginning in April 2005, cash collections will be used by the Trust to repay the principal balance of the Class A Certificates in six monthly installments of $37.5 million (Amortization Period). As a result of certain provisions in the securitization agreement, the Company holds certain rights to repurchase the Class A Certificates (Repurchase Option) subsequent to the commencement of the Amortization Period and, therefore, has the ability to regain effective control over the credit card receivables held by the Trust at the time the Repurchase Option becomes exercisable. The Company currently believes that the Repurchase Option will become exercisable in September 2005. As a result of the terms of the Repurchase Option, the Company currently estimates that the revolving transfers of credit card receivables to the Trust will cease to qualify for sales type treatment beginning in December 2003, the date when the contractual life of the transferred receivables is estimated to extend to September 2005, the date when the Repurchase Option becomes exercisable.

F-13

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. Securitization of Credit Card Receivables (continued)

The table below summarizes the principal amount of cash flows received by the Company from the Trust:

	Years Ended
	August 3,		July 28,
	2002		2001
(in millions)
Collections used by the Trust to purchase receivable balances	$	1,721.0	$	1,734.0
Cash flow received related to the IO Strip	$	44.7	$	35.9

The table below provides historical credit card delinquencies and net credit losses:

	August 3,			July 28,
(in millions, except percentages)	2002			2001
Total face value of receivables	$	437.1		$	449.5
Delinquent principal over 90 days		1.5	%		1.7	%
Annual credit losses (net of recoveries)	$	15.9		$	12.5

The fair value for the Retained Interests is estimated using a discounted cash flow model. Management uses key economic assumptions in projecting future cash flows and determining the fair value of its Retained Interests. Key assumptions relate to the average life of the receivables, anticipated credit losses, relative interest spreads and the appropriate market discount rate.

The key economic assumptions used in measuring the fair value of the Retained Interests and IO Strip (weighted based on principal amounts) were as follows:

	August 3,			Range During
	2002			Fiscal Year 2002
Weighted average life of receivables (in months)		4			4
Expected credit loss (annualized percent)		0.93	%		0.76% - 0.93	%
Net interest spread		15.55	%		14.38% - 16.59	%
Discount rate (weighted average)		5.95	%		5.95% - 5.98	%

F-14

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. Securitization of Credit Card Receivables (continued)

At August 3, 2002, the key economic assumptions and sensitivity of the current fair value of Retained Interests to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows (in millions):

Weighted Average Life (months)
	Impact on fair value of 10 percent adverse change	$	(0.6	)
	Impact on fair value of 20 percent adverse change	$	(0.9	)
Expected Credit Losses (annual rate)
	Impact on fair value of 10 percent adverse change	$	(0.9	)
	Impact on fair value of 20 percent adverse change	$	(1.9	)
Net Interest Spread
	Impact on fair value of 10 percent adverse change	$	(1.1	)
	Impact on fair value of 20 percent adverse change	$	(2.3	)
Discount Rate (weighted average rate)
	Impact on fair value of 10 percent adverse change	$	(0.5	)
	Impact on fair value of 20 percent adverse change	$	(1.0	)

These sensitivities are hypothetical in nature and are presented for illustrative purposes only. Changes in fair value based on a change in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The changes in assumptions presented above were calculated without changing any other assumptions. In reality, changes in one assumption may result in changes in another, which may magnify or counteract the sensitivities.

F-15

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. Securitization of Credit Card Receivables (continued)

While the Company’s securitization program qualifies for sales treatment related to the Sold Interests, the following table compares the amounts recorded by the Company as of August 3, 2002 and for fiscal year 2002 to those that would have been recorded had the securitization program not qualified for sales treatment and was accounted for as an on-balance sheet financing:

				Pro forma -
		Amounts		On-Balance
(in millions)		Recorded		Sheet Financing
Assets:
Undivided interests in NMG Credit Card Master Trust		$	208.6	$	—
Accounts receivable, net			19.8		447.5
Long-term liability:
Borrowings pursuant to credit card securitization program		$	—	$	225.0
Income:
	Finance charge income	$	—	$	70.2
	Gains on sales of Sold Interests		8.3		—
	Income from Retained Interests, net		34.9		—
	Servicing fee income		6.3		—
Expenses:
	Interest expense on Class A Certificates		—		(5.6	)
	Bad debt expense, net		—		(15.9	)
Impact on earnings before income taxes		$	49.5	$	48.7

NOTE 5. Other Assets

Other assets consisted of the following:

		August 3,			July 28,
(in thousands)		2002			2001
Trademarks		$	126,654		$	126,654
Goodwill			33,202			33,202
Customer lists			4,500			4,500
			164,356			164,356
Accumulated amortization			(46,932	)		(41,648	)
Trademarks and other intangible assets, net			117,424			122,708
Other, net			9,330			13,215
	Total	$	126,754		$	135,923

Trademarks and goodwill are amortized using the straight-line method over their estimated useful lives, ranging from 25 to 40 years. Customer lists were amortized using the straight-line method over a four-year life and were fully amortized as of August 3, 2002.

F-16

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. Accrued Liabilities

Accrued liabilities consisted of the following:

		August 3,		July 28,
(in thousands)		2002		2001
Accrued salaries and related liabilities		$	33,993	$	31,057
Self-insurance reserves			31,991		29,089
Income taxes payable			31,489		24,559
Sales returns reserve			24,162		21,501
Amounts due customers			42,434		43,658
Other			83,888		75,941
	Total	$	247,957	$	225,805

NOTE 7. Notes and Debentures

Notes and debentures consisted of the following:

		Interest			August 3,		July 28,
(in thousands)		Rate			2002		2001
Revolving credit facility		Variable			$	—	$	—
Senior notes			6.65	%		124,910		124,894
Senior debentures			7.125	%		124,800		124,792
	Total				$	249,710	$	249,686

Effective August 26, 2002, the Company entered into a three-year unsecured revolving credit agreement (the Credit Agreement) with a group of eleven banks that provides for borrowings of up to $300 million. The rate of interest payable is based on one of two pricing options selected by the Company, the level of outstanding borrowings and rating of the Company’s senior unsecured long-term debt by Moody’s and Standard & Poor’s. The pricing options available to the Company are based on either LIBOR plus 0.525 percent to 1.625 percent or a base rate, based on either the Prime Rate or Federal Funds Rate, plus up to ..625 percent. Changes in the ratings of the senior unsecured long-term debt do not represent an event of default, accelerate repayment of any outstanding borrowings or alter any other terms of the Credit Agreement. The Credit Agreement contains covenants which require the Company to maintain certain leverage and fixed charge ratios. The Credit Agreement replaces a previous $450 million unsecured credit facility. At August 3, 2002, the Company had no borrowings outstanding under its previous unsecured credit facility.

In May 1998, the Company issued $250 million of unsecured senior notes and debentures to the public. The debt is comprised of $125 million of 6.65 percent senior notes, due 2008 and $125 million of 7.125 percent senior debentures, due 2028. Interest on the securities is payable semiannually.

Based upon quoted prices, the fair value of the Company’s senior notes and debentures was $249.9 million as of August 3, 2002 and $220.6 million as of July 28, 2001.

F-17

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  Common Shareholders’ Equity

AUTHORIZED CAPITAL
On September 15, 1999, the shareholders of the Company approved a proposal to amend the Company’s Restated Certificate of Incorporation to increase the Company’s authorized capital to 250 million shares of common stock consisting of 100 million shares of Class A Common Stock, 100 million shares of Class B Common Stock and 50 million shares of a new Class C Common Stock (having one-tenth [1/10] of one vote per share) and 50 million shares of preferred stock.

COMMON STOCK
Common stock is entitled to dividends if and when declared by the Board of Directors and each share of Class A and Class B Common Stock outstanding carries one vote. Holders of Class A Common Stock have the right to elect up to 18 percent of the Board of Directors and holders of Class B Common Stock have the right to elect at least 82 percent of the Board of Directors. The Class A Common Stock and Class B Common Stock are identical in all other respects. Holders of common stock have no cumulative voting, conversion, redemption or preemptive rights.

SHAREHOLDER RIGHTS PLAN
In October 1999, the Company adopted a shareholder rights plan designed to assure that its shareholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers and other abusive takeover tactics to gain control of the Company without paying all shareholders a fair price. The rights plan was not adopted in response to any specific takeover proposal. Under the rights plan, one right (Right) is attached to each share of The Neiman Marcus Group, Inc. Class A, Class B and Class C Common Stock. Each Right will entitle the holder to purchase one one-thousandth of a share of a corresponding series of participating preferred stock, with a par value of $.01 per share, at an exercise price of $100.00 per one one-thousandth of a share of such series. The Rights are not currently exercisable and will become exercisable only in the event a person or group acquires beneficial ownership of 15 percent or more of the shares of Class B Common Stock or 15 percent or more of total number of shares of Common Stock outstanding. The Rights expire on October 6, 2009 if not earlier redeemed or exchanged.

EXECUTIVE STOCK PURCHASE LOAN PLAN
In accordance with the provisions of a loan arrangement between the Company and certain of its executive officers (Loan Plan), the Company has made loans to certain executive officers to acquire shares of common stock in the open market pursuant to stock option exercises or to discharge certain tax liabilities incurred in connection with the exercise of stock options and the release of restrictions on previous grants of restricted common stock. The loans are secured by a pledge of the purchased shares and bear interest at an annual rate of 5.0 percent, payable quarterly. Pursuant to the terms of the Loan Plan, each executive officer’s loan will become due and payable seven months after his or her employment with the Company terminates. Loans outstanding were $1.2 million and $1.7 million as of August 3, 2002 and July 28, 2001, respectively. The Company made no new executive stock purchase loans in fiscal year 2002. Effective July 30, 2002, the Loan Plan was terminated.

COMMON STOCK INCENTIVE PLANS
The Company has established common stock incentive plans allowing for the granting of stock options, stock appreciation rights and stock-based awards to its employees. Compensation cost for restricted stock is recognized on a straight-line basis over the expected life of the award with the offsetting entry to additional paid-in capital. For performance accelerated restricted stock, the expected life is determined based on management’s best estimate of the number of years from the grant date to the date at which it is probable that the performance targets will be met (four or five years, depending on the grant). Compensation cost is calculated as if all instruments granted that are subject only to a service requirement will vest.

F-18

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  Common Shareholders’ Equity (continued)

The Company previously adopted the 1997 Incentive Plan (1997 Plan) which is currently used for grants of equity-based awards to employees. All outstanding equity-based awards at August 3, 2002 were granted under the Company’s 1997 Plan and the 1987 Stock Incentive Plan. At August 3, 2002, there were 3.3 million shares of common stock available for grant under the 1997 Plan.

The Company did not make any restricted stock grants in fiscal year 2002 or in fiscal year 2001. In fiscal year 2000, the Company granted 453,500 restricted shares at a weighted-average fair value of $23.50 as of the grant date. Compensation expense related to restricted stock grants was $2.4 million in fiscal year 2002, $3.0 million in fiscal year 2001 and $2.6 million in fiscal year 2000.

A summary of the status of the Company’s 1997 and 1987 Stock Incentive Plans as of August 3, 2002, July 28, 2001 and July 29, 2000 and changes during the fiscal years ended on those dates are presented in the following table:

	August 3, 2002					July 28, 2001					July 29, 2000
				Weighted-Average					Weighted-Average					Weighted-Average
	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Options outstanding at beginning of year		2,753,900		$	28.78		2,277,100		$	24.28		1,179,700		$	24.36
Granted		542,500			24.50		1,064,500			35.44		1,410,150			23.93
Exercised		(338,550	)		23.52		(299,070	)		20.85		(80,800	)		15.08
Canceled		(63,550	)		27.48		(288,630	)		26.17		(231,950	)		25.22
Options outstanding at end of year		2,894,300		$	28.59		2,753,900		$	28.78		2,277,100		$	24.28
Options exercisable at year end		834,570		$	28.39		699,480		$	25.09		515,180		$	22.06

Options outstanding at August 3, 2002 were granted at prices (not less than 100 percent of the fair market value on the date of the grant) varying from $11.63 to $36.50. Options generally vest ratably over five years and expire after ten years. There were 161 employees with options outstanding at August 3, 2002.

F-19

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  Common Shareholders’ Equity (continued)

The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Had the fair-value based method of accounting been applied to awards granted subsequent to July 30, 1995, net earnings and earnings per share would have been reduced to the pro forma amounts below:

		Years Ended
		August 3,		July 28,		July 29,
(in thousands, except per share data)		2002		2001		2000
Net earnings:
	As reported	$	99,574	$	107,484	$	134,011
	Pro forma	$	93,032	$	101,147	$	129,914
Basic earnings per share:
	As reported	$	2.10	$	2.28	$	2.77
	Pro forma	$	1.96	$	2.15	$	2.68
Diluted earnings per share:
	As reported	$	2.08	$	2.26	$	2.75
	Pro forma	$	1.94	$	2.13	$	2.67

The effects on pro forma net earnings and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net earnings for future years due to such factors as the vesting periods of stock options and the potential issuance of additional stock options in future years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for grants in fiscal year 2002, fiscal year 2001 and fiscal year 2000:

	Years Ended
	August 3,			July 28,			July 29,
	2002			2001			2000
Expected life (years)		7			7			7
Expected volatility		40.7	%		37.6	%		40.8	%
Risk-free interest rate		5.4	%		5.5	%		6.0	%

The weighted-average fair value of options granted was $12.73 in fiscal year 2002, $17.80 in fiscal year 2001 and $12.83 in fiscal year 2000.

F-20

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  Common Shareholders’ Equity (continued)

The following summarizes information about the Company’s stock options as of August 3, 2002:

Options Outstanding							Options Exercisable
			Weighted-
Range	Shares		Average		Weighted-		Shares		Weighted-
Of	Outstanding		Remaining		Average		Outstanding		Average
Exercise	At August 3,		Contractual		Exercise		At August 3,		Exercise
Prices	2002		Life		Price		2002		Price
$11.63 - $15.38		56,550		2.2	$	14.58		56,550	$	14.58
$22.94 - $24.94		1,408,550		7.7	$	23.98		278,060	$	23.87
$25.94 - $32.94		444,700		6.1	$	29.72		258,660	$	30.08
$33.38 - $36.50		984,500		7.9	$	35.49		241,300	$	35.02
$11.63 - $36.50		2,894,300		7.4	$	28.59		834,570	$	28.39

SPIN-OFF FROM HARCOURT GENERAL, INC.
On October 22, 1999, Harcourt General, Inc. (Harcourt General) completed the spin-off of its controlling equity position in the Company in a tax-free distribution to its shareholders (Spin-off). Harcourt General distributed approximately 21.4 million of its approximately 26.4 million shares of the Company and subsequently divested itself entirely of any holdings in the Company’s stock. Each common shareholder of Harcourt General received 0.3013 of a share of Class B Common Stock of the Company for every share of Harcourt General Common Stock and Class B Stock held on October 12, 1999, which was the record date for the distribution. This transaction had no impact on the reported equity of the Company.

The Company and Harcourt General were parties to an agreement pursuant to which Harcourt General provided certain management, accounting, financial, legal, tax and other corporate services to the Company. The fees for these services were based on Harcourt General’s costs and were subject to the approval of a special review committee of the Board of Directors of the Company who were independent of Harcourt General. The agreement with Harcourt General was terminated effective May 14, 2001, and as a result, the Company has established these functions internally. The termination of the agreement with Harcourt General did not have a material effect on the Company’s results of operations. There were no charges to the Company in fiscal year 2002. Charges to the Company amounted to $5.2 million in fiscal year 2001 and $6.2 million in fiscal year 2000.

F-21

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  Common Shareholders’ Equity (continued)

The Company is required to indemnify Harcourt General, and each entity of the consolidated group of which Harcourt General is a member, against all federal, state and local taxes incurred by Harcourt General or any member of such group as a result of the failure of the Spin-off to qualify as a tax-free transaction under Section 355(a) of the Internal Revenue Service Code (Code) or the application of Section 355(e). The obligation to indemnify occurs only if the Company takes action which is inconsistent with any representation or statement made to the Internal Revenue Service in connection with the request by Harcourt General for a ruling letter in respect to the Spin-off and as to certain tax aspects of the Spin-off, or if within two years after the date of the Spin-off the Company 1) fails to maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code, 2) merges or consolidates with or into any other corporation, 3) liquidates or partially liquidates, 4) sells or transfers all or substantially all of its assets in a single transaction or a series of related transactions, 5) redeems or otherwise repurchases any Company stock subject to certain exceptions, or 6) takes any other action or actions which in the aggregate would have the effect of causing or permitting one or more persons to acquire, directly or indirectly, stock representing a 50 percent or greater interest in the Company. The Company’s obligation to indemnify Harcourt General and its consolidated group shall not apply if, prior to taking any such action the Company has obtained and provided to Harcourt General a written opinion from a law firm acceptable to Harcourt General, or Harcourt General has obtained a supplemental ruling from the Internal Revenue Service, that such action or actions will not result in either (i) the Spin-off failing to qualify under Section 355(a) of the Code, or (ii) the Company’s shares failing to qualify as qualified property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code.

NOTE 9.  Stock Repurchase Program

In prior years, the Company’s Board of Directors has authorized various stock repurchase programs and increases in the number of shares subject to repurchase. There were 1,924,600 shares remaining under these programs at August 3, 2002. During fiscal year 2002 and fiscal year 2001, there were no stock repurchases under the stock repurchase program. During fiscal year 2000, the Company repurchased 2,075,400 shares at an average price of $24.06.

NOTE 10.  Income Taxes

Income tax expense was as follows:

		Years Ended
		August 3,			July 28,			July 29,
(in thousands)		2002			2001			2000
Current:
	Federal	$	67,015		$	73,278		$	82,893
	State		4,837			6,313			6,630
	Foreign		136			—			—
			71,988			79,591			89,523
Deferred:
	Federal		(9,620	)		(10,878	)		(4,328	)
	State		(715	)		(906	)		(463	)
			(10,335	)		(11,784	)		(4,791	)
Income tax expense		$	61,653		$	67,807		$	84,732

F-22

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.  Income Taxes (continued)

A reconciliation of income tax expense to the amount calculated based on the federal and state statutory rates is as follows:

	Years Ended
	August 3,		July 28,			July 29,
(in thousands)	2002		2001			2000
Income tax expense at statutory rate	$	56,785	$	62,454		$	78,043
State income taxes, net of federal income tax benefit		4,122		5,407			6,167
Other		746		(54	)		522
Total	$	61,653	$	67,807		$	84,732

Significant components of the Company’s net deferred income tax asset were as follows:

			August 3,			July 28,
(in thousands)			2002			2001
Deferred income tax assets:
	Financial accruals and reserves		$	34,124		$	31,312
	Employee benefits			27,933			27,286
	Inventory			—			2,010
	Deferred lease payments			—			876
	Other			1,372			1,513
		Total deferred tax assets	$	63,429		$	62,997
Deferred income tax liabilities:
	Inventory		$	(2,627	)	$	—
	Depreciation and amortization			(40,229	)		(49,109	)
	Pension accrual			(1,038	)		(1,731	)
	Other			(4,040	)		(5,805	)
	Total deferred tax liabilities			(47,934	)		(56,645	)
Net deferred income tax asset			$	15,495		$	6,352
Net deferred income tax asset
	Current		$	17,746		$	27,327
	Non-current			(2,251	)		(20,975	)
Net deferred income tax asset			$	15,495		$	6,352

The Company believes it is more likely than not that it will realize the recorded deferred tax assets through future taxable earnings.

F-23

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.  Pension Plans and Postretirement Health Care Benefits

The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The Company also sponsors an unfunded supplemental executive retirement plan which provides certain employees additional pension benefits. Benefits under the plans are based on the employees’ years of service and compensation over defined periods of employment. When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes. Pension plan assets consist primarily of equity and fixed income securities.

Components of net pension expense were as follows:

	Years Ended
	August 3,			July 28,			July 29,
(in thousands)	2002			2001			2000
Service cost	$	9,383		$	7,578		$	7,696
Interest cost on projected benefit obligation		16,770			14,979			13,760
Expected return on assets		(14,389	)		(15,718	)		(13,637	)
Net amortization and deferral		482			406			1,036
Net pension expense	$	12,246		$	7,245		$	8,855

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 $1.7 million during fiscal year 2002, $1.8 million during fiscal year 2001 and $1.6 million during fiscal year 2000.

The periodic postretirement health care benefit cost was as follows:

	Years Ended
	August 3,		July 28,			July 29,
(in thousands)	2002		2001			2000
Service cost	$	86	$	65		$	75
Interest cost on accumulated benefit obligation		1,214		723			856
Net amortization and deferral		—		(447	)		(342	)
Net periodic cost	$	1,300	$	341		$	589

F-24

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.   Pension Plans and Postretirement Health Care Benefits (continued)

The changes in the benefit obligations and the reconciliations of the funded status of the Company’s plans to the consolidated balance sheets were as follows:

CHANGE IN BENEFIT OBLIGATIONS:	Pension Benefits						Postretirement Benefits
	August 3,			July 28,			August 3,			July 28,
(in thousands)	2002			2001			2002			2001
Benefit obligations at beginning of year	$	221,625		$	189,768		$	17,392		$	9,745
Service cost		9,383			7,578			86			66
Interest		16,770			14,979			1,214			723
Benefits paid, net		(6,957	)		(6,878	)		(1,104	)		(1,793	)
Plan amendments		—			—			295			—
Actuarial loss		3,257			16,178			5,041			8,651
Benefit obligations at end of year	$	244,078		$	221,625		$	22,924		$	17,392

CHANGE IN PLAN ASSETS:	Pension Benefits
	August 3,			July 28,
(in thousands)	2002			2001
Fair value of plan assets at beginning of year	$	167,982		$	179,424
Actual return on assets		(16,119	)		(9,926	)
Company contributions		1,039			5,362
Benefits paid, net		(6,957	)		(6,878	)
Fair value of plan assets at end of year	$	145,945		$	167,982

FUNDED STATUS:	Pension Benefits						Postretirement Benefits
	August 3,			July 28,			August 3,			July 28,
(in thousands)	2002			2001			2002			2001
Excess of benefit obligations over fair value of plan assets	$	(98,133	)	$	(53,643	)	$	(22,924	)	$	(17,392	)
Unrecognized net actuarial loss		51,472			17,330			5,884			843
Unrecognized prior service cost		3,711			4,256			295			—
Unrecognized net obligation at transition		1,099			1,413			—			—
Liability recognized in the consolidated balance sheets	$	(41,851	)	$	(30,644	)	$	(16,745	)	$	(16,549	)

F-25

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.  Pension Plans and Postretirement Health Care Benefits (continued)

WEIGHTED-AVERAGE ASSUMPTIONS:	2002			2001			2000
Pension benefits:
Discount rate		7.25	%		7.25	%		7.75	%
Expected long-term rate of return on plan assets		8.0	%		9.0	%		9.0	%
Rate of future compensation increases		5.0	%		5.0	%		5.0	%
Postretirement benefits:
Discount rate		7.25	%		7.25	%		7.75	%
Health care cost trend rate		12.0	%		6.0	%		7.0	%
Ultimate health care cost trend rate		5.0	%		5.0	%		5.0	%

If the assumed health care trend rate was increased one percentage point, postretirement benefit costs for fiscal year 2002 would have been $0.1 million higher and the accumulated postretirement benefit obligation as of August 3, 2002 would have been $2.3 million higher. If the assumed health care trend rate was decreased one percentage point, postretirement benefit costs for fiscal year 2002 would have been $0.1 million lower and the accumulated postretirement benefit obligations as of August 3, 2002 would have been $2.0 million lower.

The Company has a qualified defined contribution 401(k) plan, which covers substantially all employees. Employees make contributions to the plan and the Company matches 100 percent of the first 2 percent and 25 percent of the next 4 percent of an employee’s contribution up to a maximum of 6 percent of the employee’s compensation. Prior to January 1, 2001, the Company matched 65 percent of the first 2 percent and 25 percent of the next 4 percent of an employee’s contribution up to a maximum of 6 percent of the employee’s compensation. The Company also sponsors an unfunded key employee deferred compensation plan, which provides certain employees additional benefits, and a profit sharing and retirement plan for employees of Kate Spade LLC. The Company’s aggregate contributions to these plans were approximately $8.9 million for fiscal year 2002, $6.1 million for fiscal year 2001 and $5.2 million for fiscal year 2000. Benefits under the plans are based on the employees’ years of service and compensation over defined periods of employment.

F-26

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.  Commitments and Contingencies

OPERATING LEASES
The Company’s operations are conducted primarily in leased properties, which include retail stores, distribution centers and other facilities. Substantially all leases are for periods of up to fifty 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
	August 3,		July 28,		July 29,
(in thousands)	2002		2001		2000
Minimum rent	$	37,400	$	38,400	$	36,100
Rent based on revenues		17,000		19,200		16,000
Total rent expense	$	54,400	$	57,600	$	52,100

Future minimum lease payments, excluding renewal options, under operating leases are as follows: fiscal year 2003 – $40.0 million; fiscal year 2004 – $39.1 million; fiscal year 2005 – $36.3 million; fiscal year 2006 – $34.8 million; fiscal year 2007 – $30.0 million; all years thereafter – $454.7 million.

LITIGATION
The Company is involved in various suits and claims in the ordinary course of business. Management does not believe that the disposition of any such suits and claims will have a material adverse effect upon the consolidated results of operations, cash flows or the financial position of the Company.

LETTERS OF CREDIT
The Company had approximately $8.7 million of outstanding irrevocable letters of credit relating to purchase commitments and insurance liabilities at August 3, 2002.

NOTE 13.  Earnings Per Share

The weighted average shares used in computing basic and diluted earnings per share (EPS) are presented in the table below. Options to purchase shares of common stock are not included in the computations of EPS if the exercise prices of those options are greater than the average market price of the common shares since such options have an anti-dilutive impact on earnings per share. Anti-dilutive options aggregated 1,223,388 shares of common stock for fiscal year 2002, 953,500 shares of common stock for fiscal year 2001 and 614,500 shares of common stock for fiscal year 2000.

	Years Ended
	August 3,		July 28,		July 29,
(in thousands of shares)	2002		2001		2000
Shares for computation of basic EPS		47,444		47,120		48,460
Effect of dilutive stock options and nonvested stock under common stock incentive plans		391		466		261
Shares for computation of diluted EPS		47,835		47,586		48,721

F-27

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. Segment Reporting

The Company has identified two reportable segments: Specialty Retail Stores and Direct Marketing. The Specialty Retail Stores segment includes all Neiman Marcus and Bergdorf Goodman retail stores, including Neiman Marcus clearance stores. Direct Marketing includes the operations of Neiman Marcus Direct, which publishes NM by Mail, the Neiman Marcus Christmas catalogue, the Horchow catalogue and the Chef’s Catalogue, and the Company’s online operations. Beginning in fiscal year 2001, all of the Company’s online operations are included in Direct Marketing. In prior years, the operations of NeimanMarcus.com were included in Other. Therefore, the amounts below for fiscal year 2001 and fiscal year 2000 have been reclassified to conform to the current year presentation. Other includes the operations of Kate Spade LLC, Gurwitch Bristow Products, LLC and corporate expenses.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company’s senior management evaluates the performance of the Company’s assets on a consolidated basis. Therefore, separate financial information for the Company’s assets on a segment basis is not available. Interest expense is not allocated by segment.

The following tables set forth the information for the Company’s reportable segments:

		Years Ended
		August 3,			July 28,			July 29,
(in thousands)		2002			2001			2000
REVENUES
Specialty Retail Stores		$	2,433,195		$	2,504,806		$	2,458,110
Direct Marketing			444,019			437,879			405,423
Other			71,118			72,849			62,831
Total		$	2,948,332		$	3,015,534		$	2,926,364
OPERATING EARNINGS
Specialty Retail Stores		$	170,465		$	200,986		$	248,452
Direct Marketing			22,835			11,065			1,714
Other			(18,993	)		(8,660	)		(1,812	)
	Subtotal		174,307			203,391			248,354
Effect of change in vacation policy			16,576			—			—
Impairment and other charges			(13,233	)		(9,763	)		—
Total		$	177,650		$	193,628		$	248,354
CAPITAL EXPENDITURES
Specialty Retail Stores		$	137,615		$	105,173		$	73,234
Direct Marketing			10,118			9,879			9,598
Other			1,513			4,935			6,200
Total		$	149,246		$	119,987		$	89,032
DEPRECIATION EXPENSE
Specialty Retail Stores		$	66,168		$	63,098		$	58,303
Direct Marketing			8,321			7,262			3,559
Other			2,320			2,744			874
Total		$	76,809		$	73,104		$	62,736

F-28

THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. Quarterly Financial Information (Unaudited)

							Year Ended August 3, 2002
(in millions, except for		First		Second			Third			Fourth
per share data)		Quarter		Quarter			Quarter			Quarter			Total
Revenues		$	681.1	$	908.1		$	692.7		$	666.4		$	2,948.3
Gross profit		$	245.3	$	262.3		$	251.3		$	192.1		$	951.0
Net earnings		$	23.0	$	24.3	(1)	$	47.0	(2)	$	5.3	(3)	$	99.6
Earnings per share:
	Basic	$	0.49	$	0.51		$	0.99		$	0.11		$	2.10
	Diluted	$	0.48	$	0.51		$	0.98		$	0.11		$	2.08

						Year Ended July 28, 2001
(in millions, except for		First		Second		Third		Fourth
per share data)		Quarter		Quarter		Quarter		Quarter			Total
Revenues		$	757.2	$	924.0	$	698.5	$	635.8		$	3,015.5
Gross profit		$	298.5	$	289.8	$	245.1	$	161.2		$	994.6
Net earnings		$	50.0	$	39.9	$	38.2	$	(20.6	)(4)	$	107.5
Earnings per share:
	Basic	$	1.06	$	0.85	$	0.81	$	(0.44	)	$	2.28
	Diluted	$	1.05	$	0.84	$	0.80	$	(0.44	)	$	2.26

(1)	Net earnings for the second quarter of fiscal year 2002 reflect a $2.0 million pretax charge in connection with certain cost reduction strategies consisting primarily of severance costs and lease termination expenses incurred in connection with the closing of the Neiman Marcus Galleries store in Seattle, Washington.
(2)	Net earnings for the third quarter of fiscal year 2002 reflect a $16.6 million pretax gain from the change in vacation policy made by the Company and an $8.2 million pretax impairment charge related to the write-off of the remaining net carrying value of its cost method investment in WeddingChannel.com, Inc. in light of its continued operating losses, the write-down of the carrying values of the fixed assets of two Neiman Marcus Galleries stores to estimated fair value and the accrual of the estimated loss associated with the abandonment of excess warehouse space held by the Company pursuant to a long-term operating lease.
(3)	Net earnings for the fourth quarter of fiscal year 2002 reflect a $3.1 million pretax impairment charge recorded by the Company, which represents the write-down of the net carrying values of the fixed assets of three Kate Spade LLC stores to estimated fair value.
(4)	Net earnings for the fourth quarter of fiscal year 2001 reflect a pretax impairment charge of $9.8 million recorded by the Company, which represented the Company’s adjustment to state the carrying value of its cost method investment in WeddingChannel.com, Inc. at its estimated fair value.

F-29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE NEIMAN MARCUS GROUP, INC.
By:	/s/ Nelson A. Bangs
	Nelson A. Bangs Senior Vice President and General Counsel

Dated: October 2, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated.

Signature	Title	Date
/s/ Burton M. Tansky Burton M. Tansky	President and Chief Executive Officer, Director	October 2, 2002
/s/ James E. Skinner James E. Skinner	Senior Vice President and Chief Financial Officer (principal financial officer)	October 2, 2002
/s/ T. Dale Stapleton T. Dale Stapleton	Vice President and Controller (principal accounting officer)	October 2, 2002
/s/ Richard A. Smith Richard A. Smith	Chairman of the Board	October 2, 2002
/s/ Robert A. Smith Robert A. Smith	Vice Chairman	October 2, 2002
/s/ Brian J. Knez Brian J. Knez	Vice Chairman	October 2, 2002
/s/ John R. Cook John R. Cook	Director	October 2, 2002
/s/ Gary L. Countryman Gary L. Countryman	Director	October 2, 2002
/s/ Matina S. Horner Matina S. Horner	Director	October 2, 2002
/s/ Vincent M. O’Reilly Vincent M. O’Reilly	Director	October 2, 2002
/s/ Walter J. Salmon Walter J. Salmon	Director	October 2, 2002
/s/ Carl Sewell Carl Sewell	Director	October 2, 2002
/s/ Dr. Paula Stern Dr. Paula Stern	Director	October 2, 2002

24

CERTIFICATIONS

I, Burton M. Tansky, certify that:

1.	I have reviewed this Annual Report on Form 10-K of The Neiman Marcus Group, Inc.;
2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report.

October 2, 2002

/s/ Burton M. Tansky Burton M. Tansky
President and Chief Executive Officer

I, James E. Skinner, certify that:

1.	I have reviewed this Annual Report on Form 10-K of The Neiman Marcus Group, Inc.;
2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report.

October 2, 2002

/s/ James E. Skinner James E. Skinner
Senior Vice President and Chief Financial Officer

25

THE NEIMAN MARCUS GROUP, INC	SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED AUGUST 3, 2002 (In thousands)

COLUMN A	COLUMN B		COLUMN C				COLUMN D		COLUMN E
	Additions
	Balance at		Charged to		Charged to				Balance at
	Beginning		Costs and		Other		Deductions -		End
Description	of Period		Expenses		Accounts -		(A)		of Period
YEAR ENDED AUGUST 3, 2002 Allowance for doubtful accounts	$	355		216		—		173	$	398
(deducted from accounts receivable)
YEAR ENDED JULY 28, 2001 Allowance for doubtful accounts	$	200		155		—		—	$	355
(deducted from accounts receivable)
YEAR ENDED JULY 29, 2000 Allowance for doubtful accounts	$	2,300		1,357		—		3,457	$	200
(deducted from accounts receivable)

(A) Write-off of uncollectible accounts net of recoveries and other miscellaneous deductions.

27

INDEX TO EXHIBITS

4. Exhibits

Exhibit		Description
No.
3.	1(a)		Restated Certificate of Incorporation of the Company, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 26, 2002.
3.	1(b)		Certificates of Designation with respect to Series A Junior Participating Preferred Stock, Series B Junior Participating Preferred Stock and Series C Junior Participating Preferred Stock, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 1999.
3.	2		Bylaws of the Company. (1)
4.	1		Indenture, dated as of May 27, 1998, between the Company and The Bank of New York, as trustee (the “Indenture”), incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
4.	2		Form of 6.65 percent Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
4.	3		Form of 7.125 percent Senior Note Due 2028, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
4.	4		Amended and Restated Rights Agreement, dated as of August 8, 2002, between the Company and Mellon Investor Services LLC, as Rights Agent. (1)
*10.	1		The Neiman Marcus Group, Inc. 1987 Stock Incentive Plan. (1)
*10.	2		The Neiman Marcus Group, Inc. 1997 Incentive Plan, as amended, incorporated herein by reference to the Company’s Definitive Schedule 14A dated November 23, 2001.
*10.	3		Termination and Change of Control Agreement between the Company and Burton M. Tansky dated October 6, 1999, as supplemented by Letter Agreement dated November 11, 1999, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.
*10.	4		Termination and Change of Control Agreement between the Company and Gerald A. Sampson dated October 6, 1999, as supplemented by Letter Agreement dated November 17, 1999, incorporated herein by reference to the Company’s Quarterly Report or Form 10-Q for the quarter ended October 30, 1999.
*10.	5		Supplemental Executive Retirement Plan. (1)
*10.	6		Description of the Company’s Executive Life Insurance Plan. (1)
*10.	7		Supplementary Executive Medical Plan. (1)
*10.	8		Key Employee Deferred Compensation Plan. (1)

Exhibit		Description
No.
*10.	9		Deferred Compensation Plan For Non-Employee Directors, as amended, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 1998.
*10.	10		Termination and Change of Control Agreement between the Company and Ronald Frasch dated April 27, 2000, incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
*10.	11		Termination and Change of Control Agreement between the Company and Karen W. Katz dated May 22, 2000, incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.	12		Three-Year Credit Agreement dated as August 26, 2002 among the Company, the Lenders parties thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JP Morgan Chase Bank, as Administrative Agent. (1)
10.	13		Neiman Marcus Group Credit Card Master Trust Series 2000-1 Class A Purchase Agreement, dated July 12, 2000, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.	14		Receivables Purchase Agreement dated as of July 2, 2000 between Bergdorf Goodman, Inc. and Neiman Marcus Funding Corporation, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.	15		Receivables Purchase Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 between the Company and Neiman Marcus Funding Corporation, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.	16		Pooling and Servicing Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 between Neiman Marcus Funding Corporation, the Company and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.	17		Series 2000-1 Supplement, dated as of July 21, 2000, to the Pooling and Servicing Agreement, dated as of March 1, 1995, and amended and restated as of July 2, 2000 among Neiman Marcus Funding Corporation, the Company and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.
10.	18		Trustee Resignation and Agent Appointment Agreement dated as of July 2, 2000 by and among the Company, Neiman Marcus Funding Corporation, The Chase Manhattan Bank and The Bank of New York, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2000.

Exhibit	Description
No.
10.19		Amended and Restated Agreement and Plan of Merger, dated as of July 1, 1999, among The Neiman Marcus Group, Inc., Harcourt General, Inc. and Spring Merger Corporation, incorporated herein by reference to the Company’s Definitive Schedule 14A dated August 10, 1999.
10.20		Amended and Restated Distribution Agreement, dated as of July 1, 1999, between Harcourt General, Inc. and The Neiman Marcus Group, Inc., incorporated herein by reference to the Company’s Definitive Schedule 14A dated August 10, 1999.
10.21		Agreement, dated as of September 1, 1999, among the Company and certain holders of the Company’s Class B Common Stock, incorporated herein by reference to the Company’s Annual Report on From 10-K for the fiscal year ended July 31, 1999.
10.22*		Termination and Change of Control Agreement between the Company and Nelson A. Bangs dated April 17, 2001, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2001.
10.23*		Termination and Change of Control Agreement between the Company and James E. Skinner dated June 28, 2001, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2001.
10.24*		Termination and Change of Control Agreement between the Company and Marita O’Dea Glodt dated October 31, 2001, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 27, 2001.
12.1		Computation of Ratio of Earnings to Fixed Charges (Unaudited). (1)
18.1		Letter regarding Change in Accounting Principle, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.
21.1		Subsidiaries of the Company. (1)
23.1		Consent of Deloitte & Touche LLP. (1)

(1)	Filed herewith.
*	Management contract or compensatory plan or arrangement filed pursuant to Item 14(c) of Form 10-K.

EX-3.2 3 d99632exv3w2.txt EX-3.2 BYLAWS OF THE COMPANY EXHIBIT 3.2 - ------------ THE - ------------ NEIMAN - ------------ MARCUS - ------------ GROUP - ------------ BYLAWS OF THE NEIMAN MARCUS GROUP, INC. (As amended through August 15, 2002) TABLE OF CONTENTS ARTICLE I. PREAMBLE.......................................................................................1 ARTICLE II. MEETINGS OF STOCKHOLDERS.......................................................................1 ARTICLE III. DIRECTORS......................................................................................3 ARTICLE IV. OFFICERS.......................................................................................6 ARTICLE V. STOCK..........................................................................................8 ARTICLE VI. NOTICES.......................................................................................10 ARTICLE VII. GENERAL PROVISIONS............................................................................10 ARTICLE VIII. INDEMNIFICATION...............................................................................10 ARTICLE IX. AMENDMENTS....................................................................................14 i BYLAWS OF THE NEIMAN MARCUS GROUP, INC. (hereinafter called the "Corporation") (As amended through August 15, 2002) ARTICLE I. PREAMBLE These Bylaws shall be subject to all provisions of the General Corporation Law of the State of Delaware ("GCL") and all of the provisions of the Certificate of Incorporation. ARTICLE II. MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETINGS. The Annual Meeting of Stockholders shall be held on such date and at such time as shall be designated from to time by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect directors in the manner provided in the Certificate of Incorporation and in these Bylaws, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by the Chairman of the Board of Directors and shall be called by such officer or the Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. SECTION 4. QUORUM. Except as otherwise provided by the GCL or by the Certificate of Incorporation or these Bylaws, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have 1 power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Any stock of the Corporation belonging to the Corporation at the time of any meeting or any adjourned session thereof shall neither be entitled to vote nor counted for quorum purposes provided, however, that this sentence shall not be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. SECTION 5. VOTING. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, (a) any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat and (b) each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 6. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of the stockholders entitled to vote at every meeting of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 7. BUSINESS BROUGHT BEFORE MEETINGS. At any Annual Meeting of Stockholders, only such business shall be conducted as shall have been brought before the meeting (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by a stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 2, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2. For business to be properly brought before an Annual Meeting of Stockholders pursuant to clause (c) above, the stockholder must have given written notice thereof to, either by personal delivery or by United States mail, postage prepaid, and such notice must have been received by, the Secretary of the Corporation, not later than ninety days prior to the anniversary date of the immediately preceding Annual Meeting. Such notice shall set forth: (a) the name and address, as they appear on the Corporation's books, of the stockholder who is proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (b) the number and class of shares of stock of the Corporation that are beneficially owned on the date of such notice by the stockholder, or the beneficial owner on whose behalf the proposal is made; (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; (d) a description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (e) any material interest of such stockholder of record and the beneficial owner, if 2 any, on whose behalf the proposal is made, in such business and (f) a statement as to whether such stockholder of record, and the beneficial owner, if any, intend to solicit proxies in support of such proposal. The presiding officer of the meeting shall determine and declare to the meeting whether or not such business was properly brought before the meeting in accordance with the procedures prescribed by these Bylaws, and at such officer's discretion, may declare such business not properly brought before the meeting and shall not recognize the bringing of such business. At any Special Meeting of Stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation's notice of Special Meeting. ARTICLE III. DIRECTORS SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Except as otherwise fixed pursuant to Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, the Board of Directors shall consist of not less than six nor more than twelve persons, the exact number to be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors. Except as provided in the Certificate of Incorporation or Section 2 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders by the stockholders entitled to vote for the election of directors (or for the election of directors of a given class, as applicable), and each director so elected shall hold office until the annual meeting for the year in which his term expires and until a director of the same class succeeding such director is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. SECTION 2. VACANCIES. Except as otherwise fixed pursuant to the provisions of Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation, acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, and except as otherwise provided pursuant to the provisions of Article Ninth thereof, relating to the power of the Board of Directors to fill newly created directorships and vacancies in the Board of Directors, any vacancy in the office of a director created by the death, resignation, retirement, disqualification, removal from office of a director or other cause, elected by (or appointed on behalf of) the holders of the Class B Common Stock, par value $.01 per share, of the Corporation (the "Class B Common Stock") on the one hand, or the holders of the Class A Common Stock, par value $.01 per share, of the Corporation (the "Class A Common Stock"), and the Class C Common Stock, par value $.01 per share, of the Corporation (the "Class C Common Stock"), on the other hand, as the case may be, shall be filled by the vote of the majority of the directors (or the sole remaining director) elected by (or 3 appointed on behalf of) such holders of Class B Common Stock, on the one hand, or Class A Common Stock and Class C Common Stock, on the other hand (or on behalf of whom that director was appointed), as the case may be, unless there are no such directors in such Class, in which case such vacancy shall be filled by the stockholders of such Class, or the Special Voting Rights (as defined in Section 2(e)(ii) of Article Fourth of the Certificate of Incorporation) have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation, in which case such vacancy shall be filled by the vote of the majority of the directors (or the sole remaining director), regardless of any quorum requirements set out in these Bylaws. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Unless the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation, all newly-created directorships resulting from an increase in the authorized number of directors shall be allocated pursuant to Section (2)(e)(iii) of Article Fourth of the Certificate of Incorporation. Once such newly created directorships have been allocated as Class A Directors or Class B Directors (as such terms are defined in Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation), such newly-created directorships shall be filled by the vote of the majority of the directors in such Class (or the sole remaining director in such Class), as the case shall be, unless there are no such directors in such Class, in which case such vacancy shall be filled by the stockholders of such Class, or the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation, in which case such vacancy shall be filled by the vote of the majority of the directors (or the sole remaining director), regardless of any quorum requirements set out in these Bylaws. Any director elected in accordance with the preceding sentence shall hold office until the annual meeting for the year in which his term expires and until a director of the same Class succeeding such director shall have been elected and qualified or until his earlier resignation or removal. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. SECTION 4. MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman or a majority of the Board of Directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than 48 hours before the date of the meeting, by telephone or telegram on 24 hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. 4 SECTION 5. QUORUM. At all meetings of the Board of Directors, a majority of the Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 6. ACTIONS OF BOARD. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees to exercise the power and authority provided herein with respect to such committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 9. COMPENSATION. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 10. NOMINATION OF DIRECTORS. Except as otherwise fixed pursuant to Article Fourth of the Certificate Incorporation relating to the rights of the holders of any one or more 5 classes or series of Preferred Stock issued by the Corporation acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, ninety days prior to the anniversary date of the immediately preceding annual meeting (or, in the case of the annual meeting to be held in 1988, on or before October 1, 1988); and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. ARTICLE IV. OFFICERS SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be one or more Presidents, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose one or more Chief Executive Officers, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person. The officers of the Corporation need not be stockholders of the Corporation nor need such officers be directors of the Corporation. SECTION 2. ELECTION. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. 6 SECTION 3. RESIGNATIONS AND REMOVALS. Any director or officer may resign at any time by delivering his resignation in writing to the Chairman of the Board of Directors, the President or the Secretary or to a meeting of the Board of Directors. Such resignation shall take effect at the time stated therein, or if no time be so stated then upon its delivery, and without in either case the necessity of its being accepted unless the resignation shall so state. The Board of Directors may at any time remove from office any officer either with or without cause. SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors. SECTION 5. PRESIDENT. The President shall, subject to the control of the Board of Directors, have general supervision of the business of the Corporation. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by the Board of Directors. SECTION 6. VICE-PRESIDENTS. Any Vice-President shall have such duties and powers as shall be designated from time to time by the Board of Directors or the President. SECTION 7. TREASURER AND ASSISTANT TREASURER. The Treasurer shall be in charge of the Corporation's funds and valuable papers. He shall have such other duties and powers as may be designated from time to time by the Board of Directors or the President. Any Assistant Treasurers shall have such duties and powers as shall be designated from time to time by the President or the Treasurer. SECTION 8. CONTROLLER AND ASSISTANT CONTROLLERS. The Controller shall be the chief accounting officer of the Corporation and shall be in charge of its books of account and accounting records and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the Board of Directors or the President. Any Assistant Controllers shall have such duties and powers as shall be designated from time to time by the President or the Controller. SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all the proceedings of the meetings of the stockholders, of the Board of Directors and of committees of the Board of Directors, in books kept for that purpose. In his absence from any such meeting an Assistant Secretary or if there be none or he is absent, a temporary Secretary chosen at the meeting shall record the proceedings thereof. Any Assistant Secretaries shall have such duties and powers as shall be designated from time to time by the President or the Secretary. SECTION 10. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other office of 7 the Corporation the power to choose such other officers and to prescribe their respective duties and powers. SECTION 11. LOANS AND GUARANTIES TO DIRECTORS OR OFFICERS. Upon resolution by vote of disinterested directors, the Corporation may make a loan of money or property to, or guarantee the obligation of, any director or officer of the Corporation or a subsidiary if the Board determines that such transaction may reasonably be expected to benefit the Corporation. ARTICLE V. STOCK SECTION 1. SHARES. The shares of the Corporation shall be represented by certificates or shall be uncertificated. Each registered holder of shares, upon request to the Corporation or its transfer agent, shall be provided with a certificate of stock, representing the number of shares owned by such holder. Absent a specific request for such a certificate by the registered owner or transferee thereof, all shares shall be uncertificated upon the original issuance thereof by the Corporation or upon the surrender of the certificate representing such shares to the Corporation. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of uncertificated shares or certificates for shares of stock of the Corporation. SECTION 2. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares of stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be approved by the Board of Directors. All certificates shall be signed by The Chairman of the Board, the President and by the Secretary of the Corporation and countersigned by an independent transfer agent and registered by an independent registrar. Any or all of the signatures may be facsimiles unless the regulations of the New York Stock Exchange then in effect shall require to the contrary. In case any officer, transfer agent or registrar who has signed or who facsimile signature has been placed upon a certificate shall cease to be such officer, transfer agent or registrar before such certificate is issued, it may nevertheless be issued and delivered by the Corporation with the same effect as if he or she were an officer, transfer agent or registrar at the date of the issue. All certificates for shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of shares and the date of issue thereof shall be entered on the books of the Corporation. SECTION 3. STATEMENTS RELATING TO UNCERTIFICATED SHARES. Within two business days, or such other time as may be required, after uncertificated shares have been registered, the Corporation or its transfer agent shall send to the registered owner thereof a written 8 statement containing a description of the issue of which such shares are a part, the number of shares registered, the date of registration and such other information as may be required or appropriate. SECTION 4. TRANSFERS OF SHARES. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, the Corporation shall issue or cause to be issued uncertificated shares or, if requested by the appropriate person, a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. SECTION 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waiver, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other persons, whether or not it shall have express or other notice thereof, except as otherwise provided bylaw. SECTION 7. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman, the Vice-Chairman of the Board of Directors, the President or any Vice-President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might 9 have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE VI. NOTICES SECTION 1. NOTICES. Whenever written notice is required bylaw, the Certificate of Incorporation or these Bylaws, to be given to any stockholder, such notice may be given by mail, addressed to such stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable and such notice shall be deemed to be given upon receipt. SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any meeting or such other event need be specified in any written waiver of notice. ARTICLE VII. GENERAL PROVISIONS SECTION 1. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, dividends, if any, upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 3. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII. INDEMNIFICATION SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a 10 party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OF PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of 11 authorization in the specific case. Notwithstanding anything contained in this Section 3 to the contrary, the Corporation shall not be required to indemnify any person against any liability, cost or expense (including attorneys' fees) incurred by such person in connection with any action, suit or proceeding voluntarily initiated or prosecuted by such person unless the initiation or prosecution of such action, suit, or proceeding by such person was authorized by a majority of the entire Board of Directors, provided, however, that a majority of the entire Board of Directors may, after any such action, suit or proceeding has been initiated or prosecuted, in its discretion, indemnify any such person against any such liability, cost or expense. SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under Section 3 of the Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or other enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstance in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 or this Article VIII, as the case may be. SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. 12 SECTION 7. NON-EXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of or advancement of expenses to any person who is not specified in Sections 1 or 2 of this Article VIII, including employees or agents of the Corporation, but whom the Corporation has the power or obligation to indemnify under the provisions of GCL, or otherwise. SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII. SECTION 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE VIII. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Each person who is or becomes a director, officer, employee or agent as aforesaid shall be deemed to have served or to have continued to serve in such capacity in reliance upon the indemnity provided for in this Article VIII. 13 ARTICLE IX. AMENDMENTS These Bylaws may be amended, altered, rescinded or repealed at any meeting of the Board of Directors or of the stockholders, provided, in the case of a meeting of stockholders, notice of the proposed change was given in the notice of the meeting; provided, however, that, notwithstanding any other provisions of the Certificate of Incorporation, these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any Voting Stock (as defined in the Certificate of Incorporation of the Corporation) required by law, the Certificate of Incorporation, or these Bylaws, the affirmative vote of the holders of at least 66 2/3 percent of the combined voting power of all the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to amend, alter, rescind or repeal Section 3 of Article II and Sections 1, 2 and 10 of Article III, Article VIII and this Article IX of these Bylaws. 14 EX-4.4 4 d99632exv4w4.txt EX-4.4 AMENDED AND RESTATED RIGHTS AGREEMENT Exhibit 4.4 - -------------------------------------------------------------------------------- AMENDED AND RESTATED RIGHTS AGREEMENT THE NEIMAN MARCUS GROUP, INC. and MELLON INVESTOR SERVICES LLC as Rights Agent Dated as of August 8, 2002 - -------------------------------------------------------------------------------- TABLE OF CONTENTS

PAGE Section 1. Certain Definitions..................................................................................3 Section 2. Appointment of Rights Agent.........................................................................13 Section 3. Issue of Right Certificates.........................................................................14 Section 4. Form of Right Certificates..........................................................................17 Section 5. Countersignature and Registration...................................................................18 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates........................................................18 Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights.......................................20 Section 8. Cancellation and Destruction of Right Certificates..................................................22 Section 9. Availability of Shares of Preferred Stock...........................................................22 Section 10. Preferred Stock Record Date.........................................................................25 Section 11. Adjustment of Purchase Price, Number of Shares and Number of Rights.................................25 Section 12. Certificate of Adjusted Purchase Price or Number of Shares..........................................42 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earnings Power...............................43 Section 14. Fractional Rights and Fractional Shares.............................................................49 Section 15. Rights of Action....................................................................................51 Section 16. Agreement of Right Holders..........................................................................52 Section 17. Right Certificate Holder Not Deemed a Stockholder...................................................52 Section 18. Concerning the Rights Agent.........................................................................53 Section 19. Merger or Consolidation or Change of Name of Rights Agent...........................................54 Section 20. Duties of Rights Agent..............................................................................55 Section 21. Change of Rights Agent..............................................................................59 Section 22. Issuance of New Right Certificates,.................................................................61 Section 23. Redemption..........................................................................................61

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PAGE Section 24. Exchange...........................................................................................62 Section 25. Notice of Certain Events...........................................................................66 Section 26. Notices............................................................................................67 Section 27. Supplements and Amendments.........................................................................69 Section 28. Successors.........................................................................................69 Section 29. Benefits of this Agreement.........................................................................69 Section 30. Severability.......................................................................................70 Section 31. Governing Law......................................................................................70 Section 32. Counterparts.......................................................................................70 Section 33. Descriptive Headings...............................................................................71 Section 34. Administration.....................................................................................71

ii RIGHTS AGREEMENT Amended and Restated Rights Agreement (the "Agreement"), dated as of August 8, 2002, between The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), and Mellon Investor Services LLC, a New Jersey limited liability company (the "Rights Agent"). The Board of Directors of the Company on October 6, 1999 (i)(A) authorized the issuance and declared a dividend of one preferred share purchase right (a "Class A Right") for each share of Class A Common Stock (as hereinafter defined) outstanding as of the close of business (as defined below) on October 18, 1999 (the "Record Date"), each Class A Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of Series A Preferred Stock (as hereinafter defined), upon the terms and subject to the conditions herein set forth in a Rights Agreement, dated October 9, 1999, between the Company and BankBoston, N.A., (the "Rights Agreement"), and (B) further authorized and directed the issuance of one Class A Right (subject to adjustment as provided herein) with respect to each share of Class A Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined); provided, however, that Class A Rights may be issued with respect to shares of Class A Common Stock that shall become outstanding after the Distribution Date and prior to the Redemption Date and the Final Expiration Date in accordance with Section 22, (ii)(A) authorized the issuance and declared a dividend of one preferred share purchase right (a "Class B Right") for each share of Class B Common Stock (as hereinafter defined) outstanding as of the close of business (as defined below) on the Record Date, each Class B Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of Series B Preferred 2 Stock (as hereinafter defined), upon the terms and subject to the conditions set forth in the Rights Agreement, and (B) further authorized and directed the issuance of one Class B Right (subject to adjustment as provided herein) with respect to each share of Class B Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined); provided, however, that Class B Rights may be issued with respect to shares of Class B Common Stock that shall become outstanding after the Distribution Date and prior to the Redemption Date and the Final Expiration Date in accordance with Section 22 and (iii)(A) authorized and directed the issuance of one preferred share purchase right (a "Class C Right" and together with the Class A Rights and the Class B rights, the "Rights") (subject to adjustment as provided herein) with respect to each share of Class C Common Stock (as hereinafter defined) that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined), each Class C Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of Series C Preferred Stock (as hereinafter defined), upon the terms and subject to the conditions herein set forth; provided, however, that Class C Rights may be issued with respect to shares of Class C Common Stock that shall become outstanding after the Distribution Date and prior to the Redemption Date and the Final Expiration Date in accordance with Section 22. The Board of Directors of the Company, desiring to appoint Mellon Investor Services LLC as successor Rights Agent, desire to restate and amend the terms of the Agreement herein as so amended. Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: 3 Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meaning indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which shall be the Beneficial Owner (as such term is hereinafter defined) of (a) 15% or more of the shares of Class B Common Stock (as such term is hereinafter defined) then outstanding or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding, but shall not include an Exempt Person (as such term is hereinafter defined); provided, however, that if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person" has become such inadvertently (including, without limitation, because (i) such Person was unaware that it beneficially owned a percentage of Common Stock that would otherwise cause such Person to be an "Acquiring Person" or (ii) such Person was aware of the extent of its Beneficial Ownership of Common Stock but had no actual knowledge of the consequences of such Beneficial Ownership under this Rights Agreement) and without any intention of changing or influencing control of the Company, and such Person as promptly as practicable divested or divests himself or itself of Beneficial Ownership of a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, then such Person shall not be deemed to be or to have become an "Acquiring Person" for any purposes of this Agreement. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of shares of Common Stock by the Company which, by reducing the number of shares outstanding, increases 4 the proportionate number of shares beneficially owned (or votes entitled to be cast) by such Person to (a) 15% or more of the shares of Class B Common Stock then outstanding or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding; provided, however, that if a Person shall become the Beneficial Owner of (a) 15% or more of the shares of Class B Common Stock then outstanding or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding by reason of such share acquisitions by the Company and thereafter become the Beneficial Owner of any additional shares of Class B Common Stock, in the case of clause (a) above, or Common Stock, in the case of clause (b) above, then such Person shall be deemed to be an "Acquiring Person" unless upon the consummation of the acquisition of such additional shares of Class B Common Stock or Common Stock, as the case may be, such Person does not beneficially own (a) 15% or more of the shares of Class B Common Stock then outstanding or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding. The phrase "then outstanding", when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. 5 (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. (c) A Person shall be deemed the "Beneficial Owner" of, shall be deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates is deemed to beneficially own, directly or indirectly within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase, (y) securities which such Person has a right to acquire on the exercise of Rights at any time prior to the time a Person becomes an 6 Acquiring Person or (z) securities issuable upon exercise of Rights from and after the time a Person becomes an Acquiring Person if such Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof ("original Rights") or pursuant to Section 11(i) or Section 11(n) with respect to an adjustment to original Rights; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security by reason of such agreement, arrangement or understanding if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company; provided, however, that notwithstanding anything else contained in this Section 1(c): 7 (1) no Smith Holder shall be deemed to be the Beneficial Owner of securities beneficially owned by any other Person that is not a Smith Holder solely by reason of such other Person's status as an Affiliate or Associate of any Smith Holder or any other Person, other than Harcourt General, Inc. or its subsidiaries unless (A) one or more Smith Holders, collectively, beneficially owns fifty percent or more of the voting power of such other Person or such other Person beneficially owns fifty percent or more of the voting power of a Smith Holder that is not a natural person, (B) a majority of the board of directors or other governing body of such other Person is comprised of Smith Holders or such other Person has the power to nominate a majority of the board of directors or other governing body of a Smith Holder that is not a natural person, (C) such other Person is a spouse or lineal descendant of a grandparent of a Smith Holder (or any spouse of a lineal descendent of a grandparent of a Smith Holder) or (D) a primary purpose of such other Person becoming an Affiliate or Associate of a Smith Holder or any other Person after the date of this Agreement is to circumvent the purposes of this Agreement; (2) no Person, other than Harcourt General, Inc. and its subsidiaries, shall be deemed to be the Beneficial Owner of securities beneficially owned by a Smith Holder solely by reason of such Person's status as an officer, director or employee of a Smith Holder or any Smith Holder's or other Person's status as an Affiliate or Associate of such Person, unless (A) one or more Smith Holders, collectively, beneficially owns fifty percent or more of the voting power of such Person, or such Person beneficially owns fifty percent or more of the voting power of a Smith Holder that is not a natural person, (B) a majority of the board of directors or other governing body of such Person is comprised of Smith Holders or such Person has the power to nominate a majority of the board of directors or other governing body of a 8 Smith Holder that is not a natural person, (C) such Person is a spouse or lineal descendant of a grandparent of a Smith Holder (or any spouse of a lineal descendant of a grandparent of a Smith Holder) or (D) a primary purpose of such Smith Holder becoming an Affiliate or Associate of any other Person after the date of this Agreement is to circumvent the purposes of this Agreement; and (3) no bona fide financial institution that is a pledgee of a Smith Holder (a "Pledgee") shall be deemed to the Beneficial Owner of securities beneficially owned by a Smith Holder solely by reason of such Pledgee's status as a pledgee of a Smith Holder and so long as such Pledgee may report the ownership of those shares that are acquired pursuant to the pledge on a Schedule 13G (or any comparable or successor report) under the Exchange Act, provided however, that if such Pledgee forecloses on any such pledge and a Smith Holder thus ceases to beneficially own such pledged shares, the Pledgee shall be deemed to beneficially own such shares; unless such pledged shares are sold within one-hundred and eighty (180) days of such foreclosure; (d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the States of New York or New Jersey are authorized or obligated by law or executive order to close. (e) "Class A Common Stock" shall mean the Class A Common Stock, par value $.01 per share, of the Company. (f) "Class B Common Stock" shall mean the Class B Common Stock, par value $.01 per share, of the Company. (g) "Class C Common Stock" shall mean the Class C Common Stock, par value $.01 per share, of the Company. 9 (h) "Class A Right" shall have the meaning set forth in the Recitals hereto. (i) "Class B Right" shall have the meaning set forth in the Recitals hereto. (j) "Class C Right" shall have the meaning set forth in the Recitals hereto. (k) "Class A Right Certificate" shall have the meaning set forth in Section 3(a) hereof. (l) "Class B Right Certificate" shall have the meaning set forth in Section 3(a) hereof. (m) "Class C Right Certificate" shall have the meaning set forth in Section 3(a) hereof. (n) "Close of Business" on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. (o) "Common Stock" when used with reference to the Company shall mean, collectively, the Class A Common Stock, the Class B Common Stock and the Class C Common Stock. "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock (or, in the case of an unincorporated entity, the equivalent equity interest) with the greatest voting power of such other Person or, if such other Person is a subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. (p) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (q) "Exempt Person" shall mean (i) the Company, (ii) any Subsidiary (as such term is hereinafter defined) of the Company, (iii) any employee benefit plan of the 10 Company or of any Subsidiary of the Company, (iv) any entity or trustee holding Common Stock for or pursuant to the terms of any such plan or for the purpose of funding any such plan or funding other employee benefits for employees of the Company or of any Subsidiary of the Company, (v) Harcourt General, Inc., a Delaware corporation, but only for the period beginning on the Record Date and ending at 12:01 a.m. on October 23, 1999 or (vi) the Smith Family Group, so long as the Smith Family Group does not acquire beneficial ownership of (A) additional shares of Class B Common Stock after the date of this Agreement (other than shares of Common Stock, employee stock options or other equity securities of the Company granted by the Company after this Agreement to a member of the Smith Family Group in his or her capacity as a director, officer or employee of the Company, including shares issuable upon the exercise or conversion of such employee stock options or other equity securities) that would represent, together with all shares of Class B Common Stock acquired by the Smith Family Group after the date of this Agreement, more than 6% of the outstanding shares of Class B Common Stock then outstanding after giving effect to such acquisition and (B) additional shares of Common Stock after the date of this Agreement (other than shares of Common Stock, employee stock options or other equity securities of the Company granted by the Company after the date of this Agreement to a member of the Smith Family Group in his or her capacity as a director, officer or employee of the Company, including shares issuable upon the exercise or conversion of such employee stock options or other equity securities) that would represent, together with all shares of Common Stock acquired by the Smith Family Group after the date of this Agreement, more than 6% of the total voting power of the Company represented by the votes entitled to be cast 11 generally (other than in an election of directors) represented by the total number of shares of Common Stock then outstanding. Notwithstanding the foregoing, the Smith Family Group shall not cease to be an "Exempt Person" as a result of the acquisition of shares of Class B Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by the Smith Family Group and acquired after the date of this Agreement to exceed shares representing, in the aggregate, 6% of the shares of Class B Common Stock then outstanding, unless the Smith Family Group thereafter acquires beneficial ownership of any additional shares of Class B Common Stock. In addition, the Smith Family Group shall not cease to be an "Exempt Person" as a result of the acquisition of shares of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate voting power of the Company represented by the shares beneficially owned by the Smith Family Group and acquired after the date of this Agreement to exceed shares representing, in the aggregate, 6% of the total voting power of the Company represented by the votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding, unless the Smith Family Group thereafter acquires beneficial ownership of any additional shares of Common Stock. (r) "Final Expiration Date" shall have the meaning set forth in Section 7 hereof. (s) "New York Stock Exchange" shall mean the New York Stock Exchange, Inc. 12 (t) "Person" shall mean any individual, firm, corporation, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. (u) "Preferred Stock" shall mean, collectively, (i) the Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Series A Preferred Stock"), (ii) the Series B Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Series B Preferred Stock") and (iii) the Series C Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Series C Preferred Stock"), in each case having the rights and preferences set forth in the Form of Certificate of Designations attached to this Agreement as Exhibit A-1, Exhibit A-2 and Exhibit A-3, respectively. (v) "Redemption Date" shall have the meaning set forth in Section 7 hereof. (w) "Right Certificate" shall mean collectively or severally, as the context shall require, the Class A Right Certificate, the Class B Right Certificate and/or the Class C Right Certificate. (x) "Securities Act" shall mean the Securities Act of 1933, as amended (y) "Smith Family Group" shall mean (i) the parties to the Smith-Lurie/Marks Family Stockholders' Agreement, dated as of September 1, 1999 (as amended, supplemented, or otherwise modified from time to time, provided that a primary purpose of any such amendment, supplement or modification is not to circumvent the purposes of this Agreement, the "Stockholders' Agreement"), any Person who is described in any of clauses (i) through (v) (other than clause (i)(C)) of Section 4 of the Stockholders' Agreement and Harcourt General, Inc. and its subsidiaries, so long as Harcourt General, 13 Inc. is an Affiliate of any party to the Stockholders' Agreement (collectively, the "Smith Holders") or (ii) any other Person, to the extent such Person would be deemed to be the Beneficial Owner of Common Stock beneficially owned by a Smith Holder, solely by reason of such Person's status as an Affiliate or Associate of a Smith Holder or any other Person on the date of this Agreement. (z) "Stock Acquisition Date" shall mean the first date of public announcement (which for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such or such earlier date as a majority of the Board of Directors shall become aware of the existence of an Acquiring Person. (aa) "Subsidiary" or "subsidiary" of any Person shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by such Person, and any corporation or other entity that is otherwise controlled by such Person. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable, upon ten (10) days' prior notice to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall in no event be liable for, the acts or omissions of any such co-Rights Agent. 14 Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth Business Day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than an Exempt Person) of, or of the first public announcement of the intention of such Person (other than an Exempt Person) to commence, a tender or exchange offer the consummation of which would result in any Person becoming the Beneficial Owner of (a) shares of Class B Common Stock aggregating 15% or more of the Class B Common Stock then outstanding or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of Common Stock then outstanding (including any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Stock registered in the names of the holders thereof and not by separate Right Certificates and (y) the Rights will be transferable only in connection with the transfer of Common Stock. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, (A) to each record holder of Class A Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Class A Right Certificate, in substantially the form of Exhibit B-1 hereto (a "Class A Right Certificate"), evidencing one Class A Right (subject to adjustment as provided herein) for each share of Class A Common 15 Stock so held, (B) to each record holder of Class B Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Class B Right Certificate, in substantially the form of Exhibit B-2 hereto (a "Class B Right Certificate"), evidencing one Class B Right (subject to adjustment as provided herein) for each share of Class B Common Stock so held and (C) to each record holder of Class C Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Class C Right Certificate, in substantially the form of Exhibit B-3 hereto (a "Class C Right Certificate"), evidencing one Class C Right (subject to adjustment as provided herein) for each share of Class C Common Stock so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Shares of Preferred Stock, in substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of Common Stock as of the close of business on the Record Date (other than any Acquiring Person or any Associate or Affiliate of any Acquiring Person), at the address of such holder shown on the records of the Company. With respect to certificates for Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with the Summary of Rights. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Stock outstanding on the Record 16 Date, with or without a copy of the Summary of Rights, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. (c) Certificates issued for Common Stock (including, without limitation, upon transfer of outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between The Neiman Marcus Group, Inc. and Mellon Investor Services LLC, as successor Rights Agent to BankBoston, N.A., dated as of October 6, 1999, as the same may be amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of The Neiman Marcus Group, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Neiman Marcus Group, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will become null and void and will no longer be transferable. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate, except as otherwise provided herein, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. In the event that the Company purchases or otherwise acquires any Common Stock after the Record Date but prior to the Distribution Date, any Rights associated 17 with such Common Stock shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Stock which are no longer outstanding. Notwithstanding this paragraph (c), the omission of a legend shall not affect the enforceability of any part of this Agreement or the rights of any holder of the Rights. Section 4. Form of Right Certificates. The Class A Right Certificates, the Class B Right Certificates and the Class C Right Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in Exhibit B-1, Exhibit B-2 and Exhibit B-3, respectively, hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate (but which do not affect the rights, duties or responsibilities of the Rights Agent) and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of the New York Stock Exchange or of any other stock exchange or automated quotation system on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Sections 11, 13 and 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the price per one one-thousandth of a share of Preferred Stock set forth therein (the "Purchase Price"), but the number of such one one-thousandths of a share of Preferred Stock and the Purchase Price shall be subject to adjustment as provided herein. 18 Section 5. Countersignature and Registration. (a) The Right Certificates shall be executed on behalf of the Company by the Chairman of the Board of Directors, the President, any of the Vice Presidents, the Treasurer or the Controller of the Company, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the Person who signed such Right Certificates, had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company, by any Person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such Person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at an office or agency designated for such purpose, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a) Subject to the provisions of Sections 19 7(e), 11(a)(ii) and 14 hereof, at any time after the close of business on the Distribution Date, and prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or agency of the Rights Agent designated for such purpose. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Subject to the provisions of Section 11(a)(ii) hereof, at any time after the Distribution Date and prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights 20 Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights. (a) Except as otherwise provided herein, the Rights shall become exercisable on the Distribution Date, and thereafter the registered holder of any Right Certificate may, subject to Section 11(a)(ii) hereof and except as otherwise provided herein, exercise the Rights evidenced thereby in whole or in part upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office or agency of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-thousandth of a share of Preferred Stock as to which the Rights are exercised, at any time which is both after the Distribution Date and prior to the earliest of (i) the close of business on October 6, 2009 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. (b) The "Purchase Price" shall be initially (i)$ 100.00 for each one one-thousandth of a share of Series A Preferred Stock, (ii) $100.00 for each one one-thousandth of a share of Series B Preferred Stock and (iii) $100.00 for each one one-thousandth of a share of Series C Preferred Stock, in each case purchasable upon the exercise of a Right. The Purchase Price and the number of one one-thousandths of a share of Preferred Stock or other securities or property to be acquired upon exercise of a Right shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) of this Section 7. 21 (c) Except as otherwise provided herein, upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the aggregate Purchase Price for the number of one one-thousandths of a share of Preferred Stock to be purchased and an amount equal to any applicable tax or governmental charge required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof, in cash or by certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Stock certificates for the number of one one-thousandths of a share of Preferred Stock to be purchased (and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests), or (B) requisition from the depositary agent depositary receipts representing interests in such number of one one-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) (and the Company hereby directs the depositary agent to comply with such request), (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when necessary to comply with this Agreement, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) Except as otherwise provided herein, in case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the exercisable Rights remaining unexercised shall be 22 issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder of Rights upon the occurrence of any purported transfer or exercise of Rights pursuant to Section 6 hereof or this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of assignment or election to purchase set forth on the reverse side of the Right Certificate surrendered for such transfer or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy, or cause to be destroyed, such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Availability of Shares of Preferred Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and 23 unissued shares of Preferred Stock or any shares of Preferred Stock held in its treasury, the number of shares of Preferred Stock that will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the time that a Person becomes an Acquiring Person, shares of Common Stock and other securities) issuable upon the exercise of Rights may be listed or admitted to trading on the New York Stock Exchange or listed on any other national securities exchange or quotation system, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed or admitted to trading on the New York Stock Exchange or listed on any other exchange or quotation system upon official notice of issuance upon such exercise. (c) From and after such time as the Rights become exercisable, the Company shall use its best efforts, if then necessary to permit the issuance of shares of Preferred Stock (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) upon the exercise of Rights, to register and qualify such shares of Preferred Stock (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) under the Securities Act and any applicable state securities or "Blue Sky" laws (to the extent exemptions therefrom are not available), cause such registration statement and qualifications to become effective as soon as possible after such filing and keep such registration and qualifications effective until the earlier of the date as of which the Rights are no longer exercisable for such securities and the Final Expiration Date. The Company may temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights in order to prepare and file a registration statement under the Securities Act and permit it 24 to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect (and shall provide the Rights Agent with copies of such announcements). Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement under the Securities Act (if required) shall have been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Preferred Stock (and, following the time that a Person becomes an Acquiring Person, shares of Common Stock and other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates therefor (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. (e) The Company further covenants and agrees that it will pay when due and payable any and all taxes and governmental charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any shares of Preferred Stock (or shares of Common Stock or other securities) upon the exercise of Rights. The Company shall not, however, be required to pay any tax or charge which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Stock (or shares of Common Stock or other securities) in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates or depositary receipts for Preferred Stock (or shares of Common Stock or other securities) upon the exercise of any Rights until any 25 such tax or charge shall have been paid (any such tax or charge being payable by that holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each Person in whose name any certificate for Preferred Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Stock for which the Rights shall be exercisable, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number of Shares and Number of Rights. The Purchase Price, the number of shares of Preferred Stock or other securities or property purchasable upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on any series of Preferred Stock payable in shares of Preferred Stock, (B) subdivide any series of outstanding Preferred Stock, (C) combine the shares of any outstanding series of Preferred Stock into a smaller number of shares of Preferred Stock or (D) issue any shares of its capital stock in a reclassification of any series of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the 26 Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the applicable Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date, the holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. So long as Class A Rights, Class B Rights and Class C Rights are outstanding, the Corporation shall not effect any of the actions set forth in Clauses (A), (B), (C) or (D) of this paragraph with respect to either the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock unless the Corporation shall also contemporaneously effect a like transaction with respect to the other such series; provided, however, that in the event that such a transaction is effected with respect to one such series but no such shares of the other series are outstanding, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable upon such date, shall be proportionately adjusted with respect to the holders of Rights exercisable for shares of such series that are not outstanding as if such a dividend, subdivision, combination or reclassification had been effected with respect to the shares of such series. 27 (ii) Subject to Section 24 of this Agreement and except as otherwise provided in this Section 11(a)(ii), in the event any Person becomes an Acquiring Person, each holder of a Right shall thereafter have the right to receive, upon exercise thereof at a price equal to the then current applicable Purchase Price multiplied by the number of one one-thousandths of a share of Preferred Stock for which such Right is then exercisable, in accordance with the terms of this Agreement and in lieu of shares of Preferred Stock, such number of shares of Class A Common Stock (in the case of a Class A Right), Class B Common Stock (in the case of a Class B Right) or Class C Common Stock (in the case of a Class C Right) (or at the option of the Company, such number of one one-thousandths of a share of Series A Preferred Stock (in the case of a Class A Right), Series B Preferred Stock (in the case of a Class B Right) or Series C Preferred Stock (in the case of a Class C Right)) as shall equal the result obtained by (x) multiplying the then current applicable Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Class A Common Stock (in the case of a Class A Right), Class B Common Stock (in the case of a Class B Right) or Class C Common Stock (in the case of a Class C Right) (determined pursuant to Section 11(d) hereof) on the date of the occurrence of such event; provided, however, that the applicable Purchase Price and the number of shares of Common Stock so receivable upon exercise of a Right shall thereafter be subject to further adjustment as appropriate in accordance with Section 11(f) hereof. Notwithstanding anything in this 28 Agreement to the contrary, however, from and after the time (the "invalidation time") when any Person first becomes an Acquiring Person, any Rights that are beneficially owned by (x) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the invalidation time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (II) a transfer which the Board of Directors has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this paragraph, and subsequent transferees of such Persons, shall be void without any further action and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights under any provision of this Agreement. The Company shall use all reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. From and after the invalidation time, no Right Certificate shall be issued pursuant to Section 3 or Section 6 hereof that represents Rights that are or have become void pursuant to the provisions of this paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have 29 become void pursuant to the provisions of this paragraph shall be cancelled. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and not pursuant to this Section 11(a)(ii). (iii) The Company may at its option substitute for a share of Common Stock issuable upon the exercise of Rights in accordance with the foregoing subparagraph (ii) such number or fractions of shares of the applicable series of Preferred Stock having an aggregate current market value equal to the current per share market price of a share of the applicable class of Common Stock. In the event that there shall not be sufficient shares of Common Stock of any class issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Board of Directors shall, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party (A) determine the excess of (1) the value of the shares of Common Stock issuable upon the exercise of each Class A Right, each Class B Right and each Class C Right in accordance with the foregoing subparagraph (ii) (the "Current Values") over (2) the then current applicable Purchase Price multiplied by the number of one one-thousandths of shares of Preferred Stock for which such Right was exercisable immediately prior to the time that the Acquiring Person became such (such excess, the "Spread"), and (B) with respect to each Right (other than Rights which have become void pursuant to Section 11(a)(ii)), make adequate provision to 30 substitute for the shares of Class A Common Stock, Class B Common Stock or Class C Common Stock, as the case may be, issuable in accordance with subparagraph (ii) upon exercise of the Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the applicable Purchase Price, (3) shares of Preferred Stock or other equity securities of the Company (including, without limitation, shares or fractions of shares of preferred stock which, by virtue of having dividend, voting and liquidation rights substantially comparable to those of the shares of Common Stock, are deemed in good faith by the Board of Directors to have substantially the same value as the shares of Class A Common Stock (in the case of a Class A Right), Class B Common Stock (in the case of a Class B Right) or Class C Common Stock (in the case of a Class C Right) (such shares of Preferred Stock and shares or fractions of shares of preferred stock are hereinafter referred to as "Common Stock equivalents")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing, having a value which, when added to the value of the shares of Common Stock actually issued upon exercise of such Right, shall have an aggregate value equal to the Current Value (less the amount of any reduction in the applicable Purchase Price), where such aggregate value has been determined by the Board of Directors upon the advice of a nationally recognized investment banking firm selected in good faith by the Board of Directors; provided, however, if the Company shall not make adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the date that the Acquiring Person became such (the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, to the 31 extent permitted by applicable law and any material agreements then in effect to which the Company is a party, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Class A Common Stock (in the case of a Class A Right), Class B Common Stock (in the case of a Class B Right) or Class C Common Stock (in the case of a Class C Right) (to the extent available), and then, if necessary, such number or fractions of shares of the applicable series of Preferred Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If, upon the date any Person becomes an Acquiring Person, the Board of Directors shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, then, if the Board of Directors so elects, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the second and/or third sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii) hereof, that such action shall apply uniformly to all outstanding Class A Rights, Class B Rights and Class C Rights and (y) may suspend the exercisability of the Class A Rights, the Class B Rights and the Class C Rights until the expiration of the Substitution Period in order to seek any 32 authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such second sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Class A Rights, the Class B Rights and the Class C Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the shares of Class A Common Stock (in the case of a Class A Right), Class B Common Stock (in the case of a Class B Right) or Class C Common Stock (in the case of a Class C Right) shall be the current per share market price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and the per share or fractional value of any "Common Stock equivalent" shall be deemed to equal the current per share market price of the Class A Common Stock (in the case of a Class A Right), Class B Common Stock (in the case of a Class B Right) or Class C Common Stock (in the case of a Class B Right). The Board of Directors of the Company may, but shall not be required to, establish procedures to allocate the right to receive (a) shares of Class A Common Stock upon the exercise of the Class A Rights among holders of Class A Rights, (b) shares of Class B Common Stock upon the exercise of the Class B Rights among holders of Class B Rights and (c) shares of Class C Common Stock upon the exercise of the Class C Rights among holders of Class C Rights, in each case, pursuant to this Section 11(a)(iii). (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them (for a period expiring within 33 45 calendar days after such record date) to subscribe for or purchase shares of the applicable series of Preferred Stock (or shares having the same rights, privileges and preferences as the applicable series of Preferred Stock ("equivalent preferred shares")) or securities convertible into the applicable series of Preferred Stock or equivalent preferred shares at a price per share of Preferred Stock or equivalent preferred shares (or having a conversion price per share, if a security convertible into shares of Preferred Stock or equivalent preferred shares) less than the then current per share market price of the applicable series of Preferred Stock (determined pursuant to Section 11(d) hereof) on such record date, the applicable Purchase Price to be in effect after such record date shall be determined by multiplying the applicable Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of such series of Preferred Stock and equivalent preferred shares outstanding on such record date plus the number of shares of such series of Preferred Stock and equivalent preferred shares which the aggregate offering price of the total number of shares of such series of Preferred Stock and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares of such series of Preferred Stock and equivalent preferred shares outstanding on such record date plus the number of additional shares of such series of Preferred Stock and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such 34 consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Shares of Preferred Stock and equivalent preferred shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of any series of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the applicable Purchase Price to be in effect after such record date shall be determined by multiplying the applicable Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the applicable series of Preferred Stock (determined pursuant to Section 11(d) hereof) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of such series of Preferred Stock, and the denominator of which shall be such current per share market price (determined pursuant to Section 11(d) hereof) of such series of Preferred Stock; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be 35 less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the applicable Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (i) Except as otherwise provided herein, for the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the average of the daily closing prices per share of such Security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to but not including such date; provided, however, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported by the principal consolidated transaction reporting system with respect to securities 36 listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day. (ii) For the purpose of any computation hereunder, if any series of Preferred Stock is publicly traded, the "current per share market price" of such series of Preferred Stock shall be determined in accordance with the method set forth in Section 11(d)(i). If any series of Preferred Stock is not publicly traded but the corresponding series of Common Stock is publicly traded, the "current per share market price" of such series of Preferred Stock shall be conclusively deemed to be the current per share market price of the corresponding series of Common Stock as determined pursuant to Section 11(d)(i) multiplied by one thousand (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof). If neither the Common Stock nor the corresponding Preferred Stock of any series is publicly traded, "current per share market price" shall mean the fair value per share as determined in good 37 faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the applicable Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one ten-thousandth of a share of Preferred Stock or share of Common Stock or other share or security as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Stock, thereafter the Purchase Price and the number of such other shares so receivable upon exercise of a Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), 11(b), 11(c), 11(e), 11(h), 11(i) and 11(m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a share of Preferred Stock purchasable 38 from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one ten-thousandth of a share of Preferred Stock) of the applicable series obtained by (i) multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior to such adjustment by (y) the applicable Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the applicable Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-thousandths of a share of the applicable series of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the applicable Purchase Price in effect immediately prior to adjustment of the Purchase Price by the applicable Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the 39 adjustment, and, if known at the time, the amount of the adjustment to be made and shall promptly give the Rights Agent a copy of such announcement. This record date may be the date on which the applicable Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company may, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the applicable Purchase Price or the number of one one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the applicable Purchase Price and the number of one one-thousandths of a share of Preferred Stock which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Preferred Stock or other shares of capital stock issuable upon exercise of the Rights, the Company shall take any corporate action which 40 may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Preferred Stock or other such shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer (and shall give prompt written notice of such election to the Rights Agent) until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price for any series of Preferred Stock, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of any series of Preferred Stock, issuance wholly for cash of any shares of any series of Preferred Stock at less than the current market price, issuance wholly for cash or any series of Preferred Stock or securities which by their terms are convertible into or exchangeable for any series of Preferred Stock, dividends on any series of Preferred Stock payable in shares of Preferred Stock or issuance of rights, options or warrants referred to hereinabove in Section 41 11(b), hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. (n) Anything in this Agreement to the contrary notwithstanding, in the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on any class of shares of Common Stock payable in Common Stock or (ii) effect a subdivision, combination or consolidation of any class of Common Stock (by reclassification or otherwise other than by payment of a dividend payable in Common Stock) into a greater or lesser number of Common Stock, then in any such case, the number of Rights associated with each share of Common Stock of such class then outstanding, or issued or delivered thereafter, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock of such class following any such event shall equal the result obtained by (A) in the case of the Class A Rights, multiplying the number of Class A Rights associated with each share of Class A Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Class A Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Class A Common Stock outstanding immediately following the occurrence of such event, (B) in the case of the Class B Rights, multiplying the number of Class B Rights associated with each share of Class B Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Class B Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Class B Common Stock outstanding immediately following the occurrence of such event and (C) in the case of the Class C Rights, multiplying the number of Class C Rights associated with each share of Class C 42 Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Class C Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Class C Common Stock outstanding immediately following the occurrence of such event . The adjustments provided for in this Section 11(n) shall be made successively to any class of Common Stock whenever such a dividend is declared or paid or such subdivision, combination or consolidation is effected on such class of Common Stock. (o) The Company agrees that, after the earlier of the Distribution Date or the Stock Acquisition Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or eliminate the benefits intended to be afforded by the Rights. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and/or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts and computations accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Stock or the Preferred Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof (if so required under Section 25 hereof). The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. 43 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earnings Power. (a) In the event, directly or indirectly, at any time after any Person has become an Acquiring Person, (i) the Company shall merge with and into any other Person, (ii) any Person shall consolidate with the Company, or any Person shall merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Stock shall be changed into or exchanged for stock or other securities of any other Person (or of the Company) or cash or any other property, or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person (other than the Company or one or more of its wholly-owned Subsidiaries), then in each such case, proper provision shall be made so that: (A) each holder of record of a Right (other than Rights which have become void pursuant to Section 11(a)(ii)) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current applicable Purchase Price multiplied by the number of one one-thousandths of a share of Preferred Stock for which the applicable Right is then exercisable (each as subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)), in accordance with the terms of this Agreement and in lieu of Preferred Stock, such number of validly issued, fully paid and non-assessable and freely tradeable shares of Common Stock of the Principal Party (as defined herein) not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable (as subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 44 11(i) and 11(m)) and (2) dividing that product by 50% of the then current per share market price of the Common Stock of such Principal Party (determined pursuant to Section 11(d)(i) hereof) on the date of consummation of such consolidation, merger, sale or transfer; provided, that the Purchase Price and the number of shares of Common Stock of such Principal Party issuable upon exercise of each Right shall be further adjusted as provided in Section 11(f) of this Agreement to reflect any events occurring in respect of such Principal Party after the date of such consolidation, merger, sale or transfer; (B) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed to refer to such Principal Party; and (D) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its shares of Common Stock in accordance with Section 9 hereof) in connection with such consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the Rights; provided, that, upon the subsequent occurrence of any consolidation, merger, sale or transfer of assets or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the applicable Purchase Price as provided in this Section 13(a), such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the Common Stock of the Principal Party receivable upon the exercise of a Right pursuant to this Section 13(a), and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the 45 Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property. (b) "Principal Party" shall mean (i) in the case of any transaction described in clauses (i) or (ii) of the first sentence of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer of the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or (y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives) or (z) the Person resulting from the consolidation; and (ii) in the case of any transaction described in clause (iii) of the first sentence in Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Stock having the greatest aggregate market value of shares outstanding; 46 provided, however, that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, the term "Principal Party" shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stock of all of which is and has been so registered, the term "Principal Party" shall refer to whichever of such Persons is the issuer of Common Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests. (c) The Company shall not consummate any consolidation, merger, sale or transfer referred to in Section 13(a) hereof unless prior thereto the Company and the Principal Party involved therein shall have executed and delivered to the Rights Agent an agreement confirming that the requirements of Sections 13(a) and (b) hereof shall promptly be performed in accordance with their terms and that such consolidation, merger, sale or transfer of assets shall not result in a default by the Principal Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof and providing that, as soon as practicable after executing such agreement pursuant to this Section 13, the Principal Party will: 47 (i) prepare and file a registration statement under the Securities Act, if necessary, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Final Expiration Date, and similarly comply with applicable state securities laws; (i) use its best efforts, if the Common Stock of the Principal Party shall be listed or admitted to trading on the New York Stock Exchange or on another national securities exchange, to list or admit to trading (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on the New York Stock Exchange or such securities exchange, or, if the Common Stock of the Principal Party shall not be listed or admitted to trading on the New York Stock Exchange or a national securities exchange, to cause the Rights and the securities receivable upon exercise of the Rights to be reported by such other system then in use; (ii) deliver to holders of the Rights historical financial statements for the Principal Party which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; and (iii) obtain waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. 48 (d) In case the Principal Party has provision in any of its authorized securities or in its certificate of incorporation or by-laws or other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights pursuant to this Section 13), in connection with, or as a consequence of, the consummation of a transaction referred to in this Section 13, shares of Common Stock of such Principal Party at less than the then current market price per share thereof (determined pursuant to Section 11(d) hereof) or securities exercisable for, or convertible into, Common Stock of such Principal Party at less than such then current market price, or (ii) providing for any special payment, tax or similar provision in connection with the issuance of the Common Stock of such Principal Party pursuant to the provisions of Section 13, then, in such event, the Company hereby agrees with each holder of Rights that it shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been cancelled, waived or amended, or that the authorized securities shall be redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction. (e) The Company covenants and agrees that it shall not, at any time after a Person first becomes an Acquiring Person, enter into any transaction of the type contemplated by clauses (i), (ii) or (iii) of Section 13(a) hereof if (x) at the time of or immediately after such consolidation, merger, sale, transfer or other transaction there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (y) prior to, simultaneously with or immediately after such consolidation, merger, sale, transfer of other 49 transaction, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates or Associates or (z) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected 50 by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). Interests in fractions of Preferred Stock in integral multiples of one one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Stock represented by such depositary receipts. In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one share of Preferred Stock. For the purposes of this Section 14(b), the current market value of a share of Preferred Stock shall be the closing price of a share of the applicable series of Preferred Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). 51 Section 15. Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), on his own behalf and for his own benefit, may enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate (or, prior to the Distribution Date, such Common Stock) in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 52 Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Stock; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or agency of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to 53 give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in this Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the preparation, administration, delivery, execution and amendment of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent (each determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction) for any action taken, suffered or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including, without limitation, the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company unless it its determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction that the Rights Agent is not entitled to indemnification due to the Rights Agent's gross negligence, bad faith or willful misconduct. The provisions of this Section 18 and Section 20 below shall survive the termination of this Agreement, the exercise or expiration of the Rights and the resignation or removal of the Rights Agent. 54 (b) The Rights Agent shall be authorized and protected and shall incur no liability for, or in respect of any action taken suffered or omitted by it in connection with, its acceptance and administration of this Agreement in reliance upon any rights Certificate or certificate for any series of Preferred Stock or any class of Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advise of counsel as set forth in Section 20 hereof. The Rights Agent shall not be deemed to have knowledge of any event of which it was supposed to receive notice thereof hereunder, and the Rights Agent shall be fully protected and shall incur no liability for failing to take any action in connection therewith unless and until it has received such notice in writing. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right 55 Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes only the duties and obligations expressly imposed by this Agreement (and no implied duties and obligations) upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent, and the Rights Agent shall incur no liability for, or in respect of, any action taken, suffered or omitted by it in accordance with such advise or opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or 56 established by the Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Controller or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization and protection to the Rights Agent for any action taken, suffered or omitted by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct (each as determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction). Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including, but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage. Any liability of the Rights Agent under this Rights Agreement will be limited to the amount of fees paid by the Company to the Rights Agent. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility or have any liability in respect of the validity of this Agreement or the execution and delivery hereof 57 (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 and 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after receipt of a certificate furnished pursuant to Section 12, describing such change or adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Preferred Stock or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Preferred Stock or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board of Directors, the Chief Executive Officer, the Chief Operating Officer, the 58 President, the Chief Financial Officer or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. 59 (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or any other reason resulting from any such act, default, neglect or misconduct, absent gross negligence, bad faith or willful misconduct (each as determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction) in the selection and continued employment thereof. (j) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of election to purchase set forth on the reverse thereof, as the case may be, has not been completed to certify the holder is not an Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of each class of Common Stock or each series of Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of each class of Common Stock or each series of Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. If the 60 Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a Person organized and doing business under the laws of the United States or any State thereof, which is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million or (b) an Affiliate of a Person described in clause (a). After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of any class of Common Stock or any series of Preferred Stock, and, following the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. 61 Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such forms as may be approved by its Board of Directors to reflect any adjustment or change in the applicable Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of any class of Common Stock following the Distribution Date and prior to the earlier of the Redemption Date and the Final Expiration Date, the Company may, with respect to shares of Common Stock of any class so issued or sold pursuant to (i) the exercise of stock options, (ii) under any employee plan or arrangement, (iii) upon the exercise, conversion or exchange of securities notes or debentures issued by the Company or (iv) a contractual obligation of the Company in each case existing prior to the Distribution Date, issue Right Certificates representing the appropriate number of Rights in connection with such issuance or sale. Section 23. Redemption. (a) The Board of Directors of the Company may, at any time prior to such time as any Person first becomes an Acquiring Person, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (the redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the current market price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. 62 (b) Immediately upon the action of the Board of Directors ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at such later time as the Board of Directors may establish for the effectiveness of such redemption), and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors ordering the redemption of the Rights (or such later time as the Board of Directors may establish for the effectiveness of such redemption), the Company shall give prompt written notice of such redemption to the Rights Agent and shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person first becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for shares of Common Stock (or, at the Company's option, Preferred Stock in accordance with Section 11(a)(iii)) at an exchange ratio of one share of Class A Common Stock per Class A Right (or one one-thousandth of a share of Series A Preferred Stock), one share of Class B Common Stock per Class B Right (or one 63 one-thousandth of a share of Series B Preferred Stock) and one share of Class C Common Stock per Class C Right (or one one-thousandth of a share of Series C Preferred Stock) (adjusted to reflect any stock split, stock dividend or similar transaction with respect to the applicable class of Common Stock occurring after the date hereof; such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of (1) shares of Class B Common Stock aggregating 50% or more of the shares of Class B Common Stock then outstanding or (2) shares of Common Stock representing, in the aggregate, 50% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exchanged pursuant to this Section 24(a) shall thereafter be exercisable only in accordance with Section 13 and may not be exchanged pursuant to this Section 24(a). The exchange of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (b) Immediately upon the effectiveness of the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of holders of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange (with prompt written notice thereof to the Rights Agent); provided, however, that the failure to 64 give, or any defect in, such notice shall not affect the validity of such exchange. The Company shall promptly mail a notice of any such exchange to all of the holders of the Rights so exchanged at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange of (a) Class A Rights shall be effected pro rata based on the number of available shares of Class A Common Stock and the number of Class A Rights (other than Class A Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Class A Rights, (b) Class B Rights shall be effected pro rata based on the number of available shares of Class B Common Stock and the number of Class B Rights (other than Class B Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Class B Rights and (c) Class C Rights shall be effected pro rata based on the number of available shares of Class C Common Stock and the number of Class C Rights (other than Class C Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Class C Rights. (c) The Company may at its option substitute, and, in the event that there shall not be sufficient shares of Class A Common Stock, Class B Common Stock or Class C Common Stock, as the case may be, issued but not outstanding or authorized but unissued to permit an exchange of Class A Rights, Class B Rights or Class C Rights, as the case may be, for Class A Common Stock, Class B Common Stock or Class C Common Stock as contemplated in accordance with this Section 24, the Company may, in its discretion, take such action as may be 65 necessary to authorize additional shares of Class A Common Stock, Class B Common Stock or Class C Common Stock for issuance upon exchange of the Class A Rights, the Class B Rights or the Class C Rights. In the event that the Company shall determine not to take such action or shall, after good faith effort, be unable to take such action as may be necessary to authorize such additional shares of Class A Common Stock, Class B Common Stock or Class C Common Stock, the Company shall substitute, to the extent of such insufficiency, for each share of Class A Common Stock, Class B Common Stock or Class C Common Stock that would otherwise be issuable upon exchange of a Class A Right, Class B Right or Class C Right, a number of shares of Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock or fractions thereof (or equivalent preferred shares as such term is defined in Section 11(b)) having an aggregate current per share market price (determined pursuant to Section 11(d) hereof) equal to the current per share market price of one share of Class A Common Stock, Class B Common Stock or Class C Common Stock (determined pursuant to Section 11(d) hereof), as the case may be, as of the date of issuance of such shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be, or fractions thereof (or equivalent preferred shares). (d) The Company shall not, in connection with any exchange pursuant to this Section 24, be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of the applicable class of Common Stock. For the purposes of this paragraph (d), the current market value of a 66 whole share of Class A Common Stock, Class B Common Stock or Class C Common Stock shall be the closing price of a share of Class A Common Stock, Class B Common Stock and Class C Common Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof), as applicable, for the Trading Day immediately prior to but not including the date of exchange pursuant to this Section 24. Section 25. Notice of Certain Events. (a) In case the Company shall at any time after the earlier of the Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend payable in stock of any class to the holders of any series of its Preferred Stock or to make any other distribution to the holders of any series of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to offer to the holders of any series of its Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of any series of Preferred Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of any series of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or winding up of the Company, or (v) to declare or pay any dividend on any class of Common Stock payable in Common Stock or to effect a subdivision, combination or consolidation of any class of Common Stock (by reclassification or otherwise than by payment of dividends in Common Stock), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of such class or series of Common Stock and/or Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of 67 any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Stock for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Stock and/or Preferred Stock, whichever shall be the earlier. (b) In case any event described in Section 11(a)(ii) or Section 13 shall occur then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate (or if occurring prior to the Distribution Date, the holders of the Common Stock) in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) and Section 13 hereof. Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) or by facsimile transmission as follows: The Neiman Marcus Group, Inc. 1618 Main Street Dallas, Texas 75201 Attention: General Counsel Facsimile No.: 214-743-7611 Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage 68 prepaid, addressed (until another address is filed in writing with the Company) or by facsimile transmission as follows: Mellon Investor Services LLC 600 North Pearl, Suite 1010 Dallas, TX 75201 Attention: Relationship Manager Facsimile No.: 214-922-4466 with a copy to: Mellon Investor Services LLC 85 Challenger Road Ridgefield Park, New Jersey 07660 Attention: General Counsel Facsimile No.: 201-296-4004 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. 69 Section 27. Supplements and Amendments. Except as otherwise provided for so long as the Rights are then redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs but subject to the other provisions of this Section, supplement or amend any provision of this Agreement in any respect without the approval of any holders of the Rights. At any time when the Rights are no longer redeemable, no such supplement or amendment shall be made if such supplement or amendment shall adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no such amendment may cause the Rights again to become redeemable or cause the Agreement again to become amendable other than in accordance with this sentence. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, and provided that such supplement or amendment does not change or increase the Rights Agent's rights, duties, liabilities or obligations, the Rights Agent shall execute such supplement or amendment. Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for 70 the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock). Section 30. Severability. If any term, provision, covenant or restriction of this Agreement or applicable to this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 31. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State; provided, however, that all provisions regarding the rights, duties, liabilities and obligations of the Rights Agent shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 71 Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 34. Administration. The Board of Directors of the Company shall have the exclusive power and authority to: (i) administer and interpret the provisions of this Agreement, including, without limiting the generality of the foregoing, to administer and interpret the provisions of this Agreement relating to Exempt Persons to effectuate the purpose of such provisions, and (ii) to exercise all rights and powers specifically granted to the Board of Directors or the Company or as may be necessary or advisable in the administration of this Agreement. All such actions, calculations, determinations and interpretations which are done or made by the Board of Directors in good faith shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and shall not subject the Board of Directors to any liability to the holders of the Rights. [The remainder of this page intentionally left blank.] 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. THE NEIMAN MARCUS GROUP, INC. By: /s/ Nelson A. Bangs -------------------------------------- Name: Nelson A. Bangs Title Senior Vice President and General Counsel MELLON INVESTOR SERVICES LLC By: /s/ Timothy D. Oliver -------------------------------------- Name: Timothy D. Oliver Title Vice President EXHIBIT A-1 FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF THE NEIMAN MARCUS GROUP, INC. (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ---------- The Neiman Marcus Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on October 6, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby adopts the resolution establishing the designation, number of shares, preferences, voting powers and other rights, and the restrictions and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series A Preferred Stock. A-1-1 Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock"), Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") and Class C Common Stock, par value $.01 per share, of the Company ("Class C Common Stock" and, together with the Class A Common Stock and Class B Common Stock, the "Common Stock") and of any other stock of the Company ranking junior to the Series A Preferred Stock, and on a pari passu basis with the Series B Preferred Stock and the Series C Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Class A Common Stock, declared on the Class A Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class A Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Class A Common Stock (other than a dividend payable in shares of Class A Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Class A Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series A Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall A-1-2 begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights; (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series A Preferred Stock shall entitle the holder thereof to a number of votes equal to 1,000 times the number of votes which each share of Class A Common Stock is entitled to vote, on all matters upon which the holders of the Class A Common Stock of the Company are entitled to vote. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class A Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except as otherwise required by law, the holders of shares of Series A Preferred Stock and the holders of shares of Class A Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Class A Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all A-1-3 accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock or rights, warrants or options to acquire such junior stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be A-1-4 entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Class A Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class A Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Class A Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Class A Common Stock is converted, exchanged or converted. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, pari passu with the Series B and the Series C Preferred Stock, junior to all other series of Preferred Stock and senior to all classes of Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the A-1-5 preferences, powers or special rights given to the Series A Preferred Stock so as to affect the Series A Preferred Stock adversely, then the holders of the Series A Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series A Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. The Series A Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Stock. A-1-6 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its ______________________this __day of _____, 1999. ----------------------------------- Name: Title: A-1-7 EXHIBIT A-2 FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK OF THE NEIMAN MARCUS GROUP, INC. (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ---------- The Neiman Marcus Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on October 6, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby adopts the resolution establishing the designation, number of shares, preferences, voting powers and other rights, and the restrictions and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series B Junior Participating Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series B Preferred Stock. Section 2. Dividends and Distributions. A-2-1 (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock"), Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") and Class C Common Stock, par value $.01 per share, of the Company ("Class C Common Stock" and, together with the Class A Common Stock and Class B Common Stock, the "Common Stock") and of any other stock of the Company ranking junior to the Series B Preferred Stock, and on a pari passu basis with the Series C Preferred Stock and the Series A Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Class B Common Stock, declared on the Class B Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Preferred Stock. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class B Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Class B Common Stock (other than a dividend payable in shares of Class B Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Class B Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series B Preferred Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series B Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of A-2-2 Series B Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights; (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series B Preferred Stock shall entitle the holder thereof to a number of votes equal to 1,000 times the number of votes which each share of Class B Common Stock is entitled to vote, on all matters upon which the holders of the Class B Common Stock of the Company are entitled to vote. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class B Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the number of votes per share to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except as otherwise required by law, the holders of shares of Series B Preferred Stock and the holders of shares of Class B Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Class B Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, the Company shall not: A-2-3 (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series B Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series B Preferred Stock or rights, warrants or options to acquire such junior stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series B Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Class B Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series B Preferred Stock, except A-2-4 distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class B Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Class B Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series B Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Class B Common Stock is converted, exchanged or converted. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series B Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series B Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, pari passu with the Series C and the Series A Preferred Stock, junior to all other series of Preferred Stock and senior to all classes of Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series B Preferred Stock so as to affect the Series B Preferred Stock adversely, then the holders of the Series B Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series B Preferred Stock, voting separately as a class, A-2-5 shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. The Series B Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Stock. A-2-6 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its _____________this __day of _____, 1999. ----------------------------------- Name: Title: A-2-7 EXHIBIT A-3 FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES C JUNIOR PARTICIPATING PREFERRED STOCK OF THE NEIMAN MARCUS GROUP, INC. (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ---------- The Neiman Marcus Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on October 6, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby adopts the resolution establishing the designation, number of shares, preferences, voting powers and other rights, and the restrictions and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series C Junior Participating Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 50,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Preferred Stock. A-3-1 Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock"), Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") and Class C Common Stock, par value $.01 per share, of the Company ("Class C Common Stock" and, together with the Class A Common Stock and Class B Common Stock, the "Common Stock") and of any other stock of the Company ranking junior to the Series C Preferred Stock, and on a pari passu basis with the Series A Preferred Stock and the Series B Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Class C Common Stock, declared on the Class C Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Preferred Stock. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class C Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series C Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Class C Common Stock (other than a dividend payable in shares of Class C Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Class C Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series C Preferred Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series C Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall A-3-2 begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series C Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series C Preferred Stock shall have the following voting rights; (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series C Preferred Stock shall entitle the holder thereof to a number of votes equal to 1,000 times the number of votes which each share of Class C Common Stock is entitled to vote, on all matters upon which the holders of the Class C Common Stock of the Company are entitled to vote. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class C Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except as otherwise required by law, the holders of shares of Series C Preferred Stock and the holders of shares of Class C Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Class C Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series C Preferred Stock as provided in Section 2 are in arrears, thereafter and until all A-3-3 accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series C Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series C Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series C Preferred Stock or rights, warrants or options to acquire such junior stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series C Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series C Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series C Preferred Stock unless, prior thereto, the holders of shares of Series C Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series C Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment A-3-4 hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Class C Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class C Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Class C Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series C Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Class C Common Stock is converted, exchanged or converted. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series C Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series C Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series C Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, pari passu with the Series A and the Series B Preferred Stock, junior to all other series of Preferred Stock and senior to all classes of Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series C Preferred Stock so as to affect the A-3-5 Series C Preferred Stock adversely, then the holders of the Series C Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series C Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. The Series C Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series C Stock. A-3-6 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its _____________this __day of _____, 1999. ---------------------------------------- Name: Title: A-3-7 EXHIBIT B-1 Form of Class A Right Certificate Certificate No. R- ____ NOT EXERCISABLE AFTER OCTOBER 6, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE CLASS A RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER CLASS A RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, CLASS A RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. Class A Right Certificate THE NEIMAN MARCUS GROUP, INC. This certifies that ___________ or registered assigns, is the registered owner of the number of Class A Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of October 6, 1999, as the same may be amended from time to time (the "Rights Agreement"), between The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), and BankBoston, N.A., a national banking association, (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on October 6, 2009 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), of the Company, at a purchase price of $100.00 per one one-thousandth of a share of Series A Preferred Stock (the "Purchase Price"), upon presentation and surrender of this Class A Right Certificate with the Form of Election to Purchase duly executed. The number of Class A Rights evidenced by this Class A Right Certificate (and the number of one one-thousandths of a share of Series A Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of October 18, 1999, based on the Series A Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one one-thousandths of a share of Series A Preferred Stock (or other securities or property) which may be purchased upon the exercise of the Class A Rights and the number of Class A Rights evidenced by this Class A Right Certificate are subject to modification and adjustment upon the happening of certain events. Notwithstanding anything in the Rights Agreement to the contrary, from and after the time (the "invalidation time") when any person first becomes an Acquiring Person (as B-1-1 defined in the Rights Agreement), the Class A Rights evidenced hereby beneficially owned by (x) any Acquiring Person (or any Affiliate (as defined in the Rights Agreement) or Associate (as defined in the Rights Agreement) of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the invalidation time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Class A Rights or (II) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of Section 11(a)(ii) of the Rights Agreement, and subsequent transferees of such persons, shall be void without any further action and any holder hereof shall thereafter have no rights whatsoever with respect to the Class A Rights evidenced hereby under any provision of the Rights Agreement. This Class A Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Class A Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Class A Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Class A Right Certificate, with or without other Class A Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Class A Right Certificate or Class A Right Certificates of like tenor and date evidencing Class A Rights entitling the holder to purchase a like aggregate number of shares of Series A Preferred Stock as the Class A Rights evidenced by the Class A Right Certificate or Class A Right Certificates surrendered shall have entitled such holder to purchase. If this Class A Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Class A Right Certificate or Class A Right Certificates for the number of whole Class A Rights not exercised. Subject to the provisions of the Rights Agreement, the Class A Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Class A Right or (ii) may be exchanged in whole or in part for shares of Series A Preferred Stock or shares of the Company's Class A Common Stock, par value $.01 per share. No fractional shares of Series A Preferred Stock or Class A Common Stock will be issued upon the exercise of any Class A Right or Class A Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Series A Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. B-1-2 No holder of this Class A Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Series A Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Class A Right or Class A Rights evidenced by this Class A Right Certificate shall have been exercised as provided in the Rights Agreement. This Class A Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. B-1-3 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _____________. ATTEST: THE NEIMAN MARCUS GROUP, INC. By By ---------------------------- ----------------------------- Countersigned: - -----------------------, as Rights Agent By ---------------------------- Authorized Signature B-1-4 Form of Reverse Side of Class A Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Class A Right Certificate) FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto ______________________________ - -------------------------------------------------------------------------------- (Please print name and address of transferee) - -------------------------------------------------------------------------------- Class A Rights represented by this Class A Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer said Class A Rights on the books of the within-named Company, with full power of substitution. Dated: ------------------ ------------------------------ Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. - -------------------------------------------------------------------------------- (To be completed) The undersigned hereby certifies that the Class A Rights evidenced by this Class A Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ------------------------------ Signature B-1-5 Form of Reverse Side of Class A Right Certificate - continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Class A Rights represented by the Class A Right Certificate) To THE NEIMAN MARCUS GROUP, INC. The undersigned hereby irrevocably elects to exercise __________________ Class A Rights represented by this Class A Right Certificate to purchase the shares of Series A Preferred Stock (or other securities or property) issuable upon the exercise of such Class A Rights and requests that certificates for such shares of Series A Preferred Stock (or such other securities) be issued in the name of: - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- If such number of Class A Rights shall not be all the Class A Rights evidenced by this Class A Right Certificate, a new Class A Right Certificate for the balance remaining of such Class A Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- Dated: -------------------- ---------------------------- Signature (Signature must conform to holder specified on Class A Right Certificate) B-1-6 Signature Guaranteed: Signature must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States. B-1-7 Form of Reverse Side of Class A Right Certificate -- continued (To be completed) - -------------------------------------------------------------------------------- The undersigned certifies that the Class A Rights evidenced by this Class A Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) ---------------------------- Signature - -------------------------------------------------------------------------------- NOTICE The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Class A Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored. B-1-8 EXHIBIT B-2 Form of Class B Right Certificate Certificate No. R- ____ NOT EXERCISABLE AFTER OCTOBER 6, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE CLASS B RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER CLASS B RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, CLASS B RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. Class B Right Certificate THE NEIMAN MARCUS GROUP, INC. This certifies that ___________ or registered assigns, is the registered owner of the number of Class B Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of October 6, 1999, as the same may be amended from time to time (the "Rights Agreement"), between The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), and BankBoston, N.A., a national banking association, (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on October 6, 2009 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series B Junior Participating Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), of the Company, at a purchase price of $100.00 per one one-thousandth of a share of Series B Preferred Stock (the "Purchase Price"), upon presentation and surrender of this Class B Right Certificate with the Form of Election to Purchase duly executed. The number of Class B Rights evidenced by this Class B Right Certificate (and the number of one one-thousandths of a share of Series B Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of October 18, 1999, based on the Series B Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one one-thousandths of a share of Series B Preferred Stock (or other securities or property) which may be purchased upon the exercise of the Class B Rights and the number of Class B Rights evidenced by this Class B Right Certificate are subject to modification and adjustment upon the happening of certain events. Notwithstanding anything in the Rights Agreement to the contrary, from and after the time (the "invalidation time") when any person first becomes an Acquiring Person (as B-2-1 defined in the Rights Agreement), the Class B Rights evidenced hereby beneficially owned by (x) any Acquiring Person (or any Affiliate (as defined in the Rights Agreement) or Associate (as defined in the Rights Agreement) of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the invalidation time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Class B Rights or (II) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of Section 11(a)(ii) of the Rights Agreement, and subsequent transferees of such persons, shall be void without any further action and any holder hereof shall thereafter have no rights whatsoever with respect to the Class B Rights evidenced hereby under any provision of the Rights Agreement. This Class B Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Class B Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Class B Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Class B Right Certificate, with or without other Class B Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Class B Right Certificate or Class B Right Certificates of like tenor and date evidencing Class B Rights entitling the holder to purchase a like aggregate number of shares of Series B Preferred Stock as the Class B Rights evidenced by the Class B Right Certificate or Class B Right Certificates surrendered shall have entitled such holder to purchase. If this Class B Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Class B Right Certificate or Class B Right Certificates for the number of whole Class B Rights not exercised. Subject to the provisions of the Rights Agreement, the Class B Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Class B Right or (ii) may be exchanged in whole or in part for shares of Series B Preferred Stock or shares of the Company's Class B Common Stock, par value $.01 per share. No fractional shares of Series B Preferred Stock or Class B Common Stock will be issued upon the exercise of any Class B Right or Class B Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Series B Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. B-2-2 No holder of this Class B Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Series B Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Class B Right or Class B Rights evidenced by this Class B Right Certificate shall have been exercised as provided in the Rights Agreement. This Class B Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. B-2-3 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _____________. ATTEST: THE NEIMAN MARCUS GROUP, INC. By By ------------------------------- -------------------------------- Countersigned: - -----------------------, as Rights Agent By ------------------------------- Authorized Signature B-2-4 Form of Reverse Side of Class B Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Class B Right Certificate) FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto ___________________________ - -------------------------------------------------------------------------------- (Please print name and address of transferee) - -------------------------------------------------------------------------------- Class B Rights represented by this Class B Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer said Class A Rights on the books of the within-named Company, with full power of substitution. Dated: ----------------- ------------------------------ Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. - -------------------------------------------------------------------------------- (To be completed) The undersigned hereby certifies that the Class B Rights evidenced by this Class B Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ------------------------------ Signature B-2-5 Form of Reverse Side of Class B Right Certificate - continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Class B Rights represented by the Class B Right Certificate) To THE NEIMAN MARCUS GROUP, INC. The undersigned hereby irrevocably elects to exercise __________________ Class B Rights represented by this Class B Right Certificate to purchase the shares of Series B Preferred Stock (or other securities or property) issuable upon the exercise of such Class B Rights and requests that certificates for such shares of Series B Preferred Stock (or such other securities) be issued in the name of: - -------------------------------------------------------------------------------- (Please print name and address of transferee) - -------------------------------------------------------------------------------- If such number of Class B Rights shall not be all the Class B Rights evidenced by this Class B Right Certificate, a new Class B Right Certificate for the balance remaining of such Class B Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number - -------------------------------------------------------------------------------- (Please print name and address of transferee) - -------------------------------------------------------------------------------- Dated: ----------------- ------------------------------ Signature (Signature must conform to holder specified on Class B Right Certificate) B-2-6 Signature Guaranteed: Signature must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States. B-2-7 Form of Reverse Side of Class B Right Certificate -- continued (To be completed) - -------------------------------------------------------------------------------- The undersigned certifies that the Class B Rights evidenced by this Class B Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) ---------------------- Signature - -------------------------------------------------------------------------------- NOTICE The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Class B Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored. B-2-8 EXHIBIT B-3 Form of Class C Right Certificate Certificate No. R- ____ NOT EXERCISABLE AFTER OCTOBER 6, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE CLASS C RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER CLASS C RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, CLASS C RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. Class C Right Certificate THE NEIMAN MARCUS GROUP, INC. This certifies that ___________ or registered assigns, is the registered owner of the number of Class C Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of October 6, 1999, as the same may be amended from time to time (the "Rights Agreement"), between The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), and BankBoston, N.A., a national banking association, (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on October 6, 2009 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series C Junior Participating Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"), of the Company, at a purchase price of $100.00 per one one-thousandth of a share of Series C Preferred Stock (the "Purchase Price"), upon presentation and surrender of this Class C Right Certificate with the Form of Election to Purchase duly executed. The number of Class C Rights evidenced by this Class C Right Certificate (and the number of one one-thousandths of a share of Series C Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of October 18, 1999, based on the Series C Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one one-thousandths of a share of Series C Preferred Stock (or other securities or property) which may be purchased upon the exercise of the Class C Rights and the number of Class C Rights evidenced by this Class C Right Certificate are subject to modification and adjustment upon the happening of certain events. Notwithstanding anything in the Rights Agreement to the contrary, from and after the time (the "invalidation time") when any person first becomes an Acquiring Person (as B-3-1 defined in the Rights Agreement), the Class C Rights evidenced hereby beneficially owned by (x) any Acquiring Person (or any Affiliate (as defined in the Rights Agreement) or Associate (as defined in the Rights Agreement) of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the invalidation time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Class C Rights or (II) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of Section 11(a)(ii) of the Rights Agreement, and subsequent transferees of such persons, shall be void without any further action and any holder hereof shall thereafter have no rights whatsoever with respect to the Class C Rights evidenced hereby under any provision of the Rights Agreement. This Class C Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Class C Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Class C Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Class C Right Certificate, with or without other Class C Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Class C Right Certificate or Class C Right Certificates of like tenor and date evidencing Class C Rights entitling the holder to purchase a like aggregate number of shares of Series C Preferred Stock as the Class C Rights evidenced by the Class C Right Certificate or Class C Right Certificates surrendered shall have entitled such holder to purchase. If this Class C Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Class C Right Certificate or Class C Right Certificates for the number of whole Class C Rights not exercised. Subject to the provisions of the Rights Agreement, the Class C Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Class C Right or (ii) may be exchanged in whole or in part for shares of Series C Preferred Stock or shares of the Company's Class C Common Stock, par value $.01 per share. No fractional shares of Series C Preferred Stock or Class C Common Stock will be issued upon the exercise of any Class C Right or Class C Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Series C Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. B-3-2 No holder of this Class C Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Series C Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Class C Right or Class C Rights evidenced by this Class C Right Certificate shall have been exercised as provided in the Rights Agreement. This Class C Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. B-3-3 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _____________. ATTEST: THE NEIMAN MARCUS GROUP, INC. By By -------------------------- ------------------------------ Countersigned: - -----------------------------, as Rights Agent By -------------------------- Authorized Signature B-3-4 Form of Reverse Side of Class C Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Class C Right Certificate) FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto _________________________ - -------------------------------------------------------------------------------- (Please print name and address of transferee) - -------------------------------------------------------------------------------- Class C Rights represented by this Class C Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer said Class C Rights on the books of the within-named Company, with full power of substitution. Dated: ----------------- ------------------------------ Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. (To be completed) The undersigned hereby certifies that the Class C Rights evidenced by this Class C Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ------------------------------ Signature B-3-5 Form of Reverse Side of Class C Right Certificate - continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Class C Rights represented by the Class C Right Certificate) To THE NEIMAN MARCUS GROUP, INC. The undersigned hereby irrevocably elects to exercise __________________ Class C Rights represented by this Class C Right Certificate to purchase the shares of Series C Preferred Stock (or other securities or property) issuable upon the exercise of such Class C Rights and requests that certificates for such shares of Series C Preferred Stock (or such other securities) be issued in the name of: - -------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------- If such number of Class C Rights shall not be all the Class C Rights evidenced by this Class C Right Certificate, a new Class C Right Certificate for the balance remaining of such Class C Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number - -------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------- Dated: -------------------- ------------------------------ Signature (Signature must conform to holder specified on Class C Right Certificate) B-3-6 Signature Guaranteed: Signature must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States. B-3-7 Form of Reverse Side of Class C Right Certificate -- continued (To be completed) - -------------------------------------------------------------------------------- The undersigned certifies that the Class C Rights evidenced by this Class C Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) ------------------------------ Signature - -------------------------------------------------------------------------------- NOTICE The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Class C Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored. B-3-8 EXHIBIT C UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. SUMMARY OF RIGHTS TO PURCHASE Shares of Preferred Stock On October 6, 1999, the Board of Directors of The Neiman Marcus Group, Inc. (the "Company") declared a dividend of (i) one preferred stock purchase right (a "Class A Right") for each outstanding share of Class A Common Stock, par value $.01 per share, of the Company (the "Class A Common Stock") to stockholders of record as of the close of business on October 18, 1999 (the "Record Date"), each Class A Right representing the right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Series A Preferred Stock") and (ii) one preferred stock purchase right (a "Class B Right" and, collectively with the Class A Rights, the "Rights") for each outstanding share of Class B Common Stock, par value $.01 per share, of the Company (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock") to stockholders of record as of the Record Date, each Class B Right representing the right to purchase one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Series B Preferred Stock" and, collectively with the Series A Preferred Stock, the "Preferred Stock"). In the event that shares of Class C Common Stock, par value $.01 per share, of the Company (the "Class C Common Stock") are issued, they will be issued together with preferred stock purchase rights (the "Class C Rights") to acquire shares of Series C Junior Participating Preferred Stock, par value $.01 per share, of the Company ("Series C Preferred Stock"). The description and terms of the Rights are set forth in a Rights Agreement, dated as of October 6, 1999, as the same may be amended from time to time (the "Rights Agreement"), between the Company and BankBoston, N.A., as Rights Agent (the "Rights Agent"). Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person"), other than an Exempt Person (as defined below), has acquired beneficial ownership of (a) 15% or more of the outstanding shares of Class B Common Stock or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of (a) 15% or more of the outstanding shares of Class B Common Stock or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock C-1 then outstanding (the earlier of such dates being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common Stock certificate together with a copy of this Summary of Rights; provided, however, that if the Board of Directors of the Company determines in good faith that a person who would otherwise be an "Acquiring Person" has become such inadvertently and without any intention of changing or influencing control of the Company, and such person, as promptly as practicable divested or divests itself of beneficial ownership of a sufficient number of shares of Common Stock so that such person would no longer be an Acquiring Person, then such person shall not be deemed to be or to have become an "Acquiring Person". No person will become an "Acquiring Person" as the result of an acquisition of shares of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such person; provided, however, that if a person shall become an "Acquiring Person" by reason of such share acquisitions by the Company and thereafter become the beneficial owner of any additional shares of Class B Common Stock, in the case of clause (a) of the definition of "Acquiring Person" above, or Common Stock, in the case of clause (b) of the definition of "Acquiring Person" above, then such person shall be deemed to be an "Acquiring Person" unless upon the consummation of the acquisition of such additional shares of Class B Common Stock or Common Stock, as the case may be, such person does not own (a) 15% or more of the outstanding shares of Class B Common Stock or (b) shares of Common Stock representing, in the aggregate, 15% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding. "Exempt Person" shall mean (i) the Company, (ii) any Subsidiary (as such term is defined in the Rights Agreement) of the Company, (iii) any employee benefit plan of the Company or of any Subsidiary of the Company, (iv) any entity or trustee holding Common Stock for or pursuant to the terms of any such plan or for the purpose of funding any such plan or funding other employee benefits for employees of the Company or of any Subsidiary of the Company, (v) Harcourt General, Inc., a Delaware corporation, but only for the period beginning on the Record Date and ending at 12:01 a.m. on October 23, 1999 or (vi) the "Smith Family Group" (as such term is defined in the Rights Agreement and which, in general, includes Richard A. Smith, Chairman of the Company, Robert A. Smith and Brian J. Knez, Co-Chief Executive Officers of the Company and certain members of their families and certain related entities) with respect to the beneficial ownership of shares of Common Stock on the Record Date and for so long as the Smith Family Group does not, subject to certain exceptions, acquire after the Record Date beneficial ownership of either an additional 6% or more of the Class B Common Stock outstanding or shares of Common Stock representing an additional 6% or more of the total voting power of the Company represented by the shares of Common Stock outstanding. The Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with the Common Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Stock certificates issued after the Record Date upon transfer or new issuances of Common Stock will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for shares of Common Stock outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights, will also constitute the transfer of the C-2 Rights associated with the shares of Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Class A Rights (the "Class A Right Certificates") and Class B Rights (the "Class B Rights Certificates") will be mailed to holders of record of the Class A Common Stock and Class B Common Stock, respectively, as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on October 6, 2009 (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company, in each case as described below. The Purchase Price payable, and the number of shares of the applicable series of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the applicable series of Preferred Stock, (ii) upon the grant to holders of the applicable series of Preferred Stock of certain rights or warrants to subscribe for or purchase Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current market price of the applicable series of Preferred Stock or (iii) upon the distribution to holders of the applicable series of Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights are also subject to adjustment in the event of a stock split of the applicable class of Common Stock or a stock dividend on the applicable class of Common Stock payable in shares of Common Stock or subdivisions, consolidations or combinations of the applicable class of Common Stock occurring, in any such case, prior to the Distribution Date. Shares of Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend of 1,000 times the dividend declared per share of the applicable class of Common Stock. In the event of liquidation, the holders of the Preferred Stock will be entitled to a minimum preferential liquidation payment of $1,000 per share (plus any accrued but unpaid dividends) but will be entitled to an aggregate payment of 1,000 times the payment made per share of the applicable class of Common Stock. Each share of Preferred Stock will have 1,000 times the number of votes each share of the applicable class of Common Stock has on matters such class is entitled to vote on, which shall be voted together with the applicable class of Common Stock. Finally, in the event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of the applicable series of Preferred Stock will be entitled to receive 1,000 times the amount received per share of the applicable class of Common Stock. These rights are protected by customary antidilution provisions. C-3 Because of the nature of the Preferred Stock's dividend, liquidation and voting rights, the value of the one one-thousandth interest in a share of Preferred Stock purchasable upon exercise of each Class A Right and Class B Right, respectively, should approximate the value of one share of Class A Common Stock and Class B Common Stock, respectively. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision will be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person or any affiliate or associate of the Acquiring Person or certain other transferees (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right at the then current exercise price of the Right, that number of shares of Class A Common Stock (in the case of a Class A Right) or Class B Common Stock (in the case of a Class B Right), or that number of one one-thousandths of a share of the applicable series of Preferred Stock, having a market value of two times the exercise price of the Right. In the event that, after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person or any affiliate or associate of the Acquiring Person or certain other transferees which will have become void) will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the person with whom the Company has engaged in the foregoing transaction (or its parent), which number of shares at the time of such transaction will have a market value of two times the exercise price of the Right. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Class B Common Stock, the acquisition by such person or group of shares of Common Stock representing, in the aggregate, 50% or more of the total number of votes entitled to be cast generally (other than in an election of directors) by the holders of the Common Stock then outstanding or the occurrence of an event described in the prior paragraph, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which will have become void), in whole or in part, at an exchange ratio of one share of Class A Common Stock (in the case of a Class A Right) or Class B Common Stock (in the case of a Class B Right), or one one-thousandth of a share of Preferred Stock (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges), per Class A Right or Class B Right, as the case may be (subject to adjustment). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares of Preferred Stock will be issued (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading day prior to the date of exercise. C-4 At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. For so long as the Rights are then redeemable, the Company may, except with respect to the Redemption Price, amend the Rights in any manner. After the Rights are no longer redeemable, the Company may, except with respect to the Redemption Price, amend the Rights in any manner that does not adversely affect the interests of holders of the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated October 15, 1999. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, as the same may be amended from time to time, which is hereby incorporated herein by reference. C-5 EX-10.1 5 d99632exv10w1.txt EX-10.1 1987 STOCK INCENTIVE PLAN EXHIBIT 10.1 THE NEIMAN-MARCUS GROUP, INC. 1987 STOCK INCENTIVE PLAN THE NEIMAN-MARCUS GROUP, INC. 1987 STOCK INCENTIVE PLAN 1. Purposes of the Plan. The purposes of The Neiman-Marcus Group, Inc. 1987 Stock Incentive Plan are to provide a means to attract and retain competent personnel and to provide to participating officers and other key employees long-term incentive for high levels of performance and for unusual efforts to improve the financial performance of The Neiman-Marcus Group, Inc. These purposes may be achieved through the grant of options to purchase Common Stock of The Neiman-Marcus Group, Inc., the grant of Stock Appreciation Rights, and the grant of other Stock-Based Awards. This Plan also shall apply to outstanding stock options granted under the Prior Stock Option Plans which, in the Restructuring, are converted, in whole or in part, into Stock Options for shares of Common Stock. 2. Definitions. (a) "Affiliate" means any corporation or other entity which is not a parent or subsidiary corporation (as defined in Section 425 of the Code) and (i) with respect to which the Company possesses a direct or indirect ownership interest in, and has the power to exercise management control over, such corporation or entity, or (ii) which posses a direct or indirect ownership interest in, and has the power to exercise management control over, the Company. (b) "Board" means the Board of Directors of the Company or the Executive Committee thereof. (c) "Carter Hawley" Means Carter Hawley Hale Stores, Inc. (d) "Committee" means the Compensation Committee of the Board, or any other committee the Board may subsequently appoint to administer the Plan, as herein defined. The Committee shall be composed entirely of members of the Board who meet the requirements of Section 4(a) hereof. (e) "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (f) "Common Stock" means the common stock of the Company having a par value of $0.01 per share. (g) "Company" means The Neiman-Marcus Group, Inc., and any present or future parent or subsidiary corporations (as defines in Section 425 of the Code) or any successor to such corporations. (h) "Employee" means any employee of the Company or its Affiliates. (i) "Fair Market Value" means the closing price of Common Stock as quoted on the composite Tape as published in The Wall Street Journal on the date as of which fair market value is to be determined, or if there is no trading of Common Stock on such date, the closing price of Common Stock as quoted on such Composite Tape on the next preceding date on which there was trading in such shares. (j) "Incentive Award" means a Stock Option, Stock Appreciation Right or Stock-Based Award granted under the Plan, as herein defined. (k) "Incentive Award" means a Stock Option that is intended to meet the requirements of Section 422A of the Code and regulations thereunder. (l) "Nonstatutory Stock Option" means a Stock Option other than an Incentive Stock Option. (m) "Participant" means any key Employee selected to receive an Incentive Award under the Plan. (n) "Plan" means The Neiman-Marcus Group, Inc. 1987 Stock Incentive Plan as set forth herein, as it may be amended from time to time. (o) "Prior Stock Option Plans" means the Long-Term Incentive Compensation Plan, Nonqualified Stock Option Plan and 1985 Stock Incentive Plan of Carter Hawley. (p) "Restructuring" means the restructuring of Carter Hawley pursuant to a plan of restructuring adopted by the Board of Directors of Carter Hawley and approved by the stockholders of Carter Hawley at Carter Hawley's 1987 annual meeting. 2 (q) "Stock Appreciation Right" means the right to receive an amount up to the excess of the Fair Market Value of a share of Common Stock (as determined on the date of exercise), over (i) if the Stock Appreciation Right is granted without relationship to a Stock Option, the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Right was granted, or (ii) if the Stock Appreciation Right is related to a Stock Option, the purchase price of a share of Common Stock specified in the related Stock Option. (r) "Stock-Based Award" means any award granted under Section 8. (s) "Stock Option" means a right to purchase Common Stock. 3. Shares of Common Stock Subject to the Plan. (a) Subject to the provisions of Section 3 (c) and Section 9 of the Plan, the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Incentive Awards under the Plan will not exceed 1,250,000 shares, plus the number of shares issued upon exercises of outstanding stock options granted under the Prior Stock Option Plans or under any other plan whose outstanding stock options are assumed under this Plan. (b) The common Stock to be delivered under the Plan will be made available, at the discretion of the Board of the Committee, either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market. (c) If any Incentive Award shall expire or terminate for any reason, without being exercised or paid, shares of Common Stock subject to such Incentive Award shall again be available for grant under subsequent Incentive Awards. Shares of Common Stock reserved for issuance upon payment of a Stock-Based Award when payment of the Stock-Based Award is made in cash shall be available for grant under subsequent Incentive Awards. Shares as to which a Stock Option has been surrendered in connection with the exercise of a related Stock Appreciation Right will not be available for grant under subsequent Incentive Award. (d) Subject to the general limitations contained in Sections 6, 7, 9 and 11, the Committee may make any adjustment in the exercise price, the number of shares subject to, or the terms of a Nonstatutory Stock Option or Stock Appreciation Right by cancellation of an outstanding Nonstatutory Stock Option or Stock Appreciation Right and a subsequent regranting of a Nonstatutory Stock Option or Stock Appreciation Right, by amendment or by substitution of an outstanding Nonstatutory Stock Option or Stock Appreciation Right. Such amendment, substitution, or regrant may result in an exercise price that is higher or lower than the exercise price of the Nonstatutory Stock Option or Stock Appreciation Right, provide for a greater or lesser number of shares subject to the Nonstatutory Stock Option or Stock Appreciation Right, or provide for a longer or shorter term than the prior Nonstatutory Stock Option or Stock Appreciation Right, or provide for a longer or shorter term than the prior Nonstatutory Stock Option or Stock Appreciation Right; provided, however, that the Committee may not adversely affect the rights of any Participant to previously granted Incentive Awards without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment may be the date of the original grant. 4. Administration of the Plan. (a) The Plan will be administered by the Committee, which will consist of three or more persons (i) who are not eligible to receive Incentive Awards under the Plan, and (ii) who have not been eligible within one year before appointment to the Committee, for selection as persons to whom Incentive Awards may be granted pursuant to the Plan, or to whom shares may be allocated or stock options, stock appreciation rights or other stock-based awards may be granted pursuant to an other plan of the Company entitling the participants to acquire stock, stock appreciation rights, stock options or stock-based rights in the Company. 3 (b) The Committee has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. The Committee has authority in its discretion to determine the key Employees to whom and the time or times at which Incentive Awards may be granted or sold, to determine the number of shares of Common Stock, Stock Appreciation Rights or the number and type of Stock-Based Awards that make up each Incentive Award and to grant Incentive Awards. Each Incentive Award will be evidenced by a written instrument and may include any other terms and conditions consistent with the Plan, as the Committee may determine. The Committee also has authority to interpret the Plan, to determine the terms and provisions of the respective Incentive Award agreements and to make all other determinations necessary or advisable for Plan administration. The Committee has authority to prescribe, amend, and rescind rules and regulations relating to the Plan. All interpretations, determinations and actions by the Committee will be final, conclusive and binding upon all parties. Any action of the Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote or by the unanimous written consent of its members. (c) No member of the Board or the Committee and no Employee will be liable for any action taken, or determination or omission made, in good faith by the Board, the Committee or any Employee with respect to the Plan or any Incentive Award granted under it. 5. Participation. (a) The Committee shall from time to time designate those key Employees, if any, to be granted Incentive Awards under the Plan, the type of awards granted, the number of shares, options, rights or units, as the case may be, which shall be granted to each such Employee, and any other terms or conditions relating to the awards as it may deep appropriate, consistent with the provisions of the Plan. Participants may be designated at any time, and it shall not be necessary that all Participants be designated at the same meeting of the Committee. An individual who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards if the Committee so determines. (b) No person will be eligible for the grant of an Incentive Stock Option who owns or would own immediately before the grant of such Stock Option, directly or indirectly, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company. This restriction does not apply if, at the time such Incentive Stock Option is granted, the Incentive Stock Option exercise price is at least 110% of the Fair Market Value on the date of grant and the Incentive Stock Option by its terms is not exercisable after the expiration of five years from the date of grant. (c) In no event may any member of the Board who is not an officer or other Employee be granted an incentive Award under the Plan. 6. Terms and Conditions of Stock Options. (a) Nonstatutory Stock Options may be granted to any key employee selected by the Committee. Incentive Stock Options may be granted only to key employees of the Company as selected by the Committee. (b) The purchase price of Common Stock under each Stock Option will be determined by the Committee, but may not be less than the Fair Market Value on the date of grant. (c) Stock Options may be exercised as determined by the Committee but in no event after ten years from the date of grant in the case of Incentive Stock Options, or after ten years and one day from the date of grant in the case of Nonstatutory Stock Options. (d) Upon the exercise of a Stock Option, this purchase price will be payable in full in cash or its equivalent acceptable to the Company. To the extent provided by the Stock Option, the purchase price may be paid by the assignment and delivery to the Company of shares of Common Stock or a combination of cash and such shares equal in value to the exercise price. Any shares so assigned and 4 delivered to the Company in payment or partial payment of the purchase price will be valued at their Fair Market Value on the exercise date. (e) Notwithstanding any other provision of the Plan, any Participant who disposes of shares of Common Stock acquired on the exercise of an Incentive Stock Option by sale or exchange either (i) within two years after the date of the grant of the Stock Option which the stock was acquired or (ii) within one year after the transfer of such shares to him pursuant to exercise shall notify the Company of such disposition and of the amount realized and of his adjusted basis in such shares; and (i) in the case of any Incentive Stock Option granted under any of t he Prior Stock Option Plans through December 31, 1986, (A) the aggregate Fair Market Value (determined as of the time the Stock Option was granted) of the shares of Common Stock for which any Employee was granted Incentive Stock Options in any calendar year shall not have exceeded $100,000 plus any unused carryover, computed in accordance with Section 422(c)(4) of the Internal Revenue Code of 1954, as such Section read prior to its deletion by the Tax Reform Act of 1986; and (B) no such Stock Option shall have been or shall be exercisable while there was or is outstanding any Incentive Stock Option which was granted to the Participant before the grant of such Stock Option (and, for this purpose, an Incentive Stock Option shall be treated as outstanding until it is exercised in full or expires by reason of lapse of time); and (ii) in the case of any Incentive Stock Option granted under the Plan, the Fair Market Value (determined at the time the Incentive Stock Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Employee during any calendar year under this Plan or any other stock option plan of the Company will not exceed $100,000. (f) No fractional shares will be issued pursuant to the exercise of a Stock Option; payment for the fractional shares will be made in cash. Upon the exercise of a Stock Option, not less than 50 shares may be purchased at one time unless the number then available for purchase is less than 50 in which case the full number available must be purchased. (g) A Stock Option granted under this Plan shall, by its terms, be non-transferable by a Participant other than by will or the laws of descent and distribution, and shall be exercisable during the Participant's lifetime solely by the Participant or the Participant's duly appointed guardian or personal representative. (h) Outstanding stock options granted under the Prior Stock Option Plans which, in the Restructuring, are converted, in whole or in part, into Stock Options for shares of Common Stock, will be subject to the same terms and conditions as were in effect immediately prior to the Restructuring. 7. Terms and Conditions of Stock Appreciation Rights. (a) A Stock Appreciation Right may be granted in connection with a Stock Option, either at the time of grant or at any time thereafter during the term of the Stock Option, or may be granted unrelated to a Stock Option. (b) A Stock Appreciation Right related to a Stock Option shall require the holder, upon exercise, to surrender such Stock Option with respect to the number of shares as to which such Stock Appreciation Right is exercised, in order to receive payment of an amount computed pursuant to Section 7(e). Such Stock Option will, to the extent surrendered, then cease to be exercisable. (c) In the case of Stock Appreciation Rights granted in relation to Stock Options, if the Stock Appreciation Right covers as many shares as the related Stock Option, the exercise of a related Stock Option shall cause the number of shares covered by the Stock Appreciation Right to be reduced by the number of shares with respect to which the related Stock Option is exercised. If the Stock Appreciation Right covers fewer shares than the related Stock Option, when a portion of the related Stock Option is 5 exercised, the number of shares subject to the unexercised Stock Appreciation Right shall be reduced only to the extent necessary so that the number of remaining shares subject to the Stock Appreciation Right is not more than the remaining shares subject to the Stock Option. (d) Subject to Section 7(k), a Stock Appreciation Right granted in connection with a Stock Option will be exercisable at such time or times, and only to the extent that a related Stock Option is exercisable, and will not be transferable except to the extent that such related Stock Option may be transferable. (e) Upon exercise of a Stock Appreciation Right related to a Stock Option, the holder will be entitled to receive payment of an amount determined by multiplying: (i) The difference obtained by subtracting the purchase price of a share of Common Stock specified in the related Stock Option from the Fair Market Value of a share of Common Stock on the date of exercise of such Stock Appreciation Right, by (ii) The number of shares as to which each Stock Appreciation Right will have been exercised. (f) A Stock Appreciation Right granted without relationship to a Stock Option will be exercisable as determined by the Committee but in no event after ten years from the date of grant. (g) A Stock Appreciation Right granted without relationship to a Stock Option will entitle the holder, upon exercise of the Stock Appreciation Right, to receive payment of an amount determined by multiplying: (i) The difference obtained by subtracting the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Right is granted from the Fair Market Value of a share of Common Stock on the date of exercise of such Stock Appreciation Right, by (ii) The number of shares as to which such Stock Appreciation Right will have been exercised. (h) Notwithstanding subsections (e) and (g) above, the Committee may place a limitation on the amount payable upon exercise of a Stock Appreciation Right. Any such limitation must be determined as of the date of grant and noted on the instrument evidencing the Participant's Stock Appreciation Right granted hereunder. (i) Payment of the amount determined under subsections (e) and (g) above made be made solely in whole shares of Common Stock valued at their Fair Market Value on the date of exercise of the Stock Appreciation Right or alternatively, in the sole discretion of the Committee, solely in cash or a combination of cash and shares as the Committee deems advisable. If the Committee decides to make full payment in shares of Common Stock, and the amount payable results in a fractional share, payment for the fractional share will be made in cash. (j) A Stock Appreciation Right granted under this Plan shall, by its terms, be non-transferable by a Participant other than by will or the laws of descent and distribution and shall be exercisable during the Participant's lifetime solely by the Participant or the Participant's duly appointed guardian or personal representative. (k) So long as required by the federal securities laws, no Stock Appreciation Right granted to an Employee subject to Section 16 of the Securities Exchange Act of 1934, as amended, may be exercised before six months after the date of grant except in the event of death or disability of such Employee occurs before the expiration of the six-month period; any exercise of a Stock Appreciation Right for cash will be made only during the period beginning on the third business day following the date of release for publication of the Company's regular quarterly or annual summary statement of revenues 6 and income (assuming such financial data appears on a wire service, in a financial news service, or in a newspaper of general circulation, or is otherwise made publicly available) and ending on the twelfth business date following such date. (l) The Committee may impose such additional conditions or limitations on the exercise of a Stock Appreciation Right as it may deem necessary or desirable to secure for holders of Stock Appreciation Rights the benefits of Rule 18b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended, or any successor provision in effect at the time of grant or exercise of a Stock Appreciation Right or as it may otherwise deem advisable. (m) The Committee may, in it discretion, defer payment with respect to an exercise of a Stock Appreciation Right to some later time, but in no event later than 12 months after the exercise of the Stock Appreciation Right; provided, however, the Committee may not defer payment with respect to a Stock Appreciation Right which is related to an Incentive Stock Option. 8. Stock-Based Awards. The Committee may grant awards of shares, share units, or cash payments valued with reference to the Fair Market Value of Common Stock, including (without limitation) restricted shares, restricted share units, performance shares, performance share units, and tax-offset payments. Subject to the provisions of the Plan, the Committee shall have complete discretion to determine the terms and conditions applicable to such awards. Such terms and conditions may require, among other things, continued employment and/or the attainment of specified performance objectives. The Committee shall determine whether awards granted under this Section 8 shall be settled in cash, Common Stock or a combination of cash and Common Stock. 9. Adjustment Provisions (a) If the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock, or other securities, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares provided in Section 3, (ii) the number and kind of shares or other securities subject to the then-outstanding Incentive Awards, and (iii) the price for each share or other unit of any other securities subject to then-outstanding Incentive Awards without change in the aggregate purchase price or value as to which such Incentive Awards remain exercisable or subject to restrictions. (b) Adjustments under paragraph (b) will be made by the Committee, whose determination as to what adjustments will be made and the extent thereof will be made and the extent thereof will be final, binding, and conclusive. No fractional interest will be issued under the Plan on account of any such adjustments. 10. General Provisions. (a) Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Participant any right to continue in the employ of the Company or its Affiliates or affect the right of the Company or its Affiliates to terminate the employment of any Participant at any time for any reason. (b) No shares of Common Stock will be issued or transferred pursuant to an Incentive Award unless and until all then-applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction and by any stock exchanges upon which the Common Stock may be listed, have been fully met. As a condition precedent to the 7 issuance of shares pursuant to the grant or exercise of an Incentive Award, the Company may require the Participant to take any reasonable action to meet such requirements. (c) No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Incentive Award except as to such shares of Common Stock, if any, that have been issued or transferred to such Participant, beneficiary or other person. (d) The Company may make such provisions as it deems appropriate to withhold any taxes the Company determines it is required to withhold in connection with any Incentive Award. The Company may require the Participant to satisfy any relevant tax requirements before authorizing any issuance of Common Stock to the Participant. (e) No Incentive Award and no right under the Plan, contingent or otherwise, will be assignable or subject to any encumbrance, pledge or charge of any nature except that, under such rules and regulations as the Company may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to an Incentive Award in the event of death of a Participant. If such beneficiary is the executor or administrator of the estate of the Participant, any rights with respect to such Incentive Award may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Incentive Award. (f) The Committee shall have sole discretion to determine the time or times and conditions under which Stock Options or Stock Appreciation Rights may be exercised and, as provided in Section 8, the terms and conditions of Stock-Based Awards and the extent to which Participants or their beneficiaries may exercise Stock Options and Stock Appreciation Rights and receive payment with respect to, or otherwise obtain the benefits of Stock-Based Awards upon such Participant's retirement, death or other termination of the Participant's employment with the Company of its affiliates. The provisions applicable to the Stock Options, Stock Appreciation Rights and/or Stock-Based Awards of a particular Participant upon the Participant's termination of employment with the Company of its Affiliates will be set forth in each agreement under which an Incentive Award is made. (g) (i) If the Committee in its sole discretion to determine that as a matter of law such procedure is or may be desirable, it may require the Participant, on any exercise or payment of an Incentive Award, or any portion thereof, and as a condition to the Company's obligation to deliver to the Participant certificates representing shares of Common Stock, to execute and deliver to the Company a written statement, in form satisfactory to the Company, representing and warranting that his purchase or receipt of shares of Common Stock is for his own account for investment and not with a view to resale or distribution thereof and that any subsequent sale or offer for sale of any of such shares shall be made pursuant to either (A) a Registration Statement on an appropriate form under the Securities Act of 1933, as amended, which has become effective and is current with respect to the shares being offered and sold or (B) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the Participant shall, before any sale or offer of sale of such shares, obtain a favorable written opinion from counsel for or approved by the Company as to the availability of such exemption. (ii) The Company may endorse an appropriate legend referring to the foregoing restrictions or other restrictions which may be applied under the Plan on the certificate or certificates representing any shares of Common Stock issued or transferred to a Participant under any Incentive Award granted under the Plan. (h) If at any time the Board shall determine in its discretion that the listing, registration or qualifications of the shares of Common Stock covered by the Plan on any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition to or in connection with the sale or transfer of shares of Common Stock under the Plan, no shares will be delivered unless and until such listing, registration, qualification, 8 consent or approval shall have been effected or obtained or otherwise provided for, free of any conditions not acceptable to the Board. 11. Amendment and Termination of Plan; Amendment of Incentive Awards. (a) The Board or the Committee will have the power, in it s discretion, to amend, suspend or terminate the Plan at any time. No such amendment will, without approval of the shareholders of the Company: (i) Change the class of persons eligible to receive Incentive Awards under the Plan; (ii) Materially increase the benefits accruing to Participants under the Plan; (iii) Increase the number of shares of Common Stock subject to the Plan; or (iv) Transfer the administration of the Plan to any person who is not a "disinterested administrator" under rule 16b. (b) Except as otherwise provided by Section 3(d) and Section 9, the Committee may not, without the consent of a Participant, make modifications in the terms and conditions of an Incentive Award which may adversely affect the Participant's Incentive Award. (c) No amendment, suspension or termination of the Plan will, without the consent of the Participant, alter, terminate or adversely affect any right or obligation under any Incentive Award previously granted under the Plan. (d) The Committee may refrain from designating any participants or may refrain from making any Incentive Awards, but such action shall not be deemed a termination of the Plan. No Employee shall have any claim or right to be granted Incentive Awards under the Plan. 12. Effective Date of Plan and Duration of Plan. This Plan will become effective upon adoption by the Board of Directors of Carter Hawley, subject to approval by the shareholders of Carter Hawley of the Restructuring, of which approval of this Plan is a part. No grants of Incentive Awards will be made under the Plan until after the effective time of the Restructuring. The Plan will terminate, unless sooner terminated under Section 11, the day before the tenth anniversary of the day on which the Plan was adopted by the Board of Directors. 9 EX-10.5 6 d99632exv10w5.txt EX-10.5 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.5 THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated Effective August 1, 1993 THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS

ARTICLE PAGE - ------- ---- Article 1.-DEFINITIONS..............................................................................5 1.1. "Augmentation Plan" ..................................................................5 1.2. "Basic Plan" .........................................................................5 1.3. "Board of Directors" .................................................................5 1.4. "CHH Plan" ...........................................................................5 1.5. "Code" ...............................................................................5 1.6. "Committee" ..........................................................................5 1.7. "Company" ............................................................................5 1.8 "Compensation.........................................................................6 1.9. "Effective Date" .....................................................................6 1.10. "Eligible Employee" .................................................................6 1.11. "Individual Pension Agreement" ......................................................7 1.12. "Minimum Salary" ....................................................................7 1.13. "Normal Form" .......................................................................7 1.14 "Participant" .......................................................................7 1.15. "Participating Employer" ............................................................7 1.16. "Plan" ..............................................................................7 1.17. "Plan Year" .........................................................................7 1.18. "Service" ...........................................................................8 1.19. "Social Security Benefit" ...........................................................8 1.20. "Spouse" ............................................................................9 Article 2.-PARTICIPATION ...........................................................................10 2.1. Commencement of Participation ........................................................10 2.2. Duration of Participation ............................................................10 2.3. Reduction in Participants ............................................................10 Article 3.-S0URCE OF BENEFIT PAYMENTS ..............................................................12 Article 4.-RETIREMENT BENEFITS .....................................................................13 4.1. Normal or Late Retirement Benefit ....................................................13 4.2. Early Retirement Benefit .............................................................13 4.3. Vested Termination Benefit ...........................................................15 4.4. Other Termination of Employment; Death................................................15 4.5. Optional Forms of Benefits ...........................................................16 4.6. Forfeiture of Benefits ...............................................................17

2 4.7. Surviving Spouse Benefit .............................................................17 4.8. Disability ...........................................................................17 4.9. No Reduction in Accrued Benefit Under CHH Plan........................................18 4.10. Lump Sum Settlements ................................................................18 4.11. Reemployment After Retirement .......................................................18 Article 5.-COMMITTEE................................................................................20 5.1. Plan Administration and Interpretation................................................20 5.2. Powers, Duties, Procedures, etc. .....................................................20 5.3. Information ..........................................................................21 5.4. Indemnification of Committee .........................................................21 Article 6. -AMENDMENT AND TERMINATION...............................................................22 6.1. Amendments ...........................................................................22 6.2. Termination of Plan...................................................................22 Article 7.-MISCELLANEOUS ...........................................................................23 7.1. Nonassignability .....................................................................23 7.2. Limitation on Participants' Rights ...................................................23 7.3. Participants Bound ...................................................................23 7.4. Receipt and Release...................................................................23 7.5. Governing Law ........................................................................24 7.6. Headings and Subheadings .............................................................24 3 THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Purpose The Company originally adopted this Plan, effective August 7, 1987, for a select group of management personnel in order to: (a) attract, retain and motivate qualified management personnel; (b) facilitate the retirement of management personnel; and (c) provide survivor income for the spouses of management personnel. The Company hereby amends and restates the Plan to make certain changes and clarifications. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2) and 301(a)(3) of ERISA, and shall be interpreted and administered to the extent possible in a manner consistent with that intent. 4 Article 1. - Definitions Wherever used herein the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: 1.1. "Augmentation Plan" means the Augmentation to Pension Plan for Employees of Carter Hawley Hale Stores, Inc. 1.2. "Basic Plan" means The Neiman Marcus Group, Inc. Retirement Plan as amended from time to time. Reference to any Article or Section of the Basic Plan shall include reference to any comparable or successor provisions of the Basic Plan as amended from time to time. 1.3. "Board of Directors" means the Board of Directors of the Company. 1.4. "CHH Plan" means the Supplemental Executive Retirement Plan of Carter Hawley Hale Stores, Inc, as in effect on the day before the Effective Date. 1.5. "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any Section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such Section or subsection. 1.6. "Committee" means the Employee Benefits Committee appointed by the Board of Directors or its Executive Committee. 1.7. "Company" means The Neiman Marcus Group, Inc., a Delaware corporation and any successor to all or substantially all of its assets or business which assumes the obligations of the Company. 5 1.8. "Compensation" means, with respect to any given period, the aggregate compensation, exclusive of any bonuses, paid to an Eligible Employee by one or more Participating Employers during such period, whether before or after he or she becomes an Eligible Employee. "Compensation" shall be determined before any reduction under Section 125 or 40 1 (k) of the Code or under any other deferred compensation plan or arrangement, but shall not otherwise include any Participating Employer contributions under retirement or other benefit plans or arrangements, or any expense reimbursements, imputed compensation, property, or payments of compensation previously deferred. In the case of an Eligible Employee who was, immediately prior to the Effective Date, employed by Carter Hawley Hale Stores, Inc. ("CHH") or any of its affiliates, the term "Participating Employer" shall, for purposes of this Section 1.7, include CHH and its affiliates. 1.9. "Effective Date" means August 2, 1987. 1.10. "Eligible Employee" means each employee of a Participating Employer who, on any August 1, (a) is employed in an executive, administrative, or professional capacity as defined in Section 13(a)(I) of the Fair Labor Standards Act, as amended, and the regulations thereunder, (b) participates in the Basic Plan, (c) had a base salary on the immediately preceding December 31 at least equal to the Minimum Salary, and (d) is not employed as a salesperson. 6 1.11. "Individual Pension Agreement" means a deferred compensation agreement between a Participating Employer and an Eligible Employee which provides for payment by the Participating Employer of supplementary retirement benefits, but shall not include any agreement to defer compensation under The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan or any similar plan or arrangement. 1.12. "Minimum Salary" means: (a) for December 31 of each of the years 1992 through 1995, the amount in effect under Section 414(q)(1)(B) of the Code for the year following such December 31; and (b) for December 31, 1996, and each December 31 thereafter, $100,000. 1.13. "Normal Form" means a form of benefit payable monthly to an individual during his or her lifetime, the first payment to be due on the date of the commencement of his or her benefits under the Plan, and the last payment to be due for the calendar month in which his or her death occurs. 1.14. "Participant" means any individual who participates in the Plan in accordance with Article 2. 1.15. "Participating Employer" means the Company and any affiliate or subsidiary of the Company which is a Participating Employer as defined in the Basic Plan. 1.16. "Plan" means The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan as set forth herein and in all subsequent amendments hereto. 1.17. "Plan Year" means the 52 or 53 week period ending on the Saturday nearest to July 31 of each year. 7 1.18. "Service" means the period measured in years equal to years of Vesting Service determined under the Basic Plan, subject to the following special rules: (a) Years of Vesting Service, if any, prior to the Effective Date shall be determined in accordance with the rules of the Pension Plan for Employees of Carter Hawley Hale Stores, Inc. that applied on August 1, 1987 to employees hired after June 30, 1980; and (b) A Participant shall be credited with a full year of Service for each partial year of Vesting Service interrupted by a Period of Severance, provided that (i) the Participant is credited with at least 1,000 Hours of Service during such partial year of Vesting Service, and (ii) no more than one year of Service shall be credited during any 12-month period. 1.19. "Social Security Benefit" means, in the case of each Participant, the estimated amount of the monthly primary old age insurance benefit available to him at age 65 under the Social Security Act as in effect on the earliest of his or her Normal Retirement Date, Termination of Employment or death. The amount shall be computed upon the assumption that the Participant has been continuously covered under said Act since the later of 1951 or his or her 21st birthday, and that his or her remuneration for employment for the calendar year preceding the date of his or her Normal Retirement, Termination of Employment or death, whichever is earliest, was equal to that portion of his compensation for such year that would be subject to tax under Section 3101(a) of the Code without the dollar limitation of Code Section 3121(a)(1), and his or her remuneration for each prior calendar year was equal to the assumed remuneration for the subsequent year divided by 1.06. If a Participant has a Termination of Employment 8 for any reason, or becomes Totally and Permanently Disabled, prior to his or her Normal Retirement Date, in determining his or her Social Security Benefit, earnings for the calendar year of such termination or disability and each subsequent calendar year prior to his or her Normal Retirement Date shall be assumed to be equal to that portion of his or her compensation for the calendar year prior to the year of termination or disability that would be subject to tax under Section 3101(a) of the Code without the dollar limitation of Code Section 3121(a)(1). 1.20. "Spouse" means the lawfully married husband or wife of a Participant, determined at the time of the Participant's death or, if earlier, as of the first day of the first month for which benefits are payable under the Plan. Unless defined herein, any capitalized word, phrase or term used in this Plan shall have the meaning given to it in the Basic Plan. 9 Article 2. - PARTICIPATION 2.1. Commencement of Participation. Any individual who was a Participant in the Plan on July 31, 1993 will, subject to Sections 2.2 and 2.3, continue to be a Participant under this restatement of the Plan. Any other individual who is an Eligible Employee on August 1, 1993 or any subsequent August 1 shall become a Participant on such August 1. 2.2. Duration of Participation. Subject to Section 2.3, an individual who has become a Participant in the Plan shall continue to be a Participant as long as he or she remains an employee of a Participating Employer or is entitled to a benefit under the Plan, even though his or her base salary after becoming a Participant later falls below the then applicable base salary level specified in Section 1.10. A Participant will cease to be a Participant when he or she is neither employed by a Participating Employer nor entitled to receive a benefit under the Plan. 2.3. Reduction in Participant. Notwithstanding any other provision of the Plan to the contrary, the Committee may terminate the right of any Participant or Eligible Employee to participate in the Plan if the Committee deems such action to be necessary to preserve the status of the Plan as "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201 (2) and 301(a)(3) of ERISA. In the event a Participant's participation is terminated under this Section 2.3, the Participant shall not be entitled to any benefits under the Plan except to the extent such benefits would be protected under Section 6.2 if the Plan were then terminated. 10 The Committee may, in its discretion, direct the Participant's Participating Employer to pay to the Participant the present value of any such protected benefits, or to provide for payment of such benefits through another plan, or may direct a combination of the foregoing, in lieu of providing such benefits under this Plan, and such payment or provision (or both) shall be in complete satisfaction of the Participant's rights under this Plan. 11 Article 3. - SOURCE OF BENEFIT PAYMENTS Nothing in this Plan will be construed to create a trust or to obligate the Participating Employers or any other person to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give any employee or any other person rights to any specific assets of the Participating Employers or of any other person. Any benefits which become payable hereunder shall be paid from the general assets of the Participating Employers. 12 Article 4. - RETIREMENT BENEFITS 4.1. Normal or Late Retirement Benefit. The amount of the monthly retirement benefit payable under the Plan to a Participant who retires on or after his or her Normal Retirement Date, commencing on the first day of the month coinciding with or next following his or her retirement and payable in the Normal Form, will be equal to (a) minus (b), but not less than zero, where: (a) is 50% of the Participant's average monthly Compensation for the highest sixty consecutive months preceding retirement, less 60% of the Participant's Social Security Benefit, the result multiplied by a fraction the numerator of which is the Participant's years of Service (not in excess of 25) and the denominator of which is 25; and (b) is the monthly normal or late retirement benefit payable to the Participant under the Basic Plan (increased by his or her monthly benefit, if any, under the Augmentation Plan and any Individual Pension Agreement), calculated as though payable in the Normal Form. 4.2. Early Retirement Benefit. (a) The amount of the monthly retirement benefit under this Plan payable in the Normal Form to a Participant who has attained age 55 with at least 10 years of Service, and who retires thereafter (but prior to his or her Normal Retirement Date), shall equal (1) minus (2), but not less than zero, where: (1) is the amount determined under Section 4.1(a) above, unreduced for early commencement if the benefit starting date is on or after the Participant's 62nd birthday, reduced by 1/600th for each month 13 between the Participant's 60th and 62nd birthday by which the benefit starting date precedes the month in which the Participant attains age 62, and reduced further by 1/240th for each month by which the benefit starting date precedes the month in which the Participant attains age 60; and (2) is the Participant's monthly early retirement benefit, if any, under the Basic Plan (increased by his or her monthly early retirement benefit, if any, under the Augmentation Plan and any Individual Pension Agreement), calculated as though payable in the Normal Form. If the Participant is not eligible for an early retirement benefit under the Basic Plan (or, if applicable, the Augmentation Plan or any Individual Pension Agreement) at the time a benefit becomes payable under this Plan, the monthly benefit under this Plan will be determined without reduction for such early retirement benefit until such time as the Participant could begin to receive a benefit under the Basic Plan (or Augmentation Plan or Individual Pension Agreement), and will then be reduced by the amount of each such benefit calculated as though payable in the Normal Form. (b) The monthly benefit payable to a Participant under this Section 4.2 shall commence at the same time as the early retirement benefit payable under the Basic Plan. However, if no benefit is payable to a Participant under the Basic Plan before his or her Normal Retirement Date, the benefit payable under this Section 4.2 shall commence on the first day of the month coinciding with or next following the Participant's retirement, or such later month (up to the Participant's Normal Retirement Date) as the Participant may elect. Such election must be made at least 90 days before 14 benefits would otherwise commence. In each case the reductions applicable under paragraph (a)(1) shall reflect the actual date as of which benefits commence. 4.3. Vested Termination Benefit. Any Participant who has a Termination of Employment after he or she has completed at least 5 years of Service, but before he or she has satisfied the requirements for early retirement hereunder, shall be entitled to a monthly benefit payable in the Normal Form, commencing at the same time as the Participant's vested benefit under the Basic Plan, in an amount equal to (a) below (reduced by the applicable factor set forth in Section 4.2(a)(1) above) minus (b) below, but not less than zero, where: (a) is 50% of the Participant's average monthly Compensation for the highest sixty consecutive months preceding the Termination of Employment, less 60% of the Participant's Social Security Benefit, the result multiplied by a fraction the numerator of which is the Participant's years of Service and the denominator of which is the greater of 25 years or the number of years of Service the Participant would have had if he or she continued employment with a Participating Employer without interruption until his or her Normal Retirement Date; and (b) is the Participant's monthly benefit under the Basic Plan (increased by his or her monthly benefit, if any, under the Augmentation Plan and any Individual Pension Agreement), calculated as though payable in the Normal Form. 4.4. Other Termination of Employment; Death. If a Participant has a Termination of Employment for any reason prior to the time he or she is eligible for a retirement or 15 vested benefit under Section 4.1, 4.2 or 4.3, no benefit shall be payable under this Plan. In the event a Participant dies prior to the commencement of benefit payments hereunder, then except as provided in Section 4.7 no benefits shall be payable hereunder following the Participant's death. In the event a Participant dies after the commencement of benefit payments hereunder, payments shall continue to be made following his or her death only if the Participant has chosen an optional form of benefit under Section 4.5 and then only to the extent, if any, provided under such optional form of benefit. 4.5. Optional Forms of Benefits. A Participant may elect to receive, in lieu of the retirement benefit otherwise payable to him or her in the Normal Form pursuant to Section 4.1, 4.2 or 4.3, retirement benefits of Actuarial Equivalent value payable in any of the optional forms available under the Basic Plan, provided that no optional form of benefit shall be available to a married Participant, other than a 50% contingent annuity form protecting the Participant's Spouse, without the written consent of such Spouse. The Committee shall notify each Participant of the options available to him and shall provide forms for election of such options. The Participant shall be entitled to elect one of the foregoing options (or to revoke any such election) within the 90-day period prior to the commencement of benefits. The election of one of the options provided for in this Section 4.5 shall become effective as of the first day of the first month for which benefits are payable to the Participant under the Plan, and may not be rescinded or modified thereafter. Should the Participant's Spouse or other beneficiary die prior to such effective date, the Participant's election will be void and the Participant's retirement benefit will be paid to him as though he or she had made no election unless the 16 Participant makes a new election prior to such effective date. 4.6. Forfeiture of Benefits. Notwithstanding any provision of this Plan to the contrary, no benefits shall be payable under this Plan with respect to any Participant who confesses to, or is convicted of, any act of fraud, theft or dishonesty arising in the course of, or in connection with, his or her employment with a Participating Employer. The Committee's decision as to the applicability of this Section 4.6 in any case shall be fixed and binding on all persons. 4.7. Surviving Spouse Benefit. In the event a Participant dies on or after the earliest date as of which he or she becomes eligible for a benefit under Section 4.1, 4.2 or 4.3 but prior to the first day of the first month for which benefits are payable to him or her under this Plan, and such Participant is survived by a Spouse, a monthly surviving spouse benefit shall be payable to such Spouse commencing as of the month the pre-retirement death benefit under the Basic Plan commences to be paid to the Spouse (the "survivor benefit commencement date") and ending with the month in which the Spouse's death occurs. The monthly surviving spouse benefit shall be computed as though the Participant had terminated employment on the date of his or her death (if not already terminated), had chosen to have benefit payments commence in the 50% contingent annuity form described in Section 4.5 on the survivor benefit commencement date, and had survived to and died on the day following such commencement date. 4.8. Disability. Any Participant who becomes Totally and Permanently Disabled at a time when he or she has ten or more years of Service but before Normal Retirement Age shall continue to have Service credited on his or her behalf until the earlier of his or her Normal Retirement Date or the date on which he or she is no longer 17 Totally and Permanently Disabled (or, if he or she returns to work at that time for a Participating Employer, until his or her subsequent retirement or other termination of employment). 4.9. No Reduction in Accrued Benefit Under CHH Plan. Notwithstanding any other provision of the Plan, in the case of a Participant who was a participant in the CHH Plan on the day before the Effective Date, any benefit payable to the Participant under Section 4.1, 4.2, or 4.3 in the Normal Form will not be less than the benefit that would have been payable to the Participant in the Normal Form, commencing at the same time, under the CHH Plan as in effect on the day before the Effective Date if the Participant's employment had terminated on that date. For purposes of the preceding sentence, a Participant will be deemed to have satisfied the age and service requirements for entitlement to benefits under the CHH Plan and from the Pension Plan for Employees of Carter Hawley Hale Stores, Inc. on the day before the Effective Date, but the Participant's actual age and Service will be taken into account in computing the amount of benefit that would have been payable to the Participant under the CHH Plan. 4.10. Lump Sum Settlements. Notwithstanding any other provisions of the Plan to the contrary, if any benefit payable under the Plan is less than $50 per month, such benefit shall instead be paid in a single lump sum of Actuarial Equivalent value. 4.11. Reemployment After Retirement. Any benefit payable under the Plan to a Participant shall cease as of the date of rehire if the Participant is reemployed by a Participating Employer and shall resume following subsequent retirement or other Termination of Employment in accordance with the applicable provisions of this Article 4. The retirement benefit subsequently payable shall be computed in accordance with 18 this Article 4 on the basis of service and compensation to the time of such subsequent Termination of Employment, but shall be reduced by the Actuarial Equivalent of any payments previously made under the Plan, including lump sum payments or amounts applied to purchase annuity contracts. In no event shall the aggregate benefits of any rehired Participant be greater than the benefit he or she would have received if all his or her service had been one continuous period of employment. 19 Article 5. - COMMITTEE 5.1. Plan Administration and Interpretation. The Committee shall have complete control over the administration of the Plan. The Committee shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or other person having or claiming to have any interest under the Plan. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants and other claimants in similar circumstances. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant, a beneficiary, the Participating Employers, the legal counsel of a Participating Employer or the Committee, or the Actuary. Subject to applicable laws and regulations, for all purposes of administration and interpretation of the Plan, the Committee shall consider the Plan as if it were maintained by a single employer for the benefit of all Participants by whomever employed. The Committee shall be deemed to be the Plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA. 5.2. Powers, Duties, Procedures, etc. The Committee shall have such powers and duties, may adopt such rules and tables, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties, may receive such reimbursements and compensation, and shall follow such claims and appeal procedures with respect to the Plan as are permitted or required under the terms of the Basic Plan. 20 5.3. Information. To enable the Committee to perform its functions, the Participating Employers shall supply full and timely information to the Committee on all matters relating to the compensation of Participants, their employment, retirement, death, the cause for termination of employment, and such other pertinent facts as the Committee may require. 5.4. Indemnification of Committee. The Company agrees to indemnify and to defend to the fullest extent permitted by law any officer or employee of any Participating Employer who serves as a member of the Committee (including any such individual who formerly served as a member of the Committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. 21 Article 6. - AMENDMENT AND TERMINATION 6.1. Amendments. The Company shall have the right to amend this Plan from time to time by resolution of the Board of Directors or its Executive Committee and to amend or cancel any amendments. Any such amendment shall be stated in an instrument in writing, executed by the Company in the same manner as this Plan. 6.2. Termination of Plan. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Eligible Employee (or any other employee) or a consideration for, or an inducement or condition of employment for, the performance of services by any Eligible Employee (or other employee). The Company reserves the right to terminate this Plan at any time and, in the event of such termination, to pay no benefits to any Participant who has neither completed 5 years of Service nor attained age 65. No such termination shall result in the reduction of (a) benefits that have commenced before the date of termination, (b) benefits accrued as of that date by any Participant who has completed at least 5 years of Service or attained age 65 by that date, or (c) benefits accrued under the CHH Plan as of the day before the Effective Date by any Participant who was a participant in the CHH Plan on that day. 22 Article 7. - MISCELLANEOUS 7.1. Nonassignability. None of the benefits, payments, proceeds or claims of any Participant or beneficiary shall be subject to any claim of any creditor and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor, nor shall any Participant or beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he or she may expect to receive, contingently or otherwise, under this Plan. 7.2. Limitation on Participants' Rights. Participation in this Plan shall not give any Eligible Employee the right to be retained in the employ of a Participating Employer or any right or interest in the Plan other than as herein provided. Each Participating Employer reserves the right to dismiss any Eligible Employee without any liability for any claim against the Participating Employer, except to the extent provided herein. 7.3. Participants Bound. Any action with respect to this Plan taken by the Committee, the Company, or any other Participating Employer, or any action authorized by or taken at the direction of the Committee, the Company, or any other Participating Employer, shall be conclusive upon all Participants and beneficiaries entitled to benefits under the Plan. 7.4. Receipt and Release. Any payment to any Participant or beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company, any other Participating Employer, and the Committee, and the Committee may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If 23 any Participant or beneficiary is determined by the Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Committee may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Committee, the Company, or any other Participating Employer to follow the application of such funds. 7.5. Governing Law. This Plan shall be construed, administered, and governed in all respects under and by the laws of the Commonwealth of Massachusetts. If any provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 7.6. Headings and Subheadings. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer, effective as of the first day of August, 1993. THE NEIMAN MARCUS GROUP, INC. By: /s/ (signature illegible) --------------------------------- 24 EX-10.6 7 d99632exv10w6.txt EX-10.6 DESCRIPTION OF EXECUTIVE LIFE INSURANCE EXHIBIT 10.6 THE NEIMAN MARCUS GROUP, INC. EXECUTIVE LIFE INSURANCE PLAN Employees, who are determined to be eligible by the Employee Benefits Committee, which administers the executive life insurance plan, receive a permanent and portable life insurance benefit available in multiples of one, two, three, four or five times annual salary up to $3,000,000 maximum. Basic life coverage up to one times the annual salary is fully paid by the Company. Supplemental and dependent coverage is paid by the employee. EX-10.7 8 d99632exv10w7.txt EX-10.7 SUPPLEMENTARY EXECUTIVE MEDICAL PLAN EXHIBIT 10.7 THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTARY EXECUTIVE MEDICAL PLAN AND SUMMARY PLAN DESCRIPTION (Restated as of August 1, 1993) I. Purpose. The Neiman Marcus Group, Inc. hereby establishes this Supplementary Executive Medical Plan (the "Plan"), effective August 27, 1987, to reimburse Eligible Employees of The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc. and Contempo Casuals (collectively referred to herein as the "Company") for those medical, dental, and optical expenses which are not covered by The Neiman Marcus Group, Inc. Benefit Program (the "Basic Plan") (with the exception of benefits reduced or denied because of a failure to comply with the utilization Review Program). This document together with the materials issued by the organization or organizations issuing the policies governing the insurance coverage offered under this Plan (the "Insurance company") constitute the Summary Plan Description of the Plan. II. Administration. The Neiman Marcus Group, Inc. Employee Benefits Committee will be the Plan "Administrator," and will 'administer the Plan in all of its details, subject, however, to ERISA. The Administrator will have all those powers necessary to carry out the terms of the Plan including, but not limited to, the power to make and enforce such rules as it deems necessary or proper for the efficient administration of the Plan, to interpret the Plan, to decide all questions concerning the eligibility of any person to participate in the Plan, to appoint such agents, counsel, and consultants as it deems necessary to assist in administering the Plan, and to allocate and delegate, by written instrument, its duties and responsibilities. III. Eligibility. A. Eligible Employee. An employee is an "Eligible Employee" if he is an officer of The Neiman Marcus Group, Inc. for the purposes of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder and is not also an officer for those same purposes of Harcourt General, Inc. An Eligible Employee's Family Members are covered if they meet the eligibility qualifications described below. B. Eligible Family Members. An Eligible Employee's Family Members include his spouse and unmarried children who are less than 19 years of age (or less than 24 years of age if a full-time student in an accredited 1 educational institution and dependent upon the Eligible Employee for support). Stepchildren, foster children and legally adopted children may be covered on the same basis, provided they depend upon the Eligible Employee for support and maintenance. Eligibility will be determined by the Insurance Company upon approval of a completed Dependent Child Eligibility Questionnaire available from the Administrator. An unmarried dependent child who is physically or mentally incapable of self-support may continue to be covered under this Plan beyond the age at which coverage would otherwise end. C. When Coverage Begins. Eligible Employees and their Family Members are covered as of the first day of the Eligible Employee's employment with the Company as an Eligible Employee or, if later, the date the Eligible Employee has in effect an election under The Neiman Marcus Group, Inc. Choice Pay Plan to receive medical and dental benefits under the Basic Plan (which includes HMO Coverage). An Eligible Employee who retirees from the Company may elect to continue coverage under this Plan. Any such retiree must be enrolled in The Neiman Marcus Group, Inc. Retiree Medical Plan (the "Retiree Medical Plan") in order to be covered under this Plan. D. Cost of Coverage. There is no cost to active employees for the supplementary coverage afforded under this Plan in addition to the Basic Plan Cost. The cost to retirees for the supplementary coverage afforded under this Plan is two times the Basic Plan Cost for active employees in addition to the Retiree Medical Plan Cost. Retirees shall pay such costs on an after tax basis. E. When Coverage Ends. An Eligible Employee's coverage terminates on the earliest of the following to occur: o He ceases to be an Eligible Employee; o The provisions of the Insurance Policy governing the insurance for Eligible Employee terminate; o He ceases to have in effect an election under The Neiman Marcus Group, Inc. Choice Pay Plan to receive medical benefits under the Basic Plan. o His employment terminates, as described below: For purposes of this Plan, employment will be considered to terminate when the Eligible Employee is no longer engaged in work on a full-time basis for the Company. However, under the following circumstances, coverage will be continued as noted: 2

Type of Absence from Full-Time Work Time Limit on Coverage ------------------- ---------------------- Leave of absence or End of the policy month temporary layoff, for following the policy month reasons other than in which the Eligible disability Employee ceased to be actively engaged in work on a full-time basis Disability, part-time For as long as the Plan employment, or and the insurance policy retirement providing coverage under the Plan remain in effect, no time limit

Coverage for Family Members terminates on the earliest of the following to occur: o The Eligible Employee's coverage terminates; o The provisions of the insurance policy governing the insurance for the Family Member terminate; o The Family Member no longer qualifies for coverage under the eligibility provisions of this Plan. Section X describes certain circumstances under which coverage may be continued. IV. Plan Benefits. Under this Plan, an Eligible Employee will be reimbursed for eligible medical, dental or optical expenses incurred by the Eligible Employee and Family Members which are not paid by the Basic Plan. The Plan will provide benefits up to a family maximum of $10,000 each calendar year, determined in the same manner as the benefits paid under the Basic Plan. Eligible expenses are as follows: A. Medical Expenses. Covered medical expenses are the reasonable and customary charges for medical services or supplies recommended by a physician which are essential for the necessary care and treatment of an injury, illness, or pregnancy. Eligible expenses include, but are not limited to, the following: o Hospital room and board 3 o Other hospital services and supplies - such as operating room, intensive care, X-rays, laboratory tests, etc. o Doctors' services - surgery; home, office, and hospital visits; etc. o Nursing care - private duty nursing by a registered graduate nurse or a licensed vocational nurse o Physiotherapy - treatment by a physiotherapist. Ambulance service o Anesthetics and their administration o Diagnostic X-rays and laboratory examinations o X-ray and radium treatments o Hearing aids and examinations o Convalescent nursing home care o Psychiatry o Prescription drugs and other medical supplies o Physical examinations B. Dental Expenses. Covered dental expenses are the reasonable and customary charges of a dentist for services and supplies employed in the treatment of dental conditions in accordance with accepted standards of dental practice. Eligible expenses include but are not limited to, the following: o Scaling and polishing teeth o Diagnostic X-rays o Fillings o Fluoride treatment o Oral surgery o Root canal therapy o Extractions o Space maintainers o Periodontal (gum) procedures o Inlays o Bridges o Dentures o Crowns o Crown, bridgework and denture repair 4 o Orthodontia C. Optical Expenses. Eligible Employees will receive reimbursement for reasonable costs associated with necessary services and supplies for the treatment of optical conditions for the Eligible Employee and the Eligible Employee's Family Members. Covered optical expenses will include eye examinations performed by a licensed ophthalmologist, M.D., or an optometrist, 0.0., and prescribed lenses and frames, including contact lenses. D. Utilization Review Program. The utilization review requirements under the Basic Plan are applicable to the Plan. Any failure to comply with such utilization review requirements will result in a reduction or denial of benefits under the Plan in the same manner as would apply under the Basic Plan. V. Coordination with Other Plans. When an Eligible Employee is covered under more than one group plan (or has coverage under Medicare), benefits under all plans will be coordinated so that the total benefit an Eligible Employee receives will not exceed 100% of the eligible expenses described in section IV. The primary plan (as defined below) pays its benefits without regard to other plans. The secondary plan adjusts its benefit so as not to exceed total eligible expenses. If Family Members are covered under another group plan, making this Plan the secondary payor, expenses for that dependent will be covered under the provisions of the basic Plan before coverage is provided under this Plan. A plan without a coordinating provision is always the primary plan. If all plans have such a provision: o The plan covering the patient as an employee (rather than a dependent) is primary and others are secondary. o If a child is covered under more than one plan, the following birthday rule will apply: (a) The benefits of the plan of the parent whose birthday falls earlier in a year are determined before those of the plan of the parent whose birthday falls later in that year; (b) but if both parents have the same birthday, the benefits of the plan which covered the parent longer are determined before those of the plan which covered the other parent for a shorter period of time. However, if the other plan does not have the rules described in (a) and (b) above, but instead has a rule based upon the gender of the parent, and if, as a result, the plans do not agree on the order of benefits, the rules in the other plan will determine the order of benefits. o If none of the above rules applies, the plan covering the patient longest is primary. 5 o Where required by law, this Plan shall be primary to Medicare. "primary to Medicare" means that the benefits under the Plan are paid before Medicare determines its obligation, if any, to pay benefits as a secondary payor. In all other cases, Medicare will be the primary coverage. VI. General Exclusions. This Plan will not pay benefits: 1. for anything not ordered by a physician or not necessary for medical care; 2. that would be furnished by or for the U.S. Government, or any government unless payment is legally required: 3. if the individual is, or could be, covered under any governmental program or law (except Medicare); 4. for services or supplies received as a result of an act of war occurring while covered; 5. for expenses that are a result of an accident or sickness covered under Workers' Compensation or similar law; 6. for services or supplies for which there is no charge or requirement to pay; 7. for expenses in connection with cosmetic surgery, unless due to an accident which occurs while the individual is covered by this Plan; 8. for the portion of a charge for a supply or service in excess of the reasonable and customary charge (i.e., the prevailing charge in the area for a similar supply or service performed by a person of similar training and experience); 9. for the portion of expenses not reimbursed under the Basic Plan because of a failure to use the Pre-Admission and Concurrent Review Service and/or Second Surgical Opinion Programs; 10. charges in connection with any procedure which is considered experimental or investigational; 11. in connection with eye surgery, such as radial keratotomy, when the primary purpose is to correct myopia (nearsightedness), hyperopia (farsightedness), or astigmatism (blurring); 12. in connection with actual or attempted impregnation or fertilization by any means involving parental or surrogate donors or recipients; 6 13. in connection with gender reassignment (sex change) surgery. VII. Procedure For Filing a Claim. A. Family Enrollment and Authorization Form. Completion of the Family Enrollment and Authorization Form available from the Administrator is the means by which an Eligible Employee authorizes processing of claims under both basic and supplemental health care plans. On a specified date of each year Eligible Employees will be requested to complete one of these forms to update the Insurance Company's records. B. How to File a Claim. A claim should be filed as soon as an Eligible Employee or a Family Member has accumulated expenses which are covered under the Basic Plan and/or this Plan amounting to $250 or more. To file a claim, an Eligible Employee must complete the appropriate claim form showing the name of each individual for whom invoices are submitted, and mail it with the invoices to the Insurance Company's claims office. Dental claim forms require completion by the dentist providing service as well. The HEALTHLINE service requires notification and approval before planned in-patient hospitalization. C. Information Needed On Each Invoice. The Insurance Company's claims office can administer the claim using the service provider's (doctor's, dentist's, hospital's, etc.) invoice as long as it contains the following information: o Eligible Employee's name o Eligible Employee's social security number o Patient's full name o Name of provider (doctor, dentist, hospital, etc.) o Date or dates the service was rendered or purchase was made o Type of service or supply furnished o Itemized charge for service or supply furnished o Nature of the sickness or injury (i.e., diagnosis or medical complaint) o Prescription number or name of medication if for drug or medicine "Balance due" invoices do not contain enough information for the proper processing of a claim. For the same reason, drug store cash register receipts or labels from containers do not constitute adequate documentation for prescription invoices for claims-paying purposes. 7 D. Payments. Payments will be made directly to the Eligible Employee unless he has indicated on the claim form that payments should be made to the service provider. (An assignment form is sometimes supplied by the service provider for this purpose.) Eligible Employees will be notified when they are nearing their Plan payment limit when accumulated payments under the Plan approximate $9,000. Such Eligible Employees will, of course, still be entitled to the remaining $1,000 of coverage. E. Claims Appeal. If an Eligible Employee thinks his benefit payment or any non- payment was partially or wholly incorrect, he may file a claim in writing with the Administrator. If any such claim for Plan benefits is denied, in whole or in part, the Eligible Employee will receive a written notice from the Administrator containing (i) specific reasons for the denial, (ii) specific references to pertinent Plan provisions, (iii) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary and (iv) information as to the steps to be taken if the Eligible Employee wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to the Eligible Employee within the initial 90-day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and the Eligible Employee may request a review of his claim. Within 60 days after the date on which an Eligible Employee receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred), he (or his duly authorized representative) may (i) file a written request with the Administrator for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Administrator. The Administrator will notify the Eligible Employee of its decision in writing. Such notification will contain specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to the Eligible Employee within the initial 60-day period). If the decision on review is not made within such period, the claim will be considered denied. F. Identification Card. Upon receipt of the Family Enrollment and Authorization Form available from the Administrator, plan identification cards will be sent to the Eligible Employee and his Family Members. 8 G. Right of Reimbursement. Any right of reimbursement out of third-party recoveries for benefits provided under the Basic Plan shall apply with respect to third-party recoveries for benefits provided under the Plan. VIII. ERISA Rights. As participants in the Plan, Eligible Employees are entitled to certain rights and protections under ERISA. ERISA provides that all Plan participants shall be entitled to: o Examine, without charge, at the Administrator's office or at other specified locations, such as worksites, all Plan documents, including group insurance contracts, and copies of all documents filed by the Committee with the U.S. Department of Labor, such as detailed annual reports, and Plan descriptions. o Obtain copies of all Plan documents and other Plan information upon written request to the Administrator. o Receive a summary of the Plan's annual financial reports. The Administrator will furnish each participant with a copy of each summary annual report. In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of Plan participants and beneficiaries. No one including the Company or any other person may fire or otherwise discriminate against an Eligible Employee in any way to prevent him from obtaining a benefit or exercising his rights under ERISA. If an Eligible Employee's claim for a benefit is denied, in whole or in part, he will receive a written explanation of the reason for the denial. An Eligible Employee has the right to have the Administrator review and reconsider his claim. Under ERISA, there are steps an Eligible Employee can take to enforce the above rights. For instance, if an Eligible Employee requests materials from the Plan and does not receive them within 30 days, he may file suit in a federal court. In such a case, the court may require the Administrator to provide the materials and pay the Eligible Employee up to $100 a day until he receives the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If an Eligible Employee has a claim for benefits which is denied or ignored, in whole or in part, he may file suit for such benefits in a state or federal court. If it should happen that Plan fiduciaries misuse the Plan's money, or if an Eligible Employee is discriminated against for asserting his rights, he may seek assistance from the U.S. Department of Labor, or he may file suit in a federal court. The court will decide who should pay court costs and legal fees. If the Eligible Employee is successful, the court may order the person he has sued to pay these costs and fees. If the Eligible Employee loses, the court may order him to pay these costs and fees, for example, if it finds the claim to be frivolous. 9 If an Eligible Employee has any questions about this Plan, he should contact the Administrator. If an Eligible Employee has any questions about this statement or about his rights under ERISA, he should contract the nearest Area Office of the U.S. Labor- Management Services Administration, Department of Labor. IX. Miscellaneous. A. Employment Not Guaranteed. Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Eligible Employee any right to be retained in the employ of the Company. Accordingly, subject to the terms of any written employment agreement to the contrary, the Company shall have the right to terminate or change the terms of employment of an Eligible Employee at any time and for any reason whatsoever, with or without cause. B. Amendment and Termination. The Company shall at all times have the power to amend or terminate the Plan, any such amendment or termination to take effect retroactively if the Company so provides. The Company shall also have the right to change the entity serving as the Insurance Company. No such change, amendment or termination, however, will adversely affect the rights of Eligible Employees and Family Members to benefits to which they have already become entitled prior to the amendment or termination. C. Plan Sponsor. The Neiman Marcus Group, Inc. Supplementary Executive Medical Plan is sponsored by The Neiman Marcus Group, Inc., with headquarters at 27 Boylston Street, Chestnut Hill, MA 02167; Telephone: (617) 232-0760. Company Identification Number 04-2980655 Plan Number 50 D. The Insurance Company. Benefits provided under the Plan are currently insured under a policy issued by The Aetna Life Insurance Company (the "Insurance company"). E. Plan Administrator. The Plan Administrator is The Neiman Marcus Group, Inc. Employee Benefits committee, 27 Boylston Street, Chestnut Hill, MA 02167; Telephone: (617) 232-0760. 10 F. Type of Plan and Plan Year. The Plan is a welfare plan. The Plan Year is the period beginning August 27, 1987 and ending July 30, 1988, and the twelve-month period ending the Saturday nearest each July 31 thereafter, with the exception of the 1990 Plan Year which ended August 4, 1990. G. Plan Documents. This document is a Summary Plan Description and part of the official Plan document. The Plan document also consists of the policy and other materials issued by the Insurance Company furnishing coverage for benefits provided under the Plan. H. Legal Process. The agent for service of legal process is The Neiman Marcus Group, Inc. Employee Benefits Committee, 27 Boylston Street, Chestnut Hill, MA 02167. I. Plan Administrator's Discretion. To the fullest extent permitted by law, the Plan Administrator shall have the discretion to determine all matters relating to eligibility, coverage or benefits under the Plan, and the Plan Administrator shall have the discretion to determine all matters relating to the interpretation and operation of the Plan. Any determination by the Plan Administrator shall be final and binding, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. X. Notice Concerning continuation of Coverage under COBRA. This notice is intended to inform you, in a summary fashion, of your rights and obligations under the continuation coverage provisions of federal law ("COBRA"). (Both you and your spouse should take the time to read this notice carefully.) If you are an Eligible Employee covered by the Plan, you have a right to choose this continuation coverage if you lose your health coverage under the Plan because of a reduction in your hours of employment or the termination of your employment (for reasons other than gross misconduct on your part). If you are the spouse of an Eligible Employee covered by the Plan, you have the right to choose continuation coverage for yourself if you lose group health coverage under the Plan for any of the following four reasons: 1. The death of your spouse; 2. A termination of your spouse's employment (for reasons other than gross misconduct) or reduction in your spouse's hours of employment; 3. Divorce or legal separation from your spouse; or 4. Your spouse becomes entitled to Medicare. 11 In the case of a dependent child of an Eligible Employee covered by the Plan, he or she has the right to continuation coverage if group health coverage under the Plan is lost for any of the following five reasons: 1. The death of a parent; 2. The termination of a parent's employment (for reasons other than gross misconduct) or reduction in a parent's hours of employment with the Company; 3. Parent's divorce or legal separation; 4. A parent becomes entitled to Medicare; or 5. The dependent ceases to be a "dependent child" under the Plan. Under the law, the employee or a family member has the responsibility to inform the Plan Administrator within 60 days of a loss of coverage through a divorce, legal separation, or a child losing dependent status under the Plan. The Company has the responsibility to notify the Plan Administrator of the employee's death, termination of employment or reduction in hours, Medicare eligibility or a proceeding under Title 11, United States Code involving the Company. When the Plan Administrator is notified that one of these events has happened, the Plan Administrator will in turn notify you that you have the right to choose continuation coverage. Under the law, you have at least 60 days from the date you would lose coverage because of one of the events described above to inform the Plan Administrator that you want continuation coverage. If you do not choose continuation coverage, your coverage under the Plan will end. If you choose continuation coverage, the Company is required to give you coverage which, as of the time coverage is being provided, is identical to the coverage provided under the Plan to similarly situated Eligible Employees or family members. The law requires that you be afforded the opportunity to maintain continuation coverage for 3 years unless you lost coverage under the Plan because of termination of employment or reduction in hours. In that case, the required continuation coverage period is 18 months. If a second event entitling you to choose continuation coverage occurs within that 18-month period, the continuation period is three years from the date employment terminated or hours were reduced. Rights similar to those described above may, in certain instances, apply to retirees, spouses and dependents if an employer is involved in a proceeding under Title 11, United States Code, and those individuals lose health coverage as a result of that proceeding. Special rules apply to a "qualified beneficiary" under COBRA who is determined under Title II (OASDI) or Title XVI (SSI) of the Social security Act to have been disabled at the time of the qualifying event of termination of employment or reduction in hours of employment and is still disabled at the end of the 18-month continuation period. In that case, the qualified beneficiary is entitled to 29 months (as opposed to 18 months) of continuation coverage from the date employment terminated or hours were reduced, but only if the qualified beneficiary notifies the 12 Company that he or she has been determined to be disabled under either of those titles of the Social Security Act within 60 days after the date of such a determination of Social Security disability and before the end of the 18th month period of continuation coverage. The qualified beneficiary must also notify the Company within 30 days of the date of any final determination under the Social Security Act that he or she is no longer disabled. Furthermore, during the period after the 18th month through the 29th month of continuation coverage, the monthly premium cost to such a qualified beneficiary will be increased to 150% of the applicable premium relating to continuation coverage. However, the law also provides that your continuation coverage may be cut short for any of the following four reasons: (1) The Company no longer provides group health coverage to any of its employees; (2) The premium for your continuation coverage is not paid on a timely basis as required by the Health Plan; (3) You become covered under any other group health plan (as an employee or otherwise) which does not contain any exclusion or limitation with respect to any preexisting condition of yours; (4) You become entitled to Medicare. Failure to pay any required premium on a timely basis will result in the permanent termination of continuation coverage. You do not have to show that you are insurable to choose continuation coverage. However, as discussed above, you will have to pay all the required premiums for your continuation coverage. The law also says that, at the end of the 18-month or 3-year continuation coverage period, you must be allowed to enroll in an individual conversion health plan if such an individual conversion health plan is otherwise generally available under the Health Plan. XI. Governing Law. The Plan will be construed, administered and enforced according to the laws of the Commonwealth of Massachusetts to the extent such laws are not preempted by ERISA. IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer this 18th day of October, 1993. THE NEIMAN MARCUS GROUP, INC. By: /s/ Robert J. Tarr, Jr. 13 EX-10.8 9 d99632exv10w8.txt EX-10.8 KEY EMPLOYEE DEFERRED COMPENSATION PLAN EXHIBIT 10.8 THE NEIMAN MARCUS GROUP, INC. KEY EMPLOYEE DEFERRED COMPENSATION PLAN (Effective January 1, 1994) TABLE OF CONTENTS ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . 1 1.1. Purpose of Plan . . . . . . . . . . . . . . . . . 1 1.2. Status of Plan . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1 2.1. "Account" . . . . . . . . . . . . . . . . . . . . 1 2.2. "Base Pay" . . . . . . . . . . . . . . . . . . . . 1 2.3. "Bonus" . . . . . . . . . . . . . . . . . . . . . 2 2.4. "Code" . . . . . . . . . . . . . . . . . . . . . . 2 2.5. "Committee" . . . . . . . . . . . . . . . . . . . 2 2.6. "Company" . . . . . . . . . . . . . . . . . . . . 2 2.7. "Compensation" . . . . . . . . . . . . . . . . . . 2 2.8. "Effective Date" . . . . . . . . . . . . . . . . . 2 2.9. "Elective Deferral" . . . . . . . . . . . . . . . 2 2.10. "Eligible Employee" . . . . . . . . . . . . . . . 3 2.11. "ERISA" . . . . . . . . . . . . . . . . . . . . . 3 2.12. "Financial Hardship" . . . . . . . . . . . . . . 3 2.13. "Matching Deferral" . . . . . . . . . . . . . . . 4 2.14. "Participant" . . . . . . . . . . . . . . . . . . 4 2.15. "Plan" . . . . . . . . . . . . . . . . . . . . . 4 2.16. "Plan Year" . . . . . . . . . . . . . . . . . . . 4 2.17. "Retirement" . . . . . . . . . . . . . . . . . . 4 2.18. "Savings Plan" . . . . . . . . . . . . . . . . . 5 2.19. "Year of Service" . . . . . . . . . . . . . . . . 5 ARTICLE 3. PARTICIPATION . . . . . . . . . . . . . . . . . . 5 3.1. Commencement of Participation . . . . . . . . . . 5 3.2. Continued Participation . . . . . . . . . . . . . 5 ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS . . . . . . . . . 5 4.1. Elective Deferrals . . . . . . . . . . . . . . . . 5 4.2. Matching Deferrals . . . . . . . . . . . . . . . . 7 ARTICLE 5. ACCOUNTS; INTEREST . . . . . . . . . . . . . . . 7 5.1. Accounts . . . . . . . . . . . . . . . . . . . . . 7 5.2. Interest . . . . . . . . . . . . . . . . . . . . . 7 5.3. Payments . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 6. PAYMENTS . . . . . . . . . . . . . . . . . . . . 8 6.1. Time and Form of Payment . . . . . . . . . . . . . 8 6.2. Termination of Employment . . . . . . . . . . . . 9 6.3. Death . . . . . . . . . . . . . . . . . . . . . . 9 6.4. Reduction in Shareholders' Equity . . . . . . . . 10 6.5. Change in Control . . . . . . . . . . . . . . . . 10 6.6. Hardship . . . . . . . . . . . . . . . . . . . . . 11 6.7. Changes in Time and Form of Payment . . . . . . . 11 6.8. Payment Dates . . . . . . . . . . . . . . . . . . 12 6.9. Withholding . . . . . . . . . . . . . . . . . . . 12 ARTICLE 7. COMMITTEE . . . . . . . . . . . . . . . . . . . . 12 7.1. Plan Administration and Interpretation . . . . . . 12 7.2. Powers, Duties, Procedures, Etc . . . . . . . . . 13 7.3. Information . . . . . . . . . . . . . . . . . . . 13 7.4. Indemnification of Committee . . . . . . . . . . . 13 ARTICLE 8. AMENDMENT AND TERMINATION . . . . . . . . . . . . 14 8.1. Amendments . . . . . . . . . . . . . . . . . . . . 14 8.2. Termination of Plan . . . . . . . . . . . . . . . 14 8.3. Existing Rights . . . . . . . . . . . . . . . . . 14 ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 15 9.1. No Funding . . . . . . . . . . . . . . . . . . . . 15 9.2. Nonassignability . . . . . . . . . . . . . . . . . 15 9.3. Limitation of Participants' Rights . . . . . . . . 15 9.4. Participants Bound . . . . . . . . . . . . . . . . 16 9.5. Receipt and Release . . . . . . . . . . . . . . . 16 9.6. Governing Law . . . . . . . . . . . . . . . . . . 16 9.7. Headings and Subheadings . . . . . . . . . . . . . 16 THE NEIMAN MARCUS GROUP, INC. KEY EMPLOYEE DEFERRED COMPENSATION PLAN ARTICLE 1. INTRODUCTION 1.1. Purpose of Plan. The Company has adopted this Key Employee Deferred Compensation Plan, effective January 1, 1994,to provide a means by which certain employees who are not eligible to participate in the Savings Plan may elect to defer receipt of designated percentages of their Compensation. 1.2. Status of Plan. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2) and 301(a)(3) of ERISA, and shall be interpreted and administered to the extent possible in a manner consistent with that intent. ARTICLE 2. DEFINITIONS Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: 2.1. "Account" means, for each Participant, the account established for his or her benefit under Section 5.1. 2.2. "Base Pay" means the base salary payable by the Company to an employee, including amounts that would have been payable to the employee as base salary but for an election under Section 125 of the Code or a deferral election under this Plan. 2.3. "Bonus" means any cash bonus payable by the Company to an employee, including any portion of such a bonus that would have been payable to the employee but for an election under Section 125 of the Code or a deferral election under this Plan. However, the term "Bonus" shall not include any amount paid under or in connection with a stock appreciation right or stock option plan or arrangement. 2.4. "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.5. "Committee" means The Neiman Marcus Group, Inc. Employee Benefits Committee or any successor committee appointed by the Board of Directors of The Neiman Marcus Group, Inc. or its delegate. 2.6. "Company" means The Neiman Marcus Group, Inc., a Delaware corporation, its directly or indirectly wholly owned subsidiaries, and any successor to all or substantially all of the Company's assets or business which assumes the obligations of the Company. 2.7. "Compensation" means Base Pay and any Bonus payable by the Company to an employee. 2.8. "Effective Date" means January 1, 1994. 2.9. "Elective Deferral" means the portion of Compensation which is deferred by a Participant under Section 4.1. 2.10. "Eligible Employee" means each employee of the Company who, on the Effective Date or the first day of any month thereafter, (a) has completed at least one Year of Service, or such shorter period of service as may be specified by the Chief Executive Officer of The Neiman Marcus Group, Inc. in such Officer's sole discretion; and (b) had in effect on August 1 of the preceding calendar year (or, if later, on the employee's date of hire) an annual rate of Base Pay of at least $300,000. An Eligible Employee shall remain an Eligible Employee notwithstanding any reduction in his or her annual rate of Base Pay below the applicable minimum under (b) above. 2.11. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.12. "Financial Hardship" means an immediate and heavy financial need resulting from: (a) major medical expenses incurred to obtain, or necessary to obtain, medical care (described in Section 213(d) of the Code) with respect to the Participant or his or her spouse or dependent which are not covered by insurance; (b) costs directly related to the purchase of a principal residence of the Participant (excluding mortgage payments); (c) the payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant or his or her spouse, children, or dependents; (d) payments necessary to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence; or (e) any other circumstance that is determined by the Committee in its sole discretion to constitute a severe hardship need. 2.13. "Matching Deferral" means a deferral made for the benefit of a Participant under Section 4.2. 2.14. "Participant" means any individual who participates in the Plan in accordance with Article 3. 2.15. "Plan" means The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan set forth herein and all subsequent amendments hereto. 2.16. "Plan Year" means the calendar year. 2.17. "Retirement" means retirement in accordance with the normal, late, or early retirement provisions of The Neiman Marcus Group, Inc. Retirement Plan. 2.18. "Savings Plan" means The Neiman Marcus Group, Inc. Savings and Investment Plan, as amended from time to time. 2.19. "Year of Service" means a twelve month period, beginning on the date the employee first performs an hour of service or on any January 1 thereafter, in which the employee is credited with 1,000 or more hours of service. For this purpose, an "hour of service" shall have the same meaning as under the Savings Plan. ARTICLE 3. PARTICIPATION 3.1. Commencement of Participation. Any Eligible Employee shall become a Participant on the effective date of an election to defer Compensation in accordance with Section 4.1. 3.2. Continued Participation. An individual who has become a Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account. ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS 4.1. Elective Deferrals. (a) An individual who is an Eligible Employee on any January 1 may elect to defer a designated whole percentage, not to exceed 15 percent, of all Base Pay that is payable to the individual for services to be performed on or after that date, and all Bonuses payable to the individual for Company fiscal years ending after that date, by filing an election with the Committee prior to that January 1. In addition, an individual may elect before the date he or she becomes an Eligible Employee, or within 30 days thereafter, to defer a designated whole percentage, not to exceed 15 percent, of all Base Pay that is payable to the individual for services to be performed after such election (or, if later, after the date he or she becomes an Eligible Employee), and all Bonuses payable to the individual for Company fiscal years ending thereafter. (b) Each election under paragraph (a) shall be made in writing on a form approved or prescribed by the Committee, and shall specify the time and form of distribution of the amounts deferred and of related Matching Deferrals as provided in Section 6.1. The same deferral percentage shall apply to each payment of Compensation covered by the election, and the amount of each such payment that is deferred hereunder shall be credited to the Participant's Account as of the date such amount would otherwise have been paid to the Participant. (c) A Participant may revoke his or her deferral election with respect to Base Pay earned on or after the first day of any pay period, and with respect to Bonuses payable for fiscal years ending on or after that day, by giving written notice to the Committee before that day (or by such earlier date as the Committee may prescribe). However, except as otherwise provided in Section 6.6, a Participant may otherwise modify an existing election, or may make another deferral election, only as of a January 1, and only with respect to Base Pay earned thereafter, and Bonuses payable for fiscal years ending thereafter, in accordance with paragraphs (a) and (b) above. 4.2. Matching Deferrals. As of the last day of each calendar month, the Company shall credit to each Participant's Account a Matching Deferral equal to 25% of the Participant's Elective Deferrals for the month which do not exceed the first six percent of his or her Compensation payable during the month. ARTICLE 5. ACCOUNTS; INTEREST 5.1. Accounts. The Committee shall establish an Account for each Participant reflecting Elective Deferrals and Matching Deferrals for the Participant's benefit and any adjustments hereunder. Within 45 days after the end of each calendar quarter, the Committee shall provide the Participant with a statement of his or her Account. 5.2. Interest. As of the last day of each calendar quarter, the Committee shall credit each Participant's Account with interest on the balance of such Account from time to time during the calendar quarter at an annual rate equal to the average prime interest rate published in the Eastern Edition of The Wall Street Journal on the last business day of the calendar quarter (or, if two or more such rates are published, the mean of such rates), increased by two percentage points. In addition, any payment under Article 6 which is not made on the first day of a calendar quarter shall be increased by interest on the amount of such payment, from the end of the preceding calendar quarter, at the interest rate applicable for the preceding calendar quarter. 5.3. Payments. Each Participant's Account shall be reduced by the amount of any payment made to or on behalf of the Participant under Article 6 (including any interest paid with respect to such payment) as of the date such payment is made. ARTICLE 6. PAYMENTS 6.1. Time and Form of Payment. When a Participant elects to defer Compensation in accordance with Section 4.1, the Participant shall also elect the time at which the Elective Deferrals and related Matching Deferrals (including interest attributable thereto) will be paid or begin to be paid to the Participant, from among the following options: (a) 5, 10, 15 or 20 years after the end of the Plan Year in which the Compensation deferred would otherwise have been paid; (b) attainment of age 65; or (c) retirement. The Participant shall also elect the form of payment of such amounts, from among the following options: (i) a single lump sum payment; or (ii) annual installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of his or her Account immediately prior to the installment divided by the number of installments remaining to be paid. The foregoing elections shall be made on a form approved or prescribed by the Committee. Each such election shall be irrevocable with respect to amounts deferred while the election remains in effect (and with respect to related Matching Deferrals and interest), except as otherwise provided in Section 6.2, 6.3, 6.4, 6.5, 6.6 or 6.7. 6.2. Termination of Employment. Upon termination of a Participant's employment with the Company for any reason other than death or Retirement, the Participant's Account shall be paid to the Participant in a single lump sum payment as soon as practicable following the date of such termination. 6.3. Death. If a Participant dies prior to the complete distribution of his or her Account, the balance of the Account shall be paid as soon as practicable to the Participant's designated beneficiary or beneficiaries, in the form elected by the Participant from among the following options: (a) a single lump sum payment; or (b) subject to Section 6.7, annual installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of the Account immediately prior to the installment divided by the number of installments remaining to be paid. Any designation of beneficiary and form of payment shall be made by the Participant in writing on a form approved or prescribed by the Committee, and may be changed by the Participant at any time. If there is no such designation or no designated beneficiary survives the Participant, payment shall be made to the Participant's surviving spouse or, if none, to his or her issue per stirpes, in a single lump sum payment. If no spouse or issue survives the Participant, payment shall be made in a single lump sum to the Participant's estate. 6.4. Reduction in Shareholders' Equity. If at any time the shareholders' equity of the Company, as shown on the Company's consolidated balance sheet reported in its then most recent annual or quarterly report filed with the U.S. Securities and Exchange Commission, falls below $100 million, each Participant's Account shall be paid as soon as practicable to the Participant (or, if the Participant has died, to his or her beneficiary) in a single lump sum. 6.5. Change in Control. In the event that the aggregate direct or indirect beneficial ownership by Harcourt General, Inc. and any of its affiliates of capital stock of the Company decreases to less than 20 percent of the combined voting power of the Company's then outstanding capital stock entitled to vote for the election of directors of the Company, each Participant's Account shall, immediately prior to such change in control, be paid to the Participant (or, if the Participant has died, to his or her beneficiary) in a lump sum. Notwithstanding the foregoing, a Participant may elect, at any time prior to date of the change in control, to have his or her Account distributed under the Plan without regard to this Section 6.5. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1994. 6.6. Hardship. If a Participant suffers a Financial Hardship, the Committee, in its sole discretion, may pay to the Participant that portion, if any, of his or her Account which the Committee determines is necessary to satisfy the hardship need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the hardship payment, but only to the extent such need cannot reasonably be relieved by the liquidation of the Participant's assets (to the extent that such liquidation would not in itself cause hardship) or by cessation of Elective Deferrals. A Participant who has a Financial Hardship may also cease or reduce future Elective Deferrals with the consent of the Committee. A Participant requesting a distribution, or a cessation or reduction of future Elective Deferrals, on account of a Financial Hardship shall apply in writing in a letter submitted to the Committee and shall provide such information as the Committee may require. 6.7. Changes in Time and Form of Payment. The Committee may, in its sole discretion, at the request of or with the consent of the Participant, change the time at which any Elective Deferral or Matching Deferral will be paid or begin to be paid to the Participant under Section 6.1, or the form of such payment, or both, provided that (a) no such change may be made less than 24 months prior to the date such Elective Deferral or Matching Deferral would otherwise have been paid or commenced to be paid, and (b) the form of payment shall be a form described in clause (i) or (ii) of Section 6.1. 6.8. Payment Dates. Each payment under Section 6.1, 6.2, 6.3 or 6.7 shall be made on or about the first day of a calendar quarter. 6.9. Withholding. Each payment otherwise due under the Plan shall be reduced by withholding taxes and other legally required deductions. ARTICLE 7. COMMITTEE 7.1. Plan Administration and Interpretation. The Committee shall oversee the administration of the Plan. The Committee shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or other person having or claiming to have any interest under the Plan. The Committee shall have the exclusive power to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Committee acted arbitrarily and capriciously. Any individual serving on the Committee who is a Participant will not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant, a beneficiary, or the Company. The Committee shall be deemed to be the Plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA. 7.2. Powers, Duties, Procedures, Etc. The Committee shall have such powers and duties, may adopt such rules and tables, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties, may receive such reimbursements and compensation, and shall follow such claims and appeal procedures with respect to the Plan as are permitted or required under the terms of the Savings Plan. 7.3. Information. To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the compensation of Participants, their employment, retirement, death, termination of employment, and such other pertinent facts as the Committee may require. 7.4. Indemnification of Committee. The Company agrees to indemnify and to defend to the fullest extent permitted by law any officer or employee who serves as a member of the Committee (including any such individual who formerly served as a member of the Committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. ARTICLE 8. AMENDMENT AND TERMINATION 8.1. Amendments. The Neiman Marcus Group, Inc. shall have the right to amend this Plan from time to time, subject to Section 8.3, by an instrument in writing which has been executed by its duly authorized officer. 8.2. Termination of Plan. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any employee or a consideration for, or an inducement or condition of employment for, the performance of services by any employee. The Neiman Marcus Group, Inc. reserves the right to terminate this Plan at any time, subject to Section 8.3, by an instrument in writing which has been executed by its duly authorized officer. 8.3. Existing Rights. No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts credited to his or her Account that are attributable to Elective Deferrals or Matching Deferrals credited prior to the date of such amendment or termination. ARTICLE 9. MISCELLANEOUS 9.1. No Funding. Nothing in this Plan will be construed to create a trust or to obligate the Company or any other person to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give any employee or any other person rights to any specific assets of the Company or of any other person. Any benefits which become payable hereunder shall be paid from the general assets of the Company. 9.2. Nonassignability. None of the benefits, payments, proceeds or claims of any Participant or beneficiary shall be subject to any claim of any creditor and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor, nor shall any Participant or beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he may expect to receive, contingently or otherwise, under this Plan. 9.3. Limitation of Participants' Rights. Participation in this Plan shall not give any Eligible Employee the right to be retained in the employ of the Company or any right or interest in the Plan other than as herein provided. The Company reserves the right to dismiss any Eligible Employee without any liability for any claim against the Company, except to the extent provided herein. 9.4. Participants Bound. Any action with respect to this Plan taken by the Committee or the Company or any action authorized by or taken at the direction of the Committee or the Company shall be conclusive upon all Participants and any other persons who claim entitlement to benefits under the Plan. 9.5. Receipt and Release. Any payment to any Participant or beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company and the Committee under this Plan, and the Committee may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Committee may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Committee or the Company to follow the application of such funds. 9.6. Governing Law. This Plan shall be construed, administered, and governed in all respects under and by the laws of the Commonwealth of Massachusetts. If any provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 9.7. Headings and Subheadings. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, The Neiman Marcus Group, Inc. has caused this Plan to be executed by its duly authorized officer this ______ day of _______________, _________. THE NEIMAN MARCUS GROUP, INC. By: /s/ (signature illegible) ------------------------------ EX-10.12 10 d99632exv10w12.txt EX-10.12 THREE-YEAR CREDIT AGREEMENT EXHIBIT 10.12 $300,000,000 THREE-YEAR CREDIT AGREEMENT dated as of August 26, 2002 among THE NEIMAN MARCUS GROUP, INC., THE LENDERS PARTY HERETO, BANK OF AMERICA, N.A., BANK ONE, NA and FLEET NATIONAL BANK, as Syndication Agents and JPMORGAN CHASE BANK, as Administrative Agent - -------------------------------------------------------------------------------- J.P. MORGAN SECURITIES INC. and BANC OF AMERICA SECURITIES LLC Joint Lead Arrangers and Joint Bookrunners TABLE OF CONTENTS

Page ---- ARTICLE 1 DEFINITIONS Section 1.01. Definitions......................................................................1 Section 1.02. Accounting Terms and Determinations.............................................15 Section 1.03. Classes and Types of Borrowings.................................................16 ARTICLE 2 THE CREDITS Section 2.01. Commitments to Lend.............................................................16 Section 2.02. Notice of Committed Borrowing...................................................17 Section 2.03. Competitive Bid Borrowings......................................................17 Section 2.04. Notice to Lenders; Funding of Loans.............................................21 Section 2.05. Registry; Notes.................................................................22 Section 2.06. Maturity of Loans...............................................................23 Section 2.07. Interest Rates..................................................................23 Section 2.08. Method of Electing Interest Rates...............................................25 Section 2.09. Fees............................................................................26 Section 2.10. Termination or Reduction of Commitments.........................................27 Section 2.11. Optional Prepayments............................................................27 Section 2.12. General Provisions as to Payments...............................................27 Section 2.13. Funding Losses..................................................................28 Section 2.14. Computation of Interest and Fees................................................29 Section 2.15. Letters of Credit...............................................................29 Section 2.16. Stop Issuance Notice............................................................34 Section 2.17. Regulation D Compensation.......................................................34 Section 2.18. Increased Commitments; Additional Lenders.......................................35 ARTICLE 3 CONDITIONS Section 3.01. Effectiveness...................................................................36 Section 3.02. Borrowings and Issuances of Letters of Credit...................................37 ARTICLE 4 REPRESENTATIONS AND WARRANTIES Section 4.01. Corporate Existence and Power...................................................37 Section 4.02. Corporate Authorization.........................................................38 Section 4.03. Binding Effect..................................................................38

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Page ---- Section 4.04. Financial Information...........................................................38 Section 4.05. Litigation......................................................................39 Section 4.06. Governmental and Other Approvals................................................39 Section 4.07. Full Disclosure.................................................................39 Section 4.08. Compliance with ERISA...........................................................39 Section 4.09. Taxes...........................................................................39 Section 4.10. Environmental Matters...........................................................40 ARTICLE 5 COVENANTS Section 5.01. Furnishing of Financial Data and Certificates...................................40 Section 5.02. Payment of Taxes................................................................42 Section 5.03. Maintenance of Corporate Existence; Compliance with Laws........................42 Section 5.04. Maintenance of Property and Leases..............................................42 Section 5.05. Insurance.......................................................................42 Section 5.06. Accounts and Reports............................................................42 Section 5.07. Inspection......................................................................43 Section 5.08. Coverage of Consolidated Fixed Charges..........................................43 Section 5.09. Leverage Ratio..................................................................43 Section 5.10. Restrictions on Liens...........................................................43 Section 5.11. Restrictions on Sales, Consolidations and Mergers...............................44 Section 5.12. Transactions with Affiliates....................................................45 Section 5.13. Restriction on Debt of Subsidiaries.............................................45 Section 5.14. Use of Proceeds.................................................................45 Section 5.15. Restricted Payments.............................................................46 Section 5.16. Restrictive Agreements..........................................................46 ARTICLE 6 DEFAULTS Section 6.01. Events of Default...............................................................46 Section 6.02. Notice of Default...............................................................49 Section 6.03. Cash Cover......................................................................49 ARTICLE 7 THE AGENTS Section 7.01. Appointment and Authorization...................................................49 Section 7.02. Agents and Affiliates...........................................................49 Section 7.03. Action by Administrative Agent..................................................49 Section 7.04. Consultation With Experts.......................................................50 Section 7.05. Liability of Agents.............................................................50 Section 7.06. Indemnification.................................................................50 Section 7.07. Credit Decision.................................................................51

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Page ---- Section 7.08. Successor Administrative Agent..................................................51 Section 7.09. Administrative Agent's Fee......................................................51 Section 7.10. Syndication Agents..............................................................51 ARTICLE 8 CHANGE IN CIRCUMSTANCES Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................51 Section 8.02. Illegality......................................................................52 Section 8.03. Increased Cost and Reduced Return...............................................53 Section 8.04. Taxes...........................................................................54 Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate.............................56 Section 8.06. Substitution of Bank............................................................56 ARTICLE 9 MISCELLANEOUS Section 9.01. Notices.........................................................................57 Section 9.02. No Waivers......................................................................57 Section 9.03. Expenses; Indemnification.......................................................58 Section 9.04. Sharing.........................................................................58 Section 9.05. Amendments and Waivers..........................................................59 Section 9.06. Successors and Assigns..........................................................59 Section 9.07. Designated Lenders..............................................................61 Section 9.08. No Reliance on Margin Stock.....................................................62 Section 9.09. Confidentiality.................................................................62 Section 9.10. Governing Law; Jurisdiction.....................................................63 Section 9.11. Counterparts; Integration.......................................................63 Section 9.12. WAIVER OF JURY TRIAL............................................................63

COMMITMENT SCHEDULE PRICING SCHEDULE EXHIBIT A - NOTE EXHIBIT B - FORM OF NOTICE OF COMMITTED BORROWING EXHIBIT C - FORM OF COMPETITIVE BID QUOTE REQUEST EXHIBIT D - FORM OF INVITATION FOR COMPETITIVE BID QUOTES EXHIBIT E - FORM OF COMPETITIVE BID QUOTE EXHIBIT F - OPINION OF COUNSEL FOR THE BORROWER EXHIBIT G - OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT EXHIBIT H - ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT I - DESIGNATION AGREEMENT iii AGREEMENT dated as of August 26, 2002 among THE NEIMAN MARCUS GROUP, INC., the LENDERS party hereto, BANK OF AMERICA, N.A., BANK ONE, NA and FLEET NATIONAL BANK, as Syndication Agents, and JPMORGAN CHASE BANK, as Administrative Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.01. Definitions. The following terms, as used herein, have the following meanings: "ABSOLUTE RATE AUCTION" means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Absolute Rates pursuant to Section 2.03. "ADDITIONAL LENDER" has the meaning specified in Section 2.18(b). "ADMINISTRATIVE AGENT" means JPMorgan Chase Bank, in its capacity as administrative agent for the Lenders hereunder, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent, completed by such Lender and returned to the Administrative Agent (with a copy to the Borrower). "AFFILIATE" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such specified Person (other than, with respect to the Borrower, any of its Subsidiaries and, with respect to any Subsidiary of the Borrower, the Borrower or any other Subsidiary). As used herein, the term "CONTROL" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of this Agreement no individual shall be deemed to be an Affiliate solely by reason of the fact that such individual is a director or officer of the Borrower. "AGENTS" means the Administrative Agent and the Syndication Agents. "APPLICABLE LENDING OFFICE" means, with respect to any Lender, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Competitive Bid Loans, its Competitive Bid Lending Office. "APPROVED FUND" means any Fund that is administered or managed by (i) a Lender, (ii) an affiliate of a Lender or (iii) an entity or an affiliate of an entity that administers or manages a Lender. "ASSIGNMENT AND ASSUMPTION AGREEMENT" has the meaning specified in Section 9.06(b). "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day or (ii) the sum of 0.50% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Committed Loan that bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the last sentence of Section 2.08(a) or Article 8. "BASE RATE MARGIN" has the meaning specified in the Pricing Schedule. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWER" means The Neiman Marcus Group, Inc., a Delaware corporation, and its successors. "BORROWER'S 2001 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ended July 28, 2001, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "BORROWING" has the meaning specified in Section 1.03. "CAPITALIZED LEASE" means a lease under which, in accordance with United States generally accepted accounting principles, the liability of the lessee is required to be capitalized on its balance sheet. "CLASS" refers to the determination whether a Loan is a Committed Loan or a Competitive Bid Loan. "CLOSING DATE" means the date on or after the Effective Date on which all of the conditions specified in Section 3.01 shall have been satisfied. "COMMITMENT" means (i) with respect to each Lender listed on the Commitment Schedule, the amount set forth opposite such Lender's name on the Commitment Schedule, (ii) with respect to any financial institution which 2 becomes a Lender pursuant to Section 2.18, the amount of the Commitment thereby assumed by it and (iii) with respect to any assignee which becomes a Lender pursuant to Section 9.06(b), the amount of the transferor Lender's Commitment assigned to it pursuant to Section 9.06(b), in each case as such amount may be changed from time to time pursuant to Section 2.10, 2.18 or 9.06(b); provided that, if the context so requires, the term "COMMITMENT" means the obligation of a Lender to extend credit up to such amount to the Borrower hereunder. "COMMITMENT SCHEDULE" means the Commitment Schedule attached hereto. "COMMITTED LOAN" means a loan made by a Lender pursuant to Section 2.01; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "COMMITTED LOAN" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "COMPETITIVE BID ABSOLUTE RATE" has the meaning specified in Section 2.03(d)(ii)(D). "COMPETITIVE BID ABSOLUTE RATE LOAN" means a loan made or to be made by a Lender pursuant to an Absolute Rate Auction. "COMPETITIVE BID LENDING OFFICE" means, as to each Lender, its Domestic Lending Office or such other office, branch or affiliate of such Lender as it may hereafter designate as its Competitive Bid Lending Office by notice to the Borrower and the Administrative Agent; provided that any Lender may from time to time by notice to the Borrower and the Administrative Agent designate separate Competitive Bid Lending Offices for its Competitive Bid LIBOR Loans, on the one hand, and its Competitive Bid Absolute Rate Loans, on the other hand, in which case all references herein to the Competitive Bid Lending Office of such Lender shall be deemed to refer to either or both of such offices, as the context may require. "COMPETITIVE BID LIBOR LOAN" means a loan made or to be made by a Lender pursuant to a LIBOR Auction (including any such loan bearing interest at the Prime Rate pursuant to Section 8.01). "COMPETITIVE BID LOAN" means a Competitive Bid LIBOR Loan or a Competitive Bid Absolute Rate Loan. "COMPETITIVE BID MARGIN" has the meaning specified in Section 2.03(d)(ii)(C). 3 "COMPETITIVE BID QUOTE" means an offer by a Lender to make a Competitive Bid Loan in accordance with Section 2.03. "CONFIDENTIAL INFORMATION" means information that the Borrower furnishes to any party hereto (including any Designated Lender) in writing or that any such party obtains pursuant to its rights under Section 5.01 or 5.07, but does not include any such information that (a) is or becomes generally available to the public other than as a result of a breach by any party hereto of its obligations hereunder, (b) was available to such party on a nonconfidential basis prior to its disclosure to such party by the Borrower or any of its affiliates or (c) is or becomes available to such party from a source other than the Borrower that is not, to the knowledge of such party, acting in violation of a confidentiality agreement with the Borrower. "CONSOLIDATED EBITDAR" means, for any fiscal period, Consolidated Adjusted Net Income for such period plus, to the extent deducted in determining Consolidated Adjusted Net Income for such period, the aggregate amount of (i) Consolidated Fixed Charges, (ii) taxes based on or measured by income and (iii) depreciation, amortization and other similar non-cash charges. "CONSOLIDATED FIXED CHARGES" means for any period, the sum of Consolidated Adjusted Interest Expense and Consolidated Rental Expense for such period. "CONSOLIDATED ADJUSTED INTEREST EXPENSE" means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries less investment and interest income of the Borrower and its Consolidated Subsidiaries for such period, determined on a consolidated basis, subject to Section 1.02(b). "CONSOLIDATED NET ASSETS" means, at any date, the consolidated assets of the Borrower and its Consolidated Subsidiaries less the sum of (i) the consolidated current liabilities of the Borrower and its Consolidated Subsidiaries and (ii) all other liabilities, other than liabilities for Debt representing obligations for borrowed money of the Borrower and its Consolidated Subsidiaries and liabilities for deferred taxes of the Borrower and its Consolidated Subsidiaries, which would be required to be shown as liabilities on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, all determined as of such date. "CONSOLIDATED ADJUSTED NET INCOME" means for any period, the aggregate of the net income (less losses) of the Borrower and its Consolidated Subsidiaries for such period (after eliminating all intercompany items and after provisions for minority interests, if any), all determined in accordance with United States generally accepted accounting principles, subject to Section 1.02(b); provided, however, Consolidated Adjusted Net Income shall not include (a) extraordinary gains or extraordinary losses, (b) the net income or losses of any 4 corporation or other enterprise accrued prior to the date it becomes a Subsidiary, (c) the net income (or loss) arising from any discontinued operation(s) of the Borrower or any Subsidiary as so classified in the Borrower's consolidated financial statements, (d) any amortization or write-off of goodwill or other intangible items, or any non-cash charges, arising in connection with a merger, consolidation or acquisition of stock or assets to which the Borrower or a Subsidiary is a party or (e) any write-off of goodwill arising in connection with Statement No. 142 issued by the Financial Accounting Standards Board. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders equity of the Borrower and its Consolidated Subsidiaries (plus, to the extent not otherwise reflected therein, redeemable preferred stock of the Borrower), all determined as of such date. "CONSOLIDATED RENTAL EXPENSE" means, for any period, the Rental Expense of the Borrower and its Consolidated Subsidiaries for such period, determined on a consolidated basis. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "CONTINUING DIRECTORS" means (i) the members of the Board of Directors of the Borrower on the date hereof and (ii) future members of such Board of Directors who were nominated or appointed by a majority of the Continuing Directors at the date of their nomination or appointment. "CREDIT EXPOSURE" means, with respect to any Lender at any time, (i) the amount of its Commitment (whether used or unused) at such time or (ii) if the Commitments have terminated in their entirety, the sum of the aggregate outstanding principal amount of its Loans at such time plus the aggregate amount of its Letter of Credit Liabilities at such time. "DEBT" means as applied to the Borrower and its Subsidiaries, without duplication, (a) all obligations for borrowed money or deferred purchase price of goods or services whether secured or unsecured, absolute or contingent, other than trade accounts payable, expense accruals or similar liabilities arising in the ordinary course of business, (b) all obligations evidenced by bonds, notes, debentures or other similar instruments, (c) all obligations secured by any Lien on property owned or acquired by the Borrower or any of its Subsidiaries whether or not the obligations secured thereby shall have been assumed, (d) that portion of all obligations arising under Capitalized Leases that is required to be capitalized on the consolidated balance sheet of the Borrower and its Subsidiaries and (e) all obligations of the type described in clauses (a) through (d) above Guaranteed by 5 the Borrower or any of its Subsidiaries; provided that a Securitization Transaction shall not give rise to Debt of the transferor for purposes of this Agreement. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DELOITTE & TOUCHE" means Deloitte & Touche LLP, independent certified accountants for the Borrower. "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DESIGNATED LENDER" means, with respect to any Designating Lender, an Approved Fund designated by it pursuant to Section 9.07 as a Designated Lender for purposes of this Agreement. "DESIGNATING LENDER" means, with respect to each Designated Lender, the Lender that designated such Designated Lender pursuant to Section 9.07. "DESIGNATION AGREEMENT" has the meaning specified in Section 9.07. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York, or Dallas, Texas are authorized or required by law to close. "DOMESTIC LENDING OFFICE" means, as to each Lender, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Lender may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. "EFFECTIVE DATE" means the date the Commitments become effective in accordance with Section 3.01. "ELIGIBLE ASSIGNEE" means (i) a Lender; (ii) an affiliate of a Lender; (iii) an Approved Fund; and (iv) any other Person (other than a natural Person) approved by the Administrative Agent, the Issuing Banks and the Borrower (each such approval not to be unreasonably withheld or delayed). 6 "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURO-DOLLAR LENDING OFFICE" means, as to each Lender, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Lender as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. "EURO-DOLLAR LOAN" means a Committed Loan that bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election. "EURO-DOLLAR MARGIN" has the meaning specified in the Pricing Schedule. "EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section 2.07(b) on the basis of a London Interbank Offered Rate. "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning specified in Section 2.17. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. 7 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXISTING CREDIT AGREEMENT" means the $650,000,000 Credit Agreement dated as of October 29, 1997 among the Borrower, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent, as amended. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. "FIXED CHARGE COVERAGE RATIO" means the ratio of (i) Consolidated EBITDAR for each period of four consecutive fiscal quarters, commencing with the four quarters ending August 3, 2002, to (ii) Consolidated Fixed Charges for each such period. Calculation of the Fixed Charge Coverage Ratio shall be subject to Section 1.02(b). "FIXED RATE LOANS" means Euro-Dollar Loans or Competitive Bid Loans (excluding Competitive Bid LIBOR Loans bearing interest at the Prime Rate pursuant to Section 8.01) or any combination of the foregoing. "FUND" means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "GROUP OF LOANS" means, at any time, a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Committed Loan of any particular Lender is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person; provided that the term Guarantee shall not include 8 endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "INCREASED COMMITMENTS" has the meaning specified in Section 2.18(a). "INDEMNITEE" has the meaning specified in Section 9.03(b). "INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in such notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day in a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day in a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; (2) with respect to each Competitive Bid LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03(b); provided that (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day in a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day in a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; and 9 (3) with respect to each Competitive Bid Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 5 days) as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means all loans, advances, extensions of credit, guarantees, purchases of stock (other than stock of the Borrower) or other securities, contributions to capital or otherwise, whether existing on the date of this Agreement or hereafter made. "ISSUING BANK" means JPMorgan Chase Bank and any other Lender that may agree to issue Letters of Credit hereunder pursuant to an instrument in form satisfactory to the Administrative Agent, in each case as issuer of a Letter of Credit hereunder. "LENDER" means (i) each bank or other institution listed on the Commitment Schedule, (ii) each financial institution which becomes a Lender pursuant to Section 2.18, (iii) each assignee which becomes a Lender pursuant to Section 9.06(b) and (iv) their respective successors. "LENDER PARTIES" means the Lenders, the Issuing Banks and the Agents. "LETTER OF CREDIT" means a letter of credit to be issued hereunder by an Issuing Bank. "LETTER OF CREDIT LIABILITIES" means, for any Lender and at any time, such Lender's ratable participation in the sum of (x) the aggregate amount then owing by the Borrower in respect of amounts drawn under Letters of Credit and (y) the aggregate amount then available for drawing under all Letters of Credit. "LETTER OF CREDIT TERMINATION DATE" means the tenth day prior to the Termination Date. 10 "LEVERAGE RATIO" means, at any date, the percentage equivalent of a fraction the numerator of which is Total Adjusted Debt at such date and the denominator of which is Total Capitalization at such date. Calculation of the Leverage Ratio shall be subject to Section 1.02(b). "LIBOR AUCTION" means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LOAN" means a Committed Loan or a Competitive Bid Loan and "LOANS" means Committed Loans or Competitive Bid Loans or any combination of the foregoing. "LONDON INTERBANK OFFERED RATE" has the meaning specified in Section 2.07(b). "MATERIAL DEBT" means Debt (other than the Loans) of the Borrower and/or one or more of its Subsidiaries in an aggregate principal amount exceeding $25,000,000. Calculation of Material Debt shall be subject to Section 1.02(b). "MATERIAL FINANCIAL OBLIGATIONS" means a principal amount of Debt and/or payment or collateralization obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, exceeding in the aggregate $25,000,000. Calculation of Material Financial Obligations shall be subject to Section 1.02(b). "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "MULTIEMPLOYER PLAN" means, at any time, an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NOTES" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the Borrower's obligation to repay the Loans, and "NOTE" means any one of such promissory notes issued hereunder. 11 "NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Competitive Bid Borrowing (as defined in Section 2.03(f)). "NOTICE OF INTEREST RATE ELECTION" has the meaning specified in Section 2.08(a). "NOTICE OF ISSUANCE" has the meaning set forth in Section 2.15(b). "OTHER TAXES" has the meaning specified in Section 8.04. "OUTSTANDING COMMITTED AMOUNT" means, with respect to any Lender at any time, the sum of the aggregate outstanding principal amount of its Committed Loans plus the aggregate amount of its Letter of Credit Liabilities at such time, determined at such time after giving effect to any prior assignments by or to such Lender pursuant to Section 9.06(b). "PARENT" means, with respect to any Lender, any Person controlling such Lender. "PARTICIPANT" has the meaning specified in Section 9.06(c). "PAYMENT DATE" has the meaning specified in Section 2.15(c). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERCENTAGE" means, with respect to any Lender at any time, the percentage which the amount of its Commitment at such time represents of the aggregate amount of all the Commitments at such time. At any time after the Commitments shall have terminated, the term "PERCENTAGE" shall refer to a Lender's Percentage immediately before such termination, adjusted to reflect any subsequent assignments pursuant to Section 9.06(b). "PERSON" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means, at any time, an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. 12 "PRICING SCHEDULE" means the Pricing Schedule attached hereto. "PRIME RATE" means the rate of interest publicly announced by JPMorgan Chase Bank in New York City from time to time as its Prime Rate. "QUARTERLY PAYMENT DATES" means each March 31, June 30, September 30 and December 31. "REFERENCE BANK" means the principal London office (or any successor office) of JPMorgan Chase Bank. "REGISTER" has the meaning specified in Section 2.05(a). "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT OBLIGATION" has the meaning specified in Section 2.15(c). "RENTAL EXPENSE" means the amount of rentals, i.e., rentals paid or accrued by the Borrower or any Subsidiary under any lease of real property excluding in any event (i) leases between the Borrower and a Subsidiary or between a Subsidiary and another Subsidiary and (ii).Capitalized Leases. "REQUIRED LENDERS" means, at any time, Lenders having more than 50% in aggregate amount of the Credit Exposures at such time. "RESTRICTED SUBSIDIARY" means any Subsidiary which is not an Unrestricted Subsidiary. "REVOLVING CREDIT PERIOD" means the period from and including the Effective Date to but not including the Termination Date. "SALE-LEASEBACK TRANSACTION" means any arrangement whereby the Borrower or any Subsidiary, directly or indirectly sells or transfers any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rents or leases such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred. "SECURITIZATION TRANSACTION" means (i) a securitization of credit card receivables as described in Note 3 to the Borrower's consolidated financial statements, reported on by Deloitte & Touche and incorporated by reference in the Borrower's 2001 Form 10-K, or (ii) any other financing transaction involving a transfer of accounts receivable by the Borrower or any Subsidiary where recourse is effectively limited to such accounts receivable, to a special purpose 13 Subsidiary whose assets consist substantially entirely of such accounts receivable, or both, whether or not accounted for as a sale under United States generally accepted accounting principles. "SIGNIFICANT SUBSIDIARY" means at any time (i) Bergdorf Goodman, Inc. and its respective successors, and (ii) any other Subsidiary whose consolidated assets are equal to at least 7% of the consolidated assets of the Borrower and its Subsidiaries at such time. "SMITH FAMILY GROUP" means the group of Persons party to the Stockholders Agreement dated as of September 1, 1999 (whether or not such agreement is terminated) and the progeny of each such Person that is a natural Person. "STOP ISSUANCE NOTICE" has the meaning specified in Section 2.16. "SUBSIDIARY" means any corporation or other entity (i) of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower (or, if such term is used with reference to any other Person, by such Person) or (ii) a majority of the equity interest in which shall at the time be owned directly or indirectly by the Borrower and which is a Consolidated Subsidiary as of such time. Unless otherwise specified, "SUBSIDIARY" means a Subsidiary of the Borrower. "SYNDICATION AGENTS" means Bank of America, N.A., Bank One, NA and Fleet National Bank, in their capacity as syndication agents in connection with the credit facility provided under this Agreement. "TAXES" has the meaning specified in Section 8.04. "TERMINATION DATE" means August 26, 2005 or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "TOTAL ADJUSTED DEBT" means, at any date, an amount equal to the consolidated Debt of the Borrower and its Subsidiaries (excluding (i) any such Debt, other than short-term indebtedness for borrowed money or the current portion of long-term Debt, which is a current liability of the Borrower or a Subsidiary and (ii) contingent obligations with respect to letters of credit or other extensions of credit) at such date plus (i) an amount equal to 800% of the Rental Expense for the period of four consecutive fiscal quarters most recently ended on or prior to such date and (ii) the amount called for by Section 1.02(b). "TOTAL CAPITALIZATION" means, at any date, the sum of Total Adjusted Debt plus Consolidated Net Worth, each determined as of such date. 14 "TOTAL OUTSTANDING AMOUNT" means, at any time, the sum of (i) the aggregate outstanding principal amount of the Loans (including both Committed Loans and Competitive Bid Loans) determined at such time after giving effect, if one or more Loans are being made at such time, to any substantially concurrent application of the proceeds thereof to repay one or more other Loans plus (ii) the aggregate amount of the Letter of Credit Liabilities of all Lenders at such time. "TYPE" refers to the determination whether a Committed Loan is a Base Rate Loan or a Euro-Dollar Loan or whether a Competitive Bid Loan is a Competitive Bid Absolute Rate Loan or a Competitive Bid LIBOR Loan. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "UNRESTRICTED SUBSIDIARY" means a Subsidiary so designated by written notice from the Borrower to the Administrative Agent; provided that no Subsidiary may be so designated unless a third party which is not a Subsidiary or an Affiliate of the Borrower owns at least 20% of the equity interest in such Subsidiary at such time; provided further that (i) in and as at the end of any fiscal year no Unrestricted Subsidiary may account for more than 5% of the consolidated revenues, consolidated tangible assets or Consolidated EBITDAR of the Borrower and its Consolidated Subsidiaries and (ii) in and as at the end of any fiscal year all Unrestricted Subsidiaries may not collectively account for more than 15% of the consolidated revenues, consolidated tangible assets or Consolidated EBITDAR of the Borrower and its Consolidated Subsidiaries. "WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. Section 1.02. Accounting Terms and Determinations. (a) Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with United States generally accepted accounting principles as in effect from time 15 to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower delivered to the Administrative Agent; provided that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in United States generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article 5 for such purpose), then the Borrower's compliance with such covenant shall be applied on the basis of United States generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. (b) As provided in the definition of "DEBT," a Securitization Transaction is not Debt for purposes of this Agreement. Nevertheless, determinations of the Fixed Charge Coverage Ratio, the Leverage Ratio, Material Debt and Material Financial Obligations are to be made as if the Borrower and its Consolidated Subsidiaries retained ownership of the transferred accounts receivable, incurred Debt in the amount of the financing raised pursuant to such transactions and received the related income and incurred the related interest expense, whether or not accounted for as sales under United States generally accepted accounting principles. Section 1.03. Classes and Types of Borrowings. The term "BORROWING" denotes the aggregation of Loans of the same Type and Class of one or more Lenders to be made to the Borrower pursuant to Article 2 on a single date and for a single initial Interest Period. Borrowings are classified for purposes of this Agreement by reference to either or both the Class and Type of Loans comprising such Borrowing (e.g., a Euro-Dollar Borrowing is a Borrowing comprised of Euro-Dollar Loans while a Committed Borrowing is a Borrowing comprised of Committed Loans). ARTICLE 2 THE CREDITS Section 2.01. Commitments to Lend. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time during the Revolving Credit Period; provided that, immediately after each such loan is made: (i) such Lender's Outstanding Committed Amount shall not exceed its Commitment; and 16 (ii) the Total Outstanding Amount shall not exceed the aggregate amount of the Commitments. Each Borrowing under this Section shall be in an aggregate principal amount of $5,000,000 or any larger integral multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available within the limitations in the foregoing proviso) and shall be made from the several Lenders ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.11 and reborrow at any time during the Revolving Credit Period under this Section. Section 2.02. Notice of Committed Borrowing. The Borrower shall give the Administrative Agent a written notice substantially in the form of Exhibit B (a "NOTICE OF COMMITTED BORROWING") not later than 12:00 Noon (New York City time) on (y) the date of each Base Rate Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing; (b) the aggregate amount of such Borrowing; (c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate; and (d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. Section 2.03. Competitive Bid Borrowings. (a) The Competitive Bid Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Lenders to make offers to make Competitive Bid Loans to the Borrower from time to time during the Revolving Credit Period. The Lenders may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Competitive Bid Quote Request. When the Borrower wishes to request offers to make Competitive Bid Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile a Competitive Bid Quote Request substantially in the form of Exhibit C hereto so as to be received not later than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day before the date of Borrowing proposed therein, in the case of a LIBOR 17 Auction or (y) the Domestic Business Day immediately before the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Lenders not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger integral multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Competitive Bid Quotes requested are to set forth a Competitive Bid Margin or a Competitive Bid Absolute Rate. The Borrower may request offers to make Competitive Bid Loans for more than one Interest Period in a single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Competitive Bid Quote Request. (c) Invitation for Competitive Bid Quotes. Promptly after receiving a Competitive Bid Quote Request, the Administrative Agent shall send to each of the Lenders an Invitation for Competitive Bid Quotes substantially in the form of Exhibit D hereto, which shall constitute an invitation by the Borrower to each Lender to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this Section. (d) Submission and Contents of Competitive Bid Quotes. (i) Each Lender to which an Invitation for Competitive Bid Quotes is sent may submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this Section 2.03(d) and must be submitted to the Administrative Agent by telex or facsimile at its address specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day before the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 10:00 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative 18 Agent shall have mutually agreed and shall have notified to the Lenders not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Competitive Bid Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Lender may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour before the deadline for the other Lenders, in the case of a LIBOR Auction or (y) 15 minutes before the deadline for the other Lenders, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Competitive Bid Quote so made shall not be revocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Competitive Bid Quote shall be substantially in the form of Exhibit E hereto and shall in any case specify: (A) the proposed date of Borrowing; (B) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Lender, (x) must be $5,000,000 or a larger integral multiple of $1,000,000, (y) may not exceed the principal amount of Competitive Bid Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Competitive Bid Loans for which offers being made by such quoting Lender may be accepted; (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "COMPETITIVE BID MARGIN") offered for each such Competitive Bid Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate; (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "COMPETITIVE BID ABSOLUTE RATE") offered for each such Competitive Bid Loan; and (E) the identity of the quoting Lender. A Competitive Bid Quote may set forth up to five separate offers by the quoting Lender with respect to each Interest Period specified in the related Invitation for Competitive Bid Quotes. 19 (iii) Any Competitive Bid Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit E hereto or does not specify all of the information required by subsection 2.03(d)(ii) above; (B) contains qualifying, conditional or similar language (except as contemplated by subsection (d)(ii)(B)(z)); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes (except as contemplated by subsection (d)(ii)(B)(z)); or (D) arrives after the time set forth in subsection 2.03(d)(i). (e) Notice to Borrower. The Administrative Agent shall promptly notify the Borrower of the terms of (i) any Competitive Bid Quote submitted by a Lender that is in accordance with Section 2.03(d) and (ii) any Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Lender with respect to the same Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by the Administrative Agent unless such subsequent Competitive Bid Quote is submitted solely to correct a manifest error in such former Competitive Bid Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request, (B) the respective principal amounts and Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Competitive Bid Loans for which offers in any single Competitive Bid Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 11:00 A.M. (New York City time) on (x) the third Euro-Dollar Business Day before the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Lenders not later than the date of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to Section 2.03(e). In the case of acceptance, such notice (a "NOTICE OF COMPETITIVE BID BORROWING") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Competitive Bid Quote in whole or in part; provided that: 20 (i) the aggregate principal amount of each Competitive Bid Borrowing may not exceed the applicable amount set forth in the related Competitive Bid Quote Request; (ii) the principal amount of each Competitive Bid Borrowing must be $5,000,000 or a larger integral multiple of $1,000,000; (iii) acceptance of offers may only be made on the basis of ascending Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be; (iv) the Borrower may not accept any offer that is described in subsection 2.03(d)(iii) or that otherwise fails to comply with the requirements of this Agreement; and (v) immediately after such Competitive Bid Borrowing is made, the Total Outstanding Amount shall not exceed the aggregate amount of the Commitments. (g) Allocation by Administrative Agent. If offers are made by two or more Lenders with the same Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Lenders as nearly as possible (in integral multiples of $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Administrative Agent of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. Section 2.04. Notice to Lenders; Funding of Loans. (a) Promptly after receiving a Notice of Borrowing, the Administrative Agent shall notify each Lender of the contents thereof and of such Lender's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 2:00 P.M. (New York City time) on the date of each Borrowing, each Lender participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make 21 the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Lender before the date of any Borrowing (or, in the case of a Base Rate Borrowing, prior to 2:00 P.M. (New York City time) on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available to the Administrative Agent on the date of such Borrowing in accordance with Section 2.04(b) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such share available to the Administrative Agent, such Lender and, if such Lender shall not have done so within five Domestic Business Days of demand therefor by the Administrative Agent, then the Borrower, agrees to pay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) if such amount is repaid by the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable to such Borrowing pursuant to Section 2.07 and (ii) if such amount is repaid by such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, the Borrower shall not be required to repay such amount and the amount so repaid by such Lender shall constitute such Lender's Loan included in such Borrowing for purposes of this Agreement. Nothing in this subsection (c) shall relieve any Lender of its obligation to make Loans in accordance with the terms and conditions of this Agreement or relieve any Lender from responsibility for default by it in such obligation. Section 2.05. Registry; Notes. (a) The Administrative Agent shall maintain a register (the "REGISTER") in which it will record the Commitment of each Lender, each Loan made by each Lender and each repayment of any Loan. Any such recordation by the Administrative Agent in the Register shall be conclusive, absent manifest error. Each Lender shall record in its internal records the foregoing information as to its own Commitment and Loans. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's obligations hereunder in respect of the Loans. (b) Each Lender may, by notice to the Borrower and the Administrative Agent, request (i) that its Loans be evidenced by a single Note payable to the order of such Lender for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Loans or (ii) that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be 22 in substantially the form of Exhibit A hereto with any appropriate modifications to reflect the fact that it evidences solely Loans of a particular type. Each reference in this Agreement to the "NOTE" of such Lender shall be deemed to refer to and include any or all of such Notes, as the context may require. Section 2.06. Maturity of Loans. (a) Each Committed Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the Termination Date. (b) Each Competitive Bid Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the last day of the Interest Period applicable thereto. Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Base Rate plus the Base Rate Margin for such day. Such interest shall be payable quarterly in arrears on each Quarterly Payment Date and on the Termination Date and, with respect to the principal amount of any Base Rate Loan that is prepaid or converted to a Euro-Dollar Loan, on the date of such prepayment or conversion. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof and, with respect to the principal amount of any Euro-Dollar Loan that is prepaid or converted to a Base Rate Loan, on the date of such prepayment or conversion. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means (a) the offered rate for dollar deposits, for a period approximately equal to such Interest Period and, if the amount is so quoted, in an amount approximately equal to the average principal amount of the applicable Loans, quoted on the second Euro-dollar Business Day prior to the first day of such Interest Period, as such rate appears on the display designated as page "3750" on the Telerate service (or such other page as may replace page "3750" on the Telerate service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits) ("TELERATE PAGE 3750") as of 11:00 A.M. (London time) on such date, (b) if, as of 11:00A.M. (London time) on any such date such rate does not appear on the Telerate Page 3750, the arithmetic mean (adjusted, if necessary, to the nearest 1/16th of 1%), of the offered rates for dollar deposits, for a period approximately equal to such Interest Period quoted on the second Euro-Dollar Business Day prior to the first day of such Interest Period, as such rates appear on the display 23 designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the "LIBO" page on that service for the purpose of displaying London interbank offered rates of major banks) ("REUTERS SCREEN LIBO PAGE") as of 11:00 A.M. (London time) on such date, or (c) if neither of the above rates is available (and in the case of clause (b), if on any such date at least two such rates do not appear on the Reuters Screen LIBO page), the average (adjusted, if necessary, to the next higher 1/16th of 1%) of the respective rates per annum at which deposits in dollars are offered to the Reference Bank in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (c) Subject to Section 8.01, each Competitive Bid LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(b) as if the related Competitive Bid LIBOR Borrowing were a Euro-Dollar Borrowing) plus (or minus) the Competitive Bid Margin quoted by the Lender making such Loan in accordance with Section 2.03. Each Competitive Bid Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Competitive Bid Absolute Rate quoted by the Lender making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. (d) Any overdue principal of and interest on any Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the Base Rate plus the Base Rate Margin for such day. (e) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall promptly notify the Borrower and the participating Lenders of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) The Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If the Reference Bank does not furnish a timely quotation, the provisions of Section 8.01 shall apply. 24 Section 2.08. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to Section 2.08(d) and the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans as of any Domestic Business Day, or may elect to continue such Loans as Euro-Dollar Loans, as of the end of any Interest Period applicable thereto, for an additional Interest Period, subject to Section 2.13 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST RATE ELECTION") to the Administrative Agent not later than 12:00 Noon (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $5,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of Section 2.08(a); (iii) if the Loans comprising such Group are to be converted, the new Type of Loans and, if the Loans resulting from such conversion are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and 25 (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to Section 2.08(a), the Administrative Agent shall notify each Lender of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Committed Loans to, or continue any Committed Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $5,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent. (e) If any Committed Loan is converted to a different Type of Loan, the Borrower shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted. (f) A continuation or conversion pursuant to this Section 2.08(a) is not a Borrowing subject to Section 3.02. Section 2.09. Fees. (a) The Borrower shall pay to the Administrative Agent, for the account of the Lenders ratably in proportion to their Credit Exposures, a facility fee calculated for each day at the Facility Fee Rate for such day (determined in accordance with the Pricing Schedule) on the aggregate amount of the Credit Exposures on such day. Such facility fee shall accrue for each day from and including the Effective Date to but excluding the day on which the Credit Exposures are reduced to zero. (b) The Borrower shall pay to the Administrative Agent (i) for the account of the Lenders ratably a letter of credit fee accruing daily on the aggregate undrawn amount of all outstanding Letters of Credit at a rate per annum equal to the Euro-Dollar Margin for such day and (ii) for the account of each Issuing Bank a letter of credit fronting fee accruing daily on the aggregate amount then available for drawing under all Letters of Credit issued by such Issuing Bank at a rate per annum as mutually agreed between the Borrower and such Issuing Bank. 26 (c) Fees accrued for the account of the Lenders under this Section shall be payable quarterly in arrears on each Quarterly Payment Date and on the day on which the Commitments terminate in their entirety (and, if later, on the day on which the Credit Exposures are reduced to zero). Section 2.10. Termination or Reduction of Commitments. (a) The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans or Letter of Credit Liabilities are outstanding at such time, or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the Total Outstanding Amount. Promptly after receiving a notice pursuant to this subsection, the Administrative Agent shall notify each Lender of the contents thereof. (b) Unless previously terminated, the Commitments shall terminate in their entirety on the Termination Date. Section 2.11. Optional Prepayments. (a) Subject in the case of Fixed Rate Loans to Section 2.13, the Borrower may (i) upon at least one Domestic Business Day's notice to the Administrative Agent, prepay any Group of Base Rate Loans (or any Competitive Bid Borrowing bearing interest at the Prime Rate pursuant to Section 8.01) or (ii) upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger integral multiple of $1,000,000, by paying the principal amount to be prepaid together with interest accrued thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Lenders included in such Group of Loans (or such Competitive Bid Borrowing). (b) Except as provided in Section 2.11(a) or 2.17, the Borrower may not prepay all or any portion of the principal amount of any Competitive Bid Loan before the maturity thereof without the express written consent of the Lender making such Loan. (c) Promptly after receiving a notice of prepayment pursuant to this Section, the Administrative Agent shall notify each Lender of the contents thereof and of such Lender's ratable share (if any) of such prepayment, and such notice shall not thereafter be revocable by the Borrower. Section 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans, of Letter of Credit Liabilities and interest thereon and of fees hereunder not later than 2:00 P.M. (New York City time) on the date when due, in Federal or other funds 27 immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01 and without reduction by reason of any set-off or counterclaim. The Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Competitive Bid Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Borrower notifies the Administrative Agent before the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance on such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that such payment shall not have been so made by the Borrower, each Lender shall repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. Section 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a different type of Loan (whether such payment or conversion is pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or if the Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loan after notice has been given to any Lender in accordance with Section 2.04(a), 2.08(c) or 2.11(c), the Borrower shall reimburse each Lender within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Lender shall have delivered to the Borrower a 28 certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. Such certificate shall be accompanied by such information as the Borrower may reasonably request as to the computation set forth therein. Section 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Section 2.15. Letters of Credit. (a) Commitment to Issue Letters of Credit. Subject to the terms and conditions hereof, and so long as no Stop Issuance Notice is in effect, each Issuing Bank agrees to issue Letters of Credit from time to time before the Letter of Credit Termination Date upon the request of the Borrower; provided that, immediately after each Letter of Credit is issued (i) the Total Outstanding Amount shall not exceed the aggregate amount of the Commitments and (ii) the aggregate amount of the Letter of Credit Liabilities shall not exceed $50,000,000. Upon the date of issuance by an Issuing Bank of a Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its respective Commitment bears to the aggregate Commitments. (b) Method for Issuance; Terms; Extensions. (i) The Borrower shall give the Issuing Bank notice at least three Domestic Business Days (or such shorter notice as may be acceptable to the Issuing Bank in its discretion) prior to the requested issuance of a Letter of Credit (or, in the case of renewal or extension, prior to the Issuing Bank's deadline for notice of nonextension) specifying the date such Letter of Credit is to be issued, and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby (such notice, including any such notice given in connection with the extension of a Letter of Credit, a "NOTICE OF ISSUANCE"). Upon receipt of a Notice of Issuance, the Issuing Bank shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Lender of the contents thereof and of the amount of such Lender's participation in such Letter of Credit. 29 (ii) The obligation of the Issuing Bank to issue each Letter of Credit shall, in addition to the conditions precedent set forth in Section 3.02, be subject to the conditions precedent that such Letter of Credit shall be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank and that the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested. The Borrower shall also pay to the Issuing Bank for its own account issuance, drawing, amendment and extension charges in the amounts and at the times as agreed between the Borrower and the Issuing Bank. (iii) The extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Bank, the Issuing Bank shall timely give such notice of termination unless it has theretofore timely received a Notice of Issuance and the other conditions to issuance of a Letter of Credit have also theretofore been met with respect to such extension. No Letter of Credit shall have a term beyond the Letter of Credit Termination Date; provided that a Letter of Credit may contain a provision pursuant to which it is deemed to be extended on an annual basis unless notice of termination is given by the Issuing Bank; provided further that no Letter of Credit shall have a term extending or be so extendible beyond the Letter of Credit Termination Date. (c) Payments; Reimbursement Obligations. (i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Borrower and each other Lender as to the amount to be paid as a result of such demand or drawing and the date such payment is to be made by the Issuing Bank (the "PAYMENT DATE"). The Borrower shall be irrevocably and unconditionally obligated to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind. Such reimbursement shall be due on the Payment Date; provided that no such payment shall be due from the Borrower any earlier than the date of receipt by it of notice of its obligation to make such payment (or, if such notice is received by the Borrower after 9:00 A.M. (New York City time) on any date, on the next succeeding Domestic Business Day); provided further that if and to the extent any such reimbursement is not made by the Borrower in accordance with this clause (i) or clause (ii) on the Payment Date, then (irrespective of when notice thereof is received by the Borrower), such reimbursement obligation shall bear interest, payable on demand, for each day from and including the 30 Payment Date to but not including the date such reimbursement obligation is paid in full at a rate per annum equal to the rate applicable to Base Rate Loans for such day. (ii) All such amounts paid by the Issuing Bank and remaining unpaid by the Borrower (a "REIMBURSEMENT OBLIGATION") shall, if and to the extent that the amount of such Reimbursement Obligation would be permitted as a Borrowing pursuant to Section 3.02, and unless the Borrower otherwise instructs the Administrative Agent by 10:00 A.M. (New York City time) on the date payment is due from the Borrower, convert automatically to Base Rate Loans on the date such Reimbursement Obligation arises. The Administrative Agent shall, on behalf of the Borrower (which hereby irrevocably directs the Administrative Agent so to act on its behalf), give notice no later than 10:30 A.M. (New York City time) on such date requesting each Lender to make, and each Lender hereby agrees to make, a Base Rate Loan, in an amount equal to such Lender's Percentage of the Reimbursement Obligation with respect to which such notice relates. Each Lender shall make such Loan available to the Administrative Agent at its address specified in or pursuant to Section 9.01 in immediately available funds, not later than 12:00 Noon (New York City time), on the date specified in such notice. The Administrative Agent shall pay the proceeds of such Loans to the Issuing Bank, which shall immediately apply such proceeds to repay the Reimbursement Obligation. (iii) To the extent the Reimbursement Obligation is not refunded by a Lender pursuant to clause (ii) above, such Lender will pay to the Administrative Agent, for the account of the Issuing Bank, immediately upon the Issuing Bank's demand at any time during the period commencing after such Reimbursement Obligation arises until reimbursement therefor in full by the Borrower, an amount equal to such Lender's Percentage of such Reimbursement Obligation, together with interest on such amount for each day from the date of the Issuing Bank's demand for such payment (or, if such demand is made after 1:00 P.M. (New York City time) on such date, from the next succeeding Domestic Business Day) to the date of payment by such Lender of such amount at a rate of interest per annum equal to the Federal Funds Rate for the first three Domestic Business Days after the date of such demand and thereafter at a rate per annum equal to the Base Rate for each additional day. The Issuing Bank will pay to each Lender ratably all amounts received from the Borrower for application in payment of its Reimbursement Obligations in respect of any Letter of Credit, but only to the extent such Lender has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto; provided that in the event such payment received by the Issuing Bank is required to be returned, such 31 Lender will return to the Issuing Bank any portion thereof previously distributed to it by the Issuing Bank. (d) Obligations Absolute. The obligations of the Borrower and each Lender under subsection (c) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances: (i) any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto; (iii) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting); (iv) the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), any Lender (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (v) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) payment under a Letter of Credit against presentation to the Issuing Bank of documents that do not comply with the terms of such Letter of Credit; provided that this clause (vi) shall not limit the rights of the Borrower under Section 2.15(e)(ii); or 32 (vii) any other act or omission to act or delay of any kind by any Lender (including the Issuing Bank), the Administrative Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (vii), constitute a legal or equitable discharge of or defense to the Borrower's or the Lender's obligations hereunder. (e) Indemnification; Expenses. (i) Borrower hereby indemnifies and holds harmless each Lender (including each Issuing Bank) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which it may reasonably incur in connection with the execution and delivery or transfer of, or payment or failure to make payment under, a Letter of Credit issued pursuant to this Section 2.15; provided that the Borrower shall not be required to indemnify any Lender (including any Issuing Bank), or the Administrative Agent, for any claims, damages, losses, liabilities, costs or expenses, to the extent caused by the gross negligence or willful misconduct of such Person or, with respect to any Issuing Bank, to the extent caused by the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of documents strictly complying with the terms and conditions of the Letter of Credit. (ii) None of the Lenders (including an Issuing Bank) nor the Administrative Agent nor any of their officers or directors or employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection (d) above; provided that, notwithstanding Section 2.15(d), the Borrower shall have a claim for direct (but not consequential) damage suffered by it, to the extent caused by (x) subject to the following sentence, the Issuing Bank's gross negligence or willful misconduct in determining whether documents presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of documents strictly complying with the terms and conditions of the Letter of Credit. The parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. 33 (iii) Nothing in this subsection (e) is intended to limit the obligations of the Borrower under any other provision of this Agreement. To the extent the Borrower does not indemnify an Issuing Bank as required by this subsection, the Lenders agree to do so ratably in accordance with their Commitments. Section 2.16. Stop Issuance Notice. If the Required Lenders determine at any time that the conditions set forth in Section 3.02 would not be satisfied in respect of a Borrowing at such time, then the Required Lenders may request that the Administrative Agent issue a "STOP ISSUANCE NOTICE", and the Administrative Agent shall issue such notice to each Issuing Bank. Such Stop Issuance Notice shall be withdrawn upon a determination by the Required Lenders that the circumstances giving rise thereto no longer exist. No Letter of Credit shall be issued while a Stop Issuance Notice is in effect. The Required Lenders may request issuance of a Stop Issuance Notice only if there is a reasonable basis therefor, and shall consider reasonably and in good faith a request from the Borrower for withdrawal of the same on the basis that the conditions in Section 3.02 are satisfied; provided that the Administrative Agent and the Issuing Banks may and shall conclusively rely on any Stop Issuance Notice while it remains in effect. Section 2.17. Regulation D Compensation. Each Lender may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Lender at a rate per annum determined by such Lender up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii)the applicable London Interbank Offered Rate. Any Lender wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall notify the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section 2.17. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other 34 assets which includes loans by a non-United States office of any Lender to United States residents). Section 2.18. Increased Commitments; Additional Lenders. (a) Subsequent to the Effective Date (but not more than twice in any calendar year), the Borrower may, upon at least 30 days' notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Lenders), propose to increase the aggregate amount of the Commitments by an amount which (i) is a multiple of $10,000,000 and (ii) when combined with the aggregate amount by which the Commitments have theretofore been increased pursuant to this Section 2.18, does not exceed $100,000,000 (the amount of any such increase, the "INCREASED COMMITMENTS"); provided that no Default shall have occurred and be continuing. Each Lender party to this Agreement at such time shall have the right (but no obligation), for a period of 15 days following receipt of such notice, to elect by notice to the Borrower and the Administrative Agent to increase its Commitment by a principal amount which bears the same ratio to the Increased Commitments as its then Commitment bears to the aggregate Commitments then existing. If a Lender does not respond to such notice within such period, such Lender shall be deemed to have elected not to increase its Commitment pursuant to this Section 2.18 at such time. (b) If any Lender party to this Agreement shall not elect to increase its Commitment pursuant to subsection (a) of this Section, the Borrower may, within 30 days of the Lenders' response, designate one or more of the existing Lenders or other financial institutions acceptable to the Administrative Agent (such acceptance not to be unreasonably withheld or delayed), the Issuing Banks and the Borrower which at the time agree to (i) in the case of any such Person that is an existing Lender, increase its Commitment and (ii) in the case of any other such Person (an "ADDITIONAL LENDER"), become a party to this Agreement. The sum of the increases in the Commitments of the existing Lenders pursuant to this subsection (b) plus the Commitments of the Additional Lenders shall not in the aggregate exceed the unsubscribed amount of the Increased Commitments. (c) An increase in the aggregate amount of the Commitments pursuant to this Section 2.18 shall become effective upon the receipt by the Administrative Agent of an agreement in form and substance satisfactory to the Administrative Agent signed by the Borrower, by each Additional Lender and by each other Lender whose Commitment is to be increased, setting forth the new Commitments of such Lenders and setting forth the agreement of each Additional Lender to become a party to this Agreement and to be bound by all the terms and provisions hereof, together with such evidence of appropriate corporate authorization on the part of the Borrower with respect to the Increased Commitments and such opinions of counsel for the Borrower with respect to the Increased Commitments as the Administrative Agent may reasonably request. 35 (d) Upon any increase in the aggregate amount of the Commitments pursuant to this Section 2.18 that is not pro rata among all Lenders, (i) the respective Letter of Credit Liabilities of the Lenders shall be redetermined as of the effective date of such increase and (ii) within five Domestic Business Days, in the case of any Group of Base Rate Loans then outstanding, and at the end of the then current Interest Period with respect thereto, in the case of any Group of Euro-Dollar Loans then outstanding, the Borrower shall prepay such Group in its entirety and, to the extent the Borrower elects to do so and subject to the conditions specified in Article 3, the Borrower shall reborrow Committed Loans from the Lenders in proportion to their respective Commitments after giving effect to such increase, until such time as all outstanding Committed Loans are held by the Lenders in such proportion. ARTICLE 3 CONDITIONS Section 3.01. Effectiveness. The Commitments shall become effective only when all the following conditions have been satisfied: (a) the Administrative Agent shall have received, from each party listed on the signature pages hereof, either a counterpart hereof signed by such party or facsimile or other written confirmation satisfactory to the Administrative Agent confirming that such party has signed a counterpart hereof; (b) the Administrative Agent shall have received an opinion of the General Counsel of the Borrower, substantially in the form of Exhibit F hereto, and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request; (c) the Administrative Agent shall have received an opinion of Davis Polk & Wardwell, special counsel for the Administrative Agent, substantially in the form of Exhibit G hereto, and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request; (d) the Borrower shall have paid to the Administrative Agent for the account of each Lender a fee in the amount heretofore mutually agreed; (e) the Administrative Agent shall have received all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; and 36 (f) the Administrative Agent shall have received evidence satisfactory to it that the commitments under the Existing Credit Agreement shall have terminated and that all principal of any loans outstanding under, and all accrued interest and fees under, the Existing Credit Agreement shall have been paid in full; provided that the Commitments shall not become effective unless all of the foregoing conditions are satisfied not later than August 30, 2002. Promptly after the Effective Date occurs, the Administrative Agent shall notify the Borrower and the Lenders thereof, and such notice shall be conclusive and binding on all parties hereto. Section 3.02. Borrowings and Issuances of Letters of Credit. The obligation of any Lender to make a Loan on the occasion of any Borrowing, and the obligation of an Issuing Bank to issue (or renew or extend the term of) any Letter of Credit, is subject to the satisfaction of the following conditions: (a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, or receipt by the Issuing Bank of a Notice of Issuance as required by Section 2.15(b), as the case may be; (b) the fact that, immediately after such Borrowing or issuance, no Default shall exist; and (c) the fact that the representations and warranties of the Borrower contained in this Agreement shall be true in all material respects on and as of the date of such Borrowing or issuance. Each Borrowing and each issuance or extension of a Letter of Credit hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing or issuance as to the facts specified in the foregoing clauses 3.02(b) and 3.02(c). ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: Section 4.01. Corporate Existence and Power. The Borrower and each Significant Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, has all power and authority to carry on its business as now being conducted and to own its properties, and is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which the failure to qualify would materially and 37 adversely affect the conduct of its business or the enforceability of its contractual rights. Section 4.02. Corporate Authorization. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate power, have been duly authorized by all necessary corporate action and will not contravene, or constitute a default under, any provision of applicable law or regulation or of the Restated Certificate of Incorporation or By-Laws of the Borrower, or of any judgment, order, decree, agreement or instrument binding on the Borrower or result in the creation of any Lien upon any of its property or assets. Section 4.03. Binding Effect. This Agreement constitutes, and the Notes when duly executed on behalf of the Borrower and delivered in accordance with this Agreement will constitute, the valid and binding obligations of the Borrower, enforceable in accordance with their respective terms. Section 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of July 28, 2001 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Deloitte & Touche and set forth in the Borrower's 2001 Annual Report to Shareholders and incorporated by reference in the Borrower's 2001 Form 10-K, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of April 27, 2002 and the related unaudited consolidated statements of operations and cash flows for the 39 weeks then ended, set forth in the Borrower's quarterly report for the fiscal quarter ended April 27, 2002 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such 39-week period (subject to normal year-end adjustments). (c) Since July 28, 2001 there has been no material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. 38 Section 4.05. Litigation. There are no actions, suits or proceedings pending against or, to the knowledge of the Borrower, threatened against or affecting, the Borrower or any Significant Subsidiary in any court or before or by any governmental department, agency or instrumentality, in which there is a reasonable possibility of an adverse decision which would materially and adversely affect the financial condition or business of the Borrower and its Subsidiaries, taken as a whole. Section 4.06. Governmental and Other Approvals. No approval, consent or authorization of or filing or registration with any governmental authority or body is necessary for the execution, delivery or performance by the Borrower of this Agreement or the Notes or for the performance by the Borrower of any of the terms or conditions hereof or thereof. Section 4.07. Full Disclosure. All financial statements and other documents furnished by the Borrower to the Lenders in connection with this Agreement do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. The Borrower has disclosed to the Lenders in writing any and all facts which materially and adversely affect the business, operations or condition, financial or otherwise, of the Borrower and its Subsidiaries or the Borrower's ability to perform its obligations under this Agreement. Section 4.08. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Section 4.09. Taxes. United States Federal income tax returns of the Borrower and its Subsidiaries have been closed through the fiscal year ended August 1, 1998. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Significant Subsidiary except where the payment of any such taxes is being contested in good faith by appropriate proceedings. 39 The charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. Section 4.10. Environmental Matters. The Borrower has reasonably concluded that the costs of compliance with Environmental Laws are unlikely to have a material adverse effect on the business, financial condition or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Lender has any Credit Exposure hereunder: Section 5.01. Furnishing of Financial Data and Certificates. The Borrower will deliver to each of the Lenders: (a) As soon as practicable, and in any event within 55 days after the close of each of the first three quarters of each fiscal year of the Borrower, (i) the condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of such quarter, (ii) the condensed consolidated statement of operations of the Borrower and its Consolidated Subsidiaries for such quarter and for the portion of such fiscal year to and including such quarter and (iii) the condensed consolidated statements of cash flows of the Borrower and its Consolidated Subsidiaries for the portion of such fiscal year to and including such quarter, each of the foregoing to set forth in comparative form the corresponding figures of the previous year and to be in reasonable detail and certified by a financial officer of the Borrower, subject to year-end audit adjustments; delivery by the Borrower of its Quarterly Reports on Form 10-Q shall be deemed compliance with this provision; (b) As soon as practicable, and in any event within 120 days after the close of each fiscal year of the Borrower, (i) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal year, (ii) the consolidated statement of operations of the Borrower and its Consolidated Subsidiaries for such fiscal year and (iii) the consolidated statements of cash flows of the Borrower and its Consolidated Subsidiaries for such fiscal year, each of the foregoing to set forth in comparative form the corresponding figures of the previous year and to be in reasonable detail and audited and certified by Deloitte & Touche or other certified public accountants of nationally recognized standing reasonably satisfactory to the Lenders; delivery by the Borrower of its Annual Reports on Form 10-K (together with its annual report to shareholders, if 40 incorporated by reference therein) shall be deemed compliance with this provision; (c) Promptly after sending or filing, copies of all financial statements, reports, notices and proxy statements as it shall send to its shareholders, and of all periodic reports filed by the Borrower with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions; (d) Within five Domestic Business Days after any executive officer of the Borrower becomes aware of any Default, if such Default is then continuing, a certificate of a financial officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; and (e) Such other information (which is readily obtainable by the Borrower without incurring any undue expense) regarding the financial condition of the Borrower as any Lender may reasonably request. Together with each delivery of financial statements required by clauses (a) and (b) above, the Borrower will deliver to the Lenders a certificate of a financial officer stating that to the best of his knowledge there exists no Default or, if any Default exists, specifying the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto. The certificate delivered in conjunction with each delivery of annual and quarterly financial statements shall in addition demonstrate in reasonable detail compliance during the preceding fiscal period with Sections 5.08, 5.09 and 5.10(k). Each certificate of independent certified public accountants delivered with the financial statements required by clause (b) above shall be accompanied by a written statement of such accountants that, in conducting the examination necessary to the giving of such certificate, they have obtained no knowledge of the existence during the fiscal period under examination of any condition, event or act which constitutes a Default (insofar as such a condition, event or act relates to accounting matters), or if in the opinion of such accountants there shall exist any Default, such statement shall specify the nature thereof. Information required to be delivered pursuant to clauses (a), (b) and (c) above shall be deemed to have been delivered on the date on which the Borrower provides notice to the Lenders that such information has been posted on the Borrower's website on the Internet at www.neimanmarcus.com, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Lenders without charge; provided that the Borrower shall deliver paper copies of the information referred to in clauses (a), (b) and (c) above to any Lender which requests such delivery. 41 Section 5.02. Payment of Taxes. The Borrower will, and will cause each Subsidiary to, promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Borrower or any Subsidiary; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith and if the Borrower or a Subsidiary shall have set aside on its books adequate reserves with respect thereto in accordance with generally accepted accounting principles. Section 5.03. Maintenance of Corporate Existence; Compliance with Laws. (a) The Borrower will preserve and maintain its corporate existence. (b) The Borrower will, and will cause each Subsidiary to, conduct its affairs and carry on its business and operations in such manner as to comply with any and all applicable laws (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder), except (i) where the necessity of compliance therewith is being contested in good faith or (ii) where the failure of compliance therewith could not reasonably be expected to have, individually or in the aggregate, a material adverse change in the business, assets, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. Section 5.04. Maintenance of Property and Leases. The Borrower will, and will cause each Subsidiary to, keep its properties, whether owned or leased, in satisfactory repair, working order and condition, except where the failure to keep such properties in such condition could not reasonably be expected to have, individually or in the aggregate, a material adverse change in the business, assets, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. Section 5.05. Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurers insurance against liability to persons and damage to property to the extent and in the manner customary for companies of like size in similar businesses, it being understood that the Borrower may self-insure against exposures which, in the judgment of its management, are reasonable in relation to its financial position. The Borrower will deliver to the Lenders from time to time upon request of any Lender through the Administrative Agent full information as to the insurance so carried. Section 5.06. Accounts and Reports. The Borrower will, and will cause each Subsidiary to, keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its businesses and affairs, in accordance with generally accepted accounting principles consistently applied. 42 Section 5.07. Inspection. Each Lender or its designee shall have the right, at its expense, on reasonable notice (given to a senior financial officer of the Borrower) and at reasonable times to visit and inspect the properties of the Borrower and its Subsidiaries and to discuss the financial affairs of the Borrower and its Subsidiaries with the Borrower's senior officers and will be furnished from the books of the Borrower and its Subsidiaries such financial information as it may reasonably request and upon such reasonable conditions relating to confidentiality of the material and information so supplied as the Borrower might impose. Each Lender shall respect the confidential nature of the material and information so supplied and shall take reasonable measures to preserve such confidentiality. It is understood that a Lender may be required to disclose such confidential material and information or portions thereof (1) at the request of a bank regulatory agency or in connection with an examination of the Lender by bank examiners, (2) pursuant to subpoena or other court process, (3) at the express direction of any other authorized government agency, (4) to its independent auditors or (5) otherwise as required by law. Section 5.08. Coverage of Consolidated Fixed Charges. The Fixed Charge Coverage Ratio will not at the end of any fiscal quarter be less than 2.75 to 1. Section 5.09. Leverage Ratio. The Leverage Ratio will at no time exceed 60%. Section 5.10. Restrictions on Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its property or assets now owned or hereafter acquired, except: (a) Liens existing on the date hereof securing Debt outstanding on the date hereof; (b) Liens incidental to the conduct of its business or the ownership of its properties and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit or the incurrence of Derivatives Obligations and which do not materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset; provided that such Lien attaches to such asset concurrently with or within 180 days after the acquisition or completion of construction thereof; (d) Liens incurred in connection with Guarantees of bonds, notes or other similar obligations of a state, city, town or other governmental agency or entity which obligations are issued in order to finance property used or to be used 43 by the Borrower or any Subsidiary, and Liens incurred in connection with the acquisition of, or improvements to, real estate; provided, however, that no such Lien shall extend to or cover any property other than the property so acquired or improved; (e) any Lien existing on any assets of any corporation or other entity at the time it becomes a Subsidiary and not created in contemplation of such corporation becoming a Subsidiary, or existing on any assets acquired by the Borrower or any Subsidiary through purchase, merger, consolidation, or otherwise and not created in contemplation of such purchase, merger, consolidation or other transaction; (f) any Lien resulting from any order of attachment, distraint or other legal process arising out of judicial proceedings so long as the execution or other enforcement thereof is effectively stayed; (g) Liens on shares of capital stock or property of a Subsidiary securing obligations owing by such Subsidiary to the Borrower or to another Subsidiary; (h) Liens arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by this Section 5.10; provided that such Debt is not increased and is not secured by any additional assets; (i) Liens to banks or other institutions arising in connection with the issuance of letters of credit or bankers' acceptances in connection with the shipment or storage of goods in the ordinary course of business; (j) Liens on cash and cash equivalents securing Derivatives Obligations; provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $25,000,000; and (k) Liens not otherwise permitted by any of the foregoing clauses of this Section 5.10 (i) covering assets other than inventory of the Borrower or a Restricted Subsidiary and (ii) securing Debt in an aggregate principal amount at any time outstanding not to exceed 15% of Consolidated Net Assets. Section 5.11. Restrictions on Sales, Consolidations and Mergers. (a) The Borrower will not sell, lease or in any way dispose of all, or substantially all, of its property or assets to any other Person, nor will the Borrower consolidate or merge with or into any other Person; provided that this Section 5.11 shall not prevent any merger involving the Borrower in which the Borrower is the surviving corporation if, at the time of, and after giving effect to any such merger, no Default shall have occurred and be continuing. 44 (b) Neither the Borrower nor any Subsidiary will sell, lease or otherwise dispose of any of its property or assets, except (i) in the ordinary course of its business, (ii) to the Borrower or any Subsidiary, (iii) in connection with a Securitization Transaction or a Sale-Leaseback Transaction or (iv) other dispositions of property or assets, provided that the aggregate book value of the property or assets so disposed of pursuant to this clause (iv) in any fiscal year shall not exceed 20% of the consolidated assets of the Borrower and its Consolidated Subsidiaries as at the last day of the preceding fiscal year. (c) The aggregate outstanding principal amount of Debt deemed incurred in respect of Securitization Transactions pursuant to Section 1.02(b) shall at no time exceed $400,000,000. Section 5.12. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any Investment in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; provided, however, that the foregoing provisions of this Section shall not prohibit (a) the Borrower from declaring or paying any lawful dividend so long as after giving effect thereto, no Default shall have occurred and be continuing or (b) the Borrower or any Subsidiary from engaging in any commercial transaction with an Affiliate so long as such transaction is on terms and conditions at least as favorable to the Borrower or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person that is not an Affiliate; provided further that a transaction permitted by this Section may nonetheless give rise to an Event of Default under another Section of this Agreement. Section 5.13. Restriction on Debt of Subsidiaries. The Borrower will not permit any of its Subsidiaries to incur or at any time be liable with respect to any Debt, except (a) Debt owing to the Borrower or any Wholly-Owned Subsidiary, (b) Debt which is secured by a Lien permitted by Section 5.10, (c) Debt of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event, (d) Debt of Subsidiaries not otherwise permitted by any of the foregoing clauses in an aggregate principal amount at any time outstanding not to exceed $25,000,000, (e) Debt of Subsidiaries outstanding on the date of this Agreement and (f) Debt arising out of any extension, renewal or replacement of any Debt permitted by clauses (b), (c) and (e) above that does not increase the outstanding principal amount thereof. Section 5.14. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, 45 whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. Section 5.15. Restricted Payments. The aggregate purchase price paid by the Borrower and its Subsidiaries during the term of this Agreement for the purchase or other acquisition of outstanding shares of common stock of the Borrower shall not exceed the sum of (i) $150,000,000 plus (ii) an amount equal to 25% of the consolidated net income of the Borrower and its Consolidated Subsidiaries for the period from August 3, 2002 through the end of the then most recent fiscal quarter for which financial statements have been delivered pursuant to Section 5.01 (treated for this purpose as a single accounting period). Section 5.16. Restrictive Agreements. Neither the Borrower nor any Restricted Subsidiary will, directly or indirectly, enter into or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition on (a) the ability of the Borrower or any Restricted Subsidiary to create or permit to exist any Lien on any of its inventory or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Restricted Subsidiary or to Guarantee Debt of the Borrower or any other Restricted Subsidiary; provided that (1) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (2) the foregoing shall not apply to restrictions and conditions existing on the date hereof, or any extension or renewal of any such restriction or condition, but shall apply to any amendment or modification expanding the scope of such restriction or condition, (3) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (4) clause (a) of this Section shall not apply to restrictions or conditions imposed by any agreement relating to secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property securing such Debt and (5) clause (a) of this Section shall not apply to customary provisions in leases restricting the assignment thereof. ARTICLE 6 DEFAULTS Section 6.01. Events of Default. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or any Reimbursement Obligation, or shall fail to pay within three days of the due date thereof any interest or fees payable hereunder; 46 (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.01(d) or Sections 5.08 to 5.16, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Lender; (d) any material representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made), and if the same shall be susceptible of cure, such incorrectness shall not have been cured to the reasonable satisfaction of the Required Lenders within 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Lender; (e) the Borrower or any Subsidiary shall fail to make payment of any Material Financial Obligation when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; 47 (i) any member of the ERISA Group shall fail to pay when due an amount or amounts (other than amounts being contested in good faith through appropriate proceedings) aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan in a distress termination under Section 4041(c) of ERISA shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (j) a judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Significant Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) (i) any person or group of persons (within the meaning of Section 13 or 14 of the Exchange Act) other than a member of the Smith Family Group shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of more voting stock or total equity capital of the Borrower than that beneficially owned by the Smith Family Group, if such person or group of persons is also the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of at least 30% of either the voting stock or total equity capital of the Borrower or (ii) more than half of the members of the Board of Directors of the Borrower shall be persons who are not Continuing Directors; then, and in every such event, the Administrative Agent shall (i) if requested by the Required Lenders, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Lenders holding more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Lenders, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, 48 demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Section 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) or (d) promptly upon being requested to do so by any Lender and shall thereupon notify all the Lenders thereof. Section 6.03. Cash Cover. The Borrower agrees, in addition to the provisions of Section 6.01 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Administrative Agent upon the instruction of Lenders having more than 50% of the Letter of Credit Liabilities, pay to the Administrative Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements satisfactory to the Administrative Agent) equal to the aggregate amount available for drawing under all Letters of Credit outstanding at such time; provided that, upon the occurrence of any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to the Borrower, the Borrower shall pay such amount forthwith without any notice or demand or any other act by the Administrative Agent or the Lenders. ARTICLE 7 THE AGENTS Section 7.01. Appointment and Authorization. Each Lender irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with all such powers as are reasonably incidental thereto. Section 7.02. Agents and Affiliates. Each Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise or refrain from exercising the same as though it were not one of the Agents. Each Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not one of the Agents. Section 7.03. Action by Administrative Agent. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6. 49 Section 7.04. Consultation With Experts. Each Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 7.05. Liability of Agents. None of the Agents, their affiliates and their respective directors, officers, agents and employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Lenders (or such different number of Lenders as any provision hereof expressly requires for such consent or request) or (ii) in the absence of its own gross negligence or willful misconduct; provided that the provisions of this sentence are for the sole benefit of the Agents, their affiliates and their respective directors, officers, agents and employees and shall not release any Lender from liability it would otherwise have to the Borrower. None of the Agents, their affiliates and their respective directors, officers, agents and employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3 except, in the case of the Administrative Agent, receipt of items required to be delivered to it; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. No Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, facsimile or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term "AGENT" in this Agreement with reference to any Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties. Section 7.06. Indemnification. The Lenders shall, ratably in proportion to their Credit Exposures, indemnify each Agent and Issuing Bank, their respective affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any Letter of Credit or any action taken or omitted by such indemnitees hereunder or thereunder. 50 Section 7.07. Credit Decision. Each Lender acknowledges that it has, independently and without reliance on any other Lender Party, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance on any other Lender Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. Section 7.08. Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Administrative Agent from among the Lenders, subject to the approval of the Required Lenders, which shall not be unreasonably withheld. If no successor Administrative Agent shall have been so appointed by the Borrower and approved by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent resigns as Administrative Agent hereunder, the provisions of this Article shall inure to its benefit as to actions taken or omitted to be taken by it while it was Administrative Agent. Section 7.09. Administrative Agent's Fee. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon by the Borrower and the Administrative Agent. Section 7.10. Syndication Agents. The Syndication Agents, in their capacity as such, shall not have any duties or obligations of any kind under this Agreement. ARTICLE 8 CHANGE IN CIRCUMSTANCES Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Loan or Competitive Bid LIBOR Loan: 51 (a) the Administrative Agent is advised by the Reference Bank that deposits in dollars (in the applicable amounts) are not being offered to the Reference Bank in the London interbank market for such Interest Period, or (b) in the case of Euro-Dollar Loans, Lenders having 50% or more of the aggregate principal amount of the affected Loans advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of funding their Euro-Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Lenders to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Competitive Bid LIBOR Borrowing, the Competitive Bid LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. Section 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Lenders and the Borrower, whereupon until such Lender notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Euro-Dollar Loans or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Lender shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the 52 then current Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Lender shall determine that it may not lawfully continue to maintain and fund such Loan to such day. Section 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any Letter of Credit or any obligation to make Committed Loans or to issue or participate in Letters of Credit or (y) the date of the related Competitive Bid Quote, in the case of any Competitive Bid Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement with respect to which such Lender is entitled to compensation for the relevant Interest Period under Section 2.17), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (or its Applicable Lending Office) or shall impose on any Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Fixed Rate Loans, its Notes, its participation in the Letters of Credit or its obligation to make Fixed Rate Loans or to issue or participate in Letters of Credit and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan or of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or under its Notes with respect thereto, by an amount deemed by such Lender to be material, then, within 30 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. (b) If any Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Lender (or its Parent) as a consequence of such Lender's obligations hereunder to a level 53 below that which such Lender (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 30 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or its Parent) for such reduction. (c) Each Lender will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate of any Lender claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. Each such certificate shall be accompanied by such information as the Borrower may reasonably request as to the computation set forth therein. No payment made to any Lender under this Section shall duplicate any other payments made to such Lender under any other provision of this Agreement. Section 8.04. Taxes. (a) For the purposes of this Section 8.04, the following terms have the following meanings: "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Lender and the Administrative Agent, taxes imposed on its net income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Lender, in which its Applicable Lending Office is located and (ii) in the case of each Lender, any United States withholding tax imposed with respect to any payment by the Borrower pursuant to this Agreement or under any Note, but only up to the rate (if any) at which United States withholding tax would apply to such payments to such Lender at the time such Lender first becomes a party to this Agreement. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. 54 (b) Any and all payments by the Borrower to or for the account of any Lender or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions for any Taxes or Other Taxes (including deductions applicable to additional sums payable under this Section) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 30 days after such Lender or the Administrative Agent (as the case may be) makes demand therefor. (d) Each Lender organized under the laws of a jurisdiction outside the United States shall provide the Borrower and the Administrative Agent with Internal Revenue Service Form W-8BEN, W-8ECI, or other type of W-8, as appropriate, or any successor form prescribed by the Internal Revenue Service: (i) on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, (ii) from time to time on reasonable request, and (iii) at any time that a change of circumstances occurs that makes any information on the form so provided incorrect, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Lender from United States withholding tax or reduces to zero the rate of withholding tax on payments under this Agreement or under any Note or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. Further, each such Lender that is not an exempt recipient listed in Treasury Regulation 1.6049-4(c)(1) shall provide the Borrower and the Administrative Agent with Internal Revenue Service Form W-8 or W-9, as appropriate, or other successor form prescribed by the Internal Revenue Service, certifying that it is exempt from United States back-up withholding. 55 (e) For any period with respect to which a Lender has failed to provide the Borrower or the Administrative Agent with the appropriate forms pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 8.04(d) or (c) with respect to Taxes imposed by the United States; provided that if a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section, then such Lender will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Lender, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Lender. Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate. If (i) the obligation of any Lender to make, or convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Lender has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans which would otherwise be made by such Lender as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders). If such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Lenders. Section 8.06. Substitution of Bank. If (i) the obligation of any Lender to make, or to convert or continue outstanding Loans as or into, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Lender has demanded compensation under Section 8.03 or 8.04, the Borrower shall have the right, with the assistance of the Administrative Agent, to designate a substitute bank or banks (which may be one or more of the Lenders) mutually satisfactory to the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld or delayed) to purchase (and, if such right is exercised, such Lender shall sell and assign) for cash, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit H hereto, the outstanding Loans (including 56 any Competitive Bid Loans) and Letter of Credit Liabilities of such Lender and assume the Commitment of such Lender, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the principal amount of all of such Lender's outstanding Loans and Letter of Credit Liabilities plus any accrued but unpaid interest or fees thereon and the accrued but unpaid fees in respect of such Lender's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Lender were prepaid in their entirety on the date of consummation of such assignment. ARTICLE 9 MISCELLANEOUS Section 9.01. Notices. (a) All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile or similar writing) and shall be given to such party: (i) in the case of the Borrower or the Administrative Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (ii) in the case of any Lender, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (iii) in the case of any party, at such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (A) if given by telex, when transmitted to the telex number referred to in this Section and the appropriate answerback is received, (B) if given by facsimile, when transmitted to the facsimile number referred to in this Section and confirmation of receipt is received, (C) if given by mail or by any other means, when delivered at the address referred to in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 shall not be effective until received. (b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Section 9.02. No Waivers. No failure or delay by any Lender Party in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or 57 privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agents, including reasonable fees and disbursements of special counsel for the Agents, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by each Lender Party, including (without duplication) the reasonable fees and disbursements of outside counsel and the reasonable allocated cost of inside counsel, in connection with such Event of Default and any collection, bankruptcy, insolvency, reorganization or other enforcement proceedings resulting therefrom; provided that each Lender Party shall use reasonable efforts to avoid inappropriate duplication of expense in connection with any matter for which the Borrower is responsible under this Section 9.03(a). (b) The Borrower agrees to indemnify each Lender Party, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction; provided further that each Lender Party shall use reasonable efforts to avoid inappropriate duplication of expense in connection with any matter for which the Borrower is responsible under this Section 9.03(b). Section 9.04. Sharing. Each Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest then due with respect to the Loans and Letter of Credit Liabilities held by it which is greater than the proportion received by any other Lender in respect of the aggregate amount of principal and interest then due with respect to the Loans and Letter of Credit Liabilities held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Lenders, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans and Letter of Credit Liabilities held by the Lenders shall be shared by the Lenders pro rata; provided that nothing in this Section shall impair the right of any Lender to exercise any right of set-off or counterclaim it may have and to apply the amount 58 subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. Section 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of any Issuing Bank or Agent are affected thereby, by it); provided that no such amendment or waiver shall: (a) (i) increase or decrease the Commitment of any Lender (except for a ratable decrease in the Commitments of all the Lenders) or subject any Lender to any additional obligation without the written consent of such Lender, (ii) reduce the principal of or interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or for reimbursement in respect of any Letter of Credit or any fees hereunder or for the termination of any Commitment, or (except as expressly provided in Section 2.15) the expiry date of any Letter of Credit, without the written consent of each Lender affected thereby, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Lenders which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement, including this Section 9.05(a), without the written consent of each Lender, or (v) change the provisions of Section 9.04, without the written consent of each Lender; or (b) unless signed by a Designated Lender or its Designating Lender, (i) subject such Designated Lender to any additional obligation, (ii) affect its rights hereunder (unless the rights of all the Lenders hereunder are similarly affected) or (iii) change this Section 9.05(b). For avoidance of doubt, the operation of Section 2.18 in accordance with its terms is not an amendment subject to this Section 9.05. Section 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder (except as provided in Section 5.07) without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). (b) Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans and Letter of Credit Liabilities at the 59 time owing to it); provided that (i) the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) subject to each such assignment (determined as of the date the Assignment and Assumption Agreement with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000, except that this clause (i) shall not apply to an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it; (ii) each of the Administrative Agent and (so long as no Event of Default exists) the Borrower shall consent to such assignment (each such consent not to be unreasonably withheld or delayed), except that no such consent of the Borrower shall be required for an assignment to a Lender or an affiliate of a Lender or an Approved Fund with respect to a Lender; (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans, Letter of Credit Liabilities or the Commitment assigned, except that this clause (iii) shall not apply to rights in respect of outstanding Competitive Bid Loans; and (iv) the parties to each assignment shall execute and deliver to the Administrative Agent and the Borrower an agreement, substantially in the form of Exhibit H hereto (an "ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with a processing and recordation fee of $3,500, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption Agreement, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 8.03, 8.04 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section. For avoidance of doubt, no assignment by a Lender which is also an Issuing Bank of all or any portion of its Commitment, its Letter of Credit Liabilities or its Loans pursuant to this paragraph (b) shall affect its rights and obligations in its capacity as an Issuing Bank. (c) Any Lender may, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's rights and/or 60 obligations under this Agreement (including all or a portion of its Commitment and/or the Loans and/or Letter of Credit Liabilities owing to it); provided that (i)such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (i), (ii) or (iii) of Section 9.05(a) that affects such Participant. Subject to paragraph (d) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Section 2.17 and Article 8 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.04 as though it were a Lender, provided such Participant agrees to be subject to Section 9.04 as though it were a Lender. (d) An Eligible Assignee or Participant shall not be entitled to receive any greater payment under Section 8.03 or 8.04 than the applicable Lender would have been entitled to receive with respect to the rights assigned or the participation sold to such Participant, unless the assignment to such Eligible Assignee or sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant organized under the laws of a jurisdiction outside the United States shall not be entitled to the benefits of Section 8.03 or 8.04 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 8.03 or 8.04 as though it were a Lender. (e) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.07. Designated Lenders. Subject to the provisions of this Section, any Lender may at any time designate an Approved Fund to provide all or a portion of the Loans to be made by such Lender pursuant to this Agreement; provided that such designation shall not be effective unless the Borrower and the Administrative Agent consent thereto (which consents shall not be unreasonably 61 withheld). When a Lender and its Approved Fund shall have signed an agreement substantially in the form of Exhibit I hereto (a "DESIGNATION AGREEMENT") and the Borrower and the Administrative Agent shall have signed their respective consents thereto, such Approved Fund shall become a Designated Lender for purposes of this Agreement. The Designating Lender shall thereafter have the right to permit such Designated Lender to provide all or a portion of the Loans to be made by such Designating Lender pursuant to Section 2.01 or 2.03, and the making of such Loans or portion thereof shall satisfy the obligation of the Designating Lender to the same extent, and as if, such Loans or portion thereof were made by the Designating Lender. As to any Loans or portion thereof made by it, each Designated Lender shall have all the rights that a Lender making such Loans or portion thereof would have had under this Agreement and otherwise; provided that (x) its voting rights under this Agreement shall be exercised solely by its Designating Lender, (y) its Designating Lender shall remain solely responsible to the other parties hereto for the performance of such Designated Lender's obligations under this Agreement, including its obligations in respect of the Loans or portion thereof made by it and (z) such Designated Lender shall be subject (A) to the limitations of Section 9.06(d) to the same extent as a Participant and (B) to the provisions of Section 9.09. No additional Note shall be required to evidence the Loans or portion thereof made by a Designated Lender; and the Designating Lender shall be deemed to hold its Note as agent for its Designated Lender to the extent of the Loans or portion thereof funded by such Designated Lender. Each Designating Lender shall act as administrative agent for its Designated Lender and give and receive notices and other communications on its behalf. Any payments for the account of any Designated Lender shall be paid to its Designating Lender as administrative agent for such Designated Lender and neither the Borrower nor the Administrative Agent shall be responsible for any Designating Lender's application of such payments. In addition, any Designated Lender may, with notice to (but without the prior written consent of) the Borrower and the Administrative Agent, assign all or portions of its interest in any Loans to its Designating Lender. Section 9.08. No Reliance on Margin Stock. Each Lender represents to the Administrative Agent and each of the other Lenders that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. Section 9.09. Confidentiality. Each Lender (including any Designated Lender) and Agent shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any Confidential Information received pursuant to this Agreement except that disclosure of such Confidential Information may be made (i) to the agents, employees, subsidiaries or affiliates of such Person in connection with its present or prospective business relations with the Borrower arising out of this Agreement; provided that such Person will cause such agents, employees, 62 subsidiaries or affiliates to comply with the provisions of this Section 9.09 with respect to such Confidential Information, (ii) to prospective transferees or purchasers of any interest in the Loans (including any Participant); provided that they have agreed to be bound by the provision of this Section 9.09, (iii) as required by law, regulations, rule, request or order, subpoena, judicial order or similar order and in connection with any litigation; provided that each Lender and the Agent agrees to provide the Borrower with prompt notice of any such requirement to the extent permitted by such requirement so as to permit the Borrower to seek a protective order or other appropriate remedy and (iv) as may be required in connection with the examination, audit or similar investigation of such Person. Section 9.10. Governing Law; Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 9.11. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. Section 9.12. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 63 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE NEIMAN MARCUS GROUP, INC. By: /s/ Stacie R. Shirley -------------------------------------- Title: Vice President Administrative Agent JPMORGAN CHASE BANK, as Administrative Agent and as a Lender By: /s/ Allen K. King -------------------------------------- Title: Vice President Syndication Agents BANK OF AMERICA, N.A., as Syndication Agent and as a Lender By: /s/ Amy Krovocheck -------------------------------------- Title: Vice President BANK ONE, NA, as Syndication Agent and as a Lender By: /s/ Catherine A. Muszynski -------------------------------------- Title: Director FLEET NATIONAL BANK, as Syndication Agent and as a Lender By: /s/ Linda H. Thomas -------------------------------------- Title: Managing Director Other Lenders THE BANK OF NEW YORK By: /s/ William Barnum -------------------------------------- Title: Vice President MELLON BANK, N.A. By: /s/ Louis E. Flori -------------------------------------- Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Amanda Smith -------------------------------------- Title: Assistant Vice President COMMERCEBANK, N.A. By: /s/ Edward P. Tietjen -------------------------------------- Title: Senior Vice President By: /s/ Eugene Correa -------------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By: /s/ Mary D. Falck -------------------------------------- Title: Senior Vice President By: /s/ Melissa Nachman -------------------------------------- Title: Vice President FIRST HAWAIIAN BANK By: /s/ Charles L. Jenkins -------------------------------------- Title: Vice President, Manager ISRAEL DISCOUNT BANK OF NEW YORK By: /s/ Karen Chen -------------------------------------- Title: Assistant Manager By: /s/ Timothy McCurry -------------------------------------- Title: Assistant Vice President COMMITMENT SCHEDULE

LENDER COMMITMENT - ------ ------------ JPMorgan Chase Bank $ 47,500,000 Bank of America, N.A. $ 47,500,000 Bank One, NA $ 40,000,000 Fleet National Bank $ 40,000,000 The Bank of New York $ 25,000,000 Mellon Bank, N.A. $ 25,000,000 U.S. Bank National Association $ 25,000,000 Commercebank, N.A. $ 15,000,000 Wells Fargo Bank, N.A. $ 15,000,000 First Hawaiian Bank $ 10,000,000 Israel Discount Bank of New York $ 10,000,000 ------------ Total $300,000,000

THREE-YEAR PRICING SCHEDULE Each of "FACILITY FEE RATE", "EURO-DOLLAR MARGIN" and "BASE RATE MARGIN" means, for any day, the rate (in basis points per annum) set forth below in the row and column corresponding to the Status and Utilization that apply on such day:

Level I Level II Level III Level IV Level V Level VI ------- -------- --------- -------- ------- -------- FACILITY FEE RATE 10 15 17.5 22.5 30 50 EURO-DOLLAR MARGIN Utilization < or = to 33% 40 47.5 70 90 107.5 150 Utilization > 33% 52.5 60 82.5 102.5 120 162.5 BASE RATE MARGIN Utilization < or = to 33% -- -- -- -- 7.5 50 Utilization > 33% -- -- -- 2.5 20 62.5

For purposes of this Schedule, the following terms have the following meanings: "LEVEL I STATUS" exists at any date if, at such date, the higher of the two Ratings meets the following level: A- or higher by S&P or A3 or higher by Moody's. "LEVEL II STATUS" exists at any date if, at such date, (i) Level I Status does not exist and (ii) the higher of the two Ratings meets the following level: BBB+ or higher by S&P or Baa1 or higher by Moody's. "LEVEL III STATUS" exists at any date if, at such date, (i) neither Level I Status nor Level II Status exists and (ii) the higher of the two Ratings meets the following level: BBB or higher by S&P or Baa2 or higher by Moody's. "LEVEL IV STATUS" exists at any date if, at such date, (i) none of Level I Status, Level II Status and Level III Status exists and (ii) the higher of the two Ratings meets the following level: BBB- or higher by S&P or Baa3 or higher by Moody's. "LEVEL V STATUS" exists at any date if, at such date, (i) none of Level I Status, Level II Status, Level III Status and Level IV Status exists and (ii) the higher of the two Ratings meets the following level: BB+ or higher by S&P or Ba1 or higher by Moody's. "LEVEL VI STATUS" exists at any date if, at such date, no other Status exists. "MOODY'S" means Moody's Investors Service, Inc. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "RATING AGENCIES" means Moody's and S&P. "RATINGS" means the credit ratings assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement by the Rating Agencies. If there is no rating assigned to debt securities, the corporate credit rating will be used. Any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. In the case of split ratings from S&P or Moody's, the rating to be used to determine which Pricing Level applies is the higher of the two (e.g., BBB+/Baa2 results in Level II Status); provided that if the split is more than one full rating category, the rating category immediately above the lower of the two rating categories will be used (e.g., BBB+/Baa3 results in Level III Status, as does A-/Baa3). "STATUS" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status exists at any date. "UTILIZATION" means, at any date, the percentage equivalent of a fraction, (i) the numerator of which is the sum of the aggregate outstanding principal amount of the Loans and the aggregate Letter of Credit Liabilities at such date (after giving effect to any borrowing, issuance or payment on such date) and the denominator of which is the aggregate amount of the Commitments at such date (after giving effect to any reduction on such date). If for any reason any Lender has any Credit Exposure after termination of the Commitments, Utilization shall be deemed to be 100%. EXHIBIT A NOTE New York, New York ___________ __, ____ For value received, THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (the "BORROWER"), promises to pay to the order of ______________________ (the "LENDER"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Lender to the Borrower pursuant to the Credit Agreement (defined below) on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of JPMorgan Chase Bank, 270 Park Avenue, New York, New York. The date, amount and maturity of each Loan made by the Lender and all repayments of the principal thereof shall be recorded by the Lender and, if the Lender so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Lender on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Lender to make (or any error in making) any such recordation or endorsement shall not affect the Borrower's obligations hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Three-Year Credit Agreement dated as of August 26, 2002 among The Neiman Marcus Group, Inc., the Lenders party thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent (as the same may be amended from time to time, the "CREDIT AGREEMENT"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. THE NEIMAN MARCUS GROUP, INC. By: -------------------------------------- Name: Title: LOANS AND PAYMENTS OF PRINCIPAL

AMOUNT OF PRINCIPAL DATE AMOUNT OF LOAN REPAID NOTATION MADE BY ---- -------------- --------- ----------------

EXHIBIT B FORM OF NOTICE OF COMMITTED BORROWING [Date] To: JPMorgan Chase Bank, as Administrative Agent From: The Neiman Marcus Group, Inc. (the "BORROWER") Re: Three-Year Credit Agreement (as amended from time to time, the "CREDIT AGREEMENT") dated as of August 26, 2002 among the Borrower, the Lenders party thereto and the Agents party thereto. We hereby irrevocably give notice pursuant to Section 2.02 of the Credit Agreement of the Committed Borrowing specified below: 1. The [Domestic Business Day][Euro-Dollar Business Day] of the proposed Borrowing is [date]. 2. The aggregate amount of the proposed Borrowing is [specify amount]. 3. The Loans comprising such Borrowing are to bear interest initially at [the Base Rate][a Euro-Dollar Rate]. [4. The duration of the initial Interest Period applicable thereto is [specify duration].] Terms used herein have the meanings assigned to them in the Credit Agreement. THE NEIMAN MARCUS GROUP, INC. By: -------------------------------------- Name: Title: EXHIBIT C FORM OF COMPETITIVE BID QUOTE REQUEST [Date] To: JPMorgan Chase Bank (the "ADMINISTRATIVE AGENT") From: The Neiman Marcus Group, Inc. (the "BORROWER") Re: Three-Year Credit Agreement (the "CREDIT AGREEMENT") dated as of August 26, 2002 among the Borrower, the Lenders party thereto and the Agents party thereto. We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Competitive Bid Quotes for the following proposed Competitive Bid Borrowing(s): Date of Borrowing: ------------------

PRINCIPAL AMOUNT(1) INTEREST PERIOD(2) - ------------------- ------------------ $

Such Competitive Bid Quotes should offer a Competitive Bid [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. - ---------- (1) Amount must be $5,000,000 or a larger multiple of $1,000,000. (2) Not less than one month (LIBOR Auction) or not less than 5 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Such Competitive Bid Quotes should offer a Competitive Bid [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. THE NEIMAN MARCUS GROUP, INC. By: -------------------------------------- Name: Title: EXHIBIT D FORM OF INVITATION FOR COMPETITIVE BID QUOTES To: [Name of Lender] Re: Invitation for Competitive Bid Quotes to The Neiman Marcus Group, Inc. (the "BORROWER") Pursuant to Section 2.03 of the Three-Year Credit Agreement dated as of August 26, 2002 among the Borrower, the Lenders party thereto and the Agents party thereto, we are pleased on behalf of the Borrower to invite you to submit Competitive Bid Quotes to the Borrower for the following proposed Competitive Bid Borrowing(s): Date of Borrowing: ------------------

PRINCIPAL AMOUNT(3) INTEREST PERIOD(4) - ------------------- ------------------ $

Such Competitive Bid Quotes should offer a Competitive Bid [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. - ---------- (3) Amount must be $5,000,000 or a larger multiple of $1,000,000. (4) Not less than one month (LIBOR Auction) or not less than 5 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. JPMORGAN CHASE BANK, as Administrative Agent By: -------------------------------------- Authorized Officer EXHIBIT E FORM OF COMPETITIVE BID QUOTE To: JPMorgan Chase Bank, as Administrative Agent Re: Competitive Bid Quote to The Neiman Marcus Group, Inc. (the "BORROWER") In response to your invitation on behalf of the Borrower dated _____________, ____, we hereby make the following Competitive Bid Quote on the following terms: 1. Quoting Lender: -------------------------------- 2. Person to contact at Quoting Lender: ----------------------------- 3. Date of Borrowing: (5) --------------------- 4. We hereby offer to make Competitive Bid Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: - ---------- (5) As specified in the related Invitation.

PRINCIPAL COMPETITIVE BID AMOUNT(2) INTEREST PERIOD(3) [MARGIN](4) [ABSOLUTE RATE](5) - --------- ------------------ --------------- ------------------ $ $

[provided that the aggregate principal amount of Competitive Bid Loans for which the above offers may be accepted shall not exceed $____________.] We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Three-Year Credit Agreement dated as of August 26, 2002 among the Borrower, the Lenders party thereto and the Agents party thereto, irrevocably obligate(s) us to make the Competitive Bid Loan(s) for which such offer(s) are accepted, in whole or in part. - ---------- (2) Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Lender is willing to lend. Each bid must be made for $5,000,000 or a larger multiple of $1,000,000. (3) Not less than one month or not less than 5 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period or the Competitive Bid Quote shall be disregarded. (4) Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". (5) Specify rate of interest per annum (to the nearest 1/10,000 of 1%). Very truly yours, [NAME OF LENDER] Dated: By: ---------------- -------------------------------------- Authorized Officer EXHIBIT F OPINION OF COUNSEL FOR THE BORROWER [Effective Date] To the Lenders and the Agents Referred to Below c/o JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Ladies and Gentlemen: In my capacity as Senior Vice President and General Counsel of The Neiman Marcus Group, Inc. (the "BORROWER"), I, together with _____________________, have acted as counsel to the Borrower in connection with the preparation, execution and delivery of the Three-Year Credit Agreement dated as of August 26, 2002 among the Borrower, the Lenders party thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent (the "CREDIT AGREEMENT"). Capitalized terms used in this opinion which are not defined herein shall have the same meaning as in the Credit Agreement. I have examined the originals, or copies certified to my satisfaction, of the Credit Agreement, the Notes, the charter documents and the By-Laws of the Borrower and the Significant Subsidiaries, records of the Borrower's corporate proceedings, all Debt instruments and other material agreements and instruments to which the Borrower or a Significant Subsidiary is a party and of which I have knowledge, certificates of public officials and such other documents, agreements, certificates and records as I have deemed necessary to examine as a basis for the opinions hereinafter expressed. I am an attorney admitted to practice in the State of Texas. I am not, and do not purport to be, an expert in or qualified to express opinions concerning the laws of any jurisdiction other than Texas, the United States of America and the corporate laws of the State of Delaware to the extent necessary to express the opinions hereinafter set forth. For the purposes of this opinion, I have assumed without investigation that the laws of the State of New York are the same as those of the State of Texas. Based upon the foregoing, and having regard for such legal considerations as I have deemed relevant, I am of the opinion that: 1. The Borrower and each Significant Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of its respective state of incorporation, (ii) has all requisite corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and as presently contemplated and (iii) is in good standing as a foreign corporation and is duly qualified to conduct business in each jurisdiction in which its property or business as presently conducted or contemplated makes such qualification necessary, except in those jurisdictions in which the failure to be so qualified would not have a material adverse effect upon the business or financial condition of the Borrower or such Significant Subsidiary and would not (after qualification) preclude the Borrower or such Significant Subsidiary from enforcing claims against any party in the courts of such jurisdictions. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official, except for the filing of the Credit Agreement with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and the Credit Agreement and the Notes do not contravene, or constitute a default under, any provision of applicable law or of the Restated Certificate of Incorporation or By-Laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any Significant Subsidiary. 3. The Credit Agreement has been duly and validly executed and delivered by authorized officers of the Borrower. The Credit Agreement constitutes, and each Note, if and when issued in accordance with the Credit Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that the availability of the remedy of specific enforcement or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 4. Various suits and claims arising in the ordinary course of business, some of which involve substantial amounts, are pending against the Borrower and its Subsidiaries. While the ultimate effect of such litigation cannot be ascertained at this time, in my opinion, there are no actions, suits, proceedings or investigations pending, or to my knowledge threatened, against the Borrower or any Subsidiary in which there is a reasonable possibility of an adverse decision which would materially adversely affect the business, assets or financial condition of the Borrower and its Subsidiaries, taken as a whole. Very truly yours, EXHIBIT G OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT [Effective Date] To the Lenders and Agents Referred to Below c/o JPMorgan Chase Bank, as Administrative Agent 270 Park Avenue 21st Floor New York, NY 10017 Dear Sirs: We have participated in the preparation of the Three-Year Credit Agreement dated as of August 26, 2002 (the "CREDIT AGREEMENT") among The Neiman Marcus Group, Inc., a Delaware corporation (the "BORROWER"), the Lenders party thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent (the "ADMINISTRATIVE AGENT"), and have acted as special counsel for the Administrative Agent for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower [and each Note of the Borrower delivered today constitutes a valid and binding obligation of the Borrower, in each case] enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Lender is located which limits the rate of interest that such Lender may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other Person without our prior written consent. Very truly yours, EXHIBIT H ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of ________ __, ____ among [NAME OF ASSIGNOR] (the "ASSIGNOR") and [NAME OF ASSIGNEE] (the "ASSIGNEE"). WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT") relates to the Three-Year Credit Agreement dated as of August 26, 2002 (as amended from time to time, the "CREDIT AGREEMENT") among The Neiman Marcus Group, Inc., the Lenders party thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent; WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $____________; WHEREAS, [Committed] Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; WHEREAS, the Assignor has Letter of Credit Liabilities in an aggregate amount of $___________ under the Credit Agreement at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"), together with a corresponding portion of each of its outstanding [Committed] Loans and Letter of Credit Liabilities, and the Assignee proposes to accept such assignment and assume the corresponding obligations of the Assignor under the Credit Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: Section 1. Definitions. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Credit Agreement. Section 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount and a corresponding portion of each of its outstanding [Committed] Loans, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount. Upon the execution and delivery hereof by the Assignor and the Assignee [and the execution of the consent attached hereto by the Borrower and the Administrative Agent](6) and the payment of the amounts specified in Section 3 required to be paid on the date hereof, (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Lender under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount and acquire the rights of the Assignor with respect to a corresponding portion of each of its outstanding [Committed] Loans and Letter of Credit Liabilities and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by the Assigned Amount, and the Assignor shall be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. Section 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.(7) Fees accrued before the date hereof with respect to amounts assigned to the Assignee hereunder are for the account of the Assignor and such fees accruing on and after the date hereof with respect to such amounts are for the account of the Assignee. Each of the Assignor and the Assignee agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and promptly pay the same to such other party. Section 4. [Consent of the Borrower and the Administrative Agent. This Agreement is conditioned upon the consent of the Borrower and the Administrative Agent pursuant to Section 9.06(b) of the Credit Agreement.(8)] Section 5. Administrative Questionnaire. Attached is an Administrative Questionnaire duly completed by the Assignee. Section 6. No Reliance on Assignor. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned hereby and that such interest is free and clear of any other adverse claim created by it. The Assignor makes no representation or warranty (other than that mentioned immediately above) in connection with, and shall have no responsibility with respect to, the solvency, financial condition or statements of the Borrower, or the validity and enforceability of the Borrower's - ---------- (6) Delete if consent is not required. (7) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. (8) Delete if consent is not required. obligations under the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. Section 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Section 8. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: -------------------------------------- Name: Title: [NAME OF ASSIGNEE] By: -------------------------------------- Name: Title: The undersigned consent to the foregoing assignment. THE NEIMAN MARCUS GROUP, INC. By: -------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Administrative Agent and as Issuing Bank By: -------------------------------------- Name: Title: EXHIBIT I DESIGNATION AGREEMENT dated as of ________________ __, _____ Reference is made to the Three-Year Credit Agreement dated as of August 26, 2002 (as amended from time to time, the "CREDIT AGREEMENT") among The Neiman Marcus Group, Inc., a Delaware corporation (the "BORROWER"), the Lenders party thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent (the "ADMINISTRATIVE AGENT"). Terms defined in the Credit Agreement are used herein with the same meaning. _________________ (the "DESIGNATOR") and ________________ (the "DESIGNEE") agree as follows: 1. The Designator designates the Designee as its Designated Lender under the Credit Agreement and the Designee accepts such designation. 2. The Designator makes no representations or warranties and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Designee (i) confirms that it is an Approved Fund; (ii) appoints and authorizes the Designator as its administrative agent and attorney-in-fact and grants the Designator an irrevocable power of attorney to receive payments made for the benefit of the Designee under the Credit Agreement and to deliver and receive all communications and notices under the Credit Agreement, if any, that the Designee is obligated to deliver or has the right to receive thereunder; (iii) acknowledges that the Designator retains the sole right and responsibility to vote under the Credit Agreement, including, without limitation, the right to approve any amendment or waiver of any provision of the Credit Agreement; and (iv) agrees that the Designee shall be bound by all such votes, approvals, amendments and waivers and all other agreements of the Designator pursuant to or in connection with the Credit Agreement, all subject to Section 9.05(b) of the Credit Agreement. 4. The Designee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Article 4 or delivered pursuant to Article 4 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement and (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Designator or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action it may be permitted to take under the Credit Agreement. 5. Following the execution of this Designation Agreement by the Designator and the Designee and the consent hereto by the Borrower, it will be delivered to the Administrative Agent for its consent. This Designation Agreement shall become effective when the Administrative Agent consents hereto or on any later date specified on the signature page hereof. 6. Upon the effectiveness hereof, the Designee shall have the right to make Loans or portions thereof as a Lender pursuant to Section 2.01 or 2.03 of the Credit Agreement and the rights of a Lender related thereto. The making of any such Loans or portions thereof by the Designee shall satisfy the obligations of the Designator under the Credit Agreement to the same extent, and as if, such Loans or portions thereof were made by the Designator. 7. This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties have caused this Designation Agreement to be executed by their respective officers hereunto duly authorized, as of the date first above written. Effective Date:______ __, ____ [NAME OF DESIGNATOR] By: -------------------------------------- Name: Title: [NAME OF DESIGNEE] By: -------------------------------------- Name: Title: The undersigned consent to the foregoing designation. THE NEIMAN MARCUS GROUP, INC. By: -------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Administrative Agent By: -------------------------------------- Name: Title: EX-12.1 11 d99632exv12w1.txt EX-12.1 COMPUTATION: RATIO OF EARNINGS TO CHARGES EXHIBIT 12.1 The Neiman Marcus Group, Inc. Computation of Ratio of Earnings to Fixed Charges (Unaudited)

Years Ended ------------------------------------------------------------------------------- August 3, July 28, July 29, July 31, August 1, (in thousands, except ratios) 2002 (1) 2001 2000 1999 1998 --------- ----------- -------- ---------- ---------- Fixed Charges: Interest on debt $ 20,787 $ 20,418 $ 28,145 $ 26,094 $ 24,047 Amortization of debt discount and expense 251 247 267 267 62 Interest element of rentals 17,952 19,008 17,193 16,005 14,883 --------- ----------- -------- ---------- ---------- Total fixed charges 38,990 39,673 45,605 42,366 38,992 ========= =========== ======== ========== ========== Earnings: Earnings before income taxes and minority interest 162,244 178,440 222,979 157,642 176,712 Add back: Fixed charges 38,990 39,673 45,605 42,366 38,992 Amortization of capitalized interest 312 258 232 230 222 Less: Capitalized interest (3,116) (1,954) (427) (379) (1,422) --------- ----------- -------- ---------- ---------- Total earnings $ 198,430 $ 216,417 $268,389 $ 199,859 $ 214,504 ========= =========== ======== ========== ========== Ratio of earnings to fixed charges 5.1 5.5 5.9 4.7 5.5 ========= =========== ======== ========== ==========

(1) Fiscal year 2002 includes fifty-three weeks of operations while the other years presented consist of fifty-two weeks of operations. EX-21.1 12 d99632exv21w1.txt EX-21.1 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 THE NEIMAN MARCUS GROUP, INC. SUBSIDIARIES OF THE COMPANY

JURISDICTION OF SUBSIDIARY/AFFILIATE INCORPORATION SHAREHOLDER - -------------------- ------------- ----------- Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc. Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc. Chef's Catalog, Inc. Delaware The Neiman Marcus Group, Inc. Ermine Trading Corporation California The Neiman Marcus Group, Inc. Gurwitch Bristow Products, LLC Delaware The Neiman Marcus Group, Inc. (51%) Gurwitch Partners Limited (17.89%) Stephens Group, Inc. (18.57%) Other Investors (12.54%) Kate Spade LLC Delaware The Neiman Marcus Group, Inc. (56%) Alex Noel, Inc. (44%) NEMA Beverage Corporation Delaware NEMA Beverage Holding Corporation NEMA Beverage Holding Corporation Texas NEMA Beverage Parent Corporation NEMA Beverage Parent Corporation Texas The Neiman Marcus Group, Inc. NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc. (49,999 shares) Neiman Marcus Holdings, Inc. (1 share) NM Financial Services, Inc. Delaware The Neiman Marcus Group, Inc. NM Nevada Trust Massachusetts The Neiman Marcus Group, Inc. (90 shares) Bergdorf Goodman, Inc. (10 shares) NM Office, Inc. Florida The Neiman Marcus Group, Inc. NM Visual, Inc. Florida The Neiman Marcus Group, Inc. Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc. Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc. Neiman Marcus Special Events, Inc. Delaware The Neiman Marcus Group, Inc. Quality Call Care Solutions, Inc. Ontario, Canada The Neiman Marcus Group, Inc. Pastille by Mail, Inc. Delaware The Neiman Marcus Group, Inc. Worth Avenue Leasing Company Florida The Neiman Marcus Group, Inc.

EX-23.1 13 d99632exv23w1.txt EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-35299, No. 333-35829 and No. 333-58906 on Form S-8, and No. 333-49893 on Form S-3 of The Neiman Marcus Group, Inc. and subsidiaries of our report, dated September 10, 2002, appearing in the Annual Report on Form 10-K of The Neiman Marcus Group, Inc. for the year ended August 3, 2002. /s/DELOITTE & TOUCHE LLP Dallas, Texas October 2, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     EXHIBIT 3.2

- ------------
  THE
- ------------
  NEIMAN
- ------------
  MARCUS
- ------------
  GROUP
- ------------


                                     BYLAWS

                                       OF

                          THE NEIMAN MARCUS GROUP, INC.























                      (As amended through August 15, 2002)



                                TABLE OF CONTENTS

                                                                                                          
ARTICLE I.     PREAMBLE.......................................................................................1


ARTICLE II.    MEETINGS OF STOCKHOLDERS.......................................................................1


ARTICLE III.   DIRECTORS......................................................................................3


ARTICLE IV.    OFFICERS.......................................................................................6


ARTICLE V.     STOCK..........................................................................................8


ARTICLE VI.    NOTICES.......................................................................................10


ARTICLE VII.   GENERAL PROVISIONS............................................................................10


ARTICLE VIII.  INDEMNIFICATION...............................................................................10


ARTICLE IX.    AMENDMENTS....................................................................................14





                                       i




                                     BYLAWS
                                       OF
                          THE NEIMAN MARCUS GROUP, INC.
                     (hereinafter called the "Corporation")
                      (As amended through August 15, 2002)


                               ARTICLE I. PREAMBLE

         These Bylaws shall be subject to all provisions of the General
Corporation Law of the State of Delaware ("GCL") and all of the provisions of
the Certificate of Incorporation.

                      ARTICLE II. MEETINGS OF STOCKHOLDERS

         SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

         SECTION 2. ANNUAL MEETINGS. The Annual Meeting of Stockholders shall be
held on such date and at such time as shall be designated from to time by the
Board of Directors and stated in the notice of the meeting, at which meeting the
stockholders shall elect directors in the manner provided in the Certificate of
Incorporation and in these Bylaws, and transact such other business as may
properly be brought before the meeting. Written notice of the Annual Meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.

         SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by the Chairman of the Board of Directors and shall
be called by such officer or the Secretary at the request in writing of a
majority of the Board of Directors. Such request shall state the purpose or
purposes of the proposed meeting. Written notice of a Special Meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.

         SECTION 4. QUORUM. Except as otherwise provided by the GCL or by the
Certificate of Incorporation or these Bylaws, the holders of a majority of the
capital stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have



                                       1


power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting. Any stock of the Corporation belonging to the Corporation at the
time of any meeting or any adjourned session thereof shall neither be entitled
to vote nor counted for quorum purposes provided, however, that this sentence
shall not be construed as limiting the right of the Corporation to vote its own
stock held by it in a fiduciary capacity.

         SECTION 5. VOTING. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, (a) any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat and (b) each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.

         SECTION 6. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list of the stockholders entitled to vote at every meeting of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.

         SECTION 7. BUSINESS BROUGHT BEFORE MEETINGS. At any Annual Meeting of
Stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) pursuant to the Corporation's notice of meeting, (b) by
or at the direction of the Board of Directors or (c) by a stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 2, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 2. For
business to be properly brought before an Annual Meeting of Stockholders
pursuant to clause (c) above, the stockholder must have given written notice
thereof to, either by personal delivery or by United States mail, postage
prepaid, and such notice must have been received by, the Secretary of the
Corporation, not later than ninety days prior to the anniversary date of the
immediately preceding Annual Meeting. Such notice shall set forth: (a) the name
and address, as they appear on the Corporation's books, of the stockholder who
is proposing such business, and the name and address of the beneficial owner, if
any, on whose behalf the proposal is made; (b) the number and class of shares of
stock of the Corporation that are beneficially owned on the date of such notice
by the stockholder, or the beneficial owner on whose behalf the proposal is
made; (c) a representation that the stockholder is a holder of record of stock
of the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to propose such business; (d) a description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (e) any material interest of such
stockholder of record and the beneficial owner, if



                                       2

any, on whose behalf the proposal is made, in such business and (f) a statement
as to whether such stockholder of record, and the beneficial owner, if any,
intend to solicit proxies in support of such proposal. The presiding officer of
the meeting shall determine and declare to the meeting whether or not such
business was properly brought before the meeting in accordance with the
procedures prescribed by these Bylaws, and at such officer's discretion, may
declare such business not properly brought before the meeting and shall not
recognize the bringing of such business.

         At any Special Meeting of Stockholders, only such business shall be
conducted as shall have been brought before the meeting pursuant to the
Corporation's notice of Special Meeting.

                             ARTICLE III. DIRECTORS

         SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Except as otherwise fixed
pursuant to Article Fourth of the Certificate of Incorporation relating to the
rights of the holders of any one or more classes or series of Preferred Stock
issued by the Corporation acting separately by class or series, to elect, under
specified circumstances, directors at an annual or special meeting of
stockholders, the Board of Directors shall consist of not less than six nor more
than twelve persons, the exact number to be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of the
Board of Directors. Except as provided in the Certificate of Incorporation or
Section 2 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders by the stockholders entitled to
vote for the election of directors (or for the election of directors of a given
class, as applicable), and each director so elected shall hold office until the
annual meeting for the year in which his term expires and until a director of
the same class succeeding such director is duly elected and qualified, or until
his earlier resignation or removal. Any director may resign at any time upon
notice to the Corporation. Directors need not be stockholders.

         SECTION 2. VACANCIES. Except as otherwise fixed pursuant to the
provisions of Article Fourth of the Certificate of Incorporation relating to the
rights of the holders of any one or more classes or series of Preferred Stock
issued by the Corporation, acting separately by class or series, to elect, under
specified circumstances, directors at an annual or special meeting of
stockholders, and except as otherwise provided pursuant to the provisions of
Article Ninth thereof, relating to the power of the Board of Directors to fill
newly created directorships and vacancies in the Board of Directors, any vacancy
in the office of a director created by the death, resignation, retirement,
disqualification, removal from office of a director or other cause, elected by
(or appointed on behalf of) the holders of the Class B Common Stock, par value
$.01 per share, of the Corporation (the "Class B Common Stock") on the one hand,
or the holders of the Class A Common Stock, par value $.01 per share, of the
Corporation (the "Class A Common Stock"), and the Class C Common Stock, par
value $.01 per share, of the Corporation (the "Class C Common Stock"), on the
other hand, as the case may be, shall be filled by the vote of the majority of
the directors (or the sole remaining director) elected by (or



                                       3


appointed on behalf of) such holders of Class B Common Stock, on the one hand,
or Class A Common Stock and Class C Common Stock, on the other hand (or on
behalf of whom that director was appointed), as the case may be, unless there
are no such directors in such Class, in which case such vacancy shall be filled
by the stockholders of such Class, or the Special Voting Rights (as defined in
Section 2(e)(ii) of Article Fourth of the Certificate of Incorporation) have
been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the
Certificate of Incorporation, in which case such vacancy shall be filled by the
vote of the majority of the directors (or the sole remaining director),
regardless of any quorum requirements set out in these Bylaws. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.

         Unless the Special Voting Rights have been eliminated in accordance
with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation,
all newly-created directorships resulting from an increase in the authorized
number of directors shall be allocated pursuant to Section (2)(e)(iii) of
Article Fourth of the Certificate of Incorporation. Once such newly created
directorships have been allocated as Class A Directors or Class B Directors (as
such terms are defined in Section (2)(e)(ii) of Article Fourth of the
Certificate of Incorporation), such newly-created directorships shall be filled
by the vote of the majority of the directors in such Class (or the sole
remaining director in such Class), as the case shall be, unless there are no
such directors in such Class, in which case such vacancy shall be filled by the
stockholders of such Class, or the Special Voting Rights have been eliminated in
accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of
Incorporation, in which case such vacancy shall be filled by the vote of the
majority of the directors (or the sole remaining director), regardless of any
quorum requirements set out in these Bylaws. Any director elected in accordance
with the preceding sentence shall hold office until the annual meeting for the
year in which his term expires and until a director of the same Class succeeding
such director shall have been elected and qualified or until his earlier
resignation or removal. No decrease in the number of authorized directors
constituting the entire Board of Directors shall shorten the term of any
incumbent director.

         SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.

         SECTION 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman or a majority of the Board of Directors. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than 48 hours before the date of the meeting, by telephone or
telegram on 24 hours' notice, or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the circumstances.



                                       4


         SECTION 5. QUORUM. At all meetings of the Board of Directors, a
majority of the Board of Directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.

         SECTION 6. ACTIONS OF BOARD. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

         SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.

         SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more committees
to exercise the power and authority provided herein with respect to such
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.

         SECTION 9. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

         SECTION 10. NOMINATION OF DIRECTORS. Except as otherwise fixed pursuant
to Article Fourth of the Certificate Incorporation relating to the rights of the
holders of any one or more



                                       5


classes or series of Preferred Stock issued by the Corporation acting separately
by class or series, to elect, under specified circumstances, directors at an
annual or special meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not later than (i) with respect to an election to be held at an annual meeting
of stockholders, ninety days prior to the anniversary date of the immediately
preceding annual meeting (or, in the case of the annual meeting to be held in
1988, on or before October 1, 1988); and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of directors, the
close of business on the tenth day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.

                              ARTICLE IV. OFFICERS

         SECTION 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be one or more Presidents, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose one or
more Chief Executive Officers, Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person. The officers of the Corporation need not be stockholders of the
Corporation nor need such officers be directors of the Corporation.

         SECTION 2. ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.



                                       6


         SECTION 3. RESIGNATIONS AND REMOVALS. Any director or officer may
resign at any time by delivering his resignation in writing to the Chairman of
the Board of Directors, the President or the Secretary or to a meeting of the
Board of Directors. Such resignation shall take effect at the time stated
therein, or if no time be so stated then upon its delivery, and without in
either case the necessity of its being accepted unless the resignation shall so
state. The Board of Directors may at any time remove from office any officer
either with or without cause.

         SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors.

         SECTION 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors, have general supervision of the business of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by the Board of
Directors.

         SECTION 6. VICE-PRESIDENTS. Any Vice-President shall have such duties
and powers as shall be designated from time to time by the Board of Directors or
the President.

         SECTION 7. TREASURER AND ASSISTANT TREASURER. The Treasurer shall be in
charge of the Corporation's funds and valuable papers. He shall have such other
duties and powers as may be designated from time to time by the Board of
Directors or the President.

         Any Assistant Treasurers shall have such duties and powers as shall be
designated from time to time by the President or the Treasurer.

         SECTION 8. CONTROLLER AND ASSISTANT CONTROLLERS. The Controller shall
be the chief accounting officer of the Corporation and shall be in charge of its
books of account and accounting records and of its accounting procedures. He
shall have such other duties and powers as may be designated from time to time
by the Board of Directors or the President.

         Any Assistant Controllers shall have such duties and powers as shall be
designated from time to time by the President or the Controller.

         SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all the proceedings of the meetings of the stockholders, of the Board of
Directors and of committees of the Board of Directors, in books kept for that
purpose. In his absence from any such meeting an Assistant Secretary or if there
be none or he is absent, a temporary Secretary chosen at the meeting shall
record the proceedings thereof.

         Any Assistant Secretaries shall have such duties and powers as shall be
designated from time to time by the President or the Secretary.

         SECTION 10. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other office of



                                       7


the Corporation the power to choose such other officers and to prescribe their
respective duties and powers.

         SECTION 11. LOANS AND GUARANTIES TO DIRECTORS OR OFFICERS. Upon
resolution by vote of disinterested directors, the Corporation may make a loan
of money or property to, or guarantee the obligation of, any director or officer
of the Corporation or a subsidiary if the Board determines that such transaction
may reasonably be expected to benefit the Corporation.

                                ARTICLE V. STOCK

         SECTION 1. SHARES. The shares of the Corporation shall be represented
by certificates or shall be uncertificated. Each registered holder of shares,
upon request to the Corporation or its transfer agent, shall be provided with a
certificate of stock, representing the number of shares owned by such holder.
Absent a specific request for such a certificate by the registered owner or
transferee thereof, all shares shall be uncertificated upon the original
issuance thereof by the Corporation or upon the surrender of the certificate
representing such shares to the Corporation.

         The Board of Directors shall have power and authority to make such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of uncertificated shares or certificates for shares of stock of
the Corporation.

         SECTION 2. CERTIFICATES FOR SHARES OF STOCK. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by The Chairman of the Board, the
President and by the Secretary of the Corporation and countersigned by an
independent transfer agent and registered by an independent registrar. Any or
all of the signatures may be facsimiles unless the regulations of the New York
Stock Exchange then in effect shall require to the contrary.

         In case any officer, transfer agent or registrar who has signed or who
facsimile signature has been placed upon a certificate shall cease to be such
officer, transfer agent or registrar before such certificate is issued, it may
nevertheless be issued and delivered by the Corporation with the same effect as
if he or she were an officer, transfer agent or registrar at the date of the
issue.

         All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of shares and the date of issue thereof shall be entered
on the books of the Corporation.

         SECTION 3. STATEMENTS RELATING TO UNCERTIFICATED SHARES. Within two
business days, or such other time as may be required, after uncertificated
shares have been registered, the Corporation or its transfer agent shall send to
the registered owner thereof a written



                                       8


statement containing a description of the issue of which such shares are a part,
the number of shares registered, the date of registration and such other
information as may be required or appropriate.

         SECTION 4. TRANSFERS OF SHARES. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, the Corporation shall issue or cause to be issued uncertificated
shares or, if requested by the appropriate person, a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Upon receipt of proper transfer instructions from the registered
owner of uncertificated shares, such uncertificated shares shall be cancelled
and issuance of new equivalent uncertificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the books of the
Corporation.

         SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. If no
record date is fixed, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waiver, at the close of business on the day next preceding the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

         SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other persons, whether or not it shall have express or
other notice thereof, except as otherwise provided bylaw.

         SECTION 7. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman, the Vice-Chairman of the Board
of Directors, the President or any Vice-President and any such officer may, in
the name of and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might



                                       9


have exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.

                               ARTICLE VI. NOTICES

         SECTION 1. NOTICES. Whenever written notice is required bylaw, the
Certificate of Incorporation or these Bylaws, to be given to any stockholder,
such notice may be given by mail, addressed to such stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable and such notice shall be deemed to be given upon
receipt.

         SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purpose of, any meeting or such other event need be
specified in any written waiver of notice.

                         ARTICLE VII. GENERAL PROVISIONS

         SECTION 1. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, dividends, if any, upon the capital stock of the Corporation may
be declared by the Board of Directors at any regular or special meeting, and may
be paid in cash, in property, or in shares of the capital stock.

         SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.

         SECTION 3. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.

                          ARTICLE VIII. INDEMNIFICATION

         SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a




                                       10


party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

         SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OF PROCEEDINGS BY OR IN
THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

         SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders. To the extent, however, that a director
or officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of



                                       11


authorization in the specific case. Notwithstanding anything contained in this
Section 3 to the contrary, the Corporation shall not be required to indemnify
any person against any liability, cost or expense (including attorneys' fees)
incurred by such person in connection with any action, suit or proceeding
voluntarily initiated or prosecuted by such person unless the initiation or
prosecution of such action, suit, or proceeding by such person was authorized by
a majority of the entire Board of Directors, provided, however, that a majority
of the entire Board of Directors may, after any such action, suit or proceeding
has been initiated or prosecuted, in its discretion, indemnify any such person
against any such liability, cost or expense.

         SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under
Section 3 of the Article VIII, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or other enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstance in which a person may be deemed to have met the applicable standard
of conduct set forth in Sections 1 or 2 or this Article VIII, as the case may
be.

         SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VIII. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be.
Notice of any application for indemnification pursuant to this Section 5 shall
be given to the Corporation promptly upon the filing of such application.

         SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in defending
or investigating a threatened or pending action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII.



                                       12


         SECTION 7. NON-EXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification of or advancement of expenses to any person who
is not specified in Sections 1 or 2 of this Article VIII, including employees or
agents of the Corporation, but whom the Corporation has the power or obligation
to indemnify under the provisions of GCL, or otherwise.

         SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.

         SECTION 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE VIII. For
purposes of this Article VIII, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

         SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. Each person who is or becomes a director,
officer, employee or agent as aforesaid shall be deemed to have served or to
have continued to serve in such capacity in reliance upon the indemnity provided
for in this Article VIII.






                                       13


                             ARTICLE IX. AMENDMENTS

         These Bylaws may be amended, altered, rescinded or repealed at any
meeting of the Board of Directors or of the stockholders, provided, in the case
of a meeting of stockholders, notice of the proposed change was given in the
notice of the meeting; provided, however, that, notwithstanding any other
provisions of the Certificate of Incorporation, these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any Voting Stock (as defined in the
Certificate of Incorporation of the Corporation) required by law, the
Certificate of Incorporation, or these Bylaws, the affirmative vote of the
holders of at least 66 2/3 percent of the combined voting power of all the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to amend, alter, rescind or repeal Section 3 of Article II and
Sections 1, 2 and 10 of Article III, Article VIII and this Article IX of these
Bylaws.



                                       14

EX-4.4

                                                                     Exhibit 4.4




- --------------------------------------------------------------------------------
                              AMENDED AND RESTATED

                                RIGHTS AGREEMENT

                          THE NEIMAN MARCUS GROUP, INC.

                                       and

                          MELLON INVESTOR SERVICES LLC

                                 as Rights Agent

                           Dated as of August 8, 2002
- --------------------------------------------------------------------------------







                                TABLE OF CONTENTS



                                                                                                               PAGE
                                                                                                         
Section 1.   Certain Definitions..................................................................................3

Section 2.   Appointment of Rights Agent.........................................................................13

Section 3.   Issue of Right Certificates.........................................................................14

Section 4.   Form of Right Certificates..........................................................................17

Section 5.   Countersignature and Registration...................................................................18

Section 6.   Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
             Destroyed, Lost or Stolen Right Certificates........................................................18

Section 7.   Exercise of Rights, Purchase Price; Expiration Date of Rights.......................................20

Section 8.   Cancellation and Destruction of Right Certificates..................................................22

Section 9.   Availability of Shares of Preferred Stock...........................................................22

Section 10.  Preferred Stock Record Date.........................................................................25

Section 11.  Adjustment of Purchase Price, Number of Shares and Number of Rights.................................25

Section 12.  Certificate of Adjusted Purchase Price or Number of Shares..........................................42

Section 13.  Consolidation, Merger or Sale or Transfer of Assets or Earnings Power...............................43

Section 14.  Fractional Rights and Fractional Shares.............................................................49

Section 15.  Rights of Action....................................................................................51

Section 16.  Agreement of Right Holders..........................................................................52

Section 17.  Right Certificate Holder Not Deemed a Stockholder...................................................52

Section 18.  Concerning the Rights Agent.........................................................................53

Section 19.  Merger or Consolidation or Change of Name of Rights Agent...........................................54

Section 20.  Duties of Rights Agent..............................................................................55

Section 21.  Change of Rights Agent..............................................................................59

Section 22.  Issuance of New Right Certificates,.................................................................61

Section 23.  Redemption..........................................................................................61



                                       i





                                                                                                               PAGE
                                                                                                         
Section 24.   Exchange...........................................................................................62

Section 25.   Notice of Certain Events...........................................................................66

Section 26.   Notices............................................................................................67

Section 27.   Supplements and Amendments.........................................................................69

Section 28.   Successors.........................................................................................69

Section 29.   Benefits of this Agreement.........................................................................69

Section 30.   Severability.......................................................................................70

Section 31.   Governing Law......................................................................................70

Section 32.   Counterparts.......................................................................................70

Section 33.   Descriptive Headings...............................................................................71

Section 34.   Administration.....................................................................................71








                                       ii


                                RIGHTS AGREEMENT


                  Amended and Restated Rights Agreement (the "Agreement"), dated
as of August 8, 2002, between The Neiman Marcus Group, Inc., a Delaware
corporation (the "Company"), and Mellon Investor Services LLC, a New Jersey
limited liability company (the "Rights Agent").

                  The Board of Directors of the Company on October 6, 1999
(i)(A) authorized the issuance and declared a dividend of one preferred share
purchase right (a "Class A Right") for each share of Class A Common Stock (as
hereinafter defined) outstanding as of the close of business (as defined below)
on October 18, 1999 (the "Record Date"), each Class A Right representing the
right to purchase one one-thousandth (subject to adjustment) of a share of
Series A Preferred Stock (as hereinafter defined), upon the terms and subject to
the conditions herein set forth in a Rights Agreement, dated October 9, 1999,
between the Company and BankBoston, N.A., (the "Rights Agreement"), and (B)
further authorized and directed the issuance of one Class A Right (subject to
adjustment as provided herein) with respect to each share of Class A Common
Stock that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined); provided, however, that Class A Rights may
be issued with respect to shares of Class A Common Stock that shall become
outstanding after the Distribution Date and prior to the Redemption Date and the
Final Expiration Date in accordance with Section 22, (ii)(A) authorized the
issuance and declared a dividend of one preferred share purchase right (a "Class
B Right") for each share of Class B Common Stock (as hereinafter defined)
outstanding as of the close of business (as defined below) on the Record Date,
each Class B Right representing the right to purchase one one-thousandth
(subject to adjustment) of a share of Series B Preferred



                                                                               2


Stock (as hereinafter defined), upon the terms and subject to the conditions set
forth in the Rights Agreement, and (B) further authorized and directed the
issuance of one Class B Right (subject to adjustment as provided herein) with
respect to each share of Class B Common Stock that shall become outstanding
between the Record Date and the earliest of the Distribution Date, the
Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Class B Rights may be issued with respect to
shares of Class B Common Stock that shall become outstanding after the
Distribution Date and prior to the Redemption Date and the Final Expiration Date
in accordance with Section 22 and (iii)(A) authorized and directed the issuance
of one preferred share purchase right (a "Class C Right" and together with the
Class A Rights and the Class B rights, the "Rights") (subject to adjustment as
provided herein) with respect to each share of Class C Common Stock (as
hereinafter defined) that shall become outstanding between the Record Date and
the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date (as such terms are hereinafter defined), each Class C Right
representing the right to purchase one one-thousandth (subject to adjustment) of
a share of Series C Preferred Stock (as hereinafter defined), upon the terms and
subject to the conditions herein set forth; provided, however, that Class C
Rights may be issued with respect to shares of Class C Common Stock that shall
become outstanding after the Distribution Date and prior to the Redemption Date
and the Final Expiration Date in accordance with Section 22.

                  The Board of Directors of the Company, desiring to appoint
Mellon Investor Services LLC as successor Rights Agent, desire to restate and
amend the terms of the Agreement herein as so amended.

                  Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:



                                                                               3

                  Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meaning indicated:

                  (a) "Acquiring Person" shall mean any Person (as such term is
         hereinafter defined) who or which shall be the Beneficial Owner (as
         such term is hereinafter defined) of (a) 15% or more of the shares of
         Class B Common Stock (as such term is hereinafter defined) then
         outstanding or (b) shares of Common Stock representing, in the
         aggregate, 15% or more of the total number of votes entitled to be cast
         generally (other than in an election of directors) by the holders of
         the Common Stock then outstanding, but shall not include an Exempt
         Person (as such term is hereinafter defined); provided, however, that
         if the Board of Directors of the Company determines in good faith that
         a Person who would otherwise be an "Acquiring Person" has become such
         inadvertently (including, without limitation, because (i) such Person
         was unaware that it beneficially owned a percentage of Common Stock
         that would otherwise cause such Person to be an "Acquiring Person" or
         (ii) such Person was aware of the extent of its Beneficial Ownership of
         Common Stock but had no actual knowledge of the consequences of such
         Beneficial Ownership under this Rights Agreement) and without any
         intention of changing or influencing control of the Company, and such
         Person as promptly as practicable divested or divests himself or itself
         of Beneficial Ownership of a sufficient number of shares of Common
         Stock so that such Person would no longer be an Acquiring Person, then
         such Person shall not be deemed to be or to have become an "Acquiring
         Person" for any purposes of this Agreement. Notwithstanding the
         foregoing, no Person shall become an "Acquiring Person" as the result
         of an acquisition of shares of Common Stock by the Company which, by
         reducing the number of shares outstanding, increases



                                                                               4


         the proportionate number of shares beneficially owned (or votes
         entitled to be cast) by such Person to (a) 15% or more of the shares of
         Class B Common Stock then outstanding or (b) shares of Common Stock
         representing, in the aggregate, 15% or more of the total number of
         votes entitled to be cast generally (other than in an election of
         directors) by the holders of the Common Stock then outstanding;
         provided, however, that if a Person shall become the Beneficial Owner
         of (a) 15% or more of the shares of Class B Common Stock then
         outstanding or (b) shares of Common Stock representing, in the
         aggregate, 15% or more of the total number of votes entitled to be cast
         generally (other than in an election of directors) by the holders of
         the Common Stock then outstanding by reason of such share acquisitions
         by the Company and thereafter become the Beneficial Owner of any
         additional shares of Class B Common Stock, in the case of clause (a)
         above, or Common Stock, in the case of clause (b) above, then such
         Person shall be deemed to be an "Acquiring Person" unless upon the
         consummation of the acquisition of such additional shares of Class B
         Common Stock or Common Stock, as the case may be, such Person does not
         beneficially own (a) 15% or more of the shares of Class B Common Stock
         then outstanding or (b) shares of Common Stock representing, in the
         aggregate, 15% or more of the total number of votes entitled to be cast
         generally (other than in an election of directors) by the holders of
         the Common Stock then outstanding. The phrase "then outstanding", when
         used with reference to a Person's Beneficial Ownership of securities of
         the Company, shall mean the number of such securities then issued and
         outstanding together with the number of such securities not then
         actually issued and outstanding which such Person would be deemed to
         own beneficially hereunder.



                                                                               5


                  (b) "Affiliate" and "Associate" shall have the respective
         meanings ascribed to such terms in Rule 12b-2 of the General Rules and
         Regulations under the Securities Exchange Act of 1934, as amended (the
         "Exchange Act"), as in effect on the date of this Agreement.

                  (c) A Person shall be deemed the "Beneficial Owner" of, shall
         be deemed to have "Beneficial Ownership" of and shall be deemed to
         "beneficially own" any securities:

                           (i) which such Person or any of such Person's
                  Affiliates or Associates is deemed to beneficially own,
                  directly or indirectly within the meaning of Rule 13d-3 of the
                  General Rules and Regulations under the Exchange Act as in
                  effect on the date of this Agreement;

                           (ii) which such Person or any of such Person's
                  Affiliates or Associates has (A) the right to acquire (whether
                  such right is exercisable immediately or only after the
                  passage of time) pursuant to any agreement, arrangement or
                  understanding (other than customary agreements with and
                  between underwriters and selling group members with respect to
                  a bona fide public offering of securities), or upon the
                  exercise of conversion rights, exchange rights, rights,
                  warrants or options, or otherwise; provided, however, that a
                  Person shall not be deemed the Beneficial Owner of, or to
                  beneficially own, (x) securities tendered pursuant to a tender
                  or exchange offer made by or on behalf of such Person or any
                  of such Person's Affiliates or Associates until such tendered
                  securities are accepted for purchase, (y) securities which
                  such Person has a right to acquire on the exercise of Rights
                  at any time prior to the time a Person becomes an



                                                                               6


                  Acquiring Person or (z) securities issuable upon exercise of
                  Rights from and after the time a Person becomes an Acquiring
                  Person if such Rights were acquired by such Person or any of
                  such Person's Affiliates or Associates prior to the
                  Distribution Date or pursuant to Section 3(a) or Section 22
                  hereof ("original Rights") or pursuant to Section 11(i) or
                  Section 11(n) with respect to an adjustment to original
                  Rights; or (B) the right to vote pursuant to any agreement,
                  arrangement or understanding; provided, however, that a Person
                  shall not be deemed the Beneficial Owner of, or to
                  beneficially own, any security by reason of such agreement,
                  arrangement or understanding if the agreement, arrangement or
                  understanding to vote such security (1) arises solely from a
                  revocable proxy or consent given to such Person in response to
                  a public proxy or consent solicitation made pursuant to, and
                  in accordance with, the applicable rules and regulations
                  promulgated under the Exchange Act and (2) is not also then
                  reportable on Schedule 13D under the Exchange Act (or any
                  comparable or successor report); or

                           (iii) which are beneficially owned, directly or
                  indirectly, by any other Person with which such Person or any
                  of such Person's Affiliates or Associates has any agreement,
                  arrangement or understanding (other than customary agreements
                  with and between underwriters and selling group members with
                  respect to a bona fide public offering of securities) for the
                  purpose of acquiring, holding, voting (except to the extent
                  contemplated by the proviso to Section 1(c)(ii)(B)) or
                  disposing of any securities of the Company;

         provided, however, that notwithstanding anything else contained in this
Section 1(c):



                                                                               7


                  (1) no Smith Holder shall be deemed to be the Beneficial Owner
of securities beneficially owned by any other Person that is not a Smith Holder
solely by reason of such other Person's status as an Affiliate or Associate of
any Smith Holder or any other Person, other than Harcourt General, Inc. or its
subsidiaries unless (A) one or more Smith Holders, collectively, beneficially
owns fifty percent or more of the voting power of such other Person or such
other Person beneficially owns fifty percent or more of the voting power of a
Smith Holder that is not a natural person, (B) a majority of the board of
directors or other governing body of such other Person is comprised of Smith
Holders or such other Person has the power to nominate a majority of the board
of directors or other governing body of a Smith Holder that is not a natural
person, (C) such other Person is a spouse or lineal descendant of a grandparent
of a Smith Holder (or any spouse of a lineal descendent of a grandparent of a
Smith Holder) or (D) a primary purpose of such other Person becoming an
Affiliate or Associate of a Smith Holder or any other Person after the date of
this Agreement is to circumvent the purposes of this Agreement;

                  (2) no Person, other than Harcourt General, Inc. and its
subsidiaries, shall be deemed to be the Beneficial Owner of securities
beneficially owned by a Smith Holder solely by reason of such Person's status as
an officer, director or employee of a Smith Holder or any Smith Holder's or
other Person's status as an Affiliate or Associate of such Person, unless (A)
one or more Smith Holders, collectively, beneficially owns fifty percent or more
of the voting power of such Person, or such Person beneficially owns fifty
percent or more of the voting power of a Smith Holder that is not a natural
person, (B) a majority of the board of directors or other governing body of such
Person is comprised of Smith Holders or such Person has the power to nominate a
majority of the board of directors or other governing body of a



                                                                               8


Smith Holder that is not a natural person, (C) such Person is a spouse or lineal
descendant of a grandparent of a Smith Holder (or any spouse of a lineal
descendant of a grandparent of a Smith Holder) or (D) a primary purpose of such
Smith Holder becoming an Affiliate or Associate of any other Person after the
date of this Agreement is to circumvent the purposes of this Agreement; and

                  (3) no bona fide financial institution that is a pledgee of a
Smith Holder (a "Pledgee") shall be deemed to the Beneficial Owner of securities
beneficially owned by a Smith Holder solely by reason of such Pledgee's status
as a pledgee of a Smith Holder and so long as such Pledgee may report the
ownership of those shares that are acquired pursuant to the pledge on a Schedule
13G (or any comparable or successor report) under the Exchange Act, provided
however, that if such Pledgee forecloses on any such pledge and a Smith Holder
thus ceases to beneficially own such pledged shares, the Pledgee shall be deemed
to beneficially own such shares; unless such pledged shares are sold within
one-hundred and eighty (180) days of such foreclosure;

              (d) "Business Day" shall mean any day other than a Saturday, a
         Sunday, or a day on which banking institutions in the States of New
         York or New Jersey are authorized or obligated by law or executive
         order to close.

              (e) "Class A Common Stock" shall mean the Class A Common Stock,
         par value $.01 per share, of the Company.

              (f) "Class B Common Stock" shall mean the Class B Common Stock,
         par value $.01 per share, of the Company.

              (g) "Class C Common Stock" shall mean the Class C Common Stock,
         par value $.01 per share, of the Company.



                                                                               9


              (h) "Class A Right" shall have the meaning set forth in the
         Recitals hereto.

              (i) "Class B Right" shall have the meaning set forth in the
         Recitals hereto.

              (j) "Class C Right" shall have the meaning set forth in the
         Recitals hereto.

              (k) "Class A Right Certificate" shall have the meaning set forth
         in Section 3(a) hereof.

              (l) "Class B Right Certificate" shall have the meaning set forth
         in Section 3(a) hereof.

              (m) "Class C Right Certificate" shall have the meaning set forth
         in Section 3(a) hereof.

              (n) "Close of Business" on any given date shall mean 5:00 P.M.,
         New York City time, on such date; provided, however, that if such date
         is not a Business Day it shall mean 5:00 P.M., New York City time, on
         the next succeeding Business Day.

              (o) "Common Stock" when used with reference to the Company shall
         mean, collectively, the Class A Common Stock, the Class B Common Stock
         and the Class C Common Stock. "Common Stock" when used with reference
         to any Person other than the Company shall mean the capital stock (or,
         in the case of an unincorporated entity, the equivalent equity
         interest) with the greatest voting power of such other Person or, if
         such other Person is a subsidiary of another Person, the Person or
         Persons which ultimately control such first-mentioned Person.

              (p) "Distribution Date" shall have the meaning set forth in
         Section 3(a) hereof.

              (q) "Exempt Person" shall mean (i) the Company, (ii) any
         Subsidiary (as such term is hereinafter defined) of the Company, (iii)
         any employee benefit plan of the



                                                                              10


         Company or of any Subsidiary of the Company, (iv) any entity or trustee
         holding Common Stock for or pursuant to the terms of any such plan or
         for the purpose of funding any such plan or funding other employee
         benefits for employees of the Company or of any Subsidiary of the
         Company, (v) Harcourt General, Inc., a Delaware corporation, but only
         for the period beginning on the Record Date and ending at 12:01 a.m. on
         October 23, 1999 or (vi) the Smith Family Group, so long as the Smith
         Family Group does not acquire beneficial ownership of (A) additional
         shares of Class B Common Stock after the date of this Agreement (other
         than shares of Common Stock, employee stock options or other equity
         securities of the Company granted by the Company after this Agreement
         to a member of the Smith Family Group in his or her capacity as a
         director, officer or employee of the Company, including shares issuable
         upon the exercise or conversion of such employee stock options or other
         equity securities) that would represent, together with all shares of
         Class B Common Stock acquired by the Smith Family Group after the date
         of this Agreement, more than 6% of the outstanding shares of Class B
         Common Stock then outstanding after giving effect to such acquisition
         and (B) additional shares of Common Stock after the date of this
         Agreement (other than shares of Common Stock, employee stock options or
         other equity securities of the Company granted by the Company after the
         date of this Agreement to a member of the Smith Family Group in his or
         her capacity as a director, officer or employee of the Company,
         including shares issuable upon the exercise or conversion of such
         employee stock options or other equity securities) that would
         represent, together with all shares of Common Stock acquired by the
         Smith Family Group after the date of this Agreement, more than 6% of
         the total voting power of the Company represented by the votes entitled
         to be cast



                                                                              11


         generally (other than in an election of directors) represented by the
         total number of shares of Common Stock then outstanding.

                  Notwithstanding the foregoing, the Smith Family Group shall
         not cease to be an "Exempt Person" as a result of the acquisition of
         shares of Class B Common Stock by the Company which, by reducing the
         number of shares outstanding, increases the proportionate number of
         shares beneficially owned by the Smith Family Group and acquired after
         the date of this Agreement to exceed shares representing, in the
         aggregate, 6% of the shares of Class B Common Stock then outstanding,
         unless the Smith Family Group thereafter acquires beneficial ownership
         of any additional shares of Class B Common Stock. In addition, the
         Smith Family Group shall not cease to be an "Exempt Person" as a result
         of the acquisition of shares of Common Stock by the Company which, by
         reducing the number of shares outstanding, increases the proportionate
         voting power of the Company represented by the shares beneficially
         owned by the Smith Family Group and acquired after the date of this
         Agreement to exceed shares representing, in the aggregate, 6% of the
         total voting power of the Company represented by the votes entitled to
         be cast generally (other than in an election of directors) by the
         holders of the Common Stock then outstanding, unless the Smith Family
         Group thereafter acquires beneficial ownership of any additional shares
         of Common Stock.

              (r) "Final Expiration Date" shall have the meaning set forth in
         Section 7 hereof.

              (s) "New York Stock Exchange" shall mean the New York Stock
         Exchange, Inc.



                                                                              12


              (t) "Person" shall mean any individual, firm, corporation, limited
         liability company or other entity, and shall include any successor (by
         merger or otherwise) of such entity.

              (u) "Preferred Stock" shall mean, collectively, (i) the Series A
         Junior Participating Preferred Stock, par value $.01 per share, of the
         Company (the "Series A Preferred Stock"), (ii) the Series B Junior
         Participating Preferred Stock, par value $.01 per share, of the Company
         (the "Series B Preferred Stock") and (iii) the Series C Junior
         Participating Preferred Stock, par value $.01 per share, of the Company
         (the "Series C Preferred Stock"), in each case having the rights and
         preferences set forth in the Form of Certificate of Designations
         attached to this Agreement as Exhibit A-1, Exhibit A-2 and Exhibit A-3,
         respectively.

              (v) "Redemption Date" shall have the meaning set forth in Section
         7 hereof.

              (w) "Right Certificate" shall mean collectively or severally, as
         the context shall require, the Class A Right Certificate, the Class B
         Right Certificate and/or the Class C Right Certificate.

              (x) "Securities Act" shall mean the Securities Act of 1933, as
         amended

              (y) "Smith Family Group" shall mean (i) the parties to the
         Smith-Lurie/Marks Family Stockholders' Agreement, dated as of September
         1, 1999 (as amended, supplemented, or otherwise modified from time to
         time, provided that a primary purpose of any such amendment, supplement
         or modification is not to circumvent the purposes of this Agreement,
         the "Stockholders' Agreement"), any Person who is described in any of
         clauses (i) through (v) (other than clause (i)(C)) of Section 4 of the
         Stockholders' Agreement and Harcourt General, Inc. and its
         subsidiaries, so long as Harcourt General,



                                                                              13


         Inc. is an Affiliate of any party to the Stockholders' Agreement
         (collectively, the "Smith Holders") or (ii) any other Person, to the
         extent such Person would be deemed to be the Beneficial Owner of Common
         Stock beneficially owned by a Smith Holder, solely by reason of such
         Person's status as an Affiliate or Associate of a Smith Holder or any
         other Person on the date of this Agreement.

              (z) "Stock Acquisition Date" shall mean the first date of public
         announcement (which for purposes of this definition, shall include,
         without limitation, a report filed pursuant to Section 13(d) of the
         Exchange Act) by the Company or an Acquiring Person that an Acquiring
         Person has become such or such earlier date as a majority of the Board
         of Directors shall become aware of the existence of an Acquiring
         Person.

              (aa) "Subsidiary" or "subsidiary" of any Person shall mean any
         corporation or other entity of which securities or other ownership
         interests having ordinary voting power sufficient to elect a majority
         of the board of directors or other persons performing similar functions
         are beneficially owned, directly or indirectly, by such Person, and any
         corporation or other entity that is otherwise controlled by such
         Person.

              Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable, upon ten (10) days' prior notice to the
Rights Agent. The Rights Agent shall have no duty to supervise, and shall in no
event be liable for, the acts or omissions of any such co-Rights Agent.



                                                                              14

                  Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth Business
Day (or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to commence, a tender or exchange offer the consummation of which would
result in any Person becoming the Beneficial Owner of (a) shares of Class B
Common Stock aggregating 15% or more of the Class B Common Stock then
outstanding or (b) shares of Common Stock representing, in the aggregate, 15% or
more of the total number of votes entitled to be cast generally (other than in
an election of directors) by the holders of Common Stock then outstanding
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights; the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Stock
registered in the names of the holders thereof and not by separate Right
Certificates and (y) the Rights will be transferable only in connection with the
transfer of Common Stock. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, insured, postage-prepaid mail, (A) to each record holder
of Class A Common Stock as of the close of business on the Distribution Date
(other than any Acquiring Person or any Associate or Affiliate of an Acquiring
Person), at the address of such holder shown on the records of the Company, a
Class A Right Certificate, in substantially the form of Exhibit B-1 hereto (a
"Class A Right Certificate"), evidencing one Class A Right (subject to
adjustment as provided herein) for each share of Class A Common



                                                                              15


Stock so held, (B) to each record holder of Class B Common Stock as of the close
of business on the Distribution Date (other than any Acquiring Person or any
Associate or Affiliate of an Acquiring Person), at the address of such holder
shown on the records of the Company, a Class B Right Certificate, in
substantially the form of Exhibit B-2 hereto (a "Class B Right Certificate"),
evidencing one Class B Right (subject to adjustment as provided herein) for each
share of Class B Common Stock so held and (C) to each record holder of Class C
Common Stock as of the close of business on the Distribution Date (other than
any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at
the address of such holder shown on the records of the Company, a Class C Right
Certificate, in substantially the form of Exhibit B-3 hereto (a "Class C Right
Certificate"), evidencing one Class C Right (subject to adjustment as provided
herein) for each share of Class C Common Stock so held. As of the Distribution
Date, the Rights will be evidenced solely by such Right Certificates.

                  (b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Shares of
Preferred Stock, in substantially the form of Exhibit C hereto (the "Summary of
Rights"), by first-class, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Record Date (other than any Acquiring
Person or any Associate or Affiliate of any Acquiring Person), at the address of
such holder shown on the records of the Company. With respect to certificates
for Common Stock outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or the earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Stock outstanding on the
Record


                                                                              16


Date, with or without a copy of the Summary of Rights, shall also constitute the
transfer of the Rights associated with the Common Stock represented thereby.

                  (c) Certificates issued for Common Stock (including, without
limitation, upon transfer of outstanding Common Stock, disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:

                  This certificate also evidences and entitles the holder hereof
                  to certain rights as set forth in a Rights Agreement between
                  The Neiman Marcus Group, Inc. and Mellon Investor Services
                  LLC, as successor Rights Agent to BankBoston, N.A., dated as
                  of October 6, 1999, as the same may be amended from time to
                  time (the "Rights Agreement"), the terms of which are hereby
                  incorporated herein by reference and a copy of which is on
                  file at the principal executive offices of The Neiman Marcus
                  Group, Inc. Under certain circumstances, as set forth in the
                  Rights Agreement, such Rights will be evidenced by separate
                  certificates and will no longer be evidenced by this
                  certificate. The Neiman Marcus Group, Inc. will mail to the
                  holder of this certificate a copy of the Rights Agreement
                  without charge after receipt of a written request therefor.
                  Under certain circumstances, as set forth in the Rights
                  Agreement, Rights owned by or transferred to any Person who
                  becomes an Acquiring Person (as defined in the Rights
                  Agreement) and certain transferees thereof will become null
                  and void and will no longer be transferable.

With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated



                                                                              17

with such Common Stock shall be deemed cancelled and retired so that the Company
shall not be entitled to exercise any Rights associated with the Common Stock
which are no longer outstanding.

                  Notwithstanding this paragraph (c), the omission of a legend
shall not affect the enforceability of any part of this Agreement or the rights
of any holder of the Rights.

                  Section 4. Form of Right Certificates. The Class A Right
Certificates, the Class B Right Certificates and the Class C Right Certificates
(and the forms of election to purchase shares and of assignment to be printed on
the reverse thereof) shall be substantially in the form set forth in Exhibit
B-1, Exhibit B-2 and Exhibit B-3, respectively, hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate (but which do not affect the
rights, duties or responsibilities of the Rights Agent) and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of the New York Stock Exchange or of any
other stock exchange or automated quotation system on which the Rights may from
time to time be listed, or to conform to usage. Subject to the provisions of
Sections 11, 13 and 22 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of Preferred
Stock as shall be set forth therein at the price per one one-thousandth of a
share of Preferred Stock set forth therein (the "Purchase Price"), but the
number of such one one-thousandths of a share of Preferred Stock and the
Purchase Price shall be subject to adjustment as provided herein.


                                                                              18

                  Section 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board of Directors, the President, any of the Vice Presidents, the Treasurer or
the Controller of the Company, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile signature,
and shall not be valid for any purpose unless countersigned. In case any officer
of the Company who shall have signed any of the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the Person who signed such Right
Certificates, had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company, by any Person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.

                  (b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at an office or agency designated for such purpose,
books for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.

                  Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections



                                                                              19


7(e), 11(a)(ii) and 14 hereof, at any time after the close of business on the
Distribution Date, and prior to the close of business on the earlier of the
Redemption Date or the Final Expiration Date, any Right Certificate or Right
Certificates may be transferred, split up, combined or exchanged for another
Right Certificate or Right Certificates, entitling the registered holder to
purchase a like number of one one-thousandths of a share of Preferred Stock as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the office or agency of the Rights Agent designated for such
purpose. Thereupon the Rights Agent shall countersign and deliver to the Person
entitled thereto a Right Certificate or Right Certificates, as the case may be,
as so requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.


                  (b) Subject to the provisions of Section 11(a)(ii) hereof, at
any time after the Distribution Date and prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and
deliver a new Right Certificate of like tenor to the Rights



                                                                              20


Agent for delivery to the registered holder in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.

                  Section 7. Exercise of Rights, Purchase Price; Expiration Date
of Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the Purchase Price for each one one-thousandth of a share of
Preferred Stock as to which the Rights are exercised, at any time which is both
after the Distribution Date and prior to the earliest of (i) the close of
business on October 6, 2009 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date") or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.

                  (b) The "Purchase Price" shall be initially (i)$ 100.00 for
each one one-thousandth of a share of Series A Preferred Stock, (ii) $100.00 for
each one one-thousandth of a share of Series B Preferred Stock and (iii) $100.00
for each one one-thousandth of a share of Series C Preferred Stock, in each case
purchasable upon the exercise of a Right. The Purchase Price and the number of
one one-thousandths of a share of Preferred Stock or other securities or
property to be acquired upon exercise of a Right shall be subject to adjustment
from time to time as provided in Sections 11 and 13 hereof and shall be payable
in lawful money of the United States of America in accordance with paragraph (c)
of this Section 7.




                                                                              21


                  (c) Except as otherwise provided herein, upon receipt of a
Right Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the number of one one-thousandths of a share of Preferred Stock to be
purchased and an amount equal to any applicable tax or governmental charge
required to be paid by the holder of such Right Certificate in accordance with
Section 9 hereof, in cash or by certified check, cashier's check or money order
payable to the order of the Company, the Rights Agent shall thereupon promptly
(i) (A) requisition from any transfer agent of the Preferred Stock certificates
for the number of one one-thousandths of a share of Preferred Stock to be
purchased (and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests), or (B) requisition from the depositary agent
depositary receipts representing interests in such number of one one-thousandths
of a share of Preferred Stock as are to be purchased (in which case certificates
for the Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) (and the Company hereby directs the
depositary agent to comply with such request), (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 14 hereof, (iii) promptly after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when necessary to comply with this Agreement, after receipt,
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate.

(d) Except as otherwise provided herein, in case the registered holder of any
Right Certificate shall exercise less than all the Rights evidenced thereby, a
new Right Certificate evidencing Rights equivalent to the exercisable Rights
remaining unexercised shall be





                                                                              22


issued by the Rights Agent to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14 hereof.

                  (e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of Rights upon the
occurrence of any purported transfer or exercise of Rights pursuant to Section 6
hereof or this Section 7 unless such registered holder shall have (i) completed
and signed the certificate contained in the form of assignment or election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such transfer or exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) thereof as the
Company shall reasonably request.

                  Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy, or cause to be destroyed, such cancelled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.

                  Section 9. Availability of Shares of Preferred Stock. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and





                                                                              23


unissued shares of Preferred Stock or any shares of Preferred Stock held in its
treasury, the number of shares of Preferred Stock that will be sufficient to
permit the exercise in full of all outstanding Rights.

                  (b) So long as the shares of Preferred Stock (and, following
the time that a Person becomes an Acquiring Person, shares of Common Stock and
other securities) issuable upon the exercise of Rights may be listed or admitted
to trading on the New York Stock Exchange or listed on any other national
securities exchange or quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on the New York
Stock Exchange or listed on any other exchange or quotation system upon official
notice of issuance upon such exercise.

                  (c) From and after such time as the Rights become exercisable,
the Company shall use its best efforts, if then necessary to permit the issuance
of shares of Preferred Stock (and following the time that a Person first becomes
an Acquiring Person, shares of Common Stock and other securities) upon the
exercise of Rights, to register and qualify such shares of Preferred Stock (and
following the time that a Person first becomes an Acquiring Person, shares of
Common Stock and other securities) under the Securities Act and any applicable
state securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Final Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it






                                                                              24


to become effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect (and shall provide the Rights Agent with copies of such
announcements). Notwithstanding any provision of this Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction unless the requisite
qualification in such jurisdiction shall have been obtained and until a
registration statement under the Securities Act (if required) shall have been
declared effective.

                  (d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all shares of Preferred Stock
(and, following the time that a Person becomes an Acquiring Person, shares of
Common Stock and other securities) delivered upon exercise of Rights shall, at
the time of delivery of the certificates therefor (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.

                  (e) The Company further covenants and agrees that it will pay
when due and payable any and all taxes and governmental charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of Preferred Stock (or shares of Common Stock or other securities)
upon the exercise of Rights. The Company shall not, however, be required to pay
any tax or charge which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Stock (or shares of Common
Stock or other securities) in a name other than that of, the registered holder
of the Right Certificate evidencing Rights surrendered for exercise or to issue
or deliver any certificates or depositary receipts for Preferred Stock (or
shares of Common Stock or other securities) upon the exercise of any Rights
until any





                                                                              25


such tax or charge shall have been paid (any such tax or charge being payable by
that holder of such Right Certificate at the time of surrender) or until it has
been established to the Company's reasonable satisfaction that no such tax is
due.

                  Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for Preferred Stock is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
shares of Preferred Stock represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Stock for which the Rights shall be exercisable, including, without
limitation, the right to vote or to receive dividends or other distributions,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.

                  Section 11. Adjustment of Purchase Price, Number of Shares and
Number of Rights. The Purchase Price, the number of shares of Preferred Stock or
other securities or property purchasable upon exercise of each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.

                  (a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on any series of Preferred Stock
payable in shares of Preferred Stock, (B) subdivide any series of outstanding
Preferred Stock, (C) combine the shares of any outstanding series of Preferred
Stock into a smaller number of shares of Preferred Stock or (D) issue any shares
of its capital stock in a reclassification of any series of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the





                                                                              26


Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the applicable Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares
of capital stock issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date, the holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. So long as Class A Rights, Class B Rights
and Class C Rights are outstanding, the Corporation shall not effect any of the
actions set forth in Clauses (A), (B), (C) or (D) of this paragraph with respect
to either the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock unless the Corporation shall also contemporaneously
effect a like transaction with respect to the other such series; provided,
however, that in the event that such a transaction is effected with respect to
one such series but no such shares of the other series are outstanding, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable upon such date, shall be
proportionately adjusted with respect to the holders of Rights exercisable for
shares of such series that are not outstanding as if such a dividend,
subdivision, combination or reclassification had been effected with respect to
the shares of such series.



                                                                              27


                           (ii) Subject to Section 24 of this Agreement and
                  except as otherwise provided in this Section 11(a)(ii), in the
                  event any Person becomes an Acquiring Person, each holder of a
                  Right shall thereafter have the right to receive, upon
                  exercise thereof at a price equal to the then current
                  applicable Purchase Price multiplied by the number of one
                  one-thousandths of a share of Preferred Stock for which such
                  Right is then exercisable, in accordance with the terms of
                  this Agreement and in lieu of shares of Preferred Stock, such
                  number of shares of Class A Common Stock (in the case of a
                  Class A Right), Class B Common Stock (in the case of a Class B
                  Right) or Class C Common Stock (in the case of a Class C
                  Right) (or at the option of the Company, such number of one
                  one-thousandths of a share of Series A Preferred Stock (in the
                  case of a Class A Right), Series B Preferred Stock (in the
                  case of a Class B Right) or Series C Preferred Stock (in the
                  case of a Class C Right)) as shall equal the result obtained
                  by (x) multiplying the then current applicable Purchase Price
                  by the number of one one-thousandths of a share of Preferred
                  Stock for which a Right is then exercisable and dividing that
                  product by (y) 50% of the then current per share market price
                  of the Company's Class A Common Stock (in the case of a Class
                  A Right), Class B Common Stock (in the case of a Class B
                  Right) or Class C Common Stock (in the case of a Class C
                  Right) (determined pursuant to Section 11(d) hereof) on the
                  date of the occurrence of such event; provided, however, that
                  the applicable Purchase Price and the number of shares of
                  Common Stock so receivable upon exercise of a Right shall
                  thereafter be subject to further adjustment as appropriate in
                  accordance with Section 11(f) hereof. Notwithstanding anything
                  in this





                                                                              28


                  Agreement to the contrary, however, from and after the time
                  (the "invalidation time") when any Person first becomes an
                  Acquiring Person, any Rights that are beneficially owned by
                  (x) any Acquiring Person (or any Affiliate or Associate of any
                  Acquiring Person), (y) a transferee of any Acquiring Person
                  (or any such Affiliate or Associate) who becomes a transferee
                  after the invalidation time or (z) a transferee of any
                  Acquiring Person (or any such Affiliate or Associate) who
                  became a transferee prior to or concurrently with the
                  invalidation time pursuant to either (I) a transfer from the
                  Acquiring Person to holders of its equity securities or to any
                  Person with whom it has any continuing agreement, arrangement
                  or understanding regarding the transferred Rights or (II) a
                  transfer which the Board of Directors has determined is part
                  of a plan, arrangement or understanding which has the purpose
                  or effect of avoiding the provisions of this paragraph, and
                  subsequent transferees of such Persons, shall be void without
                  any further action and any holder of such Rights shall
                  thereafter have no rights whatsoever with respect to such
                  Rights under any provision of this Agreement. The Company
                  shall use all reasonable efforts to ensure that the provisions
                  of this Section 11(a)(ii) are complied with, but shall have no
                  liability to any holder of Right Certificates or other Person
                  as a result of its failure to make any determinations with
                  respect to an Acquiring Person or its Affiliates, Associates
                  or transferees hereunder. From and after the invalidation
                  time, no Right Certificate shall be issued pursuant to Section
                  3 or Section 6 hereof that represents Rights that are or have
                  become void pursuant to the provisions of this paragraph, and
                  any Right Certificate delivered to the Rights Agent that
                  represents Rights that are or have






                                                                              29


                  become void pursuant to the provisions of this paragraph shall
                  be cancelled. From and after the occurrence of an event
                  specified in Section 13(a) hereof, any Rights that theretofore
                  have not been exercised pursuant to this Section 11(a)(ii)
                  shall thereafter be exercisable only in accordance with
                  Section 13 and not pursuant to this Section 11(a)(ii).

                           (iii) The Company may at its option substitute for a
                  share of Common Stock issuable upon the exercise of Rights in
                  accordance with the foregoing subparagraph (ii) such number or
                  fractions of shares of the applicable series of Preferred
                  Stock having an aggregate current market value equal to the
                  current per share market price of a share of the applicable
                  class of Common Stock. In the event that there shall not be
                  sufficient shares of Common Stock of any class issued but not
                  outstanding or authorized but unissued to permit the exercise
                  in full of the Rights in accordance with the foregoing
                  subparagraph (ii), the Board of Directors shall, to the extent
                  permitted by applicable law and any material agreements then
                  in effect to which the Company is a party (A) determine the
                  excess of (1) the value of the shares of Common Stock issuable
                  upon the exercise of each Class A Right, each Class B Right
                  and each Class C Right in accordance with the foregoing
                  subparagraph (ii) (the "Current Values") over (2) the then
                  current applicable Purchase Price multiplied by the number of
                  one one-thousandths of shares of Preferred Stock for which
                  such Right was exercisable immediately prior to the time that
                  the Acquiring Person became such (such excess, the "Spread"),
                  and (B) with respect to each Right (other than Rights which
                  have become void pursuant to Section 11(a)(ii)), make adequate
                  provision to






                                                                              30


                  substitute for the shares of Class A Common Stock, Class B
                  Common Stock or Class C Common Stock, as the case may be,
                  issuable in accordance with subparagraph (ii) upon exercise of
                  the Right and payment of the applicable Purchase Price, (1)
                  cash, (2) a reduction in the applicable Purchase Price, (3)
                  shares of Preferred Stock or other equity securities of the
                  Company (including, without limitation, shares or fractions of
                  shares of preferred stock which, by virtue of having dividend,
                  voting and liquidation rights substantially comparable to
                  those of the shares of Common Stock, are deemed in good faith
                  by the Board of Directors to have substantially the same value
                  as the shares of Class A Common Stock (in the case of a Class
                  A Right), Class B Common Stock (in the case of a Class B
                  Right) or Class C Common Stock (in the case of a Class C
                  Right) (such shares of Preferred Stock and shares or fractions
                  of shares of preferred stock are hereinafter referred to as
                  "Common Stock equivalents")), (4) debt securities of the
                  Company, (5) other assets or (6) any combination of the
                  foregoing, having a value which, when added to the value of
                  the shares of Common Stock actually issued upon exercise of
                  such Right, shall have an aggregate value equal to the Current
                  Value (less the amount of any reduction in the applicable
                  Purchase Price), where such aggregate value has been
                  determined by the Board of Directors upon the advice of a
                  nationally recognized investment banking firm selected in good
                  faith by the Board of Directors; provided, however, if the
                  Company shall not make adequate provision to deliver value
                  pursuant to clause (B) above within thirty (30) days following
                  the date that the Acquiring Person became such (the "Section
                  11(a)(ii) Trigger Date"), then the Company shall be obligated
                  to deliver, to the





                                                                              31


                  extent permitted by applicable law and any material agreements
                  then in effect to which the Company is a party, upon the
                  surrender for exercise of a Right and without requiring
                  payment of the Purchase Price, shares of Class A Common Stock
                  (in the case of a Class A Right), Class B Common Stock (in the
                  case of a Class B Right) or Class C Common Stock (in the case
                  of a Class C Right) (to the extent available), and then, if
                  necessary, such number or fractions of shares of the
                  applicable series of Preferred Stock (to the extent available)
                  and then, if necessary, cash, which shares and/or cash have an
                  aggregate value equal to the Spread. If, upon the date any
                  Person becomes an Acquiring Person, the Board of Directors
                  shall determine in good faith that it is likely that
                  sufficient additional shares of Common Stock could be
                  authorized for issuance upon exercise in full of the Rights,
                  then, if the Board of Directors so elects, the thirty (30) day
                  period set forth above may be extended to the extent
                  necessary, but not more than ninety (90) days after the
                  Section 11(a)(ii) Trigger Date, in order that the Company may
                  seek stockholder approval for the authorization of such
                  additional shares (such thirty (30) day period, as it may be
                  extended, is herein called the "Substitution Period"). To the
                  extent that the Company determines that some action need be
                  taken pursuant to the second and/or third sentence of this
                  Section 11(a)(iii), the Company (x) shall provide, subject to
                  Section 11(a)(ii) hereof and the last sentence of this Section
                  11(a)(iii) hereof, that such action shall apply uniformly to
                  all outstanding Class A Rights, Class B Rights and Class C
                  Rights and (y) may suspend the exercisability of the Class A
                  Rights, the Class B Rights and the Class C Rights until the
                  expiration of the Substitution Period in order to seek any




                                                                              32


                  authorization of additional shares and/or to decide the
                  appropriate form of distribution to be made pursuant to such
                  second sentence and to determine the value thereof. In the
                  event of any such suspension, the Company shall issue a public
                  announcement stating that the exercisability of the Class A
                  Rights, the Class B Rights and the Class C Rights has been
                  temporarily suspended, as well as a public announcement at
                  such time as the suspension is no longer in effect. For
                  purposes of this Section 11(a)(iii), the value of the shares
                  of Class A Common Stock (in the case of a Class A Right),
                  Class B Common Stock (in the case of a Class B Right) or Class
                  C Common Stock (in the case of a Class C Right) shall be the
                  current per share market price (as determined pursuant to
                  Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and
                  the per share or fractional value of any "Common Stock
                  equivalent" shall be deemed to equal the current per share
                  market price of the Class A Common Stock (in the case of a
                  Class A Right), Class B Common Stock (in the case of a Class B
                  Right) or Class C Common Stock (in the case of a Class B
                  Right). The Board of Directors of the Company may, but shall
                  not be required to, establish procedures to allocate the right
                  to receive (a) shares of Class A Common Stock upon the
                  exercise of the Class A Rights among holders of Class A
                  Rights, (b) shares of Class B Common Stock upon the exercise
                  of the Class B Rights among holders of Class B Rights and (c)
                  shares of Class C Common Stock upon the exercise of the Class
                  C Rights among holders of Class C Rights, in each case,
                  pursuant to this Section 11(a)(iii).

                  (b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them (for a period expiring within





                                                                              33


45 calendar days after such record date) to subscribe for or purchase shares of
the applicable series of Preferred Stock (or shares having the same rights,
privileges and preferences as the applicable series of Preferred Stock
("equivalent preferred shares")) or securities convertible into the applicable
series of Preferred Stock or equivalent preferred shares at a price per share of
Preferred Stock or equivalent preferred shares (or having a conversion price per
share, if a security convertible into shares of Preferred Stock or equivalent
preferred shares) less than the then current per share market price of the
applicable series of Preferred Stock (determined pursuant to Section 11(d)
hereof) on such record date, the applicable Purchase Price to be in effect after
such record date shall be determined by multiplying the applicable Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of such series of Preferred
Stock and equivalent preferred shares outstanding on such record date plus the
number of shares of such series of Preferred Stock and equivalent preferred
shares which the aggregate offering price of the total number of shares of such
series of Preferred Stock and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price, and the denominator
of which shall be the number of shares of such series of Preferred Stock and
equivalent preferred shares outstanding on such record date plus the number of
additional shares of such series of Preferred Stock and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such





                                                                              34


consideration shall be as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent. Shares of Preferred Stock and equivalent preferred shares
owned by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.

                  (c) In case the Company shall fix a record date for the making
of a distribution to all holders of any series of Preferred Stock (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the applicable Purchase Price to be in effect after
such record date shall be determined by multiplying the applicable Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price of the
applicable series of Preferred Stock (determined pursuant to Section 11(d)
hereof) on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one share of such series of Preferred Stock,
and the denominator of which shall be such current per share market price
(determined pursuant to Section 11(d) hereof) of such series of Preferred Stock;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be





                                                                              35


less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the applicable Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.

                  (d) (i) Except as otherwise provided herein, for the purpose
of any computation hereunder, the "current per share market price" of any
security (a "Security" for the purpose of this Section 11(d)(i)) on any date
shall be deemed to be the average of the daily closing prices per share of such
Security for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to but not including such date; provided, however,
that in the event that the current per share market price of the Security is
determined during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security, and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported by the principal consolidated transaction reporting system with respect
to securities




                                                                              36


listed or admitted to trading on the New York Stock Exchange or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of Directors
of the Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.

                           (ii) For the purpose of any computation hereunder, if
                  any series of Preferred Stock is publicly traded, the "current
                  per share market price" of such series of Preferred Stock
                  shall be determined in accordance with the method set forth in
                  Section 11(d)(i). If any series of Preferred Stock is not
                  publicly traded but the corresponding series of Common Stock
                  is publicly traded, the "current per share market price" of
                  such series of Preferred Stock shall be conclusively deemed to
                  be the current per share market price of the corresponding
                  series of Common Stock as determined pursuant to Section
                  11(d)(i) multiplied by one thousand (appropriately adjusted to
                  reflect any stock split, stock dividend or similar transaction
                  occurring after the date hereof). If neither the Common Stock
                  nor the corresponding Preferred Stock of any series is
                  publicly traded, "current per share market price" shall mean
                  the fair value per share as determined in good





                                                                              37


                  faith by the Board of Directors of the Company, whose
                  determination shall be described in a statement filed with the
                  Rights Agent.

                  (e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the applicable Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest one
ten-thousandth of a share of Preferred Stock or share of Common Stock or other
share or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the right to
exercise any Rights.

                  (f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Stock, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of a Right shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a),
11(b), 11(c), 11(e), 11(h), 11(i) and 11(m), and the provisions of Sections 7,
9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.

                  (g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable






                                                                              38


from time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.

                  (h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock (calculated to the nearest one
ten-thousandth of a share of Preferred Stock) of the applicable series obtained
by (i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to such adjustment by (y) the applicable Purchase Price
in effect immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the applicable Purchase Price in effect
immediately after such adjustment of the Purchase Price.

                  (i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-thousandths of a share of the
applicable series of Preferred Stock purchasable upon the exercise of a Right.
Each of the Rights outstanding after such adjustment of the number of Rights
shall be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
ten-thousandth) obtained by dividing the applicable Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the applicable Purchase
Price in effect immediately after adjustment of the Purchase Price. The Company
shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the





                                                                              39


adjustment, and, if known at the time, the amount of the adjustment to be made
and shall promptly give the Rights Agent a copy of such announcement. This
record date may be the date on which the applicable Purchase Price is adjusted
or any day thereafter, but, if the Right Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company may, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.

                  (j) Irrespective of any adjustment or change in the applicable
Purchase Price or the number of one one-thousandths of a share of Preferred
Stock issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the applicable
Purchase Price and the number of one one-thousandths of a share of Preferred
Stock which were expressed in the initial Right Certificates issued hereunder.

                  (k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the Preferred
Stock or other shares of capital stock issuable upon exercise of the Rights, the
Company shall take any corporate action which





                                                                              40


may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Preferred Stock
or other such shares at such adjusted Purchase Price.

                  (l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer (and shall give prompt written
notice of such election to the Rights Agent) until the occurrence of such event
the issuing to the holder of any Right exercised after such record date of the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

                  (m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price for any series of Preferred Stock, in addition to those
adjustments expressly required by this Section 11, as and to the extent that it
in its sole discretion shall determine to be advisable in order that any
consolidation or subdivision of any series of Preferred Stock, issuance wholly
for cash of any shares of any series of Preferred Stock at less than the current
market price, issuance wholly for cash or any series of Preferred Stock or
securities which by their terms are convertible into or exchangeable for any
series of Preferred Stock, dividends on any series of Preferred Stock payable in
shares of Preferred Stock or issuance of rights, options or warrants referred to
hereinabove in Section





                                                                              41


11(b), hereafter made by the Company to holders of its Preferred Stock shall not
be taxable to such stockholders.

                  (n) Anything in this Agreement to the contrary
notwithstanding, in the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on any class of shares of Common Stock payable in Common Stock or (ii)
effect a subdivision, combination or consolidation of any class of Common Stock
(by reclassification or otherwise other than by payment of a dividend payable in
Common Stock) into a greater or lesser number of Common Stock, then in any such
case, the number of Rights associated with each share of Common Stock of such
class then outstanding, or issued or delivered thereafter, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock of such class following any such event shall equal
the result obtained by (A) in the case of the Class A Rights, multiplying the
number of Class A Rights associated with each share of Class A Common Stock
immediately prior to such event by a fraction the numerator of which shall be
the total number of shares of Class A Common Stock outstanding immediately prior
to the occurrence of the event and the denominator of which shall be the total
number of shares of Class A Common Stock outstanding immediately following the
occurrence of such event, (B) in the case of the Class B Rights, multiplying the
number of Class B Rights associated with each share of Class B Common Stock
immediately prior to such event by a fraction the numerator of which shall be
the total number of shares of Class B Common Stock outstanding immediately prior
to the occurrence of the event and the denominator of which shall be the total
number of shares of Class B Common Stock outstanding immediately following the
occurrence of such event and (C) in the case of the Class C Rights, multiplying
the number of Class C Rights associated with each share of Class C





                                                                              42


Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Class C Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Class C Common Stock outstanding
immediately following the occurrence of such event . The adjustments provided
for in this Section 11(n) shall be made successively to any class of Common
Stock whenever such a dividend is declared or paid or such subdivision,
combination or consolidation is effected on such class of Common Stock.

                  (o) The Company agrees that, after the earlier of the
Distribution Date or the Stock Acquisition Date, it will not, except as
permitted by Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or eliminate the
benefits intended to be afforded by the Rights.

                  Section 12. Certificate of Adjusted Purchase Price or Number
of Shares.

                  Whenever an adjustment is made as provided in Section 11
and/or 13 hereof, the Company shall promptly (a) prepare a certificate setting
forth such adjustment, and a brief statement of the facts and computations
accounting for such adjustment, (b) file with the Rights Agent and with each
transfer agent for the Common Stock or the Preferred Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof (if so required under Section
25 hereof). The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any such adjustment unless and until it shall have received
such certificate.



                                                                              43



                  Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earnings Power. (a) In the event, directly or indirectly, at any time
after any Person has become an Acquiring Person, (i) the Company shall merge
with and into any other Person, (ii) any Person shall consolidate with the
Company, or any Person shall merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more of
its wholly-owned Subsidiaries), then in each such case, proper provision shall
be made so that: (A) each holder of record of a Right (other than Rights which
have become void pursuant to Section 11(a)(ii)) shall thereafter have the right
to receive, upon the exercise thereof at a price equal to the then current
applicable Purchase Price multiplied by the number of one one-thousandths of a
share of Preferred Stock for which the applicable Right is then exercisable
(each as subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b),
11(c), 11(h), 11(i) and 11(m)), in accordance with the terms of this Agreement
and in lieu of Preferred Stock, such number of validly issued, fully paid and
non-assessable and freely tradeable shares of Common Stock of the Principal
Party (as defined herein) not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result obtained
by (1) multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable (as subsequently adjusted thereafter pursuant to Sections 11(a)(i),
11(b), 11(c), 11(h),






                                                                              44


11(i) and 11(m)) and (2) dividing that product by 50% of the then current per
share market price of the Common Stock of such Principal Party (determined
pursuant to Section 11(d)(i) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; provided, that the Purchase Price and
the number of shares of Common Stock of such Principal Party issuable upon
exercise of each Right shall be further adjusted as provided in Section 11(f) of
this Agreement to reflect any events occurring in respect of such Principal
Party after the date of such consolidation, merger, sale or transfer; (B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party; and (D) such Principal Party shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided, that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the applicable Purchase Price as provided in this Section 13(a), such
cash, shares, rights, warrants and other property which such holder would have
been entitled to receive had such holder, at the time of such transaction, owned
the Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the



                                                                              45


Rights in accordance with the terms hereof for such cash, shares, rights,
warrants and other property.

                  (b) "Principal Party" shall mean

                           (i) in the case of any transaction described in
                  clauses (i) or (ii) of the first sentence of Section 13(a)
                  hereof: (A) the Person that is the issuer of the securities
                  into which the shares of Common Stock are converted in such
                  merger or consolidation, or, if there is more than one such
                  issuer, the issuer of the shares of Common Stock of which have
                  the greatest aggregate market value of shares outstanding, or
                  (B) if no securities are so issued, (x) the Person that is the
                  other party to the merger, if such Person survives said
                  merger, or, if there is more than one such Person, the Person
                  the shares of Common Stock of which have the greatest
                  aggregate market value of shares outstanding or (y) if the
                  Person that is the other party to the merger does not survive
                  the merger, the Person that does survive the merger (including
                  the Company if it survives) or (z) the Person resulting from
                  the consolidation; and

                           (ii) in the case of any transaction described in
                  clause (iii) of the first sentence in Section 13(a) hereof,
                  the Person that is the party receiving the greatest portion of
                  the assets or earning power transferred pursuant to such
                  transaction or transactions, or, if each Person that is a
                  party to such transaction or transactions receives the same
                  portion of the assets or earning power so transferred or if
                  the Person receiving the greatest portion of the assets or
                  earning power cannot be determined, whichever of such Persons
                  as is the issuer of Common Stock having the greatest aggregate
                  market value of shares outstanding;




                                                                              46


provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.

                  (c) The Company shall not consummate any consolidation,
merger, sale or transfer referred to in Section 13(a) hereof unless prior
thereto the Company and the Principal Party involved therein shall have executed
and delivered to the Rights Agent an agreement confirming that the requirements
of Sections 13(a) and (b) hereof shall promptly be performed in accordance with
their terms and that such consolidation, merger, sale or transfer of assets
shall not result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal Party pursuant to Sections 13(a)
and (b) hereof and providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party will:




                                                                              47


                           (i) prepare and file a registration statement under
                  the Securities Act, if necessary, with respect to the Rights
                  and the securities purchasable upon exercise of the Rights on
                  an appropriate form, use its best efforts to cause such
                  registration statement to become effective as soon as
                  practicable after such filing and use its best efforts to
                  cause such registration statement to remain effective (with a
                  prospectus at all times meeting the requirements of the
                  Securities Act) until the Final Expiration Date, and similarly
                  comply with applicable state securities laws;

                           (i) use its best efforts, if the Common Stock of the
                  Principal Party shall be listed or admitted to trading on the
                  New York Stock Exchange or on another national securities
                  exchange, to list or admit to trading (or continue the listing
                  of) the Rights and the securities purchasable upon exercise of
                  the Rights on the New York Stock Exchange or such securities
                  exchange, or, if the Common Stock of the Principal Party shall
                  not be listed or admitted to trading on the New York Stock
                  Exchange or a national securities exchange, to cause the
                  Rights and the securities receivable upon exercise of the
                  Rights to be reported by such other system then in use;

                           (ii) deliver to holders of the Rights historical
                  financial statements for the Principal Party which comply in
                  all respects with the requirements for registration on Form 10
                  (or any successor form) under the Exchange Act; and

                           (iii) obtain waivers of any rights of first refusal
                  or preemptive rights in respect of the Common Stock of the
                  Principal Party subject to purchase upon exercise of
                  outstanding Rights.



                                                                              48


                  (d) In case the Principal Party has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then current market price
per share thereof (determined pursuant to Section 11(d) hereof) or securities
exercisable for, or convertible into, Common Stock of such Principal Party at
less than such then current market price, or (ii) providing for any special
payment, tax or similar provision in connection with the issuance of the Common
Stock of such Principal Party pursuant to the provisions of Section 13, then, in
such event, the Company hereby agrees with each holder of Rights that it shall
not consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.

                  (e) The Company covenants and agrees that it shall not, at any
time after a Person first becomes an Acquiring Person, enter into any
transaction of the type contemplated by clauses (i), (ii) or (iii) of Section
13(a) hereof if (x) at the time of or immediately after such consolidation,
merger, sale, transfer or other transaction there are any rights, warrants or
other instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (y) prior to, simultaneously with or immediately after
such consolidation, merger, sale, transfer of other





                                                                              49


transaction, the stockholders of the Person who constitutes, or would
constitute, the Principal Party for purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such Person or any of its
Affiliates or Associates or (z) the form or nature of organization of the
Principal Party would preclude or limit the exercisability of the Rights.

                  Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected






                                                                              50


by the Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights, the fair value of the Rights on such
date as determined in good faith by the Board of Directors of the Company shall
be used.

                  (b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). Interests in fractions of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one share of Preferred Stock. For the
purposes of this Section 14(b), the current market value of a share of Preferred
Stock shall be the closing price of a share of the applicable series of
Preferred Stock (as determined pursuant to Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of such exercise.

                  (c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).





                                                                              51


                  Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Stock); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.




                                                                              52


                  Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:

                  (a) prior to the Distribution Date, the Rights will be
         transferable only in connection with the transfer of the Common Stock;

                  (b) after the Distribution Date, the Right Certificates are
         transferable only on the registry books of the Rights Agent if
         surrendered at the office or agency of the Rights Agent designated for
         such purpose, duly endorsed or accompanied by a proper instrument of
         transfer; and

                  (c) the Company and the Rights Agent may deem and treat the
         Person in whose name the Right Certificate (or, prior to the
         Distribution Date, the Common Stock certificate) is registered as the
         absolute owner thereof and of the Rights evidenced thereby
         (notwithstanding any notations of ownership or writing on the Right
         Certificates or the Common Stock certificate made by anyone other than
         the Company or the Rights Agent) for all purposes whatsoever, and
         neither the Company nor the Rights Agent shall be affected by any
         notice to the contrary.

                  Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to






                                                                              53


give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in this
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.

                  Section 18. Concerning the Rights Agent. (a) The Company
agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and other disbursements incurred in the
preparation, administration, delivery, execution and amendment of this Agreement
and the exercise and performance of its duties hereunder. The Company also
agrees to indemnify the Rights Agent for, and to hold it harmless against, any
loss, liability, damage, judgment, fine, penalty, claim, demand, settlement,
cost or expense, incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent (each determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction) for any action taken, suffered or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including,
without limitation, the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly. The costs and expenses
incurred in enforcing this right of indemnification shall be paid by the Company
unless it its determined by a final, non-appealable order, judgment, decree or
ruling of a court of competent jurisdiction that the Rights Agent is not
entitled to indemnification due to the Rights Agent's gross negligence, bad
faith or willful misconduct. The provisions of this Section 18 and Section 20
below shall survive the termination of this Agreement, the exercise or
expiration of the Rights and the resignation or removal of the Rights Agent.




                                                                              54


                  (b) The Rights Agent shall be authorized and protected and
shall incur no liability for, or in respect of any action taken suffered or
omitted by it in connection with, its acceptance and administration of this
Agreement in reliance upon any rights Certificate or certificate for any series
of Preferred Stock or any class of Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advise of counsel as set forth in Section 20 hereof. The
Rights Agent shall not be deemed to have knowledge of any event of which it was
supposed to receive notice thereof hereunder, and the Rights Agent shall be
fully protected and shall incur no liability for failing to take any action in
connection therewith unless and until it has received such notice in writing.

                  Section 19. Merger or Consolidation or Change of Name of
Rights Agent. (a) Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, that such Person would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right





                                                                              55


Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.

                  (b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.

                  Section 20. Duties of Rights Agent. The Rights Agent
undertakes only the duties and obligations expressly imposed by this Agreement
(and no implied duties and obligations) upon the following terms and conditions,
by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:

                  (a) The Rights Agent may consult with legal counsel (who may
         be legal counsel for the Company), and the advice or opinion of such
         counsel shall be full and complete authorization and protection to the
         Rights Agent, and the Rights Agent shall incur no liability for, or in
         respect of, any action taken, suffered or omitted by it in accordance
         with such advise or opinion.

                  (b) Whenever in the performance of its duties under this
         Agreement the Rights Agent shall deem it necessary or desirable that
         any fact or matter be proved or





                                                                              56


         established by the Company prior to taking, suffering or omitting to
         take any action hereunder, such fact or matter (unless other evidence
         in respect thereof be herein specifically prescribed) may be deemed to
         be conclusively proved and established by a certificate signed by any
         one of the Chairman of the Board of Directors, the President, any Vice
         President, the Treasurer, the Controller or the Secretary of the
         Company and delivered to the Rights Agent; and such certificate shall
         be full authorization and protection to the Rights Agent for any action
         taken, suffered or omitted by it under the provisions of this Agreement
         in reliance upon such certificate.

                  (c) The Rights Agent shall be liable hereunder to the Company
         and any other Person only for its own gross negligence, bad faith or
         willful misconduct (each as determined by a final, non-appealable
         order, judgment, decree or ruling of a court of competent
         jurisdiction). Anything to the contrary notwithstanding, in no event
         shall the Rights Agent be liable for special, punitive, indirect,
         consequential or incidental loss or damage of any kind whatsoever
         (including, but not limited to lost profits), even if the Rights Agent
         has been advised of the likelihood of such loss or damage. Any
         liability of the Rights Agent under this Rights Agreement will be
         limited to the amount of fees paid by the Company to the Rights Agent.

                  (d) The Rights Agent shall not be liable for or by reason of
         any of the statements of fact or recitals contained in this Agreement
         or in the Right Certificates (except its countersignature thereof) or
         be required to verify the same, but all such statements and recitals
         are and shall be deemed to have been made by the Company only.

                  (e) The Rights Agent shall not be under any responsibility or
         have any liability in respect of the validity of this Agreement or the
         execution and delivery hereof




                                                                              57


         (except the due execution hereof by the Rights Agent) or in respect of
         the validity or execution of any Right Certificate (except its
         countersignature thereof); nor shall it be responsible for any breach
         by the Company of any covenant or condition contained in this Agreement
         or in any Right Certificate; nor shall it be responsible for any change
         in the exercisability of the Rights (including the Rights becoming void
         pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of
         the Rights (including the manner, method or amount thereof) provided
         for in Sections 3, 11, 13, 23 and 24, or the ascertaining of the
         existence of facts that would require any such change or adjustment
         (except with respect to the exercise of Rights evidenced by Right
         Certificates after receipt of a certificate furnished pursuant to
         Section 12, describing such change or adjustment); nor shall it by any
         act hereunder be deemed to make any representation or warranty as to
         the authorization or reservation of any shares of Preferred Stock or
         other securities to be issued pursuant to this Agreement or any Right
         Certificate or as to whether any shares of Preferred Stock or other
         securities will, when issued, be validly authorized and issued, fully
         paid and nonassessable.

                  (f) The Company agrees that it will perform, execute,
         acknowledge and deliver or cause to be performed, executed,
         acknowledged and delivered all such further and other acts, instruments
         and assurances as may reasonably be required by the Rights Agent for
         the carrying out or performing by the Rights Agent of the provisions of
         this Agreement.

                  (g) The Rights Agent is hereby authorized and directed to
         accept instructions with respect to the performance of its duties
         hereunder from any one of the Chairman of the Board of Directors, the
         Chief Executive Officer, the Chief Operating Officer, the






                                                                              58


         President, the Chief Financial Officer or the Secretary of the Company,
         and to apply to such officers for advice or instructions in connection
         with its duties, and it shall not be liable for any action taken or
         suffered by it in good faith in accordance with instructions of any
         such officer or for any delay in acting while waiting for those
         instructions. Any application by the Rights Agent for written
         instructions from the Company may, at the option of the Rights Agent,
         set forth in writing any action proposed to be taken or omitted by the
         Rights Agent under this Agreement and the date on and/or after which
         such action shall be taken or such omission shall be effective. The
         Rights Agent shall not be liable for any action taken by, or omission
         of, the Rights Agent in accordance with a proposal included in any such
         application on or after the date specified in such application (which
         date shall not be less than five Business Days after the date any
         officer of the Company actually receives such application, unless any
         such officer shall have consented in writing to an earlier date)
         unless, prior to taking any such action (or the effective date in the
         case of an omission), the Rights Agent shall have received written
         instructions in response to such application specifying the action to
         be taken or omitted.

                  (h) The Rights Agent and any stockholder, director, officer or
         employee of the Rights Agent may buy, sell or deal in any of the Rights
         or other securities of the Company or become pecuniarily interested in
         any transaction in which the Company may be interested, or contract
         with or lend money to the Company or otherwise act as fully and freely
         as though it were not Rights Agent under this Agreement. Nothing herein
         shall preclude the Rights Agent from acting in any other capacity for
         the Company or for any other legal entity.




                                                                              59


                  (i) The Rights Agent may execute and exercise any of the
         rights or powers hereby vested in it or perform any duty hereunder
         either itself or by or through its attorneys or agents, and the Rights
         Agent shall not be answerable or accountable for any act, default,
         neglect or misconduct of any such attorneys or agents or for any loss
         to the Company or any other reason resulting from any such act,
         default, neglect or misconduct, absent gross negligence, bad faith or
         willful misconduct (each as determined by a final, non-appealable
         order, judgment, decree or ruling of a court of competent jurisdiction)
         in the selection and continued employment thereof.

                  (j) If, with respect to any Rights Certificate surrendered to
         the Rights Agent for exercise or transfer, the certificate contained in
         the form of assignment or the form of election to purchase set forth on
         the reverse thereof, as the case may be, has not been completed to
         certify the holder is not an Acquiring Person (or an Affiliate or
         Associate thereof), the Rights Agent shall not take any further action
         with respect to such requested exercise or transfer without first
         consulting with the Company.

                  Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of each class of Common Stock or each series of Preferred Stock
by registered or certified mail, and, following the Distribution Date, to the
holders of the Right Certificates by first-class mail. The Company may remove
the Rights Agent or any successor Rights Agent upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of each class of Common Stock or each series of Preferred
Stock by registered or certified mail, and, following the Distribution Date, to
the holders of the Right Certificates by first-class mail. If the






                                                                              60


Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered holder of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (a) a Person organized and doing
business under the laws of the United States or any State thereof, which is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million or (b) an Affiliate of a Person described in
clause (a). After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
any class of Common Stock or any series of Preferred Stock, and, following the
Distribution Date, mail a notice thereof in writing to the registered holders of
the Right Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.




                                                                              61


                  Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such forms as may be approved by its Board of Directors to
reflect any adjustment or change in the applicable Purchase Price and the number
or kind or class of shares or other securities or property purchasable under the
Right Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of any class of Common Stock
following the Distribution Date and prior to the earlier of the Redemption Date
and the Final Expiration Date, the Company may, with respect to shares of Common
Stock of any class so issued or sold pursuant to (i) the exercise of stock
options, (ii) under any employee plan or arrangement, (iii) upon the exercise,
conversion or exchange of securities notes or debentures issued by the Company
or (iv) a contractual obligation of the Company in each case existing prior to
the Distribution Date, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance or sale.

                  Section 23. Redemption. (a) The Board of Directors of the
Company may, at any time prior to such time as any Person first becomes an
Acquiring Person, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (the redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The Company may, at its option, pay the Redemption
Price in cash, shares of Common Stock (based on the current market price of the
Common Stock at the time of redemption) or any other form of consideration
deemed appropriate by the Board of Directors.



                                                                              62


                  (b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23 (or at such later time as the Board of Directors may establish for the
effectiveness of such redemption), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights (or such later time as
the Board of Directors may establish for the effectiveness of such redemption),
the Company shall give prompt written notice of such redemption to the Rights
Agent and shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption shall state the method by
which the payment of the Redemption Price will be made.

                  Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person first becomes an
Acquiring Person, exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have become void pursuant to the
provisions of Section 11(a)(ii) hereof) for shares of Common Stock (or, at the
Company's option, Preferred Stock in accordance with Section 11(a)(iii)) at an
exchange ratio of one share of Class A Common Stock per Class A Right (or one
one-thousandth of a share of Series A Preferred Stock), one share of Class B
Common Stock per Class B Right (or one





                                                                              63


one-thousandth of a share of Series B Preferred Stock) and one share of Class C
Common Stock per Class C Right (or one one-thousandth of a share of Series C
Preferred Stock) (adjusted to reflect any stock split, stock dividend or similar
transaction with respect to the applicable class of Common Stock occurring after
the date hereof; such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after any Person (other
than an Exempt Person), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of (1) shares of Class B Common Stock
aggregating 50% or more of the shares of Class B Common Stock then outstanding
or (2) shares of Common Stock representing, in the aggregate, 50% or more of the
total number of votes entitled to be cast generally (other than in an election
of directors) by the holders of the Common Stock then outstanding. From and
after the occurrence of an event specified in Section 13(a) hereof, any Rights
that theretofore have not been exchanged pursuant to this Section 24(a) shall
thereafter be exercisable only in accordance with Section 13 and may not be
exchanged pursuant to this Section 24(a). The exchange of the Rights by the
Board of Directors may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.

                  (b) Immediately upon the effectiveness of the action of the
Board of Directors of the Company ordering the exchange of any Rights pursuant
to paragraph (a) of this Section 24 and without any further action and without
any notice, the right to exercise such Rights shall terminate and the only right
thereafter of holders of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange (with prompt written notice thereof to the Rights Agent);
provided, however, that the failure to





                                                                              64


give, or any defect in, such notice shall not affect the validity of such
exchange. The Company shall promptly mail a notice of any such exchange to all
of the holders of the Rights so exchanged at their last addresses as they appear
upon the registry books of the Rights Agent. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange will state the method by which the
exchange of the shares of Common Stock for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange of (a) Class A Rights shall be effected pro rata based on the
number of available shares of Class A Common Stock and the number of Class A
Rights (other than Class A Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Class A Rights,
(b) Class B Rights shall be effected pro rata based on the number of available
shares of Class B Common Stock and the number of Class B Rights (other than
Class B Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Class B Rights and (c) Class C Rights
shall be effected pro rata based on the number of available shares of Class C
Common Stock and the number of Class C Rights (other than Class C Rights which
have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by
each holder of Class C Rights.

                  (c) The Company may at its option substitute, and, in the
event that there shall not be sufficient shares of Class A Common Stock, Class B
Common Stock or Class C Common Stock, as the case may be, issued but not
outstanding or authorized but unissued to permit an exchange of Class A Rights,
Class B Rights or Class C Rights, as the case may be, for Class A Common Stock,
Class B Common Stock or Class C Common Stock as contemplated in accordance with
this Section 24, the Company may, in its discretion, take such action as may be



                                                                              65


necessary to authorize additional shares of Class A Common Stock, Class B Common
Stock or Class C Common Stock for issuance upon exchange of the Class A Rights,
the Class B Rights or the Class C Rights. In the event that the Company shall
determine not to take such action or shall, after good faith effort, be unable
to take such action as may be necessary to authorize such additional shares of
Class A Common Stock, Class B Common Stock or Class C Common Stock, the Company
shall substitute, to the extent of such insufficiency, for each share of Class A
Common Stock, Class B Common Stock or Class C Common Stock that would otherwise
be issuable upon exchange of a Class A Right, Class B Right or Class C Right, a
number of shares of Series A Preferred Stock, Series B Preferred Stock, or
Series C Preferred Stock or fractions thereof (or equivalent preferred shares as
such term is defined in Section 11(b)) having an aggregate current per share
market price (determined pursuant to Section 11(d) hereof) equal to the current
per share market price of one share of Class A Common Stock, Class B Common
Stock or Class C Common Stock (determined pursuant to Section 11(d) hereof), as
the case may be, as of the date of issuance of such shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be,
or fractions thereof (or equivalent preferred shares).

                  (d) The Company shall not, in connection with any exchange
pursuant to this Section 24, be required to issue fractions of shares of Common
Stock or to distribute certificates which evidence fractional shares of Common
Stock. In lieu of such fractional shares of Common Stock, the Company shall pay
to the registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of the
applicable class of Common Stock. For the purposes of this paragraph (d), the
current market value of a





                                                                              66


whole share of Class A Common Stock, Class B Common Stock or Class C Common
Stock shall be the closing price of a share of Class A Common Stock, Class B
Common Stock and Class C Common Stock (as determined pursuant to the second
sentence of Section 11(d)(i) hereof), as applicable, for the Trading Day
immediately prior to but not including the date of exchange pursuant to this
Section 24.

                  Section 25. Notice of Certain Events. (a) In case the Company
shall at any time after the earlier of the Distribution Date or the Stock
Acquisition Date propose (i) to pay any dividend payable in stock of any class
to the holders of any series of its Preferred Stock or to make any other
distribution to the holders of any series of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of any series of
its Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of any series of Preferred Stock or shares of stock of any
class or any other securities, rights or options, (iii) to effect any
reclassification of any series of its Preferred Stock (other than a
reclassification involving only the subdivision of outstanding Preferred Stock),
(iv) to effect the liquidation, dissolution or winding up of the Company, or (v)
to declare or pay any dividend on any class of Common Stock payable in Common
Stock or to effect a subdivision, combination or consolidation of any class of
Common Stock (by reclassification or otherwise than by payment of dividends in
Common Stock), then, in each such case, the Company shall give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of such class or series of Common Stock
and/or Preferred Stock, if any such date is to be fixed, and such notice shall
be so given in the case of





                                                                              67


any action covered by clause (i) or (ii) above at least 10 days prior to the
record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Stock and/or Preferred Stock, whichever shall be
the earlier.

                  (b) In case any event described in Section 11(a)(ii) or
Section 13 shall occur then the Company shall as soon as practicable thereafter
give to each holder of a Right Certificate (or if occurring prior to the
Distribution Date, the holders of the Common Stock) in accordance with Section
26 hereof, a notice of the occurrence of such event, which notice shall describe
such event and the consequences of such event to holders of Rights under Section
11(a)(ii) and Section 13 hereof.

                  Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) or by facsimile transmission as follows:

                                   The Neiman Marcus Group, Inc.
                                   1618 Main Street
                                   Dallas, Texas   75201
                                   Attention:  General Counsel
                                   Facsimile No.: 214-743-7611


Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage





                                                                              68


prepaid, addressed (until another address is filed in writing with the Company)
or by facsimile transmission as follows:

                                   Mellon Investor Services LLC
                                   600 North Pearl, Suite 1010
                                   Dallas, TX 75201
                                   Attention: Relationship Manager
                                   Facsimile No.: 214-922-4466


                                   with a copy to:

                                   Mellon Investor Services LLC
                                   85 Challenger Road
                                   Ridgefield Park, New Jersey 07660
                                   Attention: General Counsel
                                   Facsimile No.: 201-296-4004

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.





                                                                              69


                  Section 27. Supplements and Amendments. Except as otherwise
provided for so long as the Rights are then redeemable, the Company may in its
sole and absolute discretion, and the Rights Agent shall if the Company so
directs but subject to the other provisions of this Section, supplement or amend
any provision of this Agreement in any respect without the approval of any
holders of the Rights. At any time when the Rights are no longer redeemable, no
such supplement or amendment shall be made if such supplement or amendment shall
adversely affect the interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no
such amendment may cause the Rights again to become redeemable or cause the
Agreement again to become amendable other than in accordance with this sentence.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, and provided that such supplement or amendment does not
change or increase the Rights Agent's rights, duties, liabilities or
obligations, the Rights Agent shall execute such supplement or amendment.

                  Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.

                  Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for




                                                                              70


the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock).

                  Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement or applicable to this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

                  Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State; provided, however, that all
provisions regarding the rights, duties, liabilities and obligations of the
Rights Agent shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed entirely
within such State.

                  Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.




                                                                              71


                  Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.

                  Section 34. Administration. The Board of Directors of the
Company shall have the exclusive power and authority to: (i) administer and
interpret the provisions of this Agreement, including, without limiting the
generality of the foregoing, to administer and interpret the provisions of this
Agreement relating to Exempt Persons to effectuate the purpose of such
provisions, and (ii) to exercise all rights and powers specifically granted to
the Board of Directors or the Company or as may be necessary or advisable in the
administration of this Agreement. All such actions, calculations, determinations
and interpretations which are done or made by the Board of Directors in good
faith shall be final, conclusive and binding on the Company, the Rights Agent,
the holders of the Rights and all other parties and shall not subject the Board
of Directors to any liability to the holders of the Rights.

             [The remainder of this page intentionally left blank.]




                                                                              72



                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.

                               THE NEIMAN MARCUS GROUP, INC.


                               By: /s/ Nelson A. Bangs
                                   --------------------------------------
                               Name: Nelson A. Bangs
                               Title Senior Vice President and General Counsel


                               MELLON INVESTOR SERVICES LLC

                               By: /s/ Timothy D. Oliver
                                   --------------------------------------
                               Name: Timothy D. Oliver
                               Title Vice President







                                                                     EXHIBIT A-1

                                      FORM

                                       OF

                           CERTIFICATE OF DESIGNATIONS

                                       OF

                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                                       OF

                          THE NEIMAN MARCUS GROUP, INC.

                         (Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware)

                                   ----------



                  The Neiman Marcus Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Company"), hereby certifies that the following resolution was duly
adopted by the Board of Directors of the Company as required by Section 151 of
the General Corporation Law of the State of Delaware at a meeting duly called
and held on October 6, 1999:

                  RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Company's
Restated Certificate of Incorporation, as amended to date (hereinafter called
the "Certificate of Incorporation"), the Board of Directors hereby creates a
series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
the Company and hereby adopts the resolution establishing the designation,
number of shares, preferences, voting powers and other rights, and the
restrictions and limitations thereof, as follows:

                  Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 100,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series A Preferred Stock.




                                     A-1-1


                  Section 2. Dividends and Distributions.

                  (A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Class A Common Stock,
par value $.01 per share, of the Company ("Class A Common Stock"), Class B
Common Stock, par value $.01 per share, of the Company ("Class B Common Stock")
and Class C Common Stock, par value $.01 per share, of the Company ("Class C
Common Stock" and, together with the Class A Common Stock and Class B Common
Stock, the "Common Stock") and of any other stock of the Company ranking junior
to the Series A Preferred Stock, and on a pari passu basis with the Series B
Preferred Stock and the Series C Preferred Stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for such purpose, quarterly dividends payable in cash on the last day
of March, June, September and December in each year (each such date being
referred to herein as a "Dividend Payment Date"), commencing on the first
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Class A Common Stock, declared on the Class A Common Stock
since the immediately preceding Dividend Payment Date or, with respect to the
first Dividend Payment Date, since the first issuance of any share or fraction
of a share of Series A Preferred Stock. In the event the Company shall at any
time after October 18, 1999 declare or pay any dividend on the Class A Common
Stock payable in shares of Class A Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Class A Common Stock
(by reclassification or otherwise than by payment of a dividend in shares of
Class A Common Stock) into a greater or lesser number of shares of Class A
Common Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Class A
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class A Common Stock that were outstanding
immediately prior to such event.

                  (B) The Company shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Class A Common
Stock (other than a dividend payable in shares of Class A Common Stock);
provided, that, in the event no dividend or distribution shall have been
declared on the Class A Common Stock during the period between any Dividend
Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per
share on the Series A Preferred Stock shall nevertheless be payable, when, as
and if declared, on such subsequent Dividend Payment Date.

                  (C) Dividends shall begin to accrue and be cumulative, whether
or not earned or declared, on outstanding shares of Series A Preferred Stock
from the Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such shares shall





                                     A-1-2


begin to accrue from the date of issue of such shares, or unless the date of
issue is a Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.

                  Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights;

                  (A) Subject to the provision for adjustment hereinafter set
forth and except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series A Preferred Stock shall entitle the holder
thereof to a number of votes equal to 1,000 times the number of votes which each
share of Class A Common Stock is entitled to vote, on all matters upon which the
holders of the Class A Common Stock of the Company are entitled to vote. In the
event the Company shall at any time after October 18, 1999 declare or pay any
dividend on the Class A Common Stock payable in shares of Class A Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Class A Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Class A Common Stock) into a greater or lesser number
of shares of Class A Common Stock, then in each such case the number of votes
per share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Class A Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Class A Common Stock that were outstanding immediately
prior to such event.

                   (B) Except as otherwise provided herein, in the Certificate
of Incorporation or in any other Certificate of Designations creating a series
of Preferred Stock or any similar stock, and except as otherwise required by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Class A Common Stock and any other capital stock of the Company having
general voting rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Company.

                   (C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Class A Common Stock as set forth herein) for taking any
corporate action.

                  Section 4. Certain Restrictions.

                  (A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all





                                     A-1-3


accrued and unpaid dividends and distributions, whether or not earned or
declared, on shares of Series A Preferred Stock outstanding shall have been paid
in full, the Company shall not:

                           (i) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking junior (as to
                  dividends) to the Series A Preferred Stock;

                           (ii) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking on a parity (as
                  to dividends) with the Series A Preferred Stock, except
                  dividends paid ratably on the Series A Preferred Stock and all
                  such parity stock on which dividends are payable or in arrears
                  in proportion to the total amounts to which the holders of all
                  such shares are then entitled;

                           (iii) redeem or purchase or otherwise acquire for
                  consideration shares of any stock ranking junior (either as to
                  dividends or upon liquidation, dissolution or winding up) to
                  the Series A Preferred Stock, provided that the Company may at
                  any time redeem, purchase or otherwise acquire shares of any
                  such junior stock in exchange for shares of any stock of the
                  Company ranking junior (as to dividends and upon dissolution,
                  liquidation or winding up) to the Series A Preferred Stock or
                  rights, warrants or options to acquire such junior stock;

                           (iv) redeem or purchase or otherwise acquire for
                  consideration any shares of Series A Preferred Stock, or any
                  shares of stock ranking on a parity (either as to dividends or
                  upon liquidation, dissolution or winding up) with the Series A
                  Preferred Stock, except in accordance with a purchase offer
                  made in writing or by publication (as determined by the Board
                  of Directors) to all holders of such shares upon such terms as
                  the Board of Directors, after consideration of the respective
                  annual dividend rates and other relative rights and
                  preferences of the respective series and classes, shall
                  determine in good faith will result in fair and equitable
                  treatment among the respective series or classes.

                  (B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

                  Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.

                  Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be





                                     A-1-4


entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to
be distributed per share to holders of shares of Class A Common Stock, or (B) to
the holders of shares of stock ranking on a parity upon liquidation, dissolution
or winding up with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all such parity stock in proportion
to the total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up. In the event the Company shall at
any time after October 18, 1999 declare or pay any dividend on the Class A
Common Stock payable in shares of Class A Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Class A Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Class A Common Stock) into a greater or lesser number of shares of Class A
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (A) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that were
outstanding immediately prior to such event.

                  Section 7. Consolidation, Merger, etc. In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Class A Common Stock are converted into, exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series A Preferred Stock shall at the same time be
similarly converted into, exchanged for or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Class A Common Stock is converted, exchanged or converted. In the event the
Company shall at any time after October 18, 1999 declare or pay any dividend on
the Class A Common Stock payable in shares of Class A Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Class A Common Stock) into a greater or lesser number of shares of Class A
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the conversion, exchange or change of shares of Series
A Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Class A Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Class A Common Stock that were outstanding immediately prior
to such event.

                  Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable from any holder.

                  Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, pari passu with the
Series B and the Series C Preferred Stock, junior to all other series of
Preferred Stock and senior to all classes of Common Stock.

                  Section 10. Amendment. If any proposed amendment to the
Certificate of Incorporation (including this Certificate of Designations) would
alter, change or repeal any of the





                                     A-1-5


preferences, powers or special rights given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, then the holders of the
Series A Preferred Stock shall be entitled to vote separately as a class upon
such amendment, and the affirmative vote of two-thirds of the outstanding shares
of the Series A Preferred Stock, voting separately as a class, shall be
necessary for the adoption thereof, in addition to such other vote as may be
required by the General Corporation Law of the State of Delaware.

                  Section 11. Fractional Shares. The Series A Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Stock.




                                     A-1-6



                  IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Company by its ______________________this __day of
_____, 1999.

                                            -----------------------------------
                                            Name:
                                            Title:



                                     A-1-7




                                                                     EXHIBIT A-2


                                      FORM

                                       OF

                           CERTIFICATE OF DESIGNATIONS

                                       OF

                  SERIES B JUNIOR PARTICIPATING PREFERRED STOCK

                                       OF

                          THE NEIMAN MARCUS GROUP, INC.

                         (Pursuant to Section 151 of the

                General Corporation Law of the State of Delaware)

                                   ----------

                  The Neiman Marcus Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Company"), hereby certifies that the following resolution was duly
adopted by the Board of Directors of the Company as required by Section 151 of
the General Corporation Law of the State of Delaware at a meeting duly called
and held on October 6, 1999:

                  RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Company's
Restated Certificate of Incorporation, as amended to date (hereinafter called
the "Certificate of Incorporation"), the Board of Directors hereby creates a
series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
the Company and hereby adopts the resolution establishing the designation,
number of shares, preferences, voting powers and other rights, and the
restrictions and limitations thereof, as follows:

                  Section 1. Designation and Amount. The shares of such series
shall be designated as "Series B Junior Participating Preferred Stock" (the
"Series B Preferred Stock") and the number of shares constituting the Series B
Preferred Stock shall be 100,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series B Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series B Preferred Stock.

                  Section 2. Dividends and Distributions.



                                     A-2-1


                  (A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series B Preferred Stock with respect to dividends, the holders of shares of
Series B Preferred Stock, in preference to the holders of Class A Common Stock,
par value $.01 per share, of the Company ("Class A Common Stock"), Class B
Common Stock, par value $.01 per share, of the Company ("Class B Common Stock")
and Class C Common Stock, par value $.01 per share, of the Company ("Class C
Common Stock" and, together with the Class A Common Stock and Class B Common
Stock, the "Common Stock") and of any other stock of the Company ranking junior
to the Series B Preferred Stock, and on a pari passu basis with the Series C
Preferred Stock and the Series A Preferred Stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for such purpose, quarterly dividends payable in cash on the last day
of March, June, September and December in each year (each such date being
referred to herein as a "Dividend Payment Date"), commencing on the first
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series B Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Class B Common Stock, declared on the Class B Common Stock
since the immediately preceding Dividend Payment Date or, with respect to the
first Dividend Payment Date, since the first issuance of any share or fraction
of a share of Series B Preferred Stock. In the event the Company shall at any
time after October 18, 1999 declare or pay any dividend on the Class B Common
Stock payable in shares of Class B Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Class B Common Stock
(by reclassification or otherwise than by payment of a dividend in shares of
Class B Common Stock) into a greater or lesser number of shares of Class B
Common Stock, then in each such case the amount to which holders of shares of
Series B Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Class B
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class B Common Stock that were outstanding
immediately prior to such event.

                  (B) The Company shall declare a dividend or distribution on
the Series B Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Class B Common
Stock (other than a dividend payable in shares of Class B Common Stock);
provided, that, in the event no dividend or distribution shall have been
declared on the Class B Common Stock during the period between any Dividend
Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per
share on the Series B Preferred Stock shall nevertheless be payable, when, as
and if declared, on such subsequent Dividend Payment Date.

                  (C) Dividends shall begin to accrue and be cumulative, whether
or not earned or declared, on outstanding shares of Series B Preferred Stock
from the Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is
a Dividend Payment Date or is a date after the record date for the determination
of holders of shares of





                                     A-2-2


Series B Preferred Stock entitled to receive a quarterly dividend and before
such Dividend Payment Date, in either of which events such dividends shall begin
to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series B
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series B Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.

                  Section 3. Voting Rights. The holders of shares of Series B
Preferred Stock shall have the following voting rights;

                  (A) Subject to the provision for adjustment hereinafter set
forth and except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series B Preferred Stock shall entitle the holder
thereof to a number of votes equal to 1,000 times the number of votes which each
share of Class B Common Stock is entitled to vote, on all matters upon which the
holders of the Class B Common Stock of the Company are entitled to vote. In the
event the Company shall at any time after October 18, 1999 declare or pay any
dividend on the Class B Common Stock payable in shares of Class B Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Class B Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Class B Common Stock) into a greater or lesser number
of shares of Class B Common Stock, then in each such case the number of votes
per share to which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Class B Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Class B Common Stock that were outstanding immediately
prior to such event.

                  (B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock, and except as otherwise required by law,
the holders of shares of Series B Preferred Stock and the holders of shares of
Class B Common Stock and any other capital stock of the Company having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Company.

                  (C) Except as set forth herein, or as otherwise provided by
law, holders of Series B Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Class B Common Stock as set forth herein) for taking any
corporate action.

                  Section 4. Certain Restrictions.

                  (A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not earned or declared, on shares of Series B
Preferred Stock outstanding shall have been paid in full, the Company shall not:




                                     A-2-3


                           (i) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking junior (as to
                  dividends) to the Series B Preferred Stock;

                           (ii) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking on a parity (as
                  to dividends) with the Series B Preferred Stock, except
                  dividends paid ratably on the Series B Preferred Stock and all
                  such parity stock on which dividends are payable or in arrears
                  in proportion to the total amounts to which the holders of all
                  such shares are then entitled;

                           (iii) redeem or purchase or otherwise acquire for
                  consideration shares of any stock ranking junior (either as to
                  dividends or upon liquidation, dissolution or winding up) to
                  the Series B Preferred Stock, provided that the Company may at
                  any time redeem, purchase or otherwise acquire shares of any
                  such junior stock in exchange for shares of any stock of the
                  Company ranking junior (as to dividends and upon dissolution,
                  liquidation or winding up) to the Series B Preferred Stock or
                  rights, warrants or options to acquire such junior stock;

                           (iv) redeem or purchase or otherwise acquire for
                  consideration any shares of Series B Preferred Stock, or any
                  shares of stock ranking on a parity (either as to dividends or
                  upon liquidation, dissolution or winding up) with the Series B
                  Preferred Stock, except in accordance with a purchase offer
                  made in writing or by publication (as determined by the Board
                  of Directors) to all holders of such shares upon such terms as
                  the Board of Directors, after consideration of the respective
                  annual dividend rates and other relative rights and
                  preferences of the respective series and classes, shall
                  determine in good faith will result in fair and equitable
                  treatment among the respective series or classes.

                  (B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

                  Section 5. Reacquired Shares. Any shares of Series B Preferred
Stock purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.

                  Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series B Preferred Stock unless, prior thereto, the holders of shares of Series
B Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series B Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1,000 times the aggregate amount to be distributed per share to holders of
shares of Class B Common Stock, or (B) to the holders of shares of stock ranking
on a parity upon liquidation, dissolution or winding up with the Series B
Preferred Stock, except





                                     A-2-4


distributions made ratably on the Series B Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up. In the event the
Company shall at any time after October 18, 1999 declare or pay any dividend on
the Class B Common Stock payable in shares of Class B Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Class B
Common Stock (by reclassification or otherwise than by payment of a dividend in
shares of Class B Common Stock) into a greater or lesser number of shares of
Class B Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (A) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Class B Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Class B Common
Stock that were outstanding immediately prior to such event.

                  Section 7. Consolidation, Merger, etc. In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Class B Common Stock are converted into, exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series B Preferred Stock shall at the same time be
similarly converted into, exchanged for or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Class B Common Stock is converted, exchanged or converted. In the event the
Company shall at any time after October 18, 1999 declare or pay any dividend on
the Class B Common Stock payable in shares of Class B Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Class B Common Stock) into a greater or lesser number of shares of Class B
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the conversion, exchange or change of shares of Series
B Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Class B Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Class B Common Stock that were outstanding immediately prior
to such event.

                  Section 8. No Redemption. The shares of Series B Preferred
Stock shall not be redeemable from any holder.

                  Section 9. Rank. The Series B Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, pari passu with the
Series C and the Series A Preferred Stock, junior to all other series of
Preferred Stock and senior to all classes of Common Stock.

                  Section 10. Amendment. If any proposed amendment to the
Certificate of Incorporation (including this Certificate of Designations) would
alter, change or repeal any of the preferences, powers or special rights given
to the Series B Preferred Stock so as to affect the Series B Preferred Stock
adversely, then the holders of the Series B Preferred Stock shall be entitled to
vote separately as a class upon such amendment, and the affirmative vote of
two-thirds of the outstanding shares of the Series B Preferred Stock, voting
separately as a class,





                                     A-2-5


shall be necessary for the adoption thereof, in addition to such other vote as
may be required by the General Corporation Law of the State of Delaware.

                  Section 11. Fractional Shares. The Series B Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series B Stock.




                                     A-2-6



                  IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Company by its _____________this __day of _____, 1999.

                                            -----------------------------------
                                            Name:
                                            Title:






                                     A-2-7




                                                                     EXHIBIT A-3


                                      FORM

                                       OF

                           CERTIFICATE OF DESIGNATIONS

                                       OF

                  SERIES C JUNIOR PARTICIPATING PREFERRED STOCK

                                       OF

                          THE NEIMAN MARCUS GROUP, INC.

                         (Pursuant to Section 151 of the

                General Corporation Law of the State of Delaware)

                                   ----------


                  The Neiman Marcus Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Company"), hereby certifies that the following resolution was duly
adopted by the Board of Directors of the Company as required by Section 151 of
the General Corporation Law of the State of Delaware at a meeting duly called
and held on October 6, 1999:

                  RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Company's
Restated Certificate of Incorporation, as amended to date (hereinafter called
the "Certificate of Incorporation"), the Board of Directors hereby creates a
series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
the Company and hereby adopts the resolution establishing the designation,
number of shares, preferences, voting powers and other rights, and the
restrictions and limitations thereof, as follows:

                  Section 1. Designation and Amount. The shares of such series
shall be designated as "Series C Junior Participating Preferred Stock" (the
"Series C Preferred Stock") and the number of shares constituting the Series C
Preferred Stock shall be 50,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series C Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series C Preferred Stock.




                                     A-3-1


                  Section 2. Dividends and Distributions.

                  (A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series C Preferred Stock with respect to dividends, the holders of shares of
Series C Preferred Stock, in preference to the holders of Class A Common Stock,
par value $.01 per share, of the Company ("Class A Common Stock"), Class B
Common Stock, par value $.01 per share, of the Company ("Class B Common Stock")
and Class C Common Stock, par value $.01 per share, of the Company ("Class C
Common Stock" and, together with the Class A Common Stock and Class B Common
Stock, the "Common Stock") and of any other stock of the Company ranking junior
to the Series C Preferred Stock, and on a pari passu basis with the Series A
Preferred Stock and the Series B Preferred Stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for such purpose, quarterly dividends payable in cash on the last day
of March, June, September and December in each year (each such date being
referred to herein as a "Dividend Payment Date"), commencing on the first
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series C Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Class C Common Stock, declared on the Class C Common Stock
since the immediately preceding Dividend Payment Date or, with respect to the
first Dividend Payment Date, since the first issuance of any share or fraction
of a share of Series C Preferred Stock. In the event the Company shall at any
time after October 18, 1999 declare or pay any dividend on the Class C Common
Stock payable in shares of Class C Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Class C Common Stock
(by reclassification or otherwise than by payment of a dividend in shares of
Class C Common Stock) into a greater or lesser number of shares of Class C
Common Stock, then in each such case the amount to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Class C
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class C Common Stock that were outstanding
immediately prior to such event.

                  (B) The Company shall declare a dividend or distribution on
the Series C Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Class C Common
Stock (other than a dividend payable in shares of Class C Common Stock);
provided, that, in the event no dividend or distribution shall have been
declared on the Class C Common Stock during the period between any Dividend
Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per
share on the Series C Preferred Stock shall nevertheless be payable, when, as
and if declared, on such subsequent Dividend Payment Date.

                  (C) Dividends shall begin to accrue and be cumulative, whether
or not earned or declared, on outstanding shares of Series C Preferred Stock
from the Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such shares shall





                                     A-3-2


begin to accrue from the date of issue of such shares, or unless the date of
issue is a Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series C Preferred Stock entitled to
receive a quarterly dividend and before such Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series C Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series C Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.

                  Section 3. Voting Rights. The holders of shares of Series C
Preferred Stock shall have the following voting rights;

                  (A) Subject to the provision for adjustment hereinafter set
forth and except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series C Preferred Stock shall entitle the holder
thereof to a number of votes equal to 1,000 times the number of votes which each
share of Class C Common Stock is entitled to vote, on all matters upon which the
holders of the Class C Common Stock of the Company are entitled to vote. In the
event the Company shall at any time after October 18, 1999 declare or pay any
dividend on the Class C Common Stock payable in shares of Class C Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Class C Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Class C Common Stock) into a greater or lesser number
of shares of Class C Common Stock, then in each such case the number of votes
per share to which holders of shares of Series C Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Class C Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Class C Common Stock that were outstanding immediately
prior to such event.

                  (B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock, and except as otherwise required by law,
the holders of shares of Series C Preferred Stock and the holders of shares of
Class C Common Stock and any other capital stock of the Company having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Company.

                  (C) Except as set forth herein, or as otherwise provided by
law, holders of Series C Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Class C Common Stock as set forth herein) for taking any
corporate action.

                  Section 4. Certain Restrictions.

                  (A) Whenever quarterly dividends or other dividends or
distributions payable on the Series C Preferred Stock as provided in Section 2
are in arrears, thereafter and until all




                                     A-3-3


accrued and unpaid dividends and distributions, whether or not earned or
declared, on shares of Series C Preferred Stock outstanding shall have been paid
in full, the Company shall not:

                           (i) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking junior (as to
                  dividends) to the Series C Preferred Stock;

                           (ii) declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking on a parity (as
                  to dividends) with the Series C Preferred Stock, except
                  dividends paid ratably on the Series C Preferred Stock and all
                  such parity stock on which dividends are payable or in arrears
                  in proportion to the total amounts to which the holders of all
                  such shares are then entitled;

                           (iii) redeem or purchase or otherwise acquire for
                  consideration shares of any stock ranking junior (either as to
                  dividends or upon liquidation, dissolution or winding up) to
                  the Series C Preferred Stock, provided that the Company may at
                  any time redeem, purchase or otherwise acquire shares of any
                  such junior stock in exchange for shares of any stock of the
                  Company ranking junior (as to dividends and upon dissolution,
                  liquidation or winding up) to the Series C Preferred Stock or
                  rights, warrants or options to acquire such junior stock;

                           (iv) redeem or purchase or otherwise acquire for
                  consideration any shares of Series C Preferred Stock, or any
                  shares of stock ranking on a parity (either as to dividends or
                  upon liquidation, dissolution or winding up) with the Series C
                  Preferred Stock, except in accordance with a purchase offer
                  made in writing or by publication (as determined by the Board
                  of Directors) to all holders of such shares upon such terms as
                  the Board of Directors, after consideration of the respective
                  annual dividend rates and other relative rights and
                  preferences of the respective series and classes, shall
                  determine in good faith will result in fair and equitable
                  treatment among the respective series or classes.

                  (B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

                  Section 5. Reacquired Shares. Any shares of Series C Preferred
Stock purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.

                  Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series C Preferred Stock unless, prior thereto, the holders of shares of Series
C Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series C Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment





                                     A-3-4


hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of Class C Common Stock, or (B) to
the holders of shares of stock ranking on a parity upon liquidation, dissolution
or winding up with the Series C Preferred Stock, except distributions made
ratably on the Series C Preferred Stock and all such parity stock in proportion
to the total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up. In the event the Company shall at
any time after October 18, 1999 declare or pay any dividend on the Class C
Common Stock payable in shares of Class C Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Class C Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Class C Common Stock) into a greater or lesser number of shares of Class C
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (A) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Class C Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class C Common Stock that were
outstanding immediately prior to such event.

                  Section 7. Consolidation, Merger, etc. In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Class C Common Stock are converted into, exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series C Preferred Stock shall at the same time be
similarly converted into, exchanged for or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Class C Common Stock is converted, exchanged or converted. In the event the
Company shall at any time after October 18, 1999 declare or pay any dividend on
the Class C Common Stock payable in shares of Class C Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Class C Common Stock) into a greater or lesser number of shares of Class C
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the conversion, exchange or change of shares of Series
C Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Class C Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Class C Common Stock that were outstanding immediately prior
to such event.

                  Section 8. No Redemption. The shares of Series C Preferred
Stock shall not be redeemable from any holder.

                  Section 9. Rank. The Series C Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, pari passu with the
Series A and the Series B Preferred Stock, junior to all other series of
Preferred Stock and senior to all classes of Common Stock.

                  Section 10. Amendment. If any proposed amendment to the
Certificate of Incorporation (including this Certificate of Designations) would
alter, change or repeal any of the preferences, powers or special rights given
to the Series C Preferred Stock so as to affect the





                                     A-3-5


Series C Preferred Stock adversely, then the holders of the Series C Preferred
Stock shall be entitled to vote separately as a class upon such amendment, and
the affirmative vote of two-thirds of the outstanding shares of the Series C
Preferred Stock, voting separately as a class, shall be necessary for the
adoption thereof, in addition to such other vote as may be required by the
General Corporation Law of the State of Delaware.

                  Section 11. Fractional Shares. The Series C Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series C Stock.




                                     A-3-6



                  IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Company by its _____________this __day of _____, 1999.

                                     ----------------------------------------
                                     Name:
                                     Title:






                                     A-3-7




                                                                     EXHIBIT B-1

                        Form of Class A Right Certificate

Certificate No. R- ____

                  NOT EXERCISABLE AFTER OCTOBER 6, 2009 OR EARLIER IF
                  REDEMPTION OR EXCHANGE OCCURS. THE CLASS A RIGHTS ARE
                  SUBJECT TO REDEMPTION AT $.01 PER CLASS A RIGHT AND
                  TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
                  AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH
                  IN THE RIGHTS AGREEMENT, CLASS A RIGHTS OWNED BY OR
                  TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING
                  PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
                  CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
                  AND WILL NO LONGER BE TRANSFERABLE.

                            Class A Right Certificate

                          THE NEIMAN MARCUS GROUP, INC.

                  This certifies that ___________ or registered assigns, is the
registered owner of the number of Class A Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of October 6, 1999, as the same may be amended
from time to time (the "Rights Agreement"), between The Neiman Marcus Group,
Inc., a Delaware corporation (the "Company"), and BankBoston, N.A., a national
banking association, (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., New York City time, on October 6, 2009 at the
office or agency of the Rights Agent designated for such purpose, or of its
successor as Rights Agent, one one-thousandth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), of the Company, at a purchase price of $100.00
per one one-thousandth of a share of Series A Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Class A Right Certificate with
the Form of Election to Purchase duly executed. The number of Class A Rights
evidenced by this Class A Right Certificate (and the number of one
one-thousandths of a share of Series A Preferred Stock which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of October 18, 1999, based on the Series A
Preferred Stock as constituted at such date. As provided in the Rights
Agreement, the Purchase Price, the number of one one-thousandths of a share of
Series A Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Class A Rights and the number of Class A
Rights evidenced by this Class A Right Certificate are subject to modification
and adjustment upon the happening of certain events.

                  Notwithstanding anything in the Rights Agreement to the
contrary, from and after the time (the "invalidation time") when any person
first becomes an Acquiring Person (as






                                     B-1-1


defined in the Rights Agreement), the Class A Rights evidenced hereby
beneficially owned by (x) any Acquiring Person (or any Affiliate (as defined in
the Rights Agreement) or Associate (as defined in the Rights Agreement) of any
Acquiring Person), (y) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who becomes a transferee after the invalidation time or
(z) a transferee of any Acquiring Person (or any such Affiliate or Associate)
who became a transferee prior to or concurrently with the invalidation time
pursuant to either (I) a transfer from the Acquiring Person to holders of its
equity securities or to any person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Class A Rights or (II) a
transfer which the Board of Directors of the Company has determined is part of a
plan, arrangement or understanding which has the purpose or effect of avoiding
the provisions of Section 11(a)(ii) of the Rights Agreement, and subsequent
transferees of such persons, shall be void without any further action and any
holder hereof shall thereafter have no rights whatsoever with respect to the
Class A Rights evidenced hereby under any provision of the Rights Agreement.

                  This Class A Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Class A Right
Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned office or agency of the
Rights Agent. The Company will mail to the holder of this Class A Right
Certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor.

                  This Class A Right Certificate, with or without other Class A
Right Certificates, upon surrender at the office or agency of the Rights Agent
designated for such purpose, may be exchanged for another Class A Right
Certificate or Class A Right Certificates of like tenor and date evidencing
Class A Rights entitling the holder to purchase a like aggregate number of
shares of Series A Preferred Stock as the Class A Rights evidenced by the Class
A Right Certificate or Class A Right Certificates surrendered shall have
entitled such holder to purchase. If this Class A Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Class A Right Certificate or Class A Right Certificates for the number
of whole Class A Rights not exercised.

                  Subject to the provisions of the Rights Agreement, the Class A
Rights evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Class A Right or (ii) may be exchanged in whole or
in part for shares of Series A Preferred Stock or shares of the Company's Class
A Common Stock, par value $.01 per share.

                  No fractional shares of Series A Preferred Stock or Class A
Common Stock will be issued upon the exercise of any Class A Right or Class A
Rights evidenced hereby (other than fractions which are integral multiples of
one one-thousandth of a share of Series A Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.




                                     B-1-2


                  No holder of this Class A Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Series A Preferred Stock or of any other securities of the Company which may
at any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Class A Right or Class A Rights evidenced by
this Class A Right Certificate shall have been exercised as provided in the
Rights Agreement.

                  This Class A Right Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned by the Rights
Agent.




                                     B-1-3



                  WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _____________.



ATTEST:                                        THE NEIMAN MARCUS GROUP, INC.


By                                             By
   ----------------------------                   -----------------------------

Countersigned:

- -----------------------,
as Rights Agent


By
   ----------------------------
   Authorized Signature




                                     B-1-4



                Form of Reverse Side of Class A Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
           holder desires to transfer the Class A Right Certificate)

                  FOR VALUE RECEIVED _________________________ hereby sells,
assigns and transfers unto ______________________________

- --------------------------------------------------------------------------------
                  (Please print name and address of transferee)

- --------------------------------------------------------------------------------
Class A Rights represented by this Class A Right Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ___________________ Attorney, to transfer said Class A Rights on the
books of the within-named Company, with full power of substitution.

Dated:
      ------------------


                                         ------------------------------
                                                   Signature


Signature Guaranteed:


                  Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.

- --------------------------------------------------------------------------------
                                (To be completed)

                  The undersigned hereby certifies that the Class A Rights
evidenced by this Class A Right Certificate are not beneficially owned by, were
not acquired by the undersigned from, and are not being assigned to, an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).



                                         ------------------------------
                                                   Signature



                                     B-1-5



          Form of Reverse Side of Class A Right Certificate - continued

                          FORM OF ELECTION TO PURCHASE

                 (To be executed if holder desires to exercise
          Class A Rights represented by the Class A Right Certificate)

To THE NEIMAN MARCUS GROUP, INC.

                  The undersigned hereby irrevocably elects to exercise
__________________ Class A Rights represented by this Class A Right Certificate
to purchase the shares of Series A Preferred Stock (or other securities or
property) issuable upon the exercise of such Class A Rights and requests that
certificates for such shares of Series A Preferred Stock (or such other
securities) be issued in the name of:

- --------------------------------------------------------------------------------
                           (Please print name and address)

- --------------------------------------------------------------------------------


If such number of Class A Rights shall not be all the Class A Rights evidenced
by this Class A Right Certificate, a new Class A Right Certificate for the
balance remaining of such Class A Rights shall be registered in the name of and
delivered to:

Please insert social security
or other identifying number


- --------------------------------------------------------------------------------
                           (Please print name and address)

- --------------------------------------------------------------------------------


Dated:
        --------------------

                                          ----------------------------
                                          Signature


(Signature must conform to holder specified on Class A Right Certificate)




                                     B-1-6



Signature Guaranteed:


                  Signature must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.




                                     B-1-7



         Form of Reverse Side of Class A Right Certificate -- continued

                                (To be completed)
- --------------------------------------------------------------------------------


                  The undersigned certifies that the Class A Rights evidenced by
this Class A Right Certificate are not beneficially owned by, and were not
acquired by the undersigned from, an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement)

                                          ----------------------------
                                          Signature


- --------------------------------------------------------------------------------




                                     NOTICE

                  The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Class A Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.

                  In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.




                                     B-1-8




                                                                     EXHIBIT B-2

                        Form of Class B Right Certificate

Certificate No. R- ____

                  NOT EXERCISABLE AFTER OCTOBER 6, 2009 OR EARLIER IF
                  REDEMPTION OR EXCHANGE OCCURS. THE CLASS B RIGHTS ARE
                  SUBJECT TO REDEMPTION AT $.01 PER CLASS B RIGHT AND
                  TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
                  AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH
                  IN THE RIGHTS AGREEMENT, CLASS B RIGHTS OWNED BY OR
                  TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING
                  PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
                  CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
                  AND WILL NO LONGER BE TRANSFERABLE.

                            Class B Right Certificate

                          THE NEIMAN MARCUS GROUP, INC.

                  This certifies that ___________ or registered assigns, is the
registered owner of the number of Class B Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of October 6, 1999, as the same may be amended
from time to time (the "Rights Agreement"), between The Neiman Marcus Group,
Inc., a Delaware corporation (the "Company"), and BankBoston, N.A., a national
banking association, (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., New York City time, on October 6, 2009 at the
office or agency of the Rights Agent designated for such purpose, or of its
successor as Rights Agent, one one-thousandth of a fully paid non-assessable
share of Series B Junior Participating Preferred Stock, par value $.01 per share
(the "Series B Preferred Stock"), of the Company, at a purchase price of $100.00
per one one-thousandth of a share of Series B Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Class B Right Certificate with
the Form of Election to Purchase duly executed. The number of Class B Rights
evidenced by this Class B Right Certificate (and the number of one
one-thousandths of a share of Series B Preferred Stock which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of October 18, 1999, based on the Series B
Preferred Stock as constituted at such date. As provided in the Rights
Agreement, the Purchase Price, the number of one one-thousandths of a share of
Series B Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Class B Rights and the number of Class B
Rights evidenced by this Class B Right Certificate are subject to modification
and adjustment upon the happening of certain events.

                  Notwithstanding anything in the Rights Agreement to the
contrary, from and after the time (the "invalidation time") when any person
first becomes an Acquiring Person (as





                                     B-2-1


defined in the Rights Agreement), the Class B Rights evidenced hereby
beneficially owned by (x) any Acquiring Person (or any Affiliate (as defined in
the Rights Agreement) or Associate (as defined in the Rights Agreement) of any
Acquiring Person), (y) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who becomes a transferee after the invalidation time or
(z) a transferee of any Acquiring Person (or any such Affiliate or Associate)
who became a transferee prior to or concurrently with the invalidation time
pursuant to either (I) a transfer from the Acquiring Person to holders of its
equity securities or to any person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Class B Rights or (II) a
transfer which the Board of Directors of the Company has determined is part of a
plan, arrangement or understanding which has the purpose or effect of avoiding
the provisions of Section 11(a)(ii) of the Rights Agreement, and subsequent
transferees of such persons, shall be void without any further action and any
holder hereof shall thereafter have no rights whatsoever with respect to the
Class B Rights evidenced hereby under any provision of the Rights Agreement.

                  This Class B Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Class B Right
Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned office or agency of the
Rights Agent. The Company will mail to the holder of this Class B Right
Certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor.

                  This Class B Right Certificate, with or without other Class B
Right Certificates, upon surrender at the office or agency of the Rights Agent
designated for such purpose, may be exchanged for another Class B Right
Certificate or Class B Right Certificates of like tenor and date evidencing
Class B Rights entitling the holder to purchase a like aggregate number of
shares of Series B Preferred Stock as the Class B Rights evidenced by the Class
B Right Certificate or Class B Right Certificates surrendered shall have
entitled such holder to purchase. If this Class B Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Class B Right Certificate or Class B Right Certificates for the number
of whole Class B Rights not exercised.

                  Subject to the provisions of the Rights Agreement, the Class B
Rights evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Class B Right or (ii) may be exchanged in whole or
in part for shares of Series B Preferred Stock or shares of the Company's Class
B Common Stock, par value $.01 per share.

                  No fractional shares of Series B Preferred Stock or Class B
Common Stock will be issued upon the exercise of any Class B Right or Class B
Rights evidenced hereby (other than fractions which are integral multiples of
one one-thousandth of a share of Series B Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.




                                     B-2-2


                  No holder of this Class B Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Series B Preferred Stock or of any other securities of the Company which may
at any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Class B Right or Class B Rights evidenced by
this Class B Right Certificate shall have been exercised as provided in the
Rights Agreement.

                  This Class B Right Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned by the Rights
Agent.




                                     B-2-3



                  WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _____________.

ATTEST:                                      THE NEIMAN MARCUS GROUP, INC.



By                                           By
   -------------------------------              --------------------------------

Countersigned:



- -----------------------,
as Rights Agent



By
   -------------------------------
   Authorized Signature









                                     B-2-4



                Form of Reverse Side of Class B Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
           holder desires to transfer the Class B Right Certificate)

                  FOR VALUE RECEIVED _________________________ hereby sells,
assigns and transfers unto ___________________________

- --------------------------------------------------------------------------------
                  (Please print name and address of transferee)

- --------------------------------------------------------------------------------
Class B Rights represented by this Class B Right Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ___________________ Attorney, to transfer said Class A Rights on the
books of the within-named Company, with full power of substitution.

Dated:
       -----------------

                                                  ------------------------------
                                                          Signature


Signature Guaranteed:

                  Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.

- --------------------------------------------------------------------------------

                                (To be completed)

                  The undersigned hereby certifies that the Class B Rights
evidenced by this Class B Right Certificate are not beneficially owned by, were
not acquired by the undersigned from, and are not being assigned to, an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).

                                                  ------------------------------
                                                          Signature



                                     B-2-5



          Form of Reverse Side of Class B Right Certificate - continued

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise

          Class B Rights represented by the Class B Right Certificate)

To THE NEIMAN MARCUS GROUP, INC.

                  The undersigned hereby irrevocably elects to exercise
__________________ Class B Rights represented by this Class B Right Certificate
to purchase the shares of Series B Preferred Stock (or other securities or
property) issuable upon the exercise of such Class B Rights and requests that
certificates for such shares of Series B Preferred Stock (or such other
securities) be issued in the name of:

- --------------------------------------------------------------------------------
                  (Please print name and address of transferee)

- --------------------------------------------------------------------------------
If such number of Class B Rights shall not be all the Class B Rights evidenced
by this Class B Right Certificate, a new Class B Right Certificate for the
balance remaining of such Class B Rights shall be registered in the name of and
delivered to:

Please insert social security
or other identifying number

- --------------------------------------------------------------------------------
                  (Please print name and address of transferee)

- --------------------------------------------------------------------------------



Dated:
       -----------------

                                                  ------------------------------
                                                          Signature


(Signature must conform to holder specified on Class B Right Certificate)




                                     B-2-6



Signature Guaranteed:

                  Signature must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.




                                     B-2-7



         Form of Reverse Side of Class B Right Certificate -- continued

                                (To be completed)
- --------------------------------------------------------------------------------


                  The undersigned certifies that the Class B Rights evidenced by
this Class B Right Certificate are not beneficially owned by, and were not
acquired by the undersigned from, an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement)

                                                          ----------------------
                                                          Signature


- --------------------------------------------------------------------------------

                                     NOTICE

                  The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Class B Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.

                  In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.




                                     B-2-8




                                                                     EXHIBIT B-3

                        Form of Class C Right Certificate

Certificate No. R- ____

                  NOT EXERCISABLE AFTER OCTOBER 6, 2009 OR EARLIER IF
                  REDEMPTION OR EXCHANGE OCCURS. THE CLASS C RIGHTS ARE
                  SUBJECT TO REDEMPTION AT $.01 PER CLASS C RIGHT AND
                  TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
                  AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH
                  IN THE RIGHTS AGREEMENT, CLASS C RIGHTS OWNED BY OR
                  TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING
                  PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
                  CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
                  AND WILL NO LONGER BE TRANSFERABLE.

                            Class C Right Certificate

                          THE NEIMAN MARCUS GROUP, INC.

                  This certifies that ___________ or registered assigns, is the
registered owner of the number of Class C Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of October 6, 1999, as the same may be amended
from time to time (the "Rights Agreement"), between The Neiman Marcus Group,
Inc., a Delaware corporation (the "Company"), and BankBoston, N.A., a national
banking association, (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., New York City time, on October 6, 2009 at the
office or agency of the Rights Agent designated for such purpose, or of its
successor as Rights Agent, one one-thousandth of a fully paid non-assessable
share of Series C Junior Participating Preferred Stock, par value $.01 per share
(the "Series C Preferred Stock"), of the Company, at a purchase price of $100.00
per one one-thousandth of a share of Series C Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Class C Right Certificate with
the Form of Election to Purchase duly executed. The number of Class C Rights
evidenced by this Class C Right Certificate (and the number of one
one-thousandths of a share of Series C Preferred Stock which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of October 18, 1999, based on the Series C
Preferred Stock as constituted at such date. As provided in the Rights
Agreement, the Purchase Price, the number of one one-thousandths of a share of
Series C Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Class C Rights and the number of Class C
Rights evidenced by this Class C Right Certificate are subject to modification
and adjustment upon the happening of certain events.

                  Notwithstanding anything in the Rights Agreement to the
contrary, from and after the time (the "invalidation time") when any person
first becomes an Acquiring Person (as






                                     B-3-1


defined in the Rights Agreement), the Class C Rights evidenced hereby
beneficially owned by (x) any Acquiring Person (or any Affiliate (as defined in
the Rights Agreement) or Associate (as defined in the Rights Agreement) of any
Acquiring Person), (y) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who becomes a transferee after the invalidation time or
(z) a transferee of any Acquiring Person (or any such Affiliate or Associate)
who became a transferee prior to or concurrently with the invalidation time
pursuant to either (I) a transfer from the Acquiring Person to holders of its
equity securities or to any person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Class C Rights or (II) a
transfer which the Board of Directors of the Company has determined is part of a
plan, arrangement or understanding which has the purpose or effect of avoiding
the provisions of Section 11(a)(ii) of the Rights Agreement, and subsequent
transferees of such persons, shall be void without any further action and any
holder hereof shall thereafter have no rights whatsoever with respect to the
Class C Rights evidenced hereby under any provision of the Rights Agreement.

                  This Class C Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Class C Right
Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned office or agency of the
Rights Agent. The Company will mail to the holder of this Class C Right
Certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor.

                  This Class C Right Certificate, with or without other Class C
Right Certificates, upon surrender at the office or agency of the Rights Agent
designated for such purpose, may be exchanged for another Class C Right
Certificate or Class C Right Certificates of like tenor and date evidencing
Class C Rights entitling the holder to purchase a like aggregate number of
shares of Series C Preferred Stock as the Class C Rights evidenced by the Class
C Right Certificate or Class C Right Certificates surrendered shall have
entitled such holder to purchase. If this Class C Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Class C Right Certificate or Class C Right Certificates for the number
of whole Class C Rights not exercised.

                  Subject to the provisions of the Rights Agreement, the Class C
Rights evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Class C Right or (ii) may be exchanged in whole or
in part for shares of Series C Preferred Stock or shares of the Company's Class
C Common Stock, par value $.01 per share.

                  No fractional shares of Series C Preferred Stock or Class C
Common Stock will be issued upon the exercise of any Class C Right or Class C
Rights evidenced hereby (other than fractions which are integral multiples of
one one-thousandth of a share of Series C Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.




                                     B-3-2


                  No holder of this Class C Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Series C Preferred Stock or of any other securities of the Company which may
at any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Class C Right or Class C Rights evidenced by
this Class C Right Certificate shall have been exercised as provided in the
Rights Agreement.

                  This Class C Right Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned by the Rights
Agent.




                                     B-3-3



                  WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _____________.

ATTEST:                                    THE NEIMAN MARCUS GROUP, INC.

By                                         By
   --------------------------                 ------------------------------

Countersigned:

- -----------------------------,
as Rights Agent



By
   --------------------------
   Authorized Signature




                                     B-3-4



                Form of Reverse Side of Class C Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such

            holder desires to transfer the Class C Right Certificate)

                  FOR VALUE RECEIVED _________________________ hereby sells,
assigns and transfers unto _________________________

- --------------------------------------------------------------------------------
                  (Please print name and address of transferee)

- --------------------------------------------------------------------------------
Class C Rights represented by this Class C Right Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ___________________ Attorney, to transfer said Class C Rights on the
books of the within-named Company, with full power of substitution.

Dated:
       -----------------

                                                  ------------------------------
                                                          Signature

Signature Guaranteed:

                  Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.


                                    (To be completed)

                  The undersigned hereby certifies that the Class C Rights
evidenced by this Class C Right Certificate are not beneficially owned by, were
not acquired by the undersigned from, and are not being assigned to, an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).

                                                  ------------------------------
                                                          Signature



                                     B-3-5



          Form of Reverse Side of Class C Right Certificate - continued

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise
          Class C Rights represented by the Class C Right Certificate)

To THE NEIMAN MARCUS GROUP, INC.

                  The undersigned hereby irrevocably elects to exercise
__________________ Class C Rights represented by this Class C Right Certificate
to purchase the shares of Series C Preferred Stock (or other securities or
property) issuable upon the exercise of such Class C Rights and requests that
certificates for such shares of Series C Preferred Stock (or such other
securities) be issued in the name of:

- --------------------------------------------------------------
(Please print name and address)

- --------------------------------------------------------------

If such number of Class C Rights shall not be all the Class C Rights evidenced
by this Class C Right Certificate, a new Class C Right Certificate for the
balance remaining of such Class C Rights shall be registered in the name of and
delivered to:

Please insert social security
or other identifying number

- --------------------------------------------------------------
(Please print name and address)

- --------------------------------------------------------------


Dated:
        --------------------

                                                  ------------------------------
                                                          Signature


(Signature must conform to holder specified on Class C Right Certificate)




                                     B-3-6



Signature Guaranteed:

                  Signature must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.




                                     B-3-7



         Form of Reverse Side of Class C Right Certificate -- continued

                                (To be completed)
- --------------------------------------------------------------------------------

                  The undersigned certifies that the Class C Rights evidenced by
this Class C Right Certificate are not beneficially owned by, and were not
acquired by the undersigned from, an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement)

                                                  ------------------------------
                                                          Signature


- --------------------------------------------------------------------------------

                                     NOTICE

                  The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Class C Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.

                  In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.




                                     B-3-8




                                                                       EXHIBIT C


         UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
         RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING
         PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES
         THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.

                          SUMMARY OF RIGHTS TO PURCHASE
                            Shares of Preferred Stock

                  On October 6, 1999, the Board of Directors of The Neiman
Marcus Group, Inc. (the "Company") declared a dividend of (i) one preferred
stock purchase right (a "Class A Right") for each outstanding share of Class A
Common Stock, par value $.01 per share, of the Company (the "Class A Common
Stock") to stockholders of record as of the close of business on October 18,
1999 (the "Record Date"), each Class A Right representing the right to purchase
one one-thousandth of a share of Series A Junior Participating Preferred Stock,
par value $.01 per share, of the Company (the "Series A Preferred Stock") and
(ii) one preferred stock purchase right (a "Class B Right" and, collectively
with the Class A Rights, the "Rights") for each outstanding share of Class B
Common Stock, par value $.01 per share, of the Company (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock") to
stockholders of record as of the Record Date, each Class B Right representing
the right to purchase one one-thousandth of a share of Series B Junior
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Series B Preferred Stock" and, collectively with the Series A Preferred Stock,
the "Preferred Stock"). In the event that shares of Class C Common Stock, par
value $.01 per share, of the Company (the "Class C Common Stock") are issued,
they will be issued together with preferred stock purchase rights (the "Class C
Rights") to acquire shares of Series C Junior Participating Preferred Stock, par
value $.01 per share, of the Company ("Series C Preferred Stock"). The
description and terms of the Rights are set forth in a Rights Agreement, dated
as of October 6, 1999, as the same may be amended from time to time (the "Rights
Agreement"), between the Company and BankBoston, N.A., as Rights Agent (the
"Rights Agent").

                  Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person"), other than an Exempt Person (as defined below), has
acquired beneficial ownership of (a) 15% or more of the outstanding shares of
Class B Common Stock or (b) shares of Common Stock representing, in the
aggregate, 15% or more of the total number of votes entitled to be cast
generally (other than in an election of directors) by the holders of the Common
Stock then outstanding or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of (a) 15% or more of the outstanding shares of
Class B Common Stock or (b) shares of Common Stock representing, in the
aggregate, 15% or more of the total number of votes entitled to be cast
generally (other than in an election of directors) by the holders of the Common
Stock





                                      C-1


then outstanding (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding as of the Record Date, by such Common Stock certificate
together with a copy of this Summary of Rights; provided, however, that if the
Board of Directors of the Company determines in good faith that a person who
would otherwise be an "Acquiring Person" has become such inadvertently and
without any intention of changing or influencing control of the Company, and
such person, as promptly as practicable divested or divests itself of beneficial
ownership of a sufficient number of shares of Common Stock so that such person
would no longer be an Acquiring Person, then such person shall not be deemed to
be or to have become an "Acquiring Person". No person will become an "Acquiring
Person" as the result of an acquisition of shares of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such person; provided, however, that if a
person shall become an "Acquiring Person" by reason of such share acquisitions
by the Company and thereafter become the beneficial owner of any additional
shares of Class B Common Stock, in the case of clause (a) of the definition of
"Acquiring Person" above, or Common Stock, in the case of clause (b) of the
definition of "Acquiring Person" above, then such person shall be deemed to be
an "Acquiring Person" unless upon the consummation of the acquisition of such
additional shares of Class B Common Stock or Common Stock, as the case may be,
such person does not own (a) 15% or more of the outstanding shares of Class B
Common Stock or (b) shares of Common Stock representing, in the aggregate, 15%
or more of the total number of votes entitled to be cast generally (other than
in an election of directors) by the holders of the Common Stock then
outstanding.

                  "Exempt Person" shall mean (i) the Company, (ii) any
Subsidiary (as such term is defined in the Rights Agreement) of the Company,
(iii) any employee benefit plan of the Company or of any Subsidiary of the
Company, (iv) any entity or trustee holding Common Stock for or pursuant to the
terms of any such plan or for the purpose of funding any such plan or funding
other employee benefits for employees of the Company or of any Subsidiary of the
Company, (v) Harcourt General, Inc., a Delaware corporation, but only for the
period beginning on the Record Date and ending at 12:01 a.m. on October 23, 1999
or (vi) the "Smith Family Group" (as such term is defined in the Rights
Agreement and which, in general, includes Richard A. Smith, Chairman of the
Company, Robert A. Smith and Brian J. Knez, Co-Chief Executive Officers of the
Company and certain members of their families and certain related entities) with
respect to the beneficial ownership of shares of Common Stock on the Record Date
and for so long as the Smith Family Group does not, subject to certain
exceptions, acquire after the Record Date beneficial ownership of either an
additional 6% or more of the Class B Common Stock outstanding or shares of
Common Stock representing an additional 6% or more of the total voting power of
the Company represented by the shares of Common Stock outstanding.

                  The Rights Agreement provides that, until the Distribution
Date (or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Common Stock certificates
issued after the Record Date upon transfer or new issuances of Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights, will also constitute the transfer of the





                                      C-2


Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Class A Rights (the "Class A Right Certificates")
and Class B Rights (the "Class B Rights Certificates") will be mailed to holders
of record of the Class A Common Stock and Class B Common Stock, respectively, as
of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.

                  The Rights are not exercisable until the Distribution Date.
The Rights will expire on October 6, 2009 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case as described below.

                  The Purchase Price payable, and the number of shares of the
applicable series of Preferred Stock or other securities or property issuable,
upon exercise of the Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the applicable series of Preferred Stock,
(ii) upon the grant to holders of the applicable series of Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the applicable series of Preferred
Stock or (iii) upon the distribution to holders of the applicable series of
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends or dividends payable in Preferred Stock) or of
subscription rights or warrants (other than those referred to above).

                  The number of outstanding Rights are also subject to
adjustment in the event of a stock split of the applicable class of Common Stock
or a stock dividend on the applicable class of Common Stock payable in shares of
Common Stock or subdivisions, consolidations or combinations of the applicable
class of Common Stock occurring, in any such case, prior to the Distribution
Date.

                  Shares of Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Preferred Stock will be entitled,
when, as and if declared, to a minimum preferential quarterly dividend payment
of $1.00 per share but will be entitled to an aggregate dividend of 1,000 times
the dividend declared per share of the applicable class of Common Stock. In the
event of liquidation, the holders of the Preferred Stock will be entitled to a
minimum preferential liquidation payment of $1,000 per share (plus any accrued
but unpaid dividends) but will be entitled to an aggregate payment of 1,000
times the payment made per share of the applicable class of Common Stock. Each
share of Preferred Stock will have 1,000 times the number of votes each share of
the applicable class of Common Stock has on matters such class is entitled to
vote on, which shall be voted together with the applicable class of Common
Stock. Finally, in the event of any merger, consolidation or other transaction
in which shares of Common Stock are converted or exchanged, each share of the
applicable series of Preferred Stock will be entitled to receive 1,000 times the
amount received per share of the applicable class of Common Stock. These rights
are protected by customary antidilution provisions.




                                      C-3


                  Because of the nature of the Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
share of Preferred Stock purchasable upon exercise of each Class A Right and
Class B Right, respectively, should approximate the value of one share of Class
A Common Stock and Class B Common Stock, respectively.

                  In the event that any person or group of affiliated or
associated persons becomes an Acquiring Person, proper provision will be made so
that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person or any affiliate or associate of the Acquiring Person or
certain other transferees (which will thereupon become void), will thereafter
have the right to receive upon exercise of a Right at the then current exercise
price of the Right, that number of shares of Class A Common Stock (in the case
of a Class A Right) or Class B Common Stock (in the case of a Class B Right), or
that number of one one-thousandths of a share of the applicable series of
Preferred Stock, having a market value of two times the exercise price of the
Right.

                  In the event that, after a person or group has become an
Acquiring Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
(other than Rights beneficially owned by an Acquiring Person or any affiliate or
associate of the Acquiring Person or certain other transferees which will have
become void) will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number of shares
of common stock of the person with whom the Company has engaged in the foregoing
transaction (or its parent), which number of shares at the time of such
transaction will have a market value of two times the exercise price of the
Right.

                  At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding shares of Class B Common Stock, the acquisition by such person
or group of shares of Common Stock representing, in the aggregate, 50% or more
of the total number of votes entitled to be cast generally (other than in an
election of directors) by the holders of the Common Stock then outstanding or
the occurrence of an event described in the prior paragraph, the Board of
Directors of the Company may exchange the Rights (other than Rights owned by
such person or group which will have become void), in whole or in part, at an
exchange ratio of one share of Class A Common Stock (in the case of a Class A
Right) or Class B Common Stock (in the case of a Class B Right), or one
one-thousandth of a share of Preferred Stock (or of a share of a class or series
of the Company's preferred stock having equivalent rights, preferences and
privileges), per Class A Right or Class B Right, as the case may be (subject to
adjustment).

                  With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional shares of Preferred Stock will be
issued (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Stock on the last
trading day prior to the date of exercise.




                                      C-4


                  At any time prior to the time an Acquiring Person becomes
such, the Board of Directors of the Company may redeem the Rights in whole, but
not in part, at a price of $.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

                  For so long as the Rights are then redeemable, the Company
may, except with respect to the Redemption Price, amend the Rights in any
manner. After the Rights are no longer redeemable, the Company may, except with
respect to the Redemption Price, amend the Rights in any manner that does not
adversely affect the interests of holders of the Rights.

                  Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.

                  A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A dated October 15, 1999. A copy of the Rights Agreement is available
free of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, as the same may be amended from time to time, which is hereby
incorporated herein by reference.




                                      C-5

EX-10.1

                                                                    EXHIBIT 10.1




                          THE NEIMAN-MARCUS GROUP, INC.

                            1987 STOCK INCENTIVE PLAN









                          THE NEIMAN-MARCUS GROUP, INC.
                            1987 STOCK INCENTIVE PLAN


1.       Purposes of the Plan.

         The purposes of The Neiman-Marcus Group, Inc. 1987 Stock Incentive Plan
are to provide a means to attract and retain competent personnel and to provide
to participating officers and other key employees long-term incentive for high
levels of performance and for unusual efforts to improve the financial
performance of The Neiman-Marcus Group, Inc. These purposes may be achieved
through the grant of options to purchase Common Stock of The Neiman-Marcus
Group, Inc., the grant of Stock Appreciation Rights, and the grant of other
Stock-Based Awards. This Plan also shall apply to outstanding stock options
granted under the Prior Stock Option Plans which, in the Restructuring, are
converted, in whole or in part, into Stock Options for shares of Common Stock.

2.       Definitions.

         (a) "Affiliate" means any corporation or other entity which is not a
parent or subsidiary corporation (as defined in Section 425 of the Code) and (i)
with respect to which the Company possesses a direct or indirect ownership
interest in, and has the power to exercise management control over, such
corporation or entity, or (ii) which posses a direct or indirect ownership
interest in, and has the power to exercise management control over, the Company.

         (b) "Board" means the Board of Directors of the Company or the
Executive Committee thereof.

         (c) "Carter Hawley" Means Carter Hawley Hale Stores, Inc.

         (d) "Committee" means the Compensation Committee of the Board, or any
other committee the Board may subsequently appoint to administer the Plan, as
herein defined. The Committee shall be composed entirely of members of the Board
who meet the requirements of Section 4(a) hereof.

         (e) "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.

         (f) "Common Stock" means the common stock of the Company having a par
value of $0.01 per share.

         (g) "Company" means The Neiman-Marcus Group, Inc., and any present or
future parent or subsidiary corporations (as defines in Section 425 of the Code)
or any successor to such corporations.

         (h) "Employee" means any employee of the Company or its Affiliates.

         (i) "Fair Market Value" means the closing price of Common Stock as
quoted on the composite Tape as published in The Wall Street Journal on the date
as of which fair market value is to be determined, or if there is no trading of
Common Stock on such date, the closing price of Common Stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares.

         (j) "Incentive Award" means a Stock Option, Stock Appreciation Right or
Stock-Based Award granted under the Plan, as herein defined.

         (k) "Incentive Award" means a Stock Option that is intended to meet the
requirements of Section 422A of the Code and regulations thereunder.

         (l) "Nonstatutory Stock Option" means a Stock Option other than an
Incentive Stock Option.

         (m) "Participant" means any key Employee selected to receive an
Incentive Award under the Plan.

         (n) "Plan" means The Neiman-Marcus Group, Inc. 1987 Stock Incentive
Plan as set forth herein, as it may be amended from time to time.

         (o) "Prior Stock Option Plans" means the Long-Term Incentive
Compensation Plan, Nonqualified Stock Option Plan and 1985 Stock Incentive Plan
of Carter Hawley.

         (p) "Restructuring" means the restructuring of Carter Hawley pursuant
to a plan of restructuring adopted by the Board of Directors of Carter Hawley
and approved by the stockholders of Carter Hawley at Carter Hawley's 1987 annual
meeting.



                                       2


         (q) "Stock Appreciation Right" means the right to receive an amount up
to the excess of the Fair Market Value of a share of Common Stock (as determined
on the date of exercise), over (i) if the Stock Appreciation Right is granted
without relationship to a Stock Option, the Fair Market Value of a share of
Common Stock on the date the Stock Appreciation Right was granted, or (ii) if
the Stock Appreciation Right is related to a Stock Option, the purchase price of
a share of Common Stock specified in the related Stock Option.

         (r) "Stock-Based Award" means any award granted under Section 8.

         (s) "Stock Option" means a right to purchase Common Stock.

3.       Shares of Common Stock Subject to the Plan.

         (a) Subject to the provisions of Section 3 (c) and Section 9 of the
Plan, the aggregate number of shares of Common Stock that may be issued or
transferred pursuant to Incentive Awards under the Plan will not exceed
1,250,000 shares, plus the number of shares issued upon exercises of outstanding
stock options granted under the Prior Stock Option Plans or under any other plan
whose outstanding stock options are assumed under this Plan.

         (b) The common Stock to be delivered under the Plan will be made
available, at the discretion of the Board of the Committee, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company, including shares purchased on the
open market.

         (c) If any Incentive Award shall expire or terminate for any reason,
without being exercised or paid, shares of Common Stock subject to such
Incentive Award shall again be available for grant under subsequent Incentive
Awards. Shares of Common Stock reserved for issuance upon payment of a
Stock-Based Award when payment of the Stock-Based Award is made in cash shall be
available for grant under subsequent Incentive Awards. Shares as to which a
Stock Option has been surrendered in connection with the exercise of a related
Stock Appreciation Right will not be available for grant under subsequent
Incentive Award.

         (d) Subject to the general limitations contained in Sections 6, 7, 9
and 11, the Committee may make any adjustment in the exercise price, the number
of shares subject to, or the terms of a Nonstatutory Stock Option or Stock
Appreciation Right by cancellation of an outstanding Nonstatutory Stock Option
or Stock Appreciation Right and a subsequent regranting of a Nonstatutory Stock
Option or Stock Appreciation Right, by amendment or by substitution of an
outstanding Nonstatutory Stock Option or Stock Appreciation Right. Such
amendment, substitution, or regrant may result in an exercise price that is
higher or lower than the exercise price of the Nonstatutory Stock Option or
Stock Appreciation Right, provide for a greater or lesser number of shares
subject to the Nonstatutory Stock Option or Stock Appreciation Right, or provide
for a longer or shorter term than the prior Nonstatutory Stock Option or Stock
Appreciation Right, or provide for a longer or shorter term than the prior
Nonstatutory Stock Option or Stock Appreciation Right; provided, however, that
the Committee may not adversely affect the rights of any Participant to
previously granted Incentive Awards without the consent of such Participant. If
such action is effected by amendment, the effective date of such amendment may
be the date of the original grant.

4.       Administration of the Plan.

         (a) The Plan will be administered by the Committee, which will consist
of three or more persons (i) who are not eligible to receive Incentive Awards
under the Plan, and (ii) who have not been eligible within one year before
appointment to the Committee, for selection as persons to whom Incentive Awards
may be granted pursuant to the Plan, or to whom shares may be allocated or stock
options, stock appreciation rights or other stock-based awards may be granted
pursuant to an other plan of the Company entitling the participants to acquire
stock, stock appreciation rights, stock options or stock-based rights in the
Company.



                                       3


         (b) The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan. The Committee has authority in its
discretion to determine the key Employees to whom and the time or times at which
Incentive Awards may be granted or sold, to determine the number of shares of
Common Stock, Stock Appreciation Rights or the number and type of Stock-Based
Awards that make up each Incentive Award and to grant Incentive Awards. Each
Incentive Award will be evidenced by a written instrument and may include any
other terms and conditions consistent with the Plan, as the Committee may
determine. The Committee also has authority to interpret the Plan, to determine
the terms and provisions of the respective Incentive Award agreements and to
make all other determinations necessary or advisable for Plan administration.
The Committee has authority to prescribe, amend, and rescind rules and
regulations relating to the Plan. All interpretations, determinations and
actions by the Committee will be final, conclusive and binding upon all parties.
Any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote or by the unanimous written consent of its
members.

         (c) No member of the Board or the Committee and no Employee will be
liable for any action taken, or determination or omission made, in good faith by
the Board, the Committee or any Employee with respect to the Plan or any
Incentive Award granted under it.

5.       Participation.

         (a) The Committee shall from time to time designate those key
Employees, if any, to be granted Incentive Awards under the Plan, the type of
awards granted, the number of shares, options, rights or units, as the case may
be, which shall be granted to each such Employee, and any other terms or
conditions relating to the awards as it may deep appropriate, consistent with
the provisions of the Plan. Participants may be designated at any time, and it
shall not be necessary that all Participants be designated at the same meeting
of the Committee. An individual who has been granted an Incentive Award may, if
otherwise eligible, be granted additional Incentive Awards if the Committee so
determines.

         (b) No person will be eligible for the grant of an Incentive Stock
Option who owns or would own immediately before the grant of such Stock Option,
directly or indirectly, stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company. This restriction
does not apply if, at the time such Incentive Stock Option is granted, the
Incentive Stock Option exercise price is at least 110% of the Fair Market Value
on the date of grant and the Incentive Stock Option by its terms is not
exercisable after the expiration of five years from the date of grant.

         (c) In no event may any member of the Board who is not an officer or
other Employee be granted an incentive Award under the Plan.

6.       Terms and Conditions of Stock Options.

         (a) Nonstatutory Stock Options may be granted to any key employee
selected by the Committee. Incentive Stock Options may be granted only to key
employees of the Company as selected by the Committee.

         (b) The purchase price of Common Stock under each Stock Option will be
determined by the Committee, but may not be less than the Fair Market Value on
the date of grant.

         (c) Stock Options may be exercised as determined by the Committee but
in no event after ten years from the date of grant in the case of Incentive
Stock Options, or after ten years and one day from the date of grant in the case
of Nonstatutory Stock Options.

         (d) Upon the exercise of a Stock Option, this purchase price will be
payable in full in cash or its equivalent acceptable to the Company. To the
extent provided by the Stock Option, the purchase price may be paid by the
assignment and delivery to the Company of shares of Common Stock or a
combination of cash and such shares equal in value to the exercise price. Any
shares so assigned and



                                       4


delivered to the Company in payment or partial payment of the purchase price
will be valued at their Fair Market Value on the exercise date.

         (e) Notwithstanding any other provision of the Plan, any Participant
who disposes of shares of Common Stock acquired on the exercise of an Incentive
Stock Option by sale or exchange either (i) within two years after the date of
the grant of the Stock Option which the stock was acquired or (ii) within one
year after the transfer of such shares to him pursuant to exercise shall notify
the Company of such disposition and of the amount realized and of his adjusted
basis in such shares; and

                  (i) in the case of any Incentive Stock Option granted under
         any of t he Prior Stock Option Plans through December 31, 1986, (A) the
         aggregate Fair Market Value (determined as of the time the Stock Option
         was granted) of the shares of Common Stock for which any Employee was
         granted Incentive Stock Options in any calendar year shall not have
         exceeded $100,000 plus any unused carryover, computed in accordance
         with Section 422(c)(4) of the Internal Revenue Code of 1954, as such
         Section read prior to its deletion by the Tax Reform Act of 1986; and
         (B) no such Stock Option shall have been or shall be exercisable while
         there was or is outstanding any Incentive Stock Option which was
         granted to the Participant before the grant of such Stock Option (and,
         for this purpose, an Incentive Stock Option shall be treated as
         outstanding until it is exercised in full or expires by reason of lapse
         of time); and

                  (ii) in the case of any Incentive Stock Option granted under
         the Plan, the Fair Market Value (determined at the time the Incentive
         Stock Option is granted) of the shares of Common Stock with respect to
         which Incentive Stock Options are exercisable for the first time by an
         Employee during any calendar year under this Plan or any other stock
         option plan of the Company will not exceed $100,000.

         (f) No fractional shares will be issued pursuant to the exercise of a
Stock Option; payment for the fractional shares will be made in cash. Upon the
exercise of a Stock Option, not less than 50 shares may be purchased at one time
unless the number then available for purchase is less than 50 in which case the
full number available must be purchased.

         (g) A Stock Option granted under this Plan shall, by its terms, be
non-transferable by a Participant other than by will or the laws of descent and
distribution, and shall be exercisable during the Participant's lifetime solely
by the Participant or the Participant's duly appointed guardian or personal
representative.

         (h) Outstanding stock options granted under the Prior Stock Option
Plans which, in the Restructuring, are converted, in whole or in part, into
Stock Options for shares of Common Stock, will be subject to the same terms and
conditions as were in effect immediately prior to the Restructuring.

7.       Terms and Conditions of Stock Appreciation Rights.

         (a) A Stock Appreciation Right may be granted in connection with a
Stock Option, either at the time of grant or at any time thereafter during the
term of the Stock Option, or may be granted unrelated to a Stock Option.

         (b) A Stock Appreciation Right related to a Stock Option shall require
the holder, upon exercise, to surrender such Stock Option with respect to the
number of shares as to which such Stock Appreciation Right is exercised, in
order to receive payment of an amount computed pursuant to Section 7(e). Such
Stock Option will, to the extent surrendered, then cease to be exercisable.

         (c) In the case of Stock Appreciation Rights granted in relation to
Stock Options, if the Stock Appreciation Right covers as many shares as the
related Stock Option, the exercise of a related Stock Option shall cause the
number of shares covered by the Stock Appreciation Right to be reduced by the
number of shares with respect to which the related Stock Option is exercised. If
the Stock Appreciation Right covers fewer shares than the related Stock Option,
when a portion of the related Stock Option is



                                       5

exercised, the number of shares subject to the unexercised Stock Appreciation
Right shall be reduced only to the extent necessary so that the number of
remaining shares subject to the Stock Appreciation Right is not more than the
remaining shares subject to the Stock Option.

         (d) Subject to Section 7(k), a Stock Appreciation Right granted in
connection with a Stock Option will be exercisable at such time or times, and
only to the extent that a related Stock Option is exercisable, and will not be
transferable except to the extent that such related Stock Option may be
transferable.

         (e) Upon exercise of a Stock Appreciation Right related to a Stock
Option, the holder will be entitled to receive payment of an amount determined
by multiplying:

                  (i) The difference obtained by subtracting the purchase price
         of a share of Common Stock specified in the related Stock Option from
         the Fair Market Value of a share of Common Stock on the date of
         exercise of such Stock Appreciation Right, by

                  (ii) The number of shares as to which each Stock Appreciation
         Right will have been exercised.

         (f) A Stock Appreciation Right granted without relationship to a Stock
Option will be exercisable as determined by the Committee but in no event after
ten years from the date of grant.

         (g) A Stock Appreciation Right granted without relationship to a Stock
Option will entitle the holder, upon exercise of the Stock Appreciation Right,
to receive payment of an amount determined by multiplying:

                  (i) The difference obtained by subtracting the Fair Market
         Value of a share of Common Stock on the date the Stock Appreciation
         Right is granted from the Fair Market Value of a share of Common Stock
         on the date of exercise of such Stock Appreciation Right, by

                  (ii) The number of shares as to which such Stock Appreciation
         Right will have been exercised.

         (h) Notwithstanding subsections (e) and (g) above, the Committee may
place a limitation on the amount payable upon exercise of a Stock Appreciation
Right. Any such limitation must be determined as of the date of grant and noted
on the instrument evidencing the Participant's Stock Appreciation Right granted
hereunder.

         (i) Payment of the amount determined under subsections (e) and (g)
above made be made solely in whole shares of Common Stock valued at their Fair
Market Value on the date of exercise of the Stock Appreciation Right or
alternatively, in the sole discretion of the Committee, solely in cash or a
combination of cash and shares as the Committee deems advisable. If the
Committee decides to make full payment in shares of Common Stock, and the amount
payable results in a fractional share, payment for the fractional share will be
made in cash.

         (j) A Stock Appreciation Right granted under this Plan shall, by its
terms, be non-transferable by a Participant other than by will or the laws of
descent and distribution and shall be exercisable during the Participant's
lifetime solely by the Participant or the Participant's duly appointed guardian
or personal representative.

         (k) So long as required by the federal securities laws, no Stock
Appreciation Right granted to an Employee subject to Section 16 of the
Securities Exchange Act of 1934, as amended, may be exercised before six months
after the date of grant except in the event of death or disability of such
Employee occurs before the expiration of the six-month period; any exercise of a
Stock Appreciation Right for cash will be made only during the period beginning
on the third business day following the date of release for publication of the
Company's regular quarterly or annual summary statement of revenues



                                       6


and income (assuming such financial data appears on a wire service, in a
financial news service, or in a newspaper of general circulation, or is
otherwise made publicly available) and ending on the twelfth business date
following such date.

         (l) The Committee may impose such additional conditions or limitations
on the exercise of a Stock Appreciation Right as it may deem necessary or
desirable to secure for holders of Stock Appreciation Rights the benefits of
Rule 18b-3 promulgated under Section 16(b) of the Securities Exchange Act of
1934, as amended, or any successor provision in effect at the time of grant or
exercise of a Stock Appreciation Right or as it may otherwise deem advisable.

         (m) The Committee may, in it discretion, defer payment with respect to
an exercise of a Stock Appreciation Right to some later time, but in no event
later than 12 months after the exercise of the Stock Appreciation Right;
provided, however, the Committee may not defer payment with respect to a Stock
Appreciation Right which is related to an Incentive Stock Option.

8.       Stock-Based Awards.

         The Committee may grant awards of shares, share units, or cash payments
valued with reference to the Fair Market Value of Common Stock, including
(without limitation) restricted shares, restricted share units, performance
shares, performance share units, and tax-offset payments. Subject to the
provisions of the Plan, the Committee shall have complete discretion to
determine the terms and conditions applicable to such awards. Such terms and
conditions may require, among other things, continued employment and/or the
attainment of specified performance objectives. The Committee shall determine
whether awards granted under this Section 8 shall be settled in cash, Common
Stock or a combination of cash and Common Stock.

9.       Adjustment Provisions

         (a) If the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all the property of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment may be
made in (i) the maximum number and kind of shares provided in Section 3, (ii)
the number and kind of shares or other securities subject to the
then-outstanding Incentive Awards, and (iii) the price for each share or other
unit of any other securities subject to then-outstanding Incentive Awards
without change in the aggregate purchase price or value as to which such
Incentive Awards remain exercisable or subject to restrictions.

         (b) Adjustments under paragraph (b) will be made by the Committee,
whose determination as to what adjustments will be made and the extent thereof
will be made and the extent thereof will be final, binding, and conclusive. No
fractional interest will be issued under the Plan on account of any such
adjustments.

10.      General Provisions.

         (a) Nothing in the Plan or in any instrument executed pursuant to the
Plan will confer upon any Participant any right to continue in the employ of the
Company or its Affiliates or affect the right of the Company or its Affiliates
to terminate the employment of any Participant at any time for any reason.

         (b) No shares of Common Stock will be issued or transferred pursuant to
an Incentive Award unless and until all then-applicable requirements imposed by
federal and state securities and other laws, rules and regulations and by any
regulatory agencies having jurisdiction and by any stock exchanges upon which
the Common Stock may be listed, have been fully met. As a condition precedent to
the



                                       7


issuance of shares pursuant to the grant or exercise of an Incentive Award, the
Company may require the Participant to take any reasonable action to meet such
requirements.

         (c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Incentive Award except as to such shares of Common Stock, if any, that have been
issued or transferred to such Participant, beneficiary or other person.

         (d) The Company may make such provisions as it deems appropriate to
withhold any taxes the Company determines it is required to withhold in
connection with any Incentive Award. The Company may require the Participant to
satisfy any relevant tax requirements before authorizing any issuance of Common
Stock to the Participant.

         (e) No Incentive Award and no right under the Plan, contingent or
otherwise, will be assignable or subject to any encumbrance, pledge or charge of
any nature except that, under such rules and regulations as the Company may
establish pursuant to the terms of the Plan, a beneficiary may be designated
with respect to an Incentive Award in the event of death of a Participant. If
such beneficiary is the executor or administrator of the estate of the
Participant, any rights with respect to such Incentive Award may be transferred
to the person or persons or entity (including a trust) entitled thereto under
the will of the holder of such Incentive Award.

         (f) The Committee shall have sole discretion to determine the time or
times and conditions under which Stock Options or Stock Appreciation Rights may
be exercised and, as provided in Section 8, the terms and conditions of
Stock-Based Awards and the extent to which Participants or their beneficiaries
may exercise Stock Options and Stock Appreciation Rights and receive payment
with respect to, or otherwise obtain the benefits of Stock-Based Awards upon
such Participant's retirement, death or other termination of the Participant's
employment with the Company of its affiliates. The provisions applicable to the
Stock Options, Stock Appreciation Rights and/or Stock-Based Awards of a
particular Participant upon the Participant's termination of employment with the
Company of its Affiliates will be set forth in each agreement under which an
Incentive Award is made.

         (g) (i) If the Committee in its sole discretion to determine that as a
matter of law such procedure is or may be desirable, it may require the
Participant, on any exercise or payment of an Incentive Award, or any portion
thereof, and as a condition to the Company's obligation to deliver to the
Participant certificates representing shares of Common Stock, to execute and
deliver to the Company a written statement, in form satisfactory to the Company,
representing and warranting that his purchase or receipt of shares of Common
Stock is for his own account for investment and not with a view to resale or
distribution thereof and that any subsequent sale or offer for sale of any of
such shares shall be made pursuant to either (A) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended, which has become
effective and is current with respect to the shares being offered and sold or
(B) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption the Participant shall, before any sale or
offer of sale of such shares, obtain a favorable written opinion from counsel
for or approved by the Company as to the availability of such exemption.

             (ii) The Company may endorse an appropriate legend referring to the
foregoing restrictions or other restrictions which may be applied under the Plan
on the certificate or certificates representing any shares of Common Stock
issued or transferred to a Participant under any Incentive Award granted under
the Plan.

         (h) If at any time the Board shall determine in its discretion that the
listing, registration or qualifications of the shares of Common Stock covered by
the Plan on any national securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition to or in connection with the sale or transfer of shares
of Common Stock under the Plan, no shares will be delivered unless and until
such listing, registration, qualification,



                                       8


consent or approval shall have been effected or obtained or otherwise provided
for, free of any conditions not acceptable to the Board.

11.      Amendment and Termination of Plan; Amendment of Incentive Awards.

         (a) The Board or the Committee will have the power, in it s discretion,
to amend, suspend or terminate the Plan at any time. No such amendment will,
without approval of the shareholders of the Company:

                  (i) Change the class of persons eligible to receive Incentive
         Awards under the Plan;

                  (ii) Materially increase the benefits accruing to Participants
         under the Plan;

                  (iii) Increase the number of shares of Common Stock subject to
         the Plan; or

                  (iv) Transfer the administration of the Plan to any person who
         is not a "disinterested administrator" under rule 16b.

         (b) Except as otherwise provided by Section 3(d) and Section 9, the
Committee may not, without the consent of a Participant, make modifications in
the terms and conditions of an Incentive Award which may adversely affect the
Participant's Incentive Award.

         (c) No amendment, suspension or termination of the Plan will, without
the consent of the Participant, alter, terminate or adversely affect any right
or obligation under any Incentive Award previously granted under the Plan.

         (d) The Committee may refrain from designating any participants or may
refrain from making any Incentive Awards, but such action shall not be deemed a
termination of the Plan. No Employee shall have any claim or right to be granted
Incentive Awards under the Plan.

12.     Effective Date of Plan and Duration of Plan.

         This Plan will become effective upon adoption by the Board of Directors
of Carter Hawley, subject to approval by the shareholders of Carter Hawley of
the Restructuring, of which approval of this Plan is a part. No grants of
Incentive Awards will be made under the Plan until after the effective time of
the Restructuring. The Plan will terminate, unless sooner terminated under
Section 11, the day before the tenth anniversary of the day on which the Plan
was adopted by the Board of Directors.






                                       9

EX-10.5

                                                                    EXHIBIT 10.5




                          THE NEIMAN MARCUS GROUP, INC.

                             SUPPLEMENTAL EXECUTIVE

                                 RETIREMENT PLAN

                  Amended and Restated Effective August 1, 1993







                          THE NEIMAN MARCUS GROUP, INC.

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN


                                TABLE OF CONTENTS




ARTICLE                                                                                          PAGE
- -------                                                                                          ----

                                                                                              
Article 1.-DEFINITIONS..............................................................................5
         1.1. "Augmentation Plan" ..................................................................5
         1.2. "Basic Plan" .........................................................................5
         1.3. "Board of Directors" .................................................................5
         1.4. "CHH Plan" ...........................................................................5
         1.5. "Code" ...............................................................................5
         1.6. "Committee" ..........................................................................5
         1.7. "Company" ............................................................................5
         1.8  "Compensation.........................................................................6
         1.9. "Effective Date" .....................................................................6
         1.10. "Eligible Employee" .................................................................6
         1.11. "Individual Pension Agreement" ......................................................7
         1.12. "Minimum Salary" ....................................................................7
         1.13. "Normal Form" .......................................................................7
         1.14  "Participant" .......................................................................7
         1.15. "Participating Employer" ............................................................7
         1.16. "Plan" ..............................................................................7
         1.17. "Plan Year" .........................................................................7
         1.18. "Service" ...........................................................................8
         1.19. "Social Security Benefit" ...........................................................8
         1.20. "Spouse" ............................................................................9

Article 2.-PARTICIPATION ...........................................................................10
         2.1. Commencement of Participation ........................................................10
         2.2. Duration of Participation ............................................................10
         2.3. Reduction in Participants ............................................................10

Article 3.-S0URCE OF BENEFIT PAYMENTS ..............................................................12

Article 4.-RETIREMENT BENEFITS .....................................................................13
         4.1. Normal or Late Retirement Benefit ....................................................13
         4.2. Early Retirement Benefit .............................................................13
         4.3. Vested Termination Benefit ...........................................................15
         4.4. Other Termination of Employment; Death................................................15
         4.5. Optional Forms of Benefits ...........................................................16
         4.6. Forfeiture of Benefits ...............................................................17




                                       2

                                                                                                 
         4.7. Surviving Spouse Benefit .............................................................17
         4.8. Disability ...........................................................................17
         4.9. No Reduction in Accrued Benefit Under CHH Plan........................................18
         4.10. Lump Sum Settlements ................................................................18
         4.11. Reemployment After Retirement .......................................................18

Article 5.-COMMITTEE................................................................................20
         5.1. Plan Administration and Interpretation................................................20
         5.2. Powers, Duties, Procedures, etc. .....................................................20
         5.3. Information ..........................................................................21
         5.4. Indemnification of Committee .........................................................21

Article 6. -AMENDMENT AND TERMINATION...............................................................22
         6.1. Amendments ...........................................................................22
         6.2. Termination of Plan...................................................................22

Article 7.-MISCELLANEOUS ...........................................................................23
         7.1. Nonassignability .....................................................................23
         7.2. Limitation on Participants' Rights ...................................................23
         7.3. Participants Bound ...................................................................23
         7.4. Receipt and Release...................................................................23
         7.5. Governing Law ........................................................................24
         7.6. Headings and Subheadings .............................................................24






                                       3




                          THE NEIMAN MARCUS GROUP, INC.

                             SUPPLEMENTAL EXECUTIVE

                                 RETIREMENT PLAN

                                     Purpose

         The Company originally adopted this Plan, effective August 7, 1987, for
a select group of management personnel in order to:

                  (a) attract, retain and motivate qualified management
         personnel;

                  (b) facilitate the retirement of management personnel; and

                  (c) provide survivor income for the spouses of management
         personnel.

         The Company hereby amends and restates the Plan to make certain changes
and clarifications. The Plan is intended to be "a plan which is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of Sections 201(2) and 301(a)(3) of ERISA, and shall be
interpreted and administered to the extent possible in a manner consistent with
that intent.



                                       4




                            Article 1. - Definitions

Wherever used herein the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:

         1.1. "Augmentation Plan" means the Augmentation to Pension Plan for
Employees of Carter Hawley Hale Stores, Inc.

         1.2. "Basic Plan" means The Neiman Marcus Group, Inc. Retirement Plan
as amended from time to time. Reference to any Article or Section of the Basic
Plan shall include reference to any comparable or successor provisions of the
Basic Plan as amended from time to time.

         1.3. "Board of Directors" means the Board of Directors of the Company.

         1.4. "CHH Plan" means the Supplemental Executive Retirement Plan of
Carter Hawley Hale Stores, Inc, as in effect on the day before the Effective
Date.

         1.5. "Code" means the Internal Revenue Code of 1986, as amended from
time to time. Reference to any Section or subsection of the Code includes
reference to any comparable or succeeding provisions of any legislation which
amends, supplements or replaces such Section or subsection.

         1.6. "Committee" means the Employee Benefits Committee appointed by the
Board of Directors or its Executive Committee.

         1.7. "Company" means The Neiman Marcus Group, Inc., a Delaware
corporation and any successor to all or substantially all of its assets or
business which assumes the obligations of the Company.





                                       5




         1.8. "Compensation" means, with respect to any given period, the
aggregate compensation, exclusive of any bonuses, paid to an Eligible Employee
by one or more Participating Employers during such period, whether before or
after he or she becomes an Eligible Employee. "Compensation" shall be determined
before any reduction under Section 125 or 40 1 (k) of the Code or under any
other deferred compensation plan or arrangement, but shall not otherwise include
any Participating Employer contributions under retirement or other benefit plans
or arrangements, or any expense reimbursements, imputed compensation, property,
or payments of compensation previously deferred. In the case of an Eligible
Employee who was, immediately prior to the Effective Date, employed by Carter
Hawley Hale Stores, Inc. ("CHH") or any of its affiliates, the term
"Participating Employer" shall, for purposes of this Section 1.7, include CHH
and its affiliates.

         1.9. "Effective Date" means August 2, 1987.

         1.10. "Eligible Employee" means each employee of a Participating
Employer who, on any August 1,

                  (a) is employed in an executive, administrative, or
         professional capacity as defined in Section 13(a)(I) of the Fair Labor
         Standards Act, as amended, and the regulations thereunder,

                  (b) participates in the Basic Plan,

                  (c) had a base salary on the immediately preceding December 31
         at least equal to the Minimum Salary, and

                  (d) is not employed as a salesperson.




                                       6


         1.11. "Individual Pension Agreement" means a deferred compensation
agreement between a Participating Employer and an Eligible Employee which
provides for payment by the Participating Employer of supplementary retirement
benefits, but shall not include any agreement to defer compensation under The
Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan or any similar
plan or arrangement.

         1.12. "Minimum Salary" means:

                  (a) for December 31 of each of the years 1992 through 1995,
         the amount in effect under Section 414(q)(1)(B) of the Code for the
         year following such December 31; and

                  (b) for December 31, 1996, and each December 31 thereafter,
         $100,000.

         1.13. "Normal Form" means a form of benefit payable monthly to an
individual during his or her lifetime, the first payment to be due on the date
of the commencement of his or her benefits under the Plan, and the last payment
to be due for the calendar month in which his or her death occurs.

         1.14. "Participant" means any individual who participates in the Plan
in accordance with Article 2.

         1.15. "Participating Employer" means the Company and any affiliate or
subsidiary of the Company which is a Participating Employer as defined in the
Basic Plan.

         1.16. "Plan" means The Neiman Marcus Group, Inc. Supplemental Executive
Retirement Plan as set forth herein and in all subsequent amendments hereto.

         1.17. "Plan Year" means the 52 or 53 week period ending on the Saturday
nearest to July 31 of each year.



                                       7


         1.18. "Service" means the period measured in years equal to years of
Vesting Service determined under the Basic Plan, subject to the following
special rules:

                           (a) Years of Vesting Service, if any, prior to the
                  Effective Date shall be determined in accordance with the
                  rules of the Pension Plan for Employees of Carter Hawley Hale
                  Stores, Inc. that applied on August 1, 1987 to employees hired
                  after June 30, 1980; and

                           (b) A Participant shall be credited with a full year
                  of Service for each partial year of Vesting Service
                  interrupted by a Period of Severance, provided that (i) the
                  Participant is credited with at least 1,000 Hours of Service
                  during such partial year of Vesting Service, and (ii) no more
                  than one year of Service shall be credited during any 12-month
                  period.

         1.19. "Social Security Benefit" means, in the case of each Participant,
the estimated amount of the monthly primary old age insurance benefit available
to him at age 65 under the Social Security Act as in effect on the earliest of
his or her Normal Retirement Date, Termination of Employment or death. The
amount shall be computed upon the assumption that the Participant has been
continuously covered under said Act since the later of 1951 or his or her 21st
birthday, and that his or her remuneration for employment for the calendar year
preceding the date of his or her Normal Retirement, Termination of Employment or
death, whichever is earliest, was equal to that portion of his compensation for
such year that would be subject to tax under Section 3101(a) of the Code without
the dollar limitation of Code Section 3121(a)(1), and his or her remuneration
for each prior calendar year was equal to the assumed remuneration for the
subsequent year divided by 1.06. If a Participant has a Termination of
Employment




                                       8

for any reason, or becomes Totally and Permanently Disabled, prior to his or her
Normal Retirement Date, in determining his or her Social Security Benefit,
earnings for the calendar year of such termination or disability and each
subsequent calendar year prior to his or her Normal Retirement Date shall be
assumed to be equal to that portion of his or her compensation for the calendar
year prior to the year of termination or disability that would be subject to tax
under Section 3101(a) of the Code without the dollar limitation of Code Section
3121(a)(1).

         1.20. "Spouse" means the lawfully married husband or wife of a
Participant, determined at the time of the Participant's death or, if earlier,
as of the first day of the first month for which benefits are payable under the
Plan.

Unless defined herein, any capitalized word, phrase or term used in this Plan
shall have the meaning given to it in the Basic Plan.




                                       9

                           Article 2. - PARTICIPATION

         2.1. Commencement of Participation. Any individual who was a
Participant in the Plan on July 31, 1993 will, subject to Sections 2.2 and 2.3,
continue to be a Participant under this restatement of the Plan. Any other
individual who is an Eligible Employee on August 1, 1993 or any subsequent
August 1 shall become a Participant on such August 1.

         2.2. Duration of Participation. Subject to Section 2.3, an individual
who has become a Participant in the Plan shall continue to be a Participant as
long as he or she remains an employee of a Participating Employer or is entitled
to a benefit under the Plan, even though his or her base salary after becoming a
Participant later falls below the then applicable base salary level specified in
Section 1.10. A Participant will cease to be a Participant when he or she is
neither employed by a Participating Employer nor entitled to receive a benefit
under the Plan.

         2.3. Reduction in Participant. Notwithstanding any other provision of
the Plan to the contrary, the Committee may terminate the right of any
Participant or Eligible Employee to participate in the Plan if the Committee
deems such action to be necessary to preserve the status of the Plan as "a plan
which is unfunded and is maintained by an employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees" within the meaning of Sections 201 (2) and 301(a)(3) of
ERISA. In the event a Participant's participation is terminated under this
Section 2.3, the Participant shall not be entitled to any benefits under the
Plan except to the extent such benefits would be protected under Section 6.2 if
the Plan were then terminated.




                                       10




The Committee may, in its discretion, direct the Participant's Participating
Employer to pay to the Participant the present value of any such protected
benefits, or to provide for payment of such benefits through another plan, or
may direct a combination of the foregoing, in lieu of providing such benefits
under this Plan, and such payment or provision (or both) shall be in complete
satisfaction of the Participant's rights under this Plan.



                                       11

                     Article 3. - SOURCE OF BENEFIT PAYMENTS

         Nothing in this Plan will be construed to create a trust or to obligate
the Participating Employers or any other person to segregate a fund, purchase an
insurance contract, or in any other way currently to fund the future payment of
any benefits hereunder, nor will anything herein be construed to give any
employee or any other person rights to any specific assets of the Participating
Employers or of any other person. Any benefits which become payable hereunder
shall be paid from the general assets of the Participating Employers.




                                       12




                        Article 4. - RETIREMENT BENEFITS

         4.1. Normal or Late Retirement Benefit. The amount of the monthly
retirement benefit payable under the Plan to a Participant who retires on or
after his or her Normal Retirement Date, commencing on the first day of the
month coinciding with or next following his or her retirement and payable in the
Normal Form, will be equal to (a) minus (b), but not less than zero, where:

                  (a) is 50% of the Participant's average monthly Compensation
         for the highest sixty consecutive months preceding retirement, less 60%
         of the Participant's Social Security Benefit, the result multiplied by
         a fraction the numerator of which is the Participant's years of Service
         (not in excess of 25) and the denominator of which is 25; and

                  (b) is the monthly normal or late retirement benefit payable
         to the Participant under the Basic Plan (increased by his or her
         monthly benefit, if any, under the Augmentation Plan and any Individual
         Pension Agreement), calculated as though payable in the Normal Form.

         4.2. Early Retirement Benefit.

                  (a) The amount of the monthly retirement benefit under this
         Plan payable in the Normal Form to a Participant who has attained age
         55 with at least 10 years of Service, and who retires thereafter (but
         prior to his or her Normal Retirement Date), shall equal (1) minus (2),
         but not less than zero, where:

                           (1) is the amount determined under Section 4.1(a)
                  above, unreduced for early commencement if the benefit
                  starting date is on or after the Participant's 62nd birthday,
                  reduced by 1/600th for each month



                                       13


                  between the Participant's 60th and 62nd birthday by which the
                  benefit starting date precedes the month in which the
                  Participant attains age 62, and reduced further by 1/240th for
                  each month by which the benefit starting date precedes the
                  month in which the Participant attains age 60; and

                           (2) is the Participant's monthly early retirement
                  benefit, if any, under the Basic Plan (increased by his or her
                  monthly early retirement benefit, if any, under the
                  Augmentation Plan and any Individual Pension Agreement),
                  calculated as though payable in the Normal Form.

         If the Participant is not eligible for an early retirement benefit
under the Basic Plan (or, if applicable, the Augmentation Plan or any Individual
Pension Agreement) at the time a benefit becomes payable under this Plan, the
monthly benefit under this Plan will be determined without reduction for such
early retirement benefit until such time as the Participant could begin to
receive a benefit under the Basic Plan (or Augmentation Plan or Individual
Pension Agreement), and will then be reduced by the amount of each such benefit
calculated as though payable in the Normal Form.

         (b) The monthly benefit payable to a Participant under this Section 4.2
shall commence at the same time as the early retirement benefit payable under
the Basic Plan. However, if no benefit is payable to a Participant under the
Basic Plan before his or her Normal Retirement Date, the benefit payable under
this Section 4.2 shall commence on the first day of the month coinciding with or
next following the Participant's retirement, or such later month (up to the
Participant's Normal Retirement Date) as the Participant may elect. Such
election must be made at least 90 days before



                                       14

benefits would otherwise commence. In each case the reductions applicable under
paragraph (a)(1) shall reflect the actual date as of which benefits commence.

         4.3. Vested Termination Benefit. Any Participant who has a Termination
of Employment after he or she has completed at least 5 years of Service, but
before he or she has satisfied the requirements for early retirement hereunder,
shall be entitled to a monthly benefit payable in the Normal Form, commencing at
the same time as the Participant's vested benefit under the Basic Plan, in an
amount equal to (a) below (reduced by the applicable factor set forth in Section
4.2(a)(1) above) minus (b) below, but not less than zero, where:

                  (a) is 50% of the Participant's average monthly Compensation
         for the highest sixty consecutive months preceding the Termination of
         Employment, less 60% of the Participant's Social Security Benefit, the
         result multiplied by a fraction the numerator of which is the
         Participant's years of Service and the denominator of which is the
         greater of 25 years or the number of years of Service the Participant
         would have had if he or she continued employment with a Participating
         Employer without interruption until his or her Normal Retirement Date;
         and

                  (b) is the Participant's monthly benefit under the Basic Plan
         (increased by his or her monthly benefit, if any, under the
         Augmentation Plan and any Individual Pension Agreement), calculated as
         though payable in the Normal Form.

         4.4. Other Termination of Employment; Death. If a Participant has a
Termination of Employment for any reason prior to the time he or she is eligible
for a retirement or



                                       15


vested benefit under Section 4.1, 4.2 or 4.3, no benefit shall be payable under
this Plan. In the event a Participant dies prior to the commencement of benefit
payments hereunder, then except as provided in Section 4.7 no benefits shall be
payable hereunder following the Participant's death. In the event a Participant
dies after the commencement of benefit payments hereunder, payments shall
continue to be made following his or her death only if the Participant has
chosen an optional form of benefit under Section 4.5 and then only to the
extent, if any, provided under such optional form of benefit.

         4.5. Optional Forms of Benefits. A Participant may elect to receive, in
lieu of the retirement benefit otherwise payable to him or her in the Normal
Form pursuant to Section 4.1, 4.2 or 4.3, retirement benefits of Actuarial
Equivalent value payable in any of the optional forms available under the Basic
Plan, provided that no optional form of benefit shall be available to a married
Participant, other than a 50% contingent annuity form protecting the
Participant's Spouse, without the written consent of such Spouse. The Committee
shall notify each Participant of the options available to him and shall provide
forms for election of such options. The Participant shall be entitled to elect
one of the foregoing options (or to revoke any such election) within the 90-day
period prior to the commencement of benefits. The election of one of the options
provided for in this Section 4.5 shall become effective as of the first day of
the first month for which benefits are payable to the Participant under the
Plan, and may not be rescinded or modified thereafter. Should the Participant's
Spouse or other beneficiary die prior to such effective date, the Participant's
election will be void and the Participant's retirement benefit will be paid to
him as though he or she had made no election unless the



                                       16


Participant makes a new election prior to such effective date.

         4.6. Forfeiture of Benefits. Notwithstanding any provision of this Plan
to the contrary, no benefits shall be payable under this Plan with respect to
any Participant who confesses to, or is convicted of, any act of fraud, theft or
dishonesty arising in the course of, or in connection with, his or her
employment with a Participating Employer. The Committee's decision as to the
applicability of this Section 4.6 in any case shall be fixed and binding on all
persons.

         4.7. Surviving Spouse Benefit. In the event a Participant dies on or
after the earliest date as of which he or she becomes eligible for a benefit
under Section 4.1, 4.2 or 4.3 but prior to the first day of the first month for
which benefits are payable to him or her under this Plan, and such Participant
is survived by a Spouse, a monthly surviving spouse benefit shall be payable to
such Spouse commencing as of the month the pre-retirement death benefit under
the Basic Plan commences to be paid to the Spouse (the "survivor benefit
commencement date") and ending with the month in which the Spouse's death
occurs. The monthly surviving spouse benefit shall be computed as though the
Participant had terminated employment on the date of his or her death (if not
already terminated), had chosen to have benefit payments commence in the 50%
contingent annuity form described in Section 4.5 on the survivor benefit
commencement date, and had survived to and died on the day following such
commencement date.

         4.8. Disability. Any Participant who becomes Totally and Permanently
Disabled at a time when he or she has ten or more years of Service but before
Normal Retirement Age shall continue to have Service credited on his or her
behalf until the earlier of his or her Normal Retirement Date or the date on
which he or she is no longer




                                       17

Totally and Permanently Disabled (or, if he or she returns to work at that time
for a Participating Employer, until his or her subsequent retirement or other
termination of employment).

         4.9. No Reduction in Accrued Benefit Under CHH Plan. Notwithstanding
any other provision of the Plan, in the case of a Participant who was a
participant in the CHH Plan on the day before the Effective Date, any benefit
payable to the Participant under Section 4.1, 4.2, or 4.3 in the Normal Form
will not be less than the benefit that would have been payable to the
Participant in the Normal Form, commencing at the same time, under the CHH Plan
as in effect on the day before the Effective Date if the Participant's
employment had terminated on that date. For purposes of the preceding sentence,
a Participant will be deemed to have satisfied the age and service requirements
for entitlement to benefits under the CHH Plan and from the Pension Plan for
Employees of Carter Hawley Hale Stores, Inc. on the day before the Effective
Date, but the Participant's actual age and Service will be taken into account in
computing the amount of benefit that would have been payable to the Participant
under the CHH Plan.

         4.10. Lump Sum Settlements. Notwithstanding any other provisions of the
Plan to the contrary, if any benefit payable under the Plan is less than $50 per
month, such benefit shall instead be paid in a single lump sum of Actuarial
Equivalent value.

         4.11. Reemployment After Retirement. Any benefit payable under the Plan
to a Participant shall cease as of the date of rehire if the Participant is
reemployed by a Participating Employer and shall resume following subsequent
retirement or other Termination of Employment in accordance with the applicable
provisions of this Article 4. The retirement benefit subsequently payable shall
be computed in accordance with


                                       18


this Article 4 on the basis of service and compensation to the time of such
subsequent Termination of Employment, but shall be reduced by the Actuarial
Equivalent of any payments previously made under the Plan, including lump sum
payments or amounts applied to purchase annuity contracts. In no event shall the
aggregate benefits of any rehired Participant be greater than the benefit he or
she would have received if all his or her service had been one continuous period
of employment.




                                       19




                             Article 5. - COMMITTEE

         5.1. Plan Administration and Interpretation. The Committee shall have
complete control over the administration of the Plan. The Committee shall have
complete control and authority to determine the rights and benefits and all
claims, demands and actions arising out of the provisions of the Plan of any
Participant, beneficiary, deceased Participant, or other person having or
claiming to have any interest under the Plan. All rules and decisions of the
Committee shall be uniformly and consistently applied to all Participants and
other claimants in similar circumstances. When making a determination or
calculation, the Committee shall be entitled to rely on information furnished by
a Participant, a beneficiary, the Participating Employers, the legal counsel of
a Participating Employer or the Committee, or the Actuary. Subject to applicable
laws and regulations, for all purposes of administration and interpretation of
the Plan, the Committee shall consider the Plan as if it were maintained by a
single employer for the benefit of all Participants by whomever employed. The
Committee shall be deemed to be the Plan administrator with responsibility for
complying with any reporting and disclosure requirements of ERISA.

         5.2. Powers, Duties, Procedures, etc. The Committee shall have such
powers and duties, may adopt such rules and tables, may act in accordance with
such procedures, may appoint such officers or agents, may delegate such powers
and duties, may receive such reimbursements and compensation, and shall follow
such claims and appeal procedures with respect to the Plan as are permitted or
required under the terms of the Basic Plan.




                                       20




         5.3. Information. To enable the Committee to perform its functions, the
Participating Employers shall supply full and timely information to the
Committee on all matters relating to the compensation of Participants, their
employment, retirement, death, the cause for termination of employment, and such
other pertinent facts as the Committee may require.

         5.4. Indemnification of Committee. The Company agrees to indemnify and
to defend to the fullest extent permitted by law any officer or employee of any
Participating Employer who serves as a member of the Committee (including any
such individual who formerly served as a member of the Committee) against all
liabilities, damages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Company) occasioned by any act
or omission to act in connection with the Plan, if such act or omission is in
good faith.




                                       21

                     Article 6. - AMENDMENT AND TERMINATION

         6.1. Amendments. The Company shall have the right to amend this Plan
from time to time by resolution of the Board of Directors or its Executive
Committee and to amend or cancel any amendments. Any such amendment shall be
stated in an instrument in writing, executed by the Company in the same manner
as this Plan.

         6.2. Termination of Plan. This Plan is strictly a voluntary undertaking
on the part of the Company and shall not be deemed to constitute a contract
between the Company and any Eligible Employee (or any other employee) or a
consideration for, or an inducement or condition of employment for, the
performance of services by any Eligible Employee (or other employee). The
Company reserves the right to terminate this Plan at any time and, in the event
of such termination, to pay no benefits to any Participant who has neither
completed 5 years of Service nor attained age 65. No such termination shall
result in the reduction of (a) benefits that have commenced before the date of
termination, (b) benefits accrued as of that date by any Participant who has
completed at least 5 years of Service or attained age 65 by that date, or (c)
benefits accrued under the CHH Plan as of the day before the Effective Date by
any Participant who was a participant in the CHH Plan on that day.




                                       22

                           Article 7. - MISCELLANEOUS

         7.1. Nonassignability. None of the benefits, payments, proceeds or
claims of any Participant or beneficiary shall be subject to any claim of any
creditor and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor, nor shall any Participant or
beneficiary have any right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments or proceeds which he or she may expect to
receive, contingently or otherwise, under this Plan.

         7.2. Limitation on Participants' Rights. Participation in this Plan
shall not give any Eligible Employee the right to be retained in the employ of a
Participating Employer or any right or interest in the Plan other than as herein
provided. Each Participating Employer reserves the right to dismiss any Eligible
Employee without any liability for any claim against the Participating Employer,
except to the extent provided herein.

         7.3. Participants Bound. Any action with respect to this Plan taken by
the Committee, the Company, or any other Participating Employer, or any action
authorized by or taken at the direction of the Committee, the Company, or any
other Participating Employer, shall be conclusive upon all Participants and
beneficiaries entitled to benefits under the Plan.

         7.4. Receipt and Release. Any payment to any Participant or beneficiary
in accordance with the provisions of this Plan shall, to the extent thereof, be
in full satisfaction of all claims against the Company, any other Participating
Employer, and the Committee, and the Committee may require such Participant or
beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect. If



                                       23


any Participant or beneficiary is determined by the Committee to be incompetent
by reason of physical or mental disability (including minority) to give a valid
receipt and release, the Committee may cause the payment or payments becoming
due to such person to be made to another person for his or her benefit without
responsibility on the part of the Committee, the Company, or any other
Participating Employer to follow the application of such funds.

         7.5. Governing Law. This Plan shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.

         7.6. Headings and Subheadings. Headings and subheadings in this Plan
are inserted for convenience only and are not to be considered in the
construction of the provisions hereof.

         IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer, effective as of the first day of August, 1993.

                                          THE NEIMAN MARCUS GROUP, INC.


                                          By: /s/ (signature illegible)
                                              ---------------------------------


                                       24

EX-10.6

                                                                    EXHIBIT 10.6



                          THE NEIMAN MARCUS GROUP, INC.
                          EXECUTIVE LIFE INSURANCE PLAN


Employees, who are determined to be eligible by the Employee Benefits Committee,
which administers the executive life insurance plan, receive a permanent and
portable life insurance benefit available in multiples of one, two, three, four
or five times annual salary up to $3,000,000 maximum.

Basic life coverage up to one times the annual salary is fully paid by the
Company. Supplemental and dependent coverage is paid by the employee.

EX-10.7

                                                                    EXHIBIT 10.7


                          THE NEIMAN MARCUS GROUP, INC.

                      SUPPLEMENTARY EXECUTIVE MEDICAL PLAN
                                       AND
                            SUMMARY PLAN DESCRIPTION

                         (Restated as of August 1, 1993)


I. Purpose.

The Neiman Marcus Group, Inc. hereby establishes this Supplementary Executive
Medical Plan (the "Plan"), effective August 27, 1987, to reimburse Eligible
Employees of The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc. and Contempo
Casuals (collectively referred to herein as the "Company") for those medical,
dental, and optical expenses which are not covered by The Neiman Marcus Group,
Inc. Benefit Program (the "Basic Plan") (with the exception of benefits reduced
or denied because of a failure to comply with the utilization Review Program).
This document together with the materials issued by the organization or
organizations issuing the policies governing the insurance coverage offered
under this Plan (the "Insurance company") constitute the Summary Plan
Description of the Plan.

II. Administration.

The Neiman Marcus Group, Inc. Employee Benefits Committee will be the Plan
"Administrator," and will 'administer the Plan in all of its details, subject,
however, to ERISA. The Administrator will have all those powers necessary to
carry out the terms of the Plan including, but not limited to, the power to make
and enforce such rules as it deems necessary or proper for the efficient
administration of the Plan, to interpret the Plan, to decide all questions
concerning the eligibility of any person to participate in the Plan, to appoint
such agents, counsel, and consultants as it deems necessary to assist in
administering the Plan, and to allocate and delegate, by written instrument, its
duties and responsibilities.

III. Eligibility.

         A.       Eligible Employee.

         An employee is an "Eligible Employee" if he is an officer of The Neiman
Marcus Group, Inc. for the purposes of Section 16 of the Securities Exchange Act
of 1934 and the rules and regulations thereunder and is not also an officer for
those same purposes of Harcourt General, Inc. An Eligible Employee's Family
Members are covered if they meet the eligibility qualifications described below.

         B.       Eligible Family Members.

         An Eligible Employee's Family Members include his spouse and unmarried
children who are less than 19 years of age (or less than 24 years of age if a
full-time student in an accredited



                                       1


educational institution and dependent upon the Eligible Employee for support).
Stepchildren, foster children and legally adopted children may be covered on the
same basis, provided they depend upon the Eligible Employee for support and
maintenance. Eligibility will be determined by the Insurance Company upon
approval of a completed Dependent Child Eligibility Questionnaire available from
the Administrator. An unmarried dependent child who is physically or mentally
incapable of self-support may continue to be covered under this Plan beyond the
age at which coverage would otherwise end.

         C.       When Coverage Begins.

         Eligible Employees and their Family Members are covered as of the first
day of the Eligible Employee's employment with the Company as an Eligible
Employee or, if later, the date the Eligible Employee has in effect an election
under The Neiman Marcus Group, Inc. Choice Pay Plan to receive medical and
dental benefits under the Basic Plan (which includes HMO Coverage). An Eligible
Employee who retirees from the Company may elect to continue coverage under this
Plan. Any such retiree must be enrolled in The Neiman Marcus Group, Inc. Retiree
Medical Plan (the "Retiree Medical Plan") in order to be covered under this
Plan.

         D.       Cost of Coverage.

         There is no cost to active employees for the supplementary coverage
afforded under this Plan in addition to the Basic Plan Cost. The cost to
retirees for the supplementary coverage afforded under this Plan is two times
the Basic Plan Cost for active employees in addition to the Retiree Medical Plan
Cost. Retirees shall pay such costs on an after tax basis.

         E.       When Coverage Ends.

         An Eligible Employee's coverage terminates on the earliest of the
following to occur:

         o    He ceases to be an Eligible Employee;

         o    The provisions of the Insurance Policy governing the insurance for
              Eligible Employee terminate;

         o    He ceases to have in effect an election under The Neiman Marcus
              Group, Inc. Choice Pay Plan to receive medical benefits under the
              Basic Plan.

         o    His employment terminates, as described below:

         For purposes of this Plan, employment will be considered to terminate
         when the Eligible Employee is no longer engaged in work on a full-time
         basis for the Company. However, under the following circumstances,
         coverage will be continued as noted:



                                       2




                  Type of Absence
                  from Full-Time Work             Time Limit on Coverage
                  -------------------             ----------------------
                                               

                  Leave of absence or             End of the policy month
                  temporary layoff, for           following the policy month
                  reasons other than              in which the Eligible
                  disability                      Employee ceased to be
                                                  actively engaged in work
                                                  on a full-time basis

                  Disability, part-time           For as long as the Plan
                  employment, or                  and the insurance policy
                  retirement                      providing coverage under
                                                  the Plan remain in effect,
                                                  no time limit


         Coverage for Family Members terminates on the earliest of the following
to occur:

         o    The Eligible Employee's coverage terminates;

         o    The provisions of the insurance policy governing the insurance for
              the Family Member terminate;

         o    The Family Member no longer qualifies for coverage under the
              eligibility provisions of this Plan.

         Section X describes certain circumstances under which coverage may be
continued.

IV. Plan Benefits.

Under this Plan, an Eligible Employee will be reimbursed for eligible medical,
dental or optical expenses incurred by the Eligible Employee and Family Members
which are not paid by the Basic Plan. The Plan will provide benefits up to a
family maximum of $10,000 each calendar year, determined in the same manner as
the benefits paid under the Basic Plan. Eligible expenses are as follows:

         A.        Medical Expenses.

         Covered medical expenses are the reasonable and customary charges for
         medical services or supplies recommended by a physician which are
         essential for the necessary care and treatment of an injury, illness,
         or pregnancy. Eligible expenses include, but are not limited to, the
         following:

         o    Hospital room and board



                                       3


         o    Other hospital services and supplies - such as operating room,
              intensive care, X-rays, laboratory tests, etc.

         o    Doctors' services - surgery; home, office, and hospital visits;
              etc.

         o    Nursing care - private duty nursing by a registered graduate nurse
              or a licensed vocational nurse

         o    Physiotherapy - treatment by a physiotherapist. Ambulance service

         o    Anesthetics and their administration

         o    Diagnostic X-rays and laboratory examinations

         o    X-ray and radium treatments

         o    Hearing aids and examinations

         o    Convalescent nursing home care

         o    Psychiatry

         o    Prescription drugs and other medical supplies

         o    Physical examinations

         B.       Dental Expenses.

         Covered dental expenses are the reasonable and customary charges of a
dentist for services and supplies employed in the treatment of dental conditions
in accordance with accepted standards of dental practice. Eligible expenses
include but are not limited to, the following:

         o    Scaling and polishing teeth

         o    Diagnostic X-rays

         o    Fillings

         o    Fluoride treatment

         o    Oral surgery

         o    Root canal therapy

         o    Extractions

         o    Space maintainers

         o    Periodontal (gum) procedures

         o    Inlays

         o    Bridges

         o    Dentures

         o    Crowns

         o    Crown, bridgework and denture repair



                                       4


         o    Orthodontia

         C.       Optical Expenses.

         Eligible Employees will receive reimbursement for reasonable costs
associated with necessary services and supplies for the treatment of optical
conditions for the Eligible Employee and the Eligible Employee's Family Members.
Covered optical expenses will include eye examinations performed by a licensed
ophthalmologist, M.D., or an optometrist, 0.0., and prescribed lenses and
frames, including contact lenses.

         D.       Utilization Review Program.

         The utilization review requirements under the Basic Plan are applicable
to the Plan. Any failure to comply with such utilization review requirements
will result in a reduction or denial of benefits under the Plan in the same
manner as would apply under the Basic Plan.

V. Coordination with Other Plans.

When an Eligible Employee is covered under more than one group plan (or has
coverage under Medicare), benefits under all plans will be coordinated so that
the total benefit an Eligible Employee receives will not exceed 100% of the
eligible expenses described in section IV. The primary plan (as defined below)
pays its benefits without regard to other plans. The secondary plan adjusts its
benefit so as not to exceed total eligible expenses. If Family Members are
covered under another group plan, making this Plan the secondary payor, expenses
for that dependent will be covered under the provisions of the basic Plan before
coverage is provided under this Plan.

A plan without a coordinating provision is always the primary plan. If all plans
have such a provision:

     o   The plan covering the patient as an employee (rather than a dependent)
         is primary and others are secondary.

     o   If a child is covered under more than one plan, the following birthday
         rule will apply:

                  (a) The benefits of the plan of the parent whose birthday
falls earlier in a year are determined before those of the plan of the parent
whose birthday falls later in that year;

                  (b) but if both parents have the same birthday, the benefits
of the plan which covered the parent longer are determined before those of the
plan which covered the other parent for a shorter period of time.

         However, if the other plan does not have the rules described in (a) and
(b) above, but instead has a rule based upon the gender of the parent, and if,
as a result, the plans do not agree on the order of benefits, the rules in the
other plan will determine the order of benefits.

     o   If none of the above rules applies, the plan covering the patient
         longest is primary.



                                       5

     o   Where required by law, this Plan shall be primary to Medicare. "primary
         to Medicare" means that the benefits under the Plan are paid before
         Medicare determines its obligation, if any, to pay benefits as a
         secondary payor. In all other cases, Medicare will be the primary
         coverage.

VI. General Exclusions.

This Plan will not pay benefits:

         1.       for anything not ordered by a physician or not necessary for
                  medical care;

         2.       that would be furnished by or for the U.S. Government, or any
                  government unless payment is legally required:

         3.       if the individual is, or could be, covered under any
                  governmental program or law (except Medicare);

         4.       for services or supplies received as a result of an act of war
                  occurring while covered;

         5.       for expenses that are a result of an accident or sickness
                  covered under Workers' Compensation or similar law;

         6.       for services or supplies for which there is no charge or
                  requirement to pay;

         7.       for expenses in connection with cosmetic surgery, unless due
                  to an accident which occurs while the individual is covered by
                  this Plan;

         8.       for the portion of a charge for a supply or service in excess
                  of the reasonable and customary charge (i.e., the prevailing
                  charge in the area for a similar supply or service performed
                  by a person of similar training and experience);

         9.       for the portion of expenses not reimbursed under the Basic
                  Plan because of a failure to use the Pre-Admission and
                  Concurrent Review Service and/or Second Surgical Opinion
                  Programs;

         10.      charges in connection with any procedure which is considered
                  experimental or investigational;

         11.      in connection with eye surgery, such as radial keratotomy,
                  when the primary purpose is to correct myopia
                  (nearsightedness), hyperopia (farsightedness), or astigmatism
                  (blurring);

         12.      in connection with actual or attempted impregnation or
                  fertilization by any means involving parental or surrogate
                  donors or recipients;



                                       6


         13.      in connection with gender reassignment (sex change) surgery.

VII. Procedure For Filing a Claim.

         A.       Family Enrollment and Authorization Form.

         Completion of the Family Enrollment and Authorization Form available
from the Administrator is the means by which an Eligible Employee authorizes
processing of claims under both basic and supplemental health care plans. On a
specified date of each year Eligible Employees will be requested to complete one
of these forms to update the Insurance Company's records.

         B.       How to File a Claim.

         A claim should be filed as soon as an Eligible Employee or a Family
Member has accumulated expenses which are covered under the Basic Plan and/or
this Plan amounting to $250 or more. To file a claim, an Eligible Employee must
complete the appropriate claim form showing the name of each individual for whom
invoices are submitted, and mail it with the invoices to the Insurance Company's
claims office. Dental claim forms require completion by the dentist providing
service as well.

         The HEALTHLINE service requires notification and approval before
planned in-patient hospitalization.

         C.       Information Needed On Each Invoice.

         The Insurance Company's claims office can administer the claim using
the service provider's (doctor's, dentist's, hospital's, etc.) invoice as long
as it contains the following information:

     o   Eligible Employee's name

     o   Eligible Employee's social security number

     o   Patient's full name

     o   Name of provider (doctor, dentist, hospital, etc.)

     o   Date or dates the service was rendered or purchase was made

     o   Type of service or supply furnished

     o   Itemized charge for service or supply furnished

     o   Nature of the sickness or injury (i.e., diagnosis or medical complaint)

     o   Prescription number or name of medication if for drug or medicine

         "Balance due" invoices do not contain enough information for the proper
processing of a claim. For the same reason, drug store cash register receipts or
labels from containers do not constitute adequate documentation for prescription
invoices for claims-paying purposes.



                                       7


         D.       Payments.

         Payments will be made directly to the Eligible Employee unless he has
indicated on the claim form that payments should be made to the service
provider. (An assignment form is sometimes supplied by the service provider for
this purpose.)

         Eligible Employees will be notified when they are nearing their Plan
payment limit when accumulated payments under the Plan approximate $9,000. Such
Eligible Employees will, of course, still be entitled to the remaining $1,000 of
coverage.

         E.       Claims Appeal.

         If an Eligible Employee thinks his benefit payment or any non- payment
was partially or wholly incorrect, he may file a claim in writing with the
Administrator. If any such claim for Plan benefits is denied, in whole or in
part, the Eligible Employee will receive a written notice from the Administrator
containing (i) specific reasons for the denial, (ii) specific references to
pertinent Plan provisions, (iii) a description of any additional material or
information necessary to perfect the claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if the Eligible Employee wishes to submit a request for review. Such
notification will be given within 90 days after the claim is received by the
Administrator (or within 180 days, if circumstances require an extension of time
for processing the claim, and if written notice of such extension and
circumstances is given to the Eligible Employee within the initial 90-day
period). If such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the Eligible Employee
may request a review of his claim.

         Within 60 days after the date on which an Eligible Employee receives a
written notice of a denied claim (or, if applicable, within 60 days after the
date on which such denial is considered to have occurred), he (or his duly
authorized representative) may (i) file a written request with the Administrator
for a review of his denied claim and of pertinent documents and (ii) submit
written issues and comments to the Administrator. The Administrator will notify
the Eligible Employee of its decision in writing. Such notification will contain
specific references to pertinent Plan provisions. The decision on review will be
made within 60 days after the request for review is received by the
Administrator (or within 120 days, if special circumstances require an extension
of time for processing the request, such as an election by the Administrator to
hold a hearing, and if written notice of such extension and circumstances is
given to the Eligible Employee within the initial 60-day period). If the
decision on review is not made within such period, the claim will be considered
denied.

         F.       Identification Card.

         Upon receipt of the Family Enrollment and Authorization Form available
from the Administrator, plan identification cards will be sent to the Eligible
Employee and his Family Members.




                                       8


         G.       Right of Reimbursement.

         Any right of reimbursement out of third-party recoveries for benefits
provided under the Basic Plan shall apply with respect to third-party recoveries
for benefits provided under the Plan.

VIII.    ERISA Rights.

As participants in the Plan, Eligible Employees are entitled to certain rights
and protections under ERISA. ERISA provides that all Plan participants shall be
entitled to:

     o   Examine, without charge, at the Administrator's office or at other
         specified locations, such as worksites, all Plan documents, including
         group insurance contracts, and copies of all documents filed by the
         Committee with the U.S. Department of Labor, such as detailed annual
         reports, and Plan descriptions.

     o   Obtain copies of all Plan documents and other Plan information upon
         written request to the Administrator.

     o   Receive a summary of the Plan's annual financial reports. The
         Administrator will furnish each participant with a copy of each summary
         annual report.

In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the Plan. The people who
operate the Plan, called "fiduciaries" of the Plan, have a duty to do so
prudently and in the interest of Plan participants and beneficiaries. No one
including the Company or any other person may fire or otherwise discriminate
against an Eligible Employee in any way to prevent him from obtaining a benefit
or exercising his rights under ERISA. If an Eligible Employee's claim for a
benefit is denied, in whole or in part, he will receive a written explanation of
the reason for the denial. An Eligible Employee has the right to have the
Administrator review and reconsider his claim.

Under ERISA, there are steps an Eligible Employee can take to enforce the above
rights. For instance, if an Eligible Employee requests materials from the Plan
and does not receive them within 30 days, he may file suit in a federal court.
In such a case, the court may require the Administrator to provide the materials
and pay the Eligible Employee up to $100 a day until he receives the materials,
unless the materials were not sent because of reasons beyond the control of the
Administrator.

If an Eligible Employee has a claim for benefits which is denied or ignored, in
whole or in part, he may file suit for such benefits in a state or federal
court.

If it should happen that Plan fiduciaries misuse the Plan's money, or if an
Eligible Employee is discriminated against for asserting his rights, he may seek
assistance from the U.S. Department of Labor, or he may file suit in a federal
court. The court will decide who should pay court costs and legal fees. If the
Eligible Employee is successful, the court may order the person he has sued to
pay these costs and fees. If the Eligible Employee loses, the court may order
him to pay these costs and fees, for example, if it finds the claim to be
frivolous.




                                       9


If an Eligible Employee has any questions about this Plan, he should contact the
Administrator. If an Eligible Employee has any questions about this statement or
about his rights under ERISA, he should contract the nearest Area Office of the
U.S. Labor- Management Services Administration, Department of Labor.

IX.      Miscellaneous.

         A.       Employment Not Guaranteed.

         Nothing contained in this Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any Eligible Employee any
right to be retained in the employ of the Company. Accordingly, subject to the
terms of any written employment agreement to the contrary, the Company shall
have the right to terminate or change the terms of employment of an Eligible
Employee at any time and for any reason whatsoever, with or without cause.

         B.       Amendment and Termination.

         The Company shall at all times have the power to amend or terminate the
Plan, any such amendment or termination to take effect retroactively if the
Company so provides. The Company shall also have the right to change the entity
serving as the Insurance Company. No such change, amendment or termination,
however, will adversely affect the rights of Eligible Employees and Family
Members to benefits to which they have already become entitled prior to the
amendment or termination.

         C.       Plan Sponsor.

         The Neiman Marcus Group, Inc. Supplementary Executive Medical Plan is
sponsored by The Neiman Marcus Group, Inc., with headquarters at 27 Boylston
Street, Chestnut Hill, MA 02167; Telephone: (617) 232-0760.

Company Identification Number 04-2980655
Plan Number 50

         D.       The Insurance Company.

         Benefits provided under the Plan are currently insured under a policy
issued by The Aetna Life Insurance Company (the "Insurance company").

         E.       Plan Administrator.

         The Plan Administrator is The Neiman Marcus Group, Inc. Employee
Benefits committee, 27 Boylston Street, Chestnut Hill, MA 02167; Telephone:
(617) 232-0760.





                                       10


         F.       Type of Plan and Plan Year.

         The Plan is a welfare plan. The Plan Year is the period beginning
August 27, 1987 and ending July 30, 1988, and the twelve-month period ending the
Saturday nearest each July 31 thereafter, with the exception of the 1990 Plan
Year which ended August 4, 1990.

         G.       Plan Documents.

         This document is a Summary Plan Description and part of the official
Plan document. The Plan document also consists of the policy and other materials
issued by the Insurance Company furnishing coverage for benefits provided under
the Plan.

         H.       Legal Process.

         The agent for service of legal process is The Neiman Marcus Group, Inc.
Employee Benefits Committee, 27 Boylston Street, Chestnut Hill, MA 02167.

         I.       Plan Administrator's Discretion.

         To the fullest extent permitted by law, the Plan Administrator shall
have the discretion to determine all matters relating to eligibility, coverage
or benefits under the Plan, and the Plan Administrator shall have the discretion
to determine all matters relating to the interpretation and operation of the
Plan. Any determination by the Plan Administrator shall be final and binding, in
the absence of clear and convincing evidence that the Plan Administrator acted
arbitrarily and capriciously.

X.       Notice Concerning continuation of Coverage under COBRA.

This notice is intended to inform you, in a summary fashion, of your rights and
obligations under the continuation coverage provisions of federal law ("COBRA").
(Both you and your spouse should take the time to read this notice carefully.)

If you are an Eligible Employee covered by the Plan, you have a right to choose
this continuation coverage if you lose your health coverage under the Plan
because of a reduction in your hours of employment or the termination of your
employment (for reasons other than gross misconduct on your part).

If you are the spouse of an Eligible Employee covered by the Plan, you have the
right to choose continuation coverage for yourself if you lose group health
coverage under the Plan for any of the following four reasons:

         1.       The death of your spouse;

         2.       A termination of your spouse's employment (for reasons other
                  than gross misconduct) or reduction in your spouse's hours of
                  employment;

         3.       Divorce or legal separation from your spouse; or

         4.       Your spouse becomes entitled to Medicare.



                                       11

In the case of a dependent child of an Eligible Employee covered by the Plan, he
or she has the right to continuation coverage if group health coverage under the
Plan is lost for any of the following five reasons:

         1.       The death of a parent;

         2.       The termination of a parent's employment (for reasons other
                  than gross misconduct) or reduction in a parent's hours of
                  employment with the Company;

         3.       Parent's divorce or legal separation;

         4.       A parent becomes entitled to Medicare; or

         5.       The dependent ceases to be a "dependent child" under the Plan.

Under the law, the employee or a family member has the responsibility to inform
the Plan Administrator within 60 days of a loss of coverage through a divorce,
legal separation, or a child losing dependent status under the Plan. The Company
has the responsibility to notify the Plan Administrator of the employee's death,
termination of employment or reduction in hours, Medicare eligibility or a
proceeding under Title 11, United States Code involving the Company.

When the Plan Administrator is notified that one of these events has happened,
the Plan Administrator will in turn notify you that you have the right to choose
continuation coverage. Under the law, you have at least 60 days from the date
you would lose coverage because of one of the events described above to inform
the Plan Administrator that you want continuation coverage.

If you do not choose continuation coverage, your coverage under the Plan will
end.

If you choose continuation coverage, the Company is required to give you
coverage which, as of the time coverage is being provided, is identical to the
coverage provided under the Plan to similarly situated Eligible Employees or
family members. The law requires that you be afforded the opportunity to
maintain continuation coverage for 3 years unless you lost coverage under the
Plan because of termination of employment or reduction in hours. In that case,
the required continuation coverage period is 18 months.

If a second event entitling you to choose continuation coverage occurs within
that 18-month period, the continuation period is three years from the date
employment terminated or hours were reduced.

Rights similar to those described above may, in certain instances, apply to
retirees, spouses and dependents if an employer is involved in a proceeding
under Title 11, United States Code, and those individuals lose health coverage
as a result of that proceeding.

Special rules apply to a "qualified beneficiary" under COBRA who is determined
under Title II (OASDI) or Title XVI (SSI) of the Social security Act to have
been disabled at the time of the qualifying event of termination of employment
or reduction in hours of employment and is still disabled at the end of the
18-month continuation period. In that case, the qualified beneficiary is
entitled to 29 months (as opposed to 18 months) of continuation coverage from
the date employment terminated or hours were reduced, but only if the qualified
beneficiary notifies the




                                       12


Company that he or she has been determined to be disabled under either of those
titles of the Social Security Act within 60 days after the date of such a
determination of Social Security disability and before the end of the 18th month
period of continuation coverage. The qualified beneficiary must also notify the
Company within 30 days of the date of any final determination under the Social
Security Act that he or she is no longer disabled. Furthermore, during the
period after the 18th month through the 29th month of continuation coverage, the
monthly premium cost to such a qualified beneficiary will be increased to 150%
of the applicable premium relating to continuation coverage.

However, the law also provides that your continuation coverage may be cut short
for any of the following four reasons:

         (1)      The Company no longer provides group health coverage to any of
                  its employees;

         (2)      The premium for your continuation coverage is not paid on a
                  timely basis as required by the Health Plan;

         (3)      You become covered under any other group health plan (as an
                  employee or otherwise) which does not contain any exclusion or
                  limitation with respect to any preexisting condition of yours;

         (4)      You become entitled to Medicare.

Failure to pay any required premium on a timely basis will result in the
permanent termination of continuation coverage.

You do not have to show that you are insurable to choose continuation coverage.
However, as discussed above, you will have to pay all the required premiums for
your continuation coverage. The law also says that, at the end of the 18-month
or 3-year continuation coverage period, you must be allowed to enroll in an
individual conversion health plan if such an individual conversion health plan
is otherwise generally available under the Health Plan.

XI.      Governing Law.

The Plan will be construed, administered and enforced according to the laws of
the Commonwealth of Massachusetts to the extent such laws are not preempted by
ERISA.

         IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer this 18th day of October, 1993.


                                                 THE NEIMAN MARCUS GROUP, INC.



                                                 By:  /s/  Robert J. Tarr, Jr.


                                       13

EX-10.8

                                                                    EXHIBIT 10.8


                          THE NEIMAN MARCUS GROUP, INC.

                     KEY EMPLOYEE DEFERRED COMPENSATION PLAN


                           (Effective January 1, 1994)



                                TABLE OF CONTENTS

                                                             
ARTICLE 1.  INTRODUCTION  . . . . . . . . . . . . . . . . . .   1
     1.1.  Purpose of Plan  . . . . . . . . . . . . . . . . .   1
     1.2.  Status of Plan . . . . . . . . . . . . . . . . . .   1

ARTICLE 2.  DEFINITIONS . . . . . . . . . . . . . . . . . . .   1
     2.1.  "Account"  . . . . . . . . . . . . . . . . . . . .   1
     2.2.  "Base Pay" . . . . . . . . . . . . . . . . . . . .   1
     2.3.  "Bonus"  . . . . . . . . . . . . . . . . . . . . .   2
     2.4.  "Code" . . . . . . . . . . . . . . . . . . . . . .   2
     2.5.  "Committee"  . . . . . . . . . . . . . . . . . . .   2
     2.6.  "Company"  . . . . . . . . . . . . . . . . . . . .   2
     2.7.  "Compensation" . . . . . . . . . . . . . . . . . .   2
     2.8.  "Effective Date" . . . . . . . . . . . . . . . . .   2
     2.9.  "Elective Deferral"  . . . . . . . . . . . . . . .   2
     2.10.  "Eligible Employee" . . . . . . . . . . . . . . .   3
     2.11.  "ERISA" . . . . . . . . . . . . . . . . . . . . .   3
     2.12.  "Financial Hardship"  . . . . . . . . . . . . . .   3
     2.13.  "Matching Deferral" . . . . . . . . . . . . . . .   4
     2.14.  "Participant" . . . . . . . . . . . . . . . . . .   4
     2.15.  "Plan"  . . . . . . . . . . . . . . . . . . . . .   4
     2.16.  "Plan Year" . . . . . . . . . . . . . . . . . . .   4
     2.17.  "Retirement"  . . . . . . . . . . . . . . . . . .   4
     2.18.  "Savings Plan"  . . . . . . . . . . . . . . . . .   5
     2.19.  "Year of Service" . . . . . . . . . . . . . . . .   5

ARTICLE 3.  PARTICIPATION . . . . . . . . . . . . . . . . . .   5
     3.1.  Commencement of Participation  . . . . . . . . . .   5
     3.2.  Continued Participation  . . . . . . . . . . . . .   5

ARTICLE 4.  ELECTIVE AND MATCHING DEFERRALS . . . . . . . . .   5
     4.1.  Elective Deferrals . . . . . . . . . . . . . . . .   5
     4.2.  Matching Deferrals . . . . . . . . . . . . . . . .   7

ARTICLE 5.  ACCOUNTS; INTEREST  . . . . . . . . . . . . . . .   7
     5.1.  Accounts . . . . . . . . . . . . . . . . . . . . .   7
     5.2.  Interest . . . . . . . . . . . . . . . . . . . . .   7
     5.3.  Payments . . . . . . . . . . . . . . . . . . . . .   8

ARTICLE 6.  PAYMENTS  . . . . . . . . . . . . . . . . . . . .   8
     6.1.  Time and Form of Payment . . . . . . . . . . . . .   8
     6.2.  Termination of Employment  . . . . . . . . . . . .   9
     6.3.  Death  . . . . . . . . . . . . . . . . . . . . . .   9
     6.4.  Reduction in Shareholders' Equity  . . . . . . . .  10
     6.5.  Change in Control  . . . . . . . . . . . . . . . .  10
     6.6.  Hardship . . . . . . . . . . . . . . . . . . . . .  11








                                                           

     6.7.  Changes in Time and Form of Payment  . . . . . . .  11
     6.8.  Payment Dates  . . . . . . . . . . . . . . . . . .  12
     6.9.  Withholding  . . . . . . . . . . . . . . . . . . .  12

ARTICLE 7.  COMMITTEE . . . . . . . . . . . . . . . . . . . .  12
     7.1.  Plan Administration and Interpretation . . . . . .  12
     7.2.  Powers, Duties, Procedures, Etc  . . . . . . . . .  13
     7.3.  Information  . . . . . . . . . . . . . . . . . . .  13
     7.4.  Indemnification of Committee . . . . . . . . . . .  13

ARTICLE 8.  AMENDMENT AND TERMINATION . . . . . . . . . . . .  14
     8.1.  Amendments . . . . . . . . . . . . . . . . . . . .  14
     8.2.  Termination of Plan  . . . . . . . . . . . . . . .  14
     8.3.  Existing Rights  . . . . . . . . . . . . . . . . .  14

ARTICLE 9.  MISCELLANEOUS . . . . . . . . . . . . . . . . . .  15
     9.1.  No Funding . . . . . . . . . . . . . . . . . . . .  15
     9.2.  Nonassignability . . . . . . . . . . . . . . . . .  15
     9.3.  Limitation of Participants' Rights . . . . . . . .  15
     9.4.  Participants Bound . . . . . . . . . . . . . . . .  16
     9.5.  Receipt and Release  . . . . . . . . . . . . . . .  16
     9.6.  Governing Law  . . . . . . . . . . . . . . . . . .  16
     9.7.  Headings and Subheadings . . . . . . . . . . . . .  16










                          THE NEIMAN MARCUS GROUP, INC.
                     KEY EMPLOYEE DEFERRED COMPENSATION PLAN


                             ARTICLE 1. INTRODUCTION

     1.1. Purpose of Plan. The Company has adopted this Key Employee Deferred
Compensation Plan, effective January 1, 1994,to provide a means by which certain
employees who are not eligible to participate in the Savings Plan may elect to
defer receipt of designated percentages of their Compensation.

     1.2. Status of Plan. The Plan is intended to be "a plan which is unfunded
and is maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of Sections 201(2) and 301(a)(3) of ERISA, and shall be
interpreted and administered to the extent possible in a manner consistent with
that intent.


                             ARTICLE 2. DEFINITIONS

     Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:

     2.1. "Account" means, for each Participant, the account established for his
or her benefit under Section 5.1.

     2.2. "Base Pay" means the base salary payable by the Company to an
employee, including amounts that would have been payable to the employee as base
salary but for an election under Section 125 of the Code or a deferral election
under this Plan.

     2.3. "Bonus" means any cash bonus payable by the Company to an employee,
including any portion of such a bonus that would have been payable to the
employee but for an election under Section 125 of the Code or a deferral
election under this Plan. However, the term "Bonus" shall not include any amount
paid under or in connection with a stock appreciation right or stock option plan
or arrangement.

     2.4. "Code" means the Internal Revenue Code of 1986, as amended from time
to time. Reference to any section or subsection of the Code includes reference
to any comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.

     2.5. "Committee" means The Neiman Marcus Group, Inc. Employee Benefits
Committee or any successor committee appointed by the Board of Directors of The
Neiman Marcus Group, Inc. or its delegate.

     2.6. "Company" means The Neiman Marcus Group, Inc., a Delaware corporation,
its directly or indirectly wholly owned subsidiaries, and any successor to all
or substantially all of the Company's assets or business which assumes the
obligations of the Company.

     2.7. "Compensation" means Base Pay and any Bonus payable by the Company to
an employee.






     2.8. "Effective Date" means January 1, 1994.

     2.9. "Elective Deferral" means the portion of Compensation which is
deferred by a Participant under Section 4.1.

     2.10. "Eligible Employee" means each employee of the Company who, on the
Effective Date or the first day of any month thereafter,

           (a) has completed at least one Year of Service, or such shorter
period of service as may be specified by the Chief Executive Officer of The
Neiman Marcus Group, Inc. in such Officer's sole discretion; and

           (b) had in effect on August 1 of the preceding calendar year (or, if
later, on the employee's date of hire) an annual rate of Base Pay of at least
$300,000. An Eligible Employee shall remain an Eligible Employee notwithstanding
any reduction in his or her annual rate of Base Pay below the applicable minimum
under (b) above.

     2.11. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any legislation
which amends, supplements or replaces such section or subsection.

     2.12. "Financial Hardship" means an immediate and heavy financial need
resulting from:

          (a) major medical expenses incurred to obtain, or necessary to obtain,
medical care (described in Section 213(d) of the Code) with respect to the
Participant or his or her spouse or dependent which are not covered by
insurance;

          (b) costs directly related to the purchase of a principal residence of
the Participant (excluding mortgage payments);

          (c) the payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant or his or her spouse,
children, or dependents;

          (d) payments necessary to prevent the eviction of the Participant from
his or her principal residence or foreclosure on the mortgage of the
Participant's principal residence; or

          (e) any other circumstance that is determined by the Committee in its
sole discretion to constitute a severe hardship need.

     2.13. "Matching Deferral" means a deferral made for the benefit of a
Participant under Section 4.2.

     2.14. "Participant" means any individual who participates in the Plan in
accordance with Article 3.

     2.15. "Plan" means The Neiman Marcus Group, Inc. Key Employee Deferred
Compensation Plan set forth herein and all subsequent amendments hereto.

     2.16. "Plan Year" means the calendar year.




     2.17. "Retirement" means retirement in accordance with the normal, late, or
early retirement provisions of The Neiman Marcus Group, Inc. Retirement Plan.

     2.18. "Savings Plan" means The Neiman Marcus Group, Inc. Savings and
Investment Plan, as amended from time to time.

     2.19. "Year of Service" means a twelve month period, beginning on the date
the employee first performs an hour of service or on any January 1 thereafter,
in which the employee is credited with 1,000 or more hours of service. For this
purpose, an "hour of service" shall have the same meaning as under the Savings
Plan.

                            ARTICLE 3. PARTICIPATION

     3.1. Commencement of Participation. Any Eligible Employee shall become a
Participant on the effective date of an election to defer Compensation in
accordance with Section 4.1.

     3.2. Continued Participation. An individual who has become a Participant in
the Plan shall continue to be a Participant so long as any amount remains
credited to his or her Account.


                   ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS

     4.1. Elective Deferrals.

          (a) An individual who is an Eligible Employee on any January 1 may
elect to defer a designated whole percentage, not to exceed 15 percent, of all
Base Pay that is payable to the individual for services to be performed on or
after that date, and all Bonuses payable to the individual for Company fiscal
years ending after that date, by filing an election with the Committee prior to
that January 1. In addition, an individual may elect before the date he or she
becomes an Eligible Employee, or within 30 days thereafter, to defer a
designated whole percentage, not to exceed 15 percent, of all Base Pay that is
payable to the individual for services to be performed after such election (or,
if later, after the date he or she becomes an Eligible Employee), and all
Bonuses payable to the individual for Company fiscal years ending thereafter.

          (b) Each election under paragraph (a) shall be made in writing on a
form approved or prescribed by the Committee, and shall specify the time and
form of distribution of the amounts deferred and of related Matching Deferrals
as provided in Section 6.1. The same deferral percentage shall apply to each
payment of Compensation covered by the election, and the amount of each such
payment that is deferred hereunder shall be credited to the Participant's
Account as of the date such amount would otherwise have been paid to the
Participant.

          (c) A Participant may revoke his or her deferral election with respect
to Base Pay earned on or after the first day of any pay period, and with respect
to Bonuses payable for fiscal years ending on or after that day, by giving
written notice to the Committee before that day (or by such earlier date as the
Committee may prescribe). However, except as otherwise provided in Section 6.6,
a Participant may otherwise modify an existing election, or may make another
deferral election, only as of a January 1, and only with respect to




Base Pay earned thereafter, and Bonuses payable for fiscal years ending
thereafter, in accordance with paragraphs (a) and (b) above.

     4.2. Matching Deferrals. As of the last day of each calendar month, the
Company shall credit to each Participant's Account a Matching Deferral equal to
25% of the Participant's Elective Deferrals for the month which do not exceed
the first six percent of his or her Compensation payable during the month.

                          ARTICLE 5. ACCOUNTS; INTEREST

     5.1. Accounts. The Committee shall establish an Account for each
Participant reflecting Elective Deferrals and Matching Deferrals for the
Participant's benefit and any adjustments hereunder. Within 45 days after the
end of each calendar quarter, the Committee shall provide the Participant with a
statement of his or her Account.

     5.2. Interest. As of the last day of each calendar quarter, the Committee
shall credit each Participant's Account with interest on the balance of such
Account from time to time during the calendar quarter at an annual rate equal to
the average prime interest rate published in the Eastern Edition of The Wall
Street Journal on the last business day of the calendar quarter (or, if two or
more such rates are published, the mean of such rates), increased by two
percentage points. In addition, any payment under Article 6 which is not made on
the first day of a calendar quarter shall be increased by interest on the amount
of such payment, from the end of the preceding calendar quarter, at the interest
rate applicable for the preceding calendar quarter.

     5.3. Payments. Each Participant's Account shall be reduced by the amount of
any payment made to or on behalf of the Participant under Article 6 (including
any interest paid with respect to such payment) as of the date such payment is
made.

                               ARTICLE 6. PAYMENTS

     6.1. Time and Form of Payment. When a Participant elects to defer
Compensation in accordance with Section 4.1, the Participant shall also elect
the time at which the Elective Deferrals and related Matching Deferrals
(including interest attributable thereto) will be paid or begin to be paid to
the Participant, from among the following options:

          (a) 5, 10, 15 or 20 years after the end of the Plan Year in which the
Compensation deferred would otherwise have been paid;

          (b) attainment of age 65; or

          (c) retirement.

The Participant shall also elect the form of payment of such amounts, from among
the following options:

               (i) a single lump sum payment; or

               (ii) annual installments over a period elected by the Participant
up to 10 years, the amount of each installment to equal the balance




of his or her Account immediately prior to the installment divided by the number
of installments remaining to be paid.

The foregoing elections shall be made on a form approved or prescribed by the
Committee. Each such election shall be irrevocable with respect to amounts
deferred while the election remains in effect (and with respect to related
Matching Deferrals and interest), except as otherwise provided in Section 6.2,
6.3, 6.4, 6.5, 6.6 or 6.7.

     6.2. Termination of Employment. Upon termination of a Participant's
employment with the Company for any reason other than death or Retirement, the
Participant's Account shall be paid to the Participant in a single lump sum
payment as soon as practicable following the date of such termination.

     6.3. Death. If a Participant dies prior to the complete distribution of his
or her Account, the balance of the Account shall be paid as soon as practicable
to the Participant's designated beneficiary or beneficiaries, in the form
elected by the Participant from among the following options:

          (a) a single lump sum payment; or

          (b) subject to Section 6.7, annual installments over a period elected
by the Participant up to 10 years, the amount of each installment to equal the
balance of the Account immediately prior to the installment divided by the
number of installments remaining to be paid.

Any designation of beneficiary and form of payment shall be made by the
Participant in writing on a form approved or prescribed by the Committee, and
may be changed by the Participant at any time. If there is no such designation
or no designated beneficiary survives the Participant, payment shall be made to
the Participant's surviving spouse or, if none, to his or her issue per stirpes,
in a single lump sum payment. If no spouse or issue survives the Participant,
payment shall be made in a single lump sum to the Participant's estate.

     6.4. Reduction in Shareholders' Equity. If at any time the shareholders'
equity of the Company, as shown on the Company's consolidated balance sheet
reported in its then most recent annual or quarterly report filed with the U.S.
Securities and Exchange Commission, falls below $100 million, each Participant's
Account shall be paid as soon as practicable to the Participant (or, if the
Participant has died, to his or her beneficiary) in a single lump sum.

     6.5. Change in Control. In the event that the aggregate direct or indirect
beneficial ownership by Harcourt General, Inc. and any of its affiliates of
capital stock of the Company decreases to less than 20 percent of the combined
voting power of the Company's then outstanding capital stock entitled to vote
for the election of directors of the Company, each Participant's Account shall,
immediately prior to such change in control, be paid to the Participant (or, if
the Participant has died, to his or her beneficiary) in a lump sum.
Notwithstanding the foregoing, a Participant may elect, at any time prior to
date of the change in control, to have his or her Account distributed under the
Plan without regard to this Section 6.5. "Affiliate" shall have the meaning
ascribed to such term in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on January 1, 1994.

     6.6. Hardship. If a Participant suffers a Financial Hardship, the
Committee, in its sole discretion, may pay to the Participant that portion, if




any, of his or her Account which the Committee determines is necessary to
satisfy the hardship need, including any amounts necessary to pay any federal,
state or local income taxes reasonably anticipated to result from the hardship
payment, but only to the extent such need cannot reasonably be relieved by the
liquidation of the Participant's assets (to the extent that such liquidation
would not in itself cause hardship) or by cessation of Elective Deferrals. A
Participant who has a Financial Hardship may also cease or reduce future
Elective Deferrals with the consent of the Committee. A Participant requesting a
distribution, or a cessation or reduction of future Elective Deferrals, on
account of a Financial Hardship shall apply in writing in a letter submitted to
the Committee and shall provide such information as the Committee may require.

     6.7. Changes in Time and Form of Payment. The Committee may, in its sole
discretion, at the request of or with the consent of the Participant, change the
time at which any Elective Deferral or Matching Deferral will be paid or begin
to be paid to the Participant under Section 6.1, or the form of such payment, or
both, provided that (a) no such change may be made less than 24 months prior to
the date such Elective Deferral or Matching Deferral would otherwise have been
paid or commenced to be paid, and (b) the form of payment shall be a form
described in clause (i) or (ii) of Section 6.1.

     6.8. Payment Dates. Each payment under Section 6.1, 6.2, 6.3 or 6.7 shall
be made on or about the first day of a calendar quarter.

     6.9. Withholding. Each payment otherwise due under the Plan shall be
reduced by withholding taxes and other legally required deductions.

                              ARTICLE 7. COMMITTEE

     7.1. Plan Administration and Interpretation. The Committee shall oversee
the administration of the Plan. The Committee shall have complete control and
authority to determine the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant,
beneficiary, deceased Participant, or other person having or claiming to have
any interest under the Plan. The Committee shall have the exclusive power to
interpret the Plan and to decide all matters under the Plan. Such interpretation
and decision shall be final, conclusive and binding on all Participants and any
person claiming under or through any Participant, in the absence of clear and
convincing evidence that the Committee acted arbitrarily and capriciously. Any
individual serving on the Committee who is a Participant will not vote or act on
any matter relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information furnished by
a Participant, a beneficiary, or the Company. The Committee shall be deemed to
be the Plan administrator with responsibility for complying with any reporting
and disclosure requirements of ERISA.

     7.2. Powers, Duties, Procedures, Etc. The Committee shall have such powers
and duties, may adopt such rules and tables, may act in accordance with such
procedures, may appoint such officers or agents, may delegate such powers and
duties, may receive such reimbursements and compensation, and shall follow such
claims and appeal procedures with respect to the Plan as are permitted or
required under the terms of the Savings Plan.

     7.3. Information. To enable the Committee to perform its functions, the
Company shall supply full and timely information to the Committee on all matters
relating to the compensation of Participants, their employment, retirement,




death, termination of employment, and such other pertinent facts as the
Committee may require.

     7.4. Indemnification of Committee. The Company agrees to indemnify and to
defend to the fullest extent permitted by law any officer or employee who serves
as a member of the Committee (including any such individual who formerly served
as a member of the Committee) against all liabilities, damages, costs and
expenses (including attorneys' fees and amounts paid in settlement of any claims
approved by the Company) occasioned by any act or omission to act in connection
with the Plan, if such act or omission is in good faith.

                      ARTICLE 8. AMENDMENT AND TERMINATION

     8.1. Amendments. The Neiman Marcus Group, Inc. shall have the right to
amend this Plan from time to time, subject to Section 8.3, by an instrument in
writing which has been executed by its duly authorized officer.

     8.2. Termination of Plan. This Plan is strictly a voluntary undertaking on
the part of the Company and shall not be deemed to constitute a contract between
the Company and any employee or a consideration for, or an inducement or
condition of employment for, the performance of services by any employee. The
Neiman Marcus Group, Inc. reserves the right to terminate this Plan at any time,
subject to Section 8.3, by an instrument in writing which has been executed by
its duly authorized officer.

     8.3. Existing Rights. No amendment or termination of the Plan shall
adversely affect the rights of any Participant with respect to amounts credited
to his or her Account that are attributable to Elective Deferrals or Matching
Deferrals credited prior to the date of such amendment or termination.

                            ARTICLE 9. MISCELLANEOUS

     9.1. No Funding. Nothing in this Plan will be construed to create a trust
or to obligate the Company or any other person to segregate a fund, purchase an
insurance contract, or in any other way currently to fund the future payment of
any benefits hereunder, nor will anything herein be construed to give any
employee or any other person rights to any specific assets of the Company or of
any other person. Any benefits which become payable hereunder shall be paid from
the general assets of the Company.

     9.2. Nonassignability. None of the benefits, payments, proceeds or claims
of any Participant or beneficiary shall be subject to any claim of any creditor
and, in particular, the same shall not be subject to attachment or garnishment
or other legal process by any creditor, nor shall any Participant or beneficiary
have any right to alienate, anticipate, commute, pledge, encumber or assign any
of the benefits or payments or proceeds which he may expect to receive,
contingently or otherwise, under this Plan.

     9.3. Limitation of Participants' Rights. Participation in this Plan shall
not give any Eligible Employee the right to be retained in the employ of the
Company or any right or interest in the Plan other than as herein provided. The
Company reserves the right to dismiss any Eligible Employee without any
liability for any claim against the Company, except to the extent provided
herein.




     9.4. Participants Bound. Any action with respect to this Plan taken by the
Committee or the Company or any action authorized by or taken at the direction
of the Committee or the Company shall be conclusive upon all Participants and
any other persons who claim entitlement to benefits under the Plan.

     9.5. Receipt and Release. Any payment to any Participant or beneficiary in
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Company and the Committee under this
Plan, and the Committee may require such Participant or beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or beneficiary is determined by the Committee to be
incompetent by reason of physical or mental disability (including minority) to
give a valid receipt and release, the Committee may cause the payment or
payments becoming due to such person to be made to another person for his or her
benefit without responsibility on the part of the Committee or the Company to
follow the application of such funds.

     9.6. Governing Law. This Plan shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.

     9.7. Headings and Subheadings. Headings and subheadings in this Plan are
inserted for convenience only and are not to be considered in the construction
of the provisions hereof.

     IN WITNESS WHEREOF, The Neiman Marcus Group, Inc. has caused this Plan to
be executed by its duly authorized officer this ______ day of _______________,
_________.

                                THE NEIMAN MARCUS GROUP, INC.



                                By: /s/ (signature illegible)
                                    ------------------------------

EX-10.12

                                                                   EXHIBIT 10.12



                                  $300,000,000


                           THREE-YEAR CREDIT AGREEMENT



                                   dated as of



                                 August 26, 2002



                                      among



                         THE NEIMAN MARCUS GROUP, INC.,



                            THE LENDERS PARTY HERETO,



                             BANK OF AMERICA, N.A.,
                                  BANK ONE, NA

                                       and

                              FLEET NATIONAL BANK,
                              as Syndication Agents


                                       and


                              JPMORGAN CHASE BANK,
                             as Administrative Agent

- --------------------------------------------------------------------------------

                           J.P. MORGAN SECURITIES INC.
                                       and
                         BANC OF AMERICA SECURITIES LLC
                            Joint Lead Arrangers and
                                Joint Bookrunners





                                TABLE OF CONTENTS



                                                                                              Page
                                                                                              ----
                                                                                           
                                            ARTICLE 1
                                           DEFINITIONS

Section 1.01.  Definitions......................................................................1
Section 1.02.  Accounting Terms and Determinations.............................................15
Section 1.03.  Classes and Types of Borrowings.................................................16

                                            ARTICLE 2
                                           THE CREDITS

Section 2.01.  Commitments to Lend.............................................................16
Section 2.02.  Notice of Committed Borrowing...................................................17
Section 2.03.  Competitive Bid Borrowings......................................................17
Section 2.04.  Notice to Lenders; Funding of Loans.............................................21
Section 2.05.  Registry; Notes.................................................................22
Section 2.06.  Maturity of Loans...............................................................23
Section 2.07.  Interest Rates..................................................................23
Section 2.08.  Method of Electing Interest Rates...............................................25
Section 2.09.  Fees............................................................................26
Section 2.10.  Termination or Reduction of Commitments.........................................27
Section 2.11.  Optional Prepayments............................................................27
Section 2.12.  General Provisions as to Payments...............................................27
Section 2.13.  Funding Losses..................................................................28
Section 2.14.  Computation of Interest and Fees................................................29
Section 2.15.  Letters of Credit...............................................................29
Section 2.16.  Stop Issuance Notice............................................................34
Section 2.17.  Regulation D Compensation.......................................................34
Section 2.18.  Increased Commitments; Additional Lenders.......................................35

                                            ARTICLE 3
                                            CONDITIONS

Section 3.01.  Effectiveness...................................................................36
Section 3.02.  Borrowings and Issuances of Letters of Credit...................................37

                                            ARTICLE 4
                                  REPRESENTATIONS AND WARRANTIES

Section 4.01.  Corporate Existence and Power...................................................37
Section 4.02.  Corporate Authorization.........................................................38
Section 4.03.  Binding Effect..................................................................38




                                        i






                                                                                              Page
                                                                                              ----
                                                                                           
Section 4.04.  Financial Information...........................................................38
Section 4.05.  Litigation......................................................................39
Section 4.06.  Governmental and Other Approvals................................................39
Section 4.07.  Full Disclosure.................................................................39
Section 4.08.  Compliance with ERISA...........................................................39
Section 4.09.  Taxes...........................................................................39
Section 4.10.  Environmental Matters...........................................................40

                                            ARTICLE 5
                                            COVENANTS

Section 5.01.  Furnishing of Financial Data and Certificates...................................40
Section 5.02.  Payment of Taxes................................................................42
Section 5.03.  Maintenance of Corporate Existence; Compliance with Laws........................42
Section 5.04.  Maintenance of Property and Leases..............................................42
Section 5.05.  Insurance.......................................................................42
Section 5.06.  Accounts and Reports............................................................42
Section 5.07.  Inspection......................................................................43
Section 5.08.  Coverage of Consolidated Fixed Charges..........................................43
Section 5.09.  Leverage Ratio..................................................................43
Section 5.10.  Restrictions on Liens...........................................................43
Section 5.11.  Restrictions on Sales, Consolidations and Mergers...............................44
Section 5.12.  Transactions with Affiliates....................................................45
Section 5.13.  Restriction on Debt of Subsidiaries.............................................45
Section 5.14.  Use of Proceeds.................................................................45
Section 5.15.  Restricted Payments.............................................................46
Section 5.16.  Restrictive Agreements..........................................................46

                                            ARTICLE 6
                                             DEFAULTS

Section 6.01.  Events of Default...............................................................46
Section 6.02.  Notice of Default...............................................................49
Section 6.03.  Cash Cover......................................................................49

                                            ARTICLE 7
                                            THE AGENTS

Section 7.01.  Appointment and Authorization...................................................49
Section 7.02.  Agents and Affiliates...........................................................49
Section 7.03.  Action by Administrative Agent..................................................49
Section 7.04.  Consultation With Experts.......................................................50
Section 7.05.  Liability of Agents.............................................................50
Section 7.06.  Indemnification.................................................................50
Section 7.07.  Credit Decision.................................................................51




                                       ii





                                                                                              Page
                                                                                              ----
                                                                                           
Section 7.08.  Successor Administrative Agent..................................................51
Section 7.09.  Administrative Agent's Fee......................................................51
Section 7.10.  Syndication Agents..............................................................51

                                            ARTICLE 8
                                     CHANGE IN CIRCUMSTANCES

Section 8.01.  Basis for Determining Interest Rate Inadequate or Unfair........................51
Section 8.02.  Illegality......................................................................52
Section 8.03.  Increased Cost and Reduced Return...............................................53
Section 8.04.  Taxes...........................................................................54
Section 8.05.  Base Rate Loans Substituted for Affected Fixed Rate.............................56
Section 8.06.  Substitution of Bank............................................................56

                                            ARTICLE 9
                                          MISCELLANEOUS

Section 9.01.  Notices.........................................................................57
Section 9.02.  No Waivers......................................................................57
Section 9.03.  Expenses; Indemnification.......................................................58
Section 9.04.  Sharing.........................................................................58
Section 9.05.  Amendments and Waivers..........................................................59
Section 9.06.  Successors and Assigns..........................................................59
Section 9.07.  Designated Lenders..............................................................61
Section 9.08.  No Reliance on Margin Stock.....................................................62
Section 9.09.  Confidentiality.................................................................62
Section 9.10.  Governing Law; Jurisdiction.....................................................63
Section 9.11.  Counterparts; Integration.......................................................63
Section 9.12.  WAIVER OF JURY TRIAL............................................................63


COMMITMENT SCHEDULE
PRICING SCHEDULE

EXHIBIT A   -    NOTE
EXHIBIT B   -    FORM OF NOTICE OF COMMITTED BORROWING
EXHIBIT C   -    FORM OF COMPETITIVE BID QUOTE REQUEST
EXHIBIT D   -    FORM OF INVITATION FOR COMPETITIVE BID QUOTES
EXHIBIT E   -    FORM OF COMPETITIVE BID QUOTE
EXHIBIT F   -    OPINION OF COUNSEL FOR THE BORROWER
EXHIBIT G   -    OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE
                 ADMINISTRATIVE AGENT
EXHIBIT H   -    ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT I   -    DESIGNATION AGREEMENT



                                      iii


         AGREEMENT dated as of August 26, 2002 among THE NEIMAN MARCUS GROUP,
INC., the LENDERS party hereto, BANK OF AMERICA, N.A., BANK ONE, NA and FLEET
NATIONAL BANK, as Syndication Agents, and JPMORGAN CHASE BANK, as Administrative
Agent.

         The parties hereto agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

         Section 1.01. Definitions. The following terms, as used herein, have
the following meanings:

         "ABSOLUTE RATE AUCTION" means a solicitation of Competitive Bid Quotes
setting forth Competitive Bid Absolute Rates pursuant to Section 2.03.

         "ADDITIONAL LENDER" has the meaning specified in Section 2.18(b).

         "ADMINISTRATIVE AGENT" means JPMorgan Chase Bank, in its capacity as
administrative agent for the Lenders hereunder, and its successors in such
capacity.

         "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Administrative Agent,
completed by such Lender and returned to the Administrative Agent (with a copy
to the Borrower).

         "AFFILIATE" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such specified Person (other than,
with respect to the Borrower, any of its Subsidiaries and, with respect to any
Subsidiary of the Borrower, the Borrower or any other Subsidiary). As used
herein, the term "CONTROL" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. For purposes of this Agreement no individual shall be deemed to be an
Affiliate solely by reason of the fact that such individual is a director or
officer of the Borrower.

         "AGENTS" means the Administrative Agent and the Syndication Agents.

         "APPLICABLE LENDING OFFICE" means, with respect to any Lender, (i) in
the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Competitive Bid Loans, its Competitive Bid Lending Office.





         "APPROVED FUND" means any Fund that is administered or managed by (i) a
Lender, (ii) an affiliate of a Lender or (iii) an entity or an affiliate of an
entity that administers or manages a Lender.

         "ASSIGNMENT AND ASSUMPTION AGREEMENT" has the meaning specified in
Section 9.06(b).

         "BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day or (ii) the sum of 0.50% plus the Federal Funds
Rate for such day.

         "BASE RATE LOAN" means a Committed Loan that bears interest at the Base
Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the last sentence of Section 2.08(a) or Article 8.

         "BASE RATE MARGIN" has the meaning specified in the Pricing Schedule.

         "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.

         "BORROWER" means The Neiman Marcus Group, Inc., a Delaware corporation,
and its successors.

         "BORROWER'S 2001 10-K" means the Borrower's annual report on Form 10-K
for the fiscal year ended July 28, 2001, as filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934.

         "BORROWING" has the meaning specified in Section 1.03.

         "CAPITALIZED LEASE" means a lease under which, in accordance with
United States generally accepted accounting principles, the liability of the
lessee is required to be capitalized on its balance sheet.

         "CLASS" refers to the determination whether a Loan is a Committed Loan
or a Competitive Bid Loan.

         "CLOSING DATE" means the date on or after the Effective Date on which
all of the conditions specified in Section 3.01 shall have been satisfied.

         "COMMITMENT" means (i) with respect to each Lender listed on the
Commitment Schedule, the amount set forth opposite such Lender's name on the
Commitment Schedule, (ii) with respect to any financial institution which



                                       2



becomes a Lender pursuant to Section 2.18, the amount of the Commitment thereby
assumed by it and (iii) with respect to any assignee which becomes a Lender
pursuant to Section 9.06(b), the amount of the transferor Lender's Commitment
assigned to it pursuant to Section 9.06(b), in each case as such amount may be
changed from time to time pursuant to Section 2.10, 2.18 or 9.06(b); provided
that, if the context so requires, the term "COMMITMENT" means the obligation of
a Lender to extend credit up to such amount to the Borrower hereunder.

         "COMMITMENT SCHEDULE" means the Commitment Schedule attached hereto.

         "COMMITTED LOAN" means a loan made by a Lender pursuant to Section
2.01; provided that, if any such loan or loans (or portions thereof) are
combined or subdivided pursuant to a Notice of Interest Rate Election, the term
"COMMITTED LOAN" shall refer to the combined principal amount resulting from
such combination or to each of the separate principal amounts resulting from
such subdivision, as the case may be.

         "COMPETITIVE BID ABSOLUTE RATE" has the meaning specified in Section
2.03(d)(ii)(D).

         "COMPETITIVE BID ABSOLUTE RATE LOAN" means a loan made or to be made by
a Lender pursuant to an Absolute Rate Auction.

         "COMPETITIVE BID LENDING OFFICE" means, as to each Lender, its Domestic
Lending Office or such other office, branch or affiliate of such Lender as it
may hereafter designate as its Competitive Bid Lending Office by notice to the
Borrower and the Administrative Agent; provided that any Lender may from time to
time by notice to the Borrower and the Administrative Agent designate separate
Competitive Bid Lending Offices for its Competitive Bid LIBOR Loans, on the one
hand, and its Competitive Bid Absolute Rate Loans, on the other hand, in which
case all references herein to the Competitive Bid Lending Office of such Lender
shall be deemed to refer to either or both of such offices, as the context may
require.

         "COMPETITIVE BID LIBOR LOAN" means a loan made or to be made by a
Lender pursuant to a LIBOR Auction (including any such loan bearing interest at
the Prime Rate pursuant to Section 8.01).

         "COMPETITIVE BID LOAN" means a Competitive Bid LIBOR Loan or a
Competitive Bid Absolute Rate Loan.

         "COMPETITIVE BID MARGIN" has the meaning specified in Section
2.03(d)(ii)(C).



                                       3



         "COMPETITIVE BID QUOTE" means an offer by a Lender to make a
Competitive Bid Loan in accordance with Section 2.03.

         "CONFIDENTIAL INFORMATION" means information that the Borrower
furnishes to any party hereto (including any Designated Lender) in writing or
that any such party obtains pursuant to its rights under Section 5.01 or 5.07,
but does not include any such information that (a) is or becomes generally
available to the public other than as a result of a breach by any party hereto
of its obligations hereunder, (b) was available to such party on a
nonconfidential basis prior to its disclosure to such party by the Borrower or
any of its affiliates or (c) is or becomes available to such party from a source
other than the Borrower that is not, to the knowledge of such party, acting in
violation of a confidentiality agreement with the Borrower.

         "CONSOLIDATED EBITDAR" means, for any fiscal period, Consolidated
Adjusted Net Income for such period plus, to the extent deducted in determining
Consolidated Adjusted Net Income for such period, the aggregate amount of (i)
Consolidated Fixed Charges, (ii) taxes based on or measured by income and (iii)
depreciation, amortization and other similar non-cash charges.

         "CONSOLIDATED FIXED CHARGES" means for any period, the sum of
Consolidated Adjusted Interest Expense and Consolidated Rental Expense for such
period.

         "CONSOLIDATED ADJUSTED INTEREST EXPENSE" means, for any period, the
interest expense of the Borrower and its Consolidated Subsidiaries less
investment and interest income of the Borrower and its Consolidated Subsidiaries
for such period, determined on a consolidated basis, subject to Section 1.02(b).

         "CONSOLIDATED NET ASSETS" means, at any date, the consolidated assets
of the Borrower and its Consolidated Subsidiaries less the sum of (i) the
consolidated current liabilities of the Borrower and its Consolidated
Subsidiaries and (ii) all other liabilities, other than liabilities for Debt
representing obligations for borrowed money of the Borrower and its Consolidated
Subsidiaries and liabilities for deferred taxes of the Borrower and its
Consolidated Subsidiaries, which would be required to be shown as liabilities on
a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries,
all determined as of such date.

         "CONSOLIDATED ADJUSTED NET INCOME" means for any period, the aggregate
of the net income (less losses) of the Borrower and its Consolidated
Subsidiaries for such period (after eliminating all intercompany items and after
provisions for minority interests, if any), all determined in accordance with
United States generally accepted accounting principles, subject to Section
1.02(b); provided, however, Consolidated Adjusted Net Income shall not include
(a) extraordinary gains or extraordinary losses, (b) the net income or losses of
any



                                       4


corporation or other enterprise accrued prior to the date it becomes a
Subsidiary, (c) the net income (or loss) arising from any discontinued
operation(s) of the Borrower or any Subsidiary as so classified in the
Borrower's consolidated financial statements, (d) any amortization or write-off
of goodwill or other intangible items, or any non-cash charges, arising in
connection with a merger, consolidation or acquisition of stock or assets to
which the Borrower or a Subsidiary is a party or (e) any write-off of goodwill
arising in connection with Statement No. 142 issued by the Financial Accounting
Standards Board.

         "CONSOLIDATED NET WORTH" means at any date the consolidated
stockholders equity of the Borrower and its Consolidated Subsidiaries (plus, to
the extent not otherwise reflected therein, redeemable preferred stock of the
Borrower), all determined as of such date.

         "CONSOLIDATED RENTAL EXPENSE" means, for any period, the Rental Expense
of the Borrower and its Consolidated Subsidiaries for such period, determined on
a consolidated basis.

         "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.

         "CONTINUING DIRECTORS" means (i) the members of the Board of Directors
of the Borrower on the date hereof and (ii) future members of such Board of
Directors who were nominated or appointed by a majority of the Continuing
Directors at the date of their nomination or appointment.

         "CREDIT EXPOSURE" means, with respect to any Lender at any time, (i)
the amount of its Commitment (whether used or unused) at such time or (ii) if
the Commitments have terminated in their entirety, the sum of the aggregate
outstanding principal amount of its Loans at such time plus the aggregate amount
of its Letter of Credit Liabilities at such time.

         "DEBT" means as applied to the Borrower and its Subsidiaries, without
duplication, (a) all obligations for borrowed money or deferred purchase price
of goods or services whether secured or unsecured, absolute or contingent, other
than trade accounts payable, expense accruals or similar liabilities arising in
the ordinary course of business, (b) all obligations evidenced by bonds, notes,
debentures or other similar instruments, (c) all obligations secured by any Lien
on property owned or acquired by the Borrower or any of its Subsidiaries whether
or not the obligations secured thereby shall have been assumed, (d) that portion
of all obligations arising under Capitalized Leases that is required to be
capitalized on the consolidated balance sheet of the Borrower and its
Subsidiaries and (e) all obligations of the type described in clauses (a)
through (d) above Guaranteed by



                                       5


the Borrower or any of its Subsidiaries; provided that a Securitization
Transaction shall not give rise to Debt of the transferor for purposes of this
Agreement.

         "DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.

         "DELOITTE & TOUCHE" means Deloitte & Touche LLP, independent certified
accountants for the Borrower.

         "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.

         "DESIGNATED LENDER" means, with respect to any Designating Lender, an
Approved Fund designated by it pursuant to Section 9.07 as a Designated Lender
for purposes of this Agreement.

         "DESIGNATING LENDER" means, with respect to each Designated Lender, the
Lender that designated such Designated Lender pursuant to Section 9.07.

         "DESIGNATION AGREEMENT" has the meaning specified in Section 9.07.

         "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York, or Dallas, Texas are
authorized or required by law to close.

         "DOMESTIC LENDING OFFICE" means, as to each Lender, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.

         "EFFECTIVE DATE" means the date the Commitments become effective in
accordance with Section 3.01.

         "ELIGIBLE ASSIGNEE" means (i) a Lender; (ii) an affiliate of a Lender;
(iii) an Approved Fund; and (iv) any other Person (other than a natural Person)
approved by the Administrative Agent, the Issuing Banks and the Borrower (each
such approval not to be unreasonably withheld or delayed).



                                        6


         "ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.

         "ERISA GROUP" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary are treated as a single employer under Section 414 of the Internal
Revenue Code.

         "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.

         "EURO-DOLLAR LENDING OFFICE" means, as to each Lender, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Lender as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.

         "EURO-DOLLAR LOAN" means a Committed Loan that bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election.

         "EURO-DOLLAR MARGIN" has the meaning specified in the Pricing Schedule.

         "EURO-DOLLAR RATE" means a rate of interest determined pursuant to
Section 2.07(b) on the basis of a London Interbank Offered Rate.

         "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning specified in Section
2.17.

         "EVENTS OF DEFAULT" has the meaning specified in Section 6.01.



                                       7


         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "EXISTING CREDIT AGREEMENT" means the $650,000,000 Credit Agreement
dated as of October 29, 1997 among the Borrower, the banks party thereto and
Morgan Guaranty Trust Company of New York, as administrative agent, as amended.

         "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to the Administrative Agent on such day on
such transactions as determined by the Administrative Agent.

         "FIXED CHARGE COVERAGE RATIO" means the ratio of (i) Consolidated
EBITDAR for each period of four consecutive fiscal quarters, commencing with the
four quarters ending August 3, 2002, to (ii) Consolidated Fixed Charges for each
such period. Calculation of the Fixed Charge Coverage Ratio shall be subject to
Section 1.02(b).

         "FIXED RATE LOANS" means Euro-Dollar Loans or Competitive Bid Loans
(excluding Competitive Bid LIBOR Loans bearing interest at the Prime Rate
pursuant to Section 8.01) or any combination of the foregoing.

         "FUND" means any Person (other than a natural Person) that is (or will
be) engaged in making, purchasing, holding or otherwise investing in commercial
loans and similar extensions of credit in the ordinary course of its business.

         "GROUP OF LOANS" means, at any time, a group of Loans consisting of (i)
all Committed Loans which are Base Rate Loans at such time or (ii) all
Euro-Dollar Loans having the same Interest Period at such time; provided that,
if a Committed Loan of any particular Lender is converted to or made as a Base
Rate Loan pursuant to Article 8, such Loan shall be included in the same Group
or Groups of Loans from time to time as it would have been in if it had not been
so converted or made.

         "GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person; provided that the term Guarantee shall not
include



                                       8


endorsements for collection or deposit in the ordinary course of business. The
term "GUARANTEE" used as a verb has a corresponding meaning.

         "INCREASED COMMITMENTS" has the meaning specified in Section 2.18(a).

         "INDEMNITEE" has the meaning specified in Section 9.03(b).

         "INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
may elect in such notice; provided that:

                  (a) any Interest Period which would otherwise end on a day
         which is not a Euro-Dollar Business Day shall be extended to the next
         succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
         Day falls in another calendar month, in which case such Interest Period
         shall end on the next preceding Euro-Dollar Business Day;

                  (b) any Interest Period which begins on the last Euro-Dollar
         Business Day in a calendar month (or on a day for which there is no
         numerically corresponding day in the calendar month at the end of such
         Interest Period) shall, subject to clause (c) below, end on the last
         Euro-Dollar Business Day in a calendar month; and

                  (c) any Interest Period which would otherwise end after the
         Termination Date shall end on the Termination Date;

         (2) with respect to each Competitive Bid LIBOR Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such whole number of months thereafter as the Borrower may
elect in accordance with Section 2.03(b); provided that

                  (a) any Interest Period which would otherwise end on a day
         which is not a Euro-Dollar Business Day shall be extended to the next
         succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
         Day falls in another calendar month, in which case such Interest Period
         shall end on the next preceding Euro-Dollar Business Day;

                  (b) any Interest Period which begins on the last Euro-Dollar
         Business Day in a calendar month (or on a day for which there is no
         numerically corresponding day in the calendar month at the end of such
         Interest Period) shall, subject to clause (c) below, end on the last
         Euro-Dollar Business Day in a calendar month; and

                  (c) any Interest Period which would otherwise end after the
         Termination Date shall end on the Termination Date; and



                                       9


         (3) with respect to each Competitive Bid Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 5 days)
as the Borrower may elect in accordance with Section 2.03; provided that:

                  (a) any Interest Period which would otherwise end on a day
         which is not a Euro-Dollar Business Day shall be extended to the next
         succeeding Euro-Dollar Business Day; and

                  (b) any Interest Period which would otherwise end after the
         Termination Date shall end on the Termination Date.

         "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.

         "INVESTMENT" means all loans, advances, extensions of credit,
guarantees, purchases of stock (other than stock of the Borrower) or other
securities, contributions to capital or otherwise, whether existing on the date
of this Agreement or hereafter made.

         "ISSUING BANK" means JPMorgan Chase Bank and any other Lender that may
agree to issue Letters of Credit hereunder pursuant to an instrument in form
satisfactory to the Administrative Agent, in each case as issuer of a Letter of
Credit hereunder.

         "LENDER" means (i) each bank or other institution listed on the
Commitment Schedule, (ii) each financial institution which becomes a Lender
pursuant to Section 2.18, (iii) each assignee which becomes a Lender pursuant to
Section 9.06(b) and (iv) their respective successors.

         "LENDER PARTIES" means the Lenders, the Issuing Banks and the Agents.

         "LETTER OF CREDIT" means a letter of credit to be issued hereunder by
an Issuing Bank.

         "LETTER OF CREDIT LIABILITIES" means, for any Lender and at any time,
such Lender's ratable participation in the sum of (x) the aggregate amount then
owing by the Borrower in respect of amounts drawn under Letters of Credit and
(y) the aggregate amount then available for drawing under all Letters of Credit.

         "LETTER OF CREDIT TERMINATION DATE" means the tenth day prior to the
Termination Date.



                                       10


         "LEVERAGE RATIO" means, at any date, the percentage equivalent of a
fraction the numerator of which is Total Adjusted Debt at such date and the
denominator of which is Total Capitalization at such date. Calculation of the
Leverage Ratio shall be subject to Section 1.02(b).

         "LIBOR AUCTION" means a solicitation of Competitive Bid Quotes setting
forth Competitive Bid Margins based on the London Interbank Offered Rate
pursuant to Section 2.03.

         "LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.

         "LOAN" means a Committed Loan or a Competitive Bid Loan and "LOANS"
means Committed Loans or Competitive Bid Loans or any combination of the
foregoing.

         "LONDON INTERBANK OFFERED RATE" has the meaning specified in Section
2.07(b).

         "MATERIAL DEBT" means Debt (other than the Loans) of the Borrower
and/or one or more of its Subsidiaries in an aggregate principal amount
exceeding $25,000,000. Calculation of Material Debt shall be subject to Section
1.02(b).

         "MATERIAL FINANCIAL OBLIGATIONS" means a principal amount of Debt
and/or payment or collateralization obligations in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, exceeding in
the aggregate $25,000,000. Calculation of Material Financial Obligations shall
be subject to Section 1.02(b).

         "MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $25,000,000.

         "MULTIEMPLOYER PLAN" means, at any time, an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.

         "NOTES" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the Borrower's obligation to repay the
Loans, and "NOTE" means any one of such promissory notes issued hereunder.



                                       11


         "NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.02) or a Notice of Competitive Bid Borrowing (as defined in Section
2.03(f)).

         "NOTICE OF INTEREST RATE ELECTION" has the meaning specified in Section
2.08(a).

         "NOTICE OF ISSUANCE" has the meaning set forth in Section 2.15(b).

         "OTHER TAXES" has the meaning specified in Section 8.04.

         "OUTSTANDING COMMITTED AMOUNT" means, with respect to any Lender at any
time, the sum of the aggregate outstanding principal amount of its Committed
Loans plus the aggregate amount of its Letter of Credit Liabilities at such
time, determined at such time after giving effect to any prior assignments by or
to such Lender pursuant to Section 9.06(b).

         "PARENT" means, with respect to any Lender, any Person controlling such
Lender.

         "PARTICIPANT" has the meaning specified in Section 9.06(c).

         "PAYMENT DATE" has the meaning specified in Section 2.15(c).

         "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

         "PERCENTAGE" means, with respect to any Lender at any time, the
percentage which the amount of its Commitment at such time represents of the
aggregate amount of all the Commitments at such time. At any time after the
Commitments shall have terminated, the term "PERCENTAGE" shall refer to a
Lender's Percentage immediately before such termination, adjusted to reflect any
subsequent assignments pursuant to Section 9.06(b).

         "PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.

         "PLAN" means, at any time, an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.



                                       12


         "PRICING SCHEDULE" means the Pricing Schedule attached hereto.

         "PRIME RATE" means the rate of interest publicly announced by JPMorgan
Chase Bank in New York City from time to time as its Prime Rate.

         "QUARTERLY PAYMENT DATES" means each March 31, June 30, September 30
and December 31.

         "REFERENCE BANK" means the principal London office (or any successor
office) of JPMorgan Chase Bank.

         "REGISTER" has the meaning specified in Section 2.05(a).

         "REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.

         "REIMBURSEMENT OBLIGATION" has the meaning specified in Section
2.15(c).

         "RENTAL EXPENSE" means the amount of rentals, i.e., rentals paid or
accrued by the Borrower or any Subsidiary under any lease of real property
excluding in any event (i) leases between the Borrower and a Subsidiary or
between a Subsidiary and another Subsidiary and (ii).Capitalized Leases.

         "REQUIRED LENDERS" means, at any time, Lenders having more than 50% in
aggregate amount of the Credit Exposures at such time.

         "RESTRICTED SUBSIDIARY" means any Subsidiary which is not an
Unrestricted Subsidiary.

         "REVOLVING CREDIT PERIOD" means the period from and including the
Effective Date to but not including the Termination Date.

         "SALE-LEASEBACK TRANSACTION" means any arrangement whereby the Borrower
or any Subsidiary, directly or indirectly sells or transfers any property, real
or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property
sold or transferred.

         "SECURITIZATION TRANSACTION" means (i) a securitization of credit card
receivables as described in Note 3 to the Borrower's consolidated financial
statements, reported on by Deloitte & Touche and incorporated by reference in
the Borrower's 2001 Form 10-K, or (ii) any other financing transaction involving
a transfer of accounts receivable by the Borrower or any Subsidiary where
recourse is effectively limited to such accounts receivable, to a special
purpose



                                       13


Subsidiary whose assets consist substantially entirely of such accounts
receivable, or both, whether or not accounted for as a sale under United States
generally accepted accounting principles.

         "SIGNIFICANT SUBSIDIARY" means at any time (i) Bergdorf Goodman, Inc.
and its respective successors, and (ii) any other Subsidiary whose consolidated
assets are equal to at least 7% of the consolidated assets of the Borrower and
its Subsidiaries at such time.

         "SMITH FAMILY GROUP" means the group of Persons party to the
Stockholders Agreement dated as of September 1, 1999 (whether or not such
agreement is terminated) and the progeny of each such Person that is a natural
Person.

         "STOP ISSUANCE NOTICE" has the meaning specified in Section 2.16.

         "SUBSIDIARY" means any corporation or other entity (i) of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower (or, if such term
is used with reference to any other Person, by such Person) or (ii) a majority
of the equity interest in which shall at the time be owned directly or
indirectly by the Borrower and which is a Consolidated Subsidiary as of such
time. Unless otherwise specified, "SUBSIDIARY" means a Subsidiary of the
Borrower.

         "SYNDICATION AGENTS" means Bank of America, N.A., Bank One, NA and
Fleet National Bank, in their capacity as syndication agents in connection with
the credit facility provided under this Agreement.

         "TAXES" has the meaning specified in Section 8.04.

         "TERMINATION DATE" means August 26, 2005 or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

         "TOTAL ADJUSTED DEBT" means, at any date, an amount equal to the
consolidated Debt of the Borrower and its Subsidiaries (excluding (i) any such
Debt, other than short-term indebtedness for borrowed money or the current
portion of long-term Debt, which is a current liability of the Borrower or a
Subsidiary and (ii) contingent obligations with respect to letters of credit or
other extensions of credit) at such date plus (i) an amount equal to 800% of the
Rental Expense for the period of four consecutive fiscal quarters most recently
ended on or prior to such date and (ii) the amount called for by Section
1.02(b).

         "TOTAL CAPITALIZATION" means, at any date, the sum of Total Adjusted
Debt plus Consolidated Net Worth, each determined as of such date.



                                       14


         "TOTAL OUTSTANDING AMOUNT" means, at any time, the sum of (i) the
aggregate outstanding principal amount of the Loans (including both Committed
Loans and Competitive Bid Loans) determined at such time after giving effect, if
one or more Loans are being made at such time, to any substantially concurrent
application of the proceeds thereof to repay one or more other Loans plus (ii)
the aggregate amount of the Letter of Credit Liabilities of all Lenders at such
time.

         "TYPE" refers to the determination whether a Committed Loan is a Base
Rate Loan or a Euro-Dollar Loan or whether a Competitive Bid Loan is a
Competitive Bid Absolute Rate Loan or a Competitive Bid LIBOR Loan.

         "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.

         "UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.

         "UNRESTRICTED SUBSIDIARY" means a Subsidiary so designated by written
notice from the Borrower to the Administrative Agent; provided that no
Subsidiary may be so designated unless a third party which is not a Subsidiary
or an Affiliate of the Borrower owns at least 20% of the equity interest in such
Subsidiary at such time; provided further that (i) in and as at the end of any
fiscal year no Unrestricted Subsidiary may account for more than 5% of the
consolidated revenues, consolidated tangible assets or Consolidated EBITDAR of
the Borrower and its Consolidated Subsidiaries and (ii) in and as at the end of
any fiscal year all Unrestricted Subsidiaries may not collectively account for
more than 15% of the consolidated revenues, consolidated tangible assets or
Consolidated EBITDAR of the Borrower and its Consolidated Subsidiaries.

         "WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the shares of
capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the Borrower.

         Section 1.02. Accounting Terms and Determinations. (a) Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with United
States generally accepted accounting principles as in effect from time



                                       15


to time, applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower delivered to the
Administrative Agent; provided that, if the Borrower notifies the Administrative
Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate
the effect of any change in United States generally accepted accounting
principles on the operation of such covenant (or if the Administrative Agent
notifies the Borrower that the Required Lenders wish to amend Article 5 for such
purpose), then the Borrower's compliance with such covenant shall be applied on
the basis of United States generally accepted accounting principles in effect
immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Borrower and the Required
Lenders.

         (b) As provided in the definition of "DEBT," a Securitization
Transaction is not Debt for purposes of this Agreement. Nevertheless,
determinations of the Fixed Charge Coverage Ratio, the Leverage Ratio, Material
Debt and Material Financial Obligations are to be made as if the Borrower and
its Consolidated Subsidiaries retained ownership of the transferred accounts
receivable, incurred Debt in the amount of the financing raised pursuant to such
transactions and received the related income and incurred the related interest
expense, whether or not accounted for as sales under United States generally
accepted accounting principles.

         Section 1.03. Classes and Types of Borrowings. The term "BORROWING"
denotes the aggregation of Loans of the same Type and Class of one or more
Lenders to be made to the Borrower pursuant to Article 2 on a single date and
for a single initial Interest Period. Borrowings are classified for purposes of
this Agreement by reference to either or both the Class and Type of Loans
comprising such Borrowing (e.g., a Euro-Dollar Borrowing is a Borrowing
comprised of Euro-Dollar Loans while a Committed Borrowing is a Borrowing
comprised of Committed Loans).

                                    ARTICLE 2
                                   THE CREDITS

         Section 2.01. Commitments to Lend. Each Lender severally agrees, on the
terms and conditions set forth in this Agreement, to make loans to the Borrower
pursuant to this Section from time to time during the Revolving Credit Period;
provided that, immediately after each such loan is made:

                  (i) such Lender's Outstanding Committed Amount shall not
         exceed its Commitment; and



                                       16


                  (ii) the Total Outstanding Amount shall not exceed the
         aggregate amount of the Commitments.

Each Borrowing under this Section shall be in an aggregate principal amount of
$5,000,000 or any larger integral multiple of $1,000,000 (except that any such
Borrowing may be in the aggregate amount available within the limitations in the
foregoing proviso) and shall be made from the several Lenders ratably in
proportion to their respective Commitments. Within the foregoing limits, the
Borrower may borrow under this Section, prepay Loans to the extent permitted by
Section 2.11 and reborrow at any time during the Revolving Credit Period under
this Section.

         Section 2.02. Notice of Committed Borrowing. The Borrower shall give
the Administrative Agent a written notice substantially in the form of Exhibit B
(a "NOTICE OF COMMITTED BORROWING") not later than 12:00 Noon (New York City
time) on (y) the date of each Base Rate Borrowing and (z) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:

         (a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case
of a Euro-Dollar Borrowing;

         (b) the aggregate amount of such Borrowing;

         (c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate or a Euro-Dollar Rate; and

         (d) in the case of a Euro-Dollar Borrowing, the duration of the initial
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.

         Section 2.03. Competitive Bid Borrowings. (a) The Competitive Bid
Option. In addition to Committed Borrowings pursuant to Section 2.01, the
Borrower may, as set forth in this Section, request the Lenders to make offers
to make Competitive Bid Loans to the Borrower from time to time during the
Revolving Credit Period. The Lenders may, but shall have no obligation to, make
such offers and the Borrower may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section.

         (b) Competitive Bid Quote Request. When the Borrower wishes to request
offers to make Competitive Bid Loans under this Section, it shall transmit to
the Administrative Agent by telex or facsimile a Competitive Bid Quote Request
substantially in the form of Exhibit C hereto so as to be received not later
than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day
before the date of Borrowing proposed therein, in the case of a LIBOR



                                       17


Auction or (y) the Domestic Business Day immediately before the date of
Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Lenders not
later than the date of the Competitive Bid Quote Request for the first LIBOR
Auction or Absolute Rate Auction for which such change is to be effective)
specifying:

                  (i) the proposed date of Borrowing, which shall be a
         Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
         Business Day in the case of an Absolute Rate Auction,

                  (ii) the aggregate amount of such Borrowing, which shall be
         $5,000,000 or a larger integral multiple of $1,000,000,

                  (iii) the duration of the Interest Period applicable thereto,
         subject to the provisions of the definition of Interest Period, and

                  (iv) whether the Competitive Bid Quotes requested are to set
         forth a Competitive Bid Margin or a Competitive Bid Absolute Rate.

The Borrower may request offers to make Competitive Bid Loans for more than one
Interest Period in a single Competitive Bid Quote Request. No Competitive Bid
Quote Request shall be given within five Euro-Dollar Business Days (or such
other number of days as the Borrower and the Administrative Agent may agree) of
any other Competitive Bid Quote Request.

         (c) Invitation for Competitive Bid Quotes. Promptly after receiving a
Competitive Bid Quote Request, the Administrative Agent shall send to each of
the Lenders an Invitation for Competitive Bid Quotes substantially in the form
of Exhibit D hereto, which shall constitute an invitation by the Borrower to
each Lender to submit Competitive Bid Quotes offering to make the Competitive
Bid Loans to which such Competitive Bid Quote Request relates in accordance with
this Section.

         (d) Submission and Contents of Competitive Bid Quotes. (i) Each Lender
to which an Invitation for Competitive Bid Quotes is sent may submit a
Competitive Bid Quote containing an offer or offers to make Competitive Bid
Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive
Bid Quote must comply with the requirements of this Section 2.03(d) and must be
submitted to the Administrative Agent by telex or facsimile at its address
specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 10:00 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Administrative



                                       18


Agent shall have mutually agreed and shall have notified to the Lenders not
later than the date of the Competitive Bid Quote Request for the first LIBOR
Auction or Absolute Rate Auction for which such change is to be effective);
provided that Competitive Bid Quotes submitted by the Administrative Agent (or
any affiliate of the Administrative Agent) in the capacity of a Lender may be
submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour before the deadline for the other Lenders,
in the case of a LIBOR Auction or (y) 15 minutes before the deadline for the
other Lenders, in the case of an Absolute Rate Auction. Subject to Articles 3
and 6, any Competitive Bid Quote so made shall not be revocable except with the
written consent of the Administrative Agent given on the instructions of the
Borrower.

                  (ii) Each Competitive Bid Quote shall be substantially in the
         form of Exhibit E hereto and shall in any case specify:

                           (A) the proposed date of Borrowing;

                           (B) the principal amount of the Competitive Bid Loan
                  for which each such offer is being made, which principal
                  amount (w) may be greater than or less than the Commitment of
                  the quoting Lender, (x) must be $5,000,000 or a larger
                  integral multiple of $1,000,000, (y) may not exceed the
                  principal amount of Competitive Bid Loans for which offers
                  were requested and (z) may be subject to an aggregate
                  limitation as to the principal amount of Competitive Bid Loans
                  for which offers being made by such quoting Lender may be
                  accepted;

                           (C) in the case of a LIBOR Auction, the margin above
                  or below the applicable London Interbank Offered Rate (the
                  "COMPETITIVE BID MARGIN") offered for each such Competitive
                  Bid Loan, expressed as a percentage (specified to the nearest
                  1/10,000th of 1%) to be added to or subtracted from such base
                  rate;

                           (D) in the case of an Absolute Rate Auction, the rate
                  of interest per annum (specified to the nearest 1/10,000th of
                  1%) (the "COMPETITIVE BID ABSOLUTE RATE") offered for each
                  such Competitive Bid Loan; and

                           (E) the identity of the quoting Lender. A Competitive
                  Bid Quote may set forth up to five separate offers by the
                  quoting Lender with respect to each Interest Period specified
                  in the related Invitation for Competitive Bid Quotes.



                                       19


                  (iii) Any Competitive Bid Quote shall be disregarded if it:

                           (A) is not substantially in conformity with Exhibit E
                  hereto or does not specify all of the information required by
                  subsection 2.03(d)(ii) above;

                           (B) contains qualifying, conditional or similar
                  language (except as contemplated by subsection (d)(ii)(B)(z));

                           (C) proposes terms other than or in addition to those
                  set forth in the applicable Invitation for Competitive Bid
                  Quotes (except as contemplated by subsection (d)(ii)(B)(z));
                  or

                           (D) arrives after the time set forth in subsection
                  2.03(d)(i).

         (e) Notice to Borrower. The Administrative Agent shall promptly notify
the Borrower of the terms of (i) any Competitive Bid Quote submitted by a Lender
that is in accordance with Section 2.03(d) and (ii) any Competitive Bid Quote
that amends, modifies or is otherwise inconsistent with a previous Competitive
Bid Quote submitted by such Lender with respect to the same Competitive Bid
Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by
the Administrative Agent unless such subsequent Competitive Bid Quote is
submitted solely to correct a manifest error in such former Competitive Bid
Quote. The Administrative Agent's notice to the Borrower shall specify (A) the
aggregate principal amount of Competitive Bid Loans for which offers have been
received for each Interest Period specified in the related Competitive Bid Quote
Request, (B) the respective principal amounts and Competitive Bid Margins or
Competitive Bid Absolute Rates, as the case may be, so offered and (C) if
applicable, limitations on the aggregate principal amount of Competitive Bid
Loans for which offers in any single Competitive Bid Quote may be accepted.

         (f) Acceptance and Notice by Borrower. Not later than 11:00 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day before the proposed
date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Lenders not later than the date
of the Competitive Bid Quote Request for the first LIBOR Auction or Absolute
Rate Auction for which such change is to be effective), the Borrower shall
notify the Administrative Agent of its acceptance or non-acceptance of the
offers so notified to it pursuant to Section 2.03(e). In the case of acceptance,
such notice (a "NOTICE OF COMPETITIVE BID BORROWING") shall specify the
aggregate principal amount of offers for each Interest Period that are accepted.
The Borrower may accept any Competitive Bid Quote in whole or in part; provided
that:



                                       20


                  (i) the aggregate principal amount of each Competitive Bid
         Borrowing may not exceed the applicable amount set forth in the related
         Competitive Bid Quote Request;

                  (ii) the principal amount of each Competitive Bid Borrowing
         must be $5,000,000 or a larger integral multiple of $1,000,000;

                  (iii) acceptance of offers may only be made on the basis of
         ascending Competitive Bid Margins or Competitive Bid Absolute Rates, as
         the case may be;

                  (iv) the Borrower may not accept any offer that is described
         in subsection 2.03(d)(iii) or that otherwise fails to comply with the
         requirements of this Agreement; and

                  (v) immediately after such Competitive Bid Borrowing is made,
         the Total Outstanding Amount shall not exceed the aggregate amount of
         the Commitments.

         (g) Allocation by Administrative Agent. If offers are made by two or
more Lenders with the same Competitive Bid Margins or Competitive Bid Absolute
Rates, as the case may be, for a greater aggregate principal amount than the
amount in respect of which such offers are accepted for the related Interest
Period, the principal amount of Competitive Bid Loans in respect of which such
offers are accepted shall be allocated by the Administrative Agent among such
Lenders as nearly as possible (in integral multiples of $1,000,000, as the
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Administrative Agent of
the amounts of Competitive Bid Loans shall be conclusive in the absence of
manifest error.

         Section 2.04. Notice to Lenders; Funding of Loans. (a) Promptly after
receiving a Notice of Borrowing, the Administrative Agent shall notify each
Lender of the contents thereof and of such Lender's share (if any) of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.

         (b) Not later than 2:00 P.M. (New York City time) on the date of each
Borrowing, each Lender participating therein shall make available its share of
such Borrowing, in Federal or other funds immediately available in New York
City, to the Administrative Agent at its address specified in or pursuant to
Section 9.01. Unless the Administrative Agent determines that any applicable
condition specified in Article 3 has not been satisfied, the Administrative
Agent will make



                                       21


the funds so received from the Lenders available to the Borrower at the
Administrative Agent's aforesaid address.

         (c) Unless the Administrative Agent shall have received notice from a
Lender before the date of any Borrowing (or, in the case of a Base Rate
Borrowing, prior to 2:00 P.M. (New York City time) on the date of such
Borrowing) that such Lender will not make available to the Administrative Agent
such Lender's share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available to the Administrative Agent on the
date of such Borrowing in accordance with Section 2.04(b) and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Lender shall
not have so made such share available to the Administrative Agent, such Lender
and, if such Lender shall not have done so within five Domestic Business Days of
demand therefor by the Administrative Agent, then the Borrower, agrees to pay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) if such amount is repaid by the Borrower, a rate per annum equal
to the higher of the Federal Funds Rate and the interest rate applicable to such
Borrowing pursuant to Section 2.07 and (ii) if such amount is repaid by such
Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative
Agent such corresponding amount, the Borrower shall not be required to repay
such amount and the amount so repaid by such Lender shall constitute such
Lender's Loan included in such Borrowing for purposes of this Agreement. Nothing
in this subsection (c) shall relieve any Lender of its obligation to make Loans
in accordance with the terms and conditions of this Agreement or relieve any
Lender from responsibility for default by it in such obligation.

         Section 2.05. Registry; Notes. (a) The Administrative Agent shall
maintain a register (the "REGISTER") in which it will record the Commitment of
each Lender, each Loan made by each Lender and each repayment of any Loan. Any
such recordation by the Administrative Agent in the Register shall be
conclusive, absent manifest error. Each Lender shall record in its internal
records the foregoing information as to its own Commitment and Loans. Failure to
make any such recordation, or any error in such recordation, shall not affect
the Borrower's obligations hereunder in respect of the Loans.

         (b) Each Lender may, by notice to the Borrower and the Administrative
Agent, request (i) that its Loans be evidenced by a single Note payable to the
order of such Lender for the account of its Applicable Lending Office in an
amount equal to the aggregate unpaid principal amount of such Loans or (ii) that
its Loans of a particular type be evidenced by a separate Note in an amount
equal to the aggregate unpaid principal amount of such Loans. Each such Note
shall be



                                       22


in substantially the form of Exhibit A hereto with any appropriate modifications
to reflect the fact that it evidences solely Loans of a particular type. Each
reference in this Agreement to the "NOTE" of such Lender shall be deemed to
refer to and include any or all of such Notes, as the context may require.

         Section 2.06. Maturity of Loans. (a) Each Committed Loan shall mature,
and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the Termination Date.

         (b) Each Competitive Bid Loan shall mature, and the principal amount
thereof shall be due and payable (together with interest accrued thereon), on
the last day of the Interest Period applicable thereto.

         Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the sum of
the Base Rate plus the Base Rate Margin for such day. Such interest shall be
payable quarterly in arrears on each Quarterly Payment Date and on the
Termination Date and, with respect to the principal amount of any Base Rate Loan
that is prepaid or converted to a Euro-Dollar Loan, on the date of such
prepayment or conversion.

(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
if such Interest Period is longer than three months, at intervals of three
months after the first day thereof and, with respect to the principal amount of
any Euro-Dollar Loan that is prepaid or converted to a Base Rate Loan, on the
date of such prepayment or conversion. The "LONDON INTERBANK OFFERED RATE"
applicable to any Interest Period means (a) the offered rate for dollar
deposits, for a period approximately equal to such Interest Period and, if the
amount is so quoted, in an amount approximately equal to the average principal
amount of the applicable Loans, quoted on the second Euro-dollar Business Day
prior to the first day of such Interest Period, as such rate appears on the
display designated as page "3750" on the Telerate service (or such other page as
may replace page "3750" on the Telerate service or such other service as may be
nominated by the British Bankers' Association as the information vendor for the
purpose of displaying British Bankers' Association Interest Settlement Rates for
U.S. Dollar deposits) ("TELERATE PAGE 3750") as of 11:00 A.M. (London time) on
such date, (b) if, as of 11:00A.M. (London time) on any such date such rate does
not appear on the Telerate Page 3750, the arithmetic mean (adjusted, if
necessary, to the nearest 1/16th of 1%), of the offered rates for dollar
deposits, for a period approximately equal to such Interest Period quoted on the
second Euro-Dollar Business Day prior to the first day of such Interest Period,
as such rates appear on the display



                                       23


designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such
other page as may replace the "LIBO" page on that service for the purpose of
displaying London interbank offered rates of major banks) ("REUTERS SCREEN LIBO
PAGE") as of 11:00 A.M. (London time) on such date, or (c) if neither of the
above rates is available (and in the case of clause (b), if on any such date at
least two such rates do not appear on the Reuters Screen LIBO page), the average
(adjusted, if necessary, to the next higher 1/16th of 1%) of the respective
rates per annum at which deposits in dollars are offered to the Reference Bank
in the London interbank market at approximately 11:00 A.M. (London time) two
Euro-Dollar Business Days before the first day of such Interest Period in an
amount approximately equal to the principal amount of the Euro-Dollar Loan of
such Reference Bank to which such Interest Period is to apply and for a period
of time comparable to such Interest Period.

         (c) Subject to Section 8.01, each Competitive Bid LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.07(b) as if the related Competitive Bid LIBOR Borrowing were a Euro-Dollar
Borrowing) plus (or minus) the Competitive Bid Margin quoted by the Lender
making such Loan in accordance with Section 2.03. Each Competitive Bid Absolute
Rate Loan shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to the
Competitive Bid Absolute Rate quoted by the Lender making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.

         (d) Any overdue principal of and interest on any Loan shall bear
interest, payable on demand, for each day from and including the date payment
thereof was due to but excluding the date of actual payment, at a rate per annum
equal to the sum of 2% plus the Base Rate plus the Base Rate Margin for such
day.

         (e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall promptly
notify the Borrower and the participating Lenders of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.

         (f) The Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If the
Reference Bank does not furnish a timely quotation, the provisions of Section
8.01 shall apply.



                                       24


         Section 2.08. Method of Electing Interest Rates. (a) The Loans included
in each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject to Section 2.08(d)
and the provisions of Article 8), as follows:

                  (i) if such Loans are Base Rate Loans, the Borrower may elect
         to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar
         Business Day; and

                  (ii) if such Loans are Euro-Dollar Loans, the Borrower may
         elect to convert such Loans to Base Rate Loans as of any Domestic
         Business Day, or may elect to continue such Loans as Euro-Dollar Loans,
         as of the end of any Interest Period applicable thereto, for an
         additional Interest Period, subject to Section 2.13 if any such
         conversion is effective on any day other than the last day of an
         Interest Period applicable to such Loans.

Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Administrative Agent not later than 12:00 Noon (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies, and the remaining portion to which it does not
apply, are each at least $5,000,000 (unless such portion is comprised of Base
Rate Loans). If no such notice is timely received before the end of an Interest
Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have
elected that such Group of Loans be converted to Base Rate Loans at the end of
such Interest Period.

         (b) Each Notice of Interest Rate Election shall specify:

                  (i) the Group of Loans (or portion thereof) to which such
         notice applies;

                  (ii) the date on which the conversion or continuation selected
         in such notice is to be effective, which shall comply with the
         applicable clause of Section 2.08(a);

                  (iii) if the Loans comprising such Group are to be converted,
         the new Type of Loans and, if the Loans resulting from such conversion
         are to be Euro-Dollar Loans, the duration of the next succeeding
         Interest Period applicable thereto; and



                                       25


                  (iv) if such Loans are to be continued as Euro-Dollar Loans
         for an additional Interest Period, the duration of such additional
         Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.

         (c) Promptly after receiving a Notice of Interest Rate Election from
the Borrower pursuant to Section 2.08(a), the Administrative Agent shall notify
each Lender of the contents thereof and such notice shall not thereafter be
revocable by the Borrower.

         (d) The Borrower shall not be entitled to elect to convert any
Committed Loans to, or continue any Committed Loans for an additional Interest
Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group
of Euro-Dollar Loans created or continued as a result of such election would be
less than $5,000,000 or (ii) a Default shall have occurred and be continuing
when the Borrower delivers notice of such election to the Administrative Agent.

         (e) If any Committed Loan is converted to a different Type of Loan, the
Borrower shall pay, on the date of such conversion, the interest accrued to such
date on the principal amount being converted.

         (f) A continuation or conversion pursuant to this Section 2.08(a) is
not a Borrowing subject to Section 3.02.

         Section 2.09. Fees. (a) The Borrower shall pay to the Administrative
Agent, for the account of the Lenders ratably in proportion to their Credit
Exposures, a facility fee calculated for each day at the Facility Fee Rate for
such day (determined in accordance with the Pricing Schedule) on the aggregate
amount of the Credit Exposures on such day. Such facility fee shall accrue for
each day from and including the Effective Date to but excluding the day on which
the Credit Exposures are reduced to zero.

         (b) The Borrower shall pay to the Administrative Agent (i) for the
account of the Lenders ratably a letter of credit fee accruing daily on the
aggregate undrawn amount of all outstanding Letters of Credit at a rate per
annum equal to the Euro-Dollar Margin for such day and (ii) for the account of
each Issuing Bank a letter of credit fronting fee accruing daily on the
aggregate amount then available for drawing under all Letters of Credit issued
by such Issuing Bank at a rate per annum as mutually agreed between the Borrower
and such Issuing Bank.



                                       26


         (c) Fees accrued for the account of the Lenders under this Section
shall be payable quarterly in arrears on each Quarterly Payment Date and on the
day on which the Commitments terminate in their entirety (and, if later, on the
day on which the Credit Exposures are reduced to zero).

         Section 2.10. Termination or Reduction of Commitments. (a) The Borrower
may, upon at least three Domestic Business Days' notice to the Administrative
Agent, (i) terminate the Commitments at any time, if no Loans or Letter of
Credit Liabilities are outstanding at such time, or (ii) ratably reduce from
time to time by an aggregate amount of $10,000,000 or any larger multiple of
$1,000,000, the aggregate amount of the Commitments in excess of the Total
Outstanding Amount. Promptly after receiving a notice pursuant to this
subsection, the Administrative Agent shall notify each Lender of the contents
thereof.

         (b) Unless previously terminated, the Commitments shall terminate in
their entirety on the Termination Date.

         Section 2.11. Optional Prepayments. (a) Subject in the case of Fixed
Rate Loans to Section 2.13, the Borrower may (i) upon at least one Domestic
Business Day's notice to the Administrative Agent, prepay any Group of Base Rate
Loans (or any Competitive Bid Borrowing bearing interest at the Prime Rate
pursuant to Section 8.01) or (ii) upon at least three Euro-Dollar Business Days'
notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in
each case in whole at any time, or from time to time in part in amounts
aggregating $5,000,000 or any larger integral multiple of $1,000,000, by paying
the principal amount to be prepaid together with interest accrued thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Lenders included in such Group of Loans (or
such Competitive Bid Borrowing).

         (b) Except as provided in Section 2.11(a) or 2.17, the Borrower may not
prepay all or any portion of the principal amount of any Competitive Bid Loan
before the maturity thereof without the express written consent of the Lender
making such Loan.

         (c) Promptly after receiving a notice of prepayment pursuant to this
Section, the Administrative Agent shall notify each Lender of the contents
thereof and of such Lender's ratable share (if any) of such prepayment, and such
notice shall not thereafter be revocable by the Borrower.

         Section 2.12. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans, of Letter of
Credit Liabilities and interest thereon and of fees hereunder not later than
2:00 P.M. (New York City time) on the date when due, in Federal or other funds



                                       27


immediately available in New York City, to the Administrative Agent at its
address specified in or pursuant to Section 9.01 and without reduction by reason
of any set-off or counterclaim. The Administrative Agent will promptly
distribute to each Lender its ratable share of each such payment received by the
Administrative Agent for the account of the Lenders. Whenever any payment of
principal of, or interest on, the Base Rate Loans or of fees shall be due on a
day which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day. Whenever any
payment of principal of, or interest on, the Competitive Bid Loans shall be due
on a day which is not a Euro-Dollar Business Day, the date for payment thereof
shall be extended to the next succeeding Euro-Dollar Business Day. If the date
for any payment of principal is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.

         (b) Unless the Borrower notifies the Administrative Agent before the
date on which any payment is due to the Lenders hereunder that the Borrower will
not make such payment in full, the Administrative Agent may assume that the
Borrower has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance on such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent that such payment shall not have been so
made by the Borrower, each Lender shall repay to the Administrative Agent
forthwith on demand the amount so distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.

         Section 2.13. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a different type of Loan (whether such payment or conversion is
pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day
of an Interest Period applicable thereto, or if the Borrower fails to borrow,
prepay, convert or continue any Fixed Rate Loan after notice has been given to
any Lender in accordance with Section 2.04(a), 2.08(c) or 2.11(c), the Borrower
shall reimburse each Lender within 15 days after demand for any resulting loss
or expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after such payment or conversion or failure to borrow,
prepay, convert or continue; provided that such Lender shall have delivered to
the Borrower a



                                       28


certificate as to the amount of such loss or expense, which certificate shall be
conclusive in the absence of manifest error. Such certificate shall be
accompanied by such information as the Borrower may reasonably request as to the
computation set forth therein.

         Section 2.14. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).

         Section 2.15. Letters of Credit.

         (a) Commitment to Issue Letters of Credit. Subject to the terms and
conditions hereof, and so long as no Stop Issuance Notice is in effect, each
Issuing Bank agrees to issue Letters of Credit from time to time before the
Letter of Credit Termination Date upon the request of the Borrower; provided
that, immediately after each Letter of Credit is issued (i) the Total
Outstanding Amount shall not exceed the aggregate amount of the Commitments and
(ii) the aggregate amount of the Letter of Credit Liabilities shall not exceed
$50,000,000. Upon the date of issuance by an Issuing Bank of a Letter of Credit,
the Issuing Bank shall be deemed, without further action by any party hereto, to
have sold to each Lender, and each Lender shall be deemed, without further
action by any party hereto, to have purchased from the Issuing Bank, a
participation in such Letter of Credit and the related Letter of Credit
Liabilities in the proportion its respective Commitment bears to the aggregate
Commitments.

         (b) Method for Issuance; Terms; Extensions.

                  (i) The Borrower shall give the Issuing Bank notice at least
         three Domestic Business Days (or such shorter notice as may be
         acceptable to the Issuing Bank in its discretion) prior to the
         requested issuance of a Letter of Credit (or, in the case of renewal or
         extension, prior to the Issuing Bank's deadline for notice of
         nonextension) specifying the date such Letter of Credit is to be
         issued, and describing the terms of such Letter of Credit and the
         nature of the transactions to be supported thereby (such notice,
         including any such notice given in connection with the extension of a
         Letter of Credit, a "NOTICE OF ISSUANCE"). Upon receipt of a Notice of
         Issuance, the Issuing Bank shall promptly notify the Administrative
         Agent, and the Administrative Agent shall promptly notify each Lender
         of the contents thereof and of the amount of such Lender's
         participation in such Letter of Credit.



                                       29


                  (ii) The obligation of the Issuing Bank to issue each Letter
         of Credit shall, in addition to the conditions precedent set forth in
         Section 3.02, be subject to the conditions precedent that such Letter
         of Credit shall be in such form and contain such terms as shall be
         reasonably satisfactory to the Issuing Bank and that the Borrower shall
         have executed and delivered such other instruments and agreements
         relating to such Letter of Credit as the Issuing Bank shall have
         reasonably requested. The Borrower shall also pay to the Issuing Bank
         for its own account issuance, drawing, amendment and extension charges
         in the amounts and at the times as agreed between the Borrower and the
         Issuing Bank.

                  (iii) The extension or renewal of any Letter of Credit shall
         be deemed to be an issuance of such Letter of Credit, and if any Letter
         of Credit contains a provision pursuant to which it is deemed to be
         extended unless notice of termination is given by the Issuing Bank, the
         Issuing Bank shall timely give such notice of termination unless it has
         theretofore timely received a Notice of Issuance and the other
         conditions to issuance of a Letter of Credit have also theretofore been
         met with respect to such extension. No Letter of Credit shall have a
         term beyond the Letter of Credit Termination Date; provided that a
         Letter of Credit may contain a provision pursuant to which it is deemed
         to be extended on an annual basis unless notice of termination is given
         by the Issuing Bank; provided further that no Letter of Credit shall
         have a term extending or be so extendible beyond the Letter of Credit
         Termination Date.

         (c) Payments; Reimbursement Obligations.

                  (i) Upon receipt from the beneficiary of any Letter of Credit
         of any notice of a drawing under such Letter of Credit, the Issuing
         Bank shall notify the Administrative Agent and the Administrative Agent
         shall promptly notify the Borrower and each other Lender as to the
         amount to be paid as a result of such demand or drawing and the date
         such payment is to be made by the Issuing Bank (the "PAYMENT DATE").
         The Borrower shall be irrevocably and unconditionally obligated to
         reimburse the Issuing Bank for any amounts paid by the Issuing Bank
         upon any drawing under any Letter of Credit, without presentment,
         demand, protest or other formalities of any kind. Such reimbursement
         shall be due on the Payment Date; provided that no such payment shall
         be due from the Borrower any earlier than the date of receipt by it of
         notice of its obligation to make such payment (or, if such notice is
         received by the Borrower after 9:00 A.M. (New York City time) on any
         date, on the next succeeding Domestic Business Day); provided further
         that if and to the extent any such reimbursement is not made by the
         Borrower in accordance with this clause (i) or clause (ii) on the
         Payment Date, then (irrespective of when notice thereof is received by
         the Borrower), such reimbursement obligation shall bear interest,
         payable on demand, for each day from and including the



                                       30


         Payment Date to but not including the date such reimbursement
         obligation is paid in full at a rate per annum equal to the rate
         applicable to Base Rate Loans for such day.

                  (ii) All such amounts paid by the Issuing Bank and remaining
         unpaid by the Borrower (a "REIMBURSEMENT OBLIGATION") shall, if and to
         the extent that the amount of such Reimbursement Obligation would be
         permitted as a Borrowing pursuant to Section 3.02, and unless the
         Borrower otherwise instructs the Administrative Agent by 10:00 A.M.
         (New York City time) on the date payment is due from the Borrower,
         convert automatically to Base Rate Loans on the date such Reimbursement
         Obligation arises. The Administrative Agent shall, on behalf of the
         Borrower (which hereby irrevocably directs the Administrative Agent so
         to act on its behalf), give notice no later than 10:30 A.M. (New York
         City time) on such date requesting each Lender to make, and each Lender
         hereby agrees to make, a Base Rate Loan, in an amount equal to such
         Lender's Percentage of the Reimbursement Obligation with respect to
         which such notice relates. Each Lender shall make such Loan available
         to the Administrative Agent at its address specified in or pursuant to
         Section 9.01 in immediately available funds, not later than 12:00 Noon
         (New York City time), on the date specified in such notice. The
         Administrative Agent shall pay the proceeds of such Loans to the
         Issuing Bank, which shall immediately apply such proceeds to repay the
         Reimbursement Obligation.

                  (iii) To the extent the Reimbursement Obligation is not
         refunded by a Lender pursuant to clause (ii) above, such Lender will
         pay to the Administrative Agent, for the account of the Issuing Bank,
         immediately upon the Issuing Bank's demand at any time during the
         period commencing after such Reimbursement Obligation arises until
         reimbursement therefor in full by the Borrower, an amount equal to such
         Lender's Percentage of such Reimbursement Obligation, together with
         interest on such amount for each day from the date of the Issuing
         Bank's demand for such payment (or, if such demand is made after 1:00
         P.M. (New York City time) on such date, from the next succeeding
         Domestic Business Day) to the date of payment by such Lender of such
         amount at a rate of interest per annum equal to the Federal Funds Rate
         for the first three Domestic Business Days after the date of such
         demand and thereafter at a rate per annum equal to the Base Rate for
         each additional day. The Issuing Bank will pay to each Lender ratably
         all amounts received from the Borrower for application in payment of
         its Reimbursement Obligations in respect of any Letter of Credit, but
         only to the extent such Lender has made payment to the Issuing Bank in
         respect of such Letter of Credit pursuant hereto; provided that in the
         event such payment received by the Issuing Bank is required to be
         returned, such



                                       31


         Lender will return to the Issuing Bank any portion thereof previously
         distributed to it by the Issuing Bank.

         (d) Obligations Absolute. The obligations of the Borrower and each
Lender under subsection (c) above shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, under all circumstances whatsoever, including without limitation
the following circumstances:

                  (i) any lack of validity or enforceability of this Agreement
         or any Letter of Credit or any document related hereto or thereto;

                  (ii) any amendment or waiver of or any consent to departure
         from all or any of the provisions of this Agreement or any Letter of
         Credit or any document related hereto or thereto;

                  (iii) the use which may be made of the Letter of Credit by, or
         any acts or omission of, a beneficiary of a Letter of Credit (or any
         Person for whom the beneficiary may be acting);

                  (iv) the existence of any claim, set-off, defense or other
         rights that the Borrower may have at any time against a beneficiary of
         a Letter of Credit (or any Person for whom the beneficiary may be
         acting), any Lender (including the Issuing Bank) or any other Person,
         whether in connection with this Agreement or the Letter of Credit or
         any document related hereto or thereto or any unrelated transaction;

                  (v) any statement or any other document presented under a
         Letter of Credit proving to be forged, fraudulent or invalid in any
         respect or any statement therein being untrue or inaccurate in any
         respect whatsoever;

                  (vi) payment under a Letter of Credit against presentation to
         the Issuing Bank of documents that do not comply with the terms of such
         Letter of Credit; provided that this clause (vi) shall not limit the
         rights of the Borrower under Section 2.15(e)(ii); or



                                       32


                  (vii) any other act or omission to act or delay of any kind by
         any Lender (including the Issuing Bank), the Administrative Agent or
         any other Person or any other event or circumstance whatsoever that
         might, but for the provisions of this subsection (vii), constitute a
         legal or equitable discharge of or defense to the Borrower's or the
         Lender's obligations hereunder.

         (e) Indemnification; Expenses.

                  (i) Borrower hereby indemnifies and holds harmless each Lender
         (including each Issuing Bank) and the Administrative Agent from and
         against any and all claims, damages, losses, liabilities, costs or
         expenses which it may reasonably incur in connection with the execution
         and delivery or transfer of, or payment or failure to make payment
         under, a Letter of Credit issued pursuant to this Section 2.15;
         provided that the Borrower shall not be required to indemnify any
         Lender (including any Issuing Bank), or the Administrative Agent, for
         any claims, damages, losses, liabilities, costs or expenses, to the
         extent caused by the gross negligence or willful misconduct of such
         Person or, with respect to any Issuing Bank, to the extent caused by
         the Issuing Bank's failure to pay under any Letter of Credit after the
         presentation to it of documents strictly complying with the terms and
         conditions of the Letter of Credit.

                  (ii) None of the Lenders (including an Issuing Bank) nor the
         Administrative Agent nor any of their officers or directors or
         employees or agents shall be liable or responsible, by reason of or in
         connection with the execution and delivery or transfer of or payment or
         failure to pay under any Letter of Credit, including without limitation
         any of the circumstances enumerated in subsection (d) above; provided
         that, notwithstanding Section 2.15(d), the Borrower shall have a claim
         for direct (but not consequential) damage suffered by it, to the extent
         caused by (x) subject to the following sentence, the Issuing Bank's
         gross negligence or willful misconduct in determining whether documents
         presented under any Letter of Credit complied with the terms of such
         Letter of Credit or (y) the Issuing Bank's failure to pay under any
         Letter of Credit after the presentation to it of documents strictly
         complying with the terms and conditions of the Letter of Credit. The
         parties agree that, with respect to documents presented which appear on
         their face to be in substantial compliance with the terms of a Letter
         of Credit, the Issuing Bank may, in its sole discretion, either accept
         and make payment upon such documents without responsibility for further
         investigation, regardless of any notice or information to the contrary,
         or refuse to accept and make payment upon such documents if such
         documents are not in strict compliance with the terms of such Letter of
         Credit.



                                       33


                  (iii) Nothing in this subsection (e) is intended to limit the
         obligations of the Borrower under any other provision of this
         Agreement. To the extent the Borrower does not indemnify an Issuing
         Bank as required by this subsection, the Lenders agree to do so ratably
         in accordance with their Commitments.

         Section 2.16. Stop Issuance Notice. If the Required Lenders determine
at any time that the conditions set forth in Section 3.02 would not be satisfied
in respect of a Borrowing at such time, then the Required Lenders may request
that the Administrative Agent issue a "STOP ISSUANCE NOTICE", and the
Administrative Agent shall issue such notice to each Issuing Bank. Such Stop
Issuance Notice shall be withdrawn upon a determination by the Required Lenders
that the circumstances giving rise thereto no longer exist. No Letter of Credit
shall be issued while a Stop Issuance Notice is in effect. The Required Lenders
may request issuance of a Stop Issuance Notice only if there is a reasonable
basis therefor, and shall consider reasonably and in good faith a request from
the Borrower for withdrawal of the same on the basis that the conditions in
Section 3.02 are satisfied; provided that the Administrative Agent and the
Issuing Banks may and shall conclusively rely on any Stop Issuance Notice while
it remains in effect.

         Section 2.17. Regulation D Compensation. Each Lender may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Lender at a rate per annum determined by such Lender up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii)the applicable London
Interbank Offered Rate. Any Lender wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Administrative Agent, in which
case such additional interest on the Euro-Dollar Loans of such Lender shall be
payable to such Lender at the place indicated in such notice with respect to
each Interest Period commencing at least three Euro-Dollar Business Days after
the giving of such notice and (y) shall notify the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans of the amount then due it under this Section 2.17.

         "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other



                                       34


assets which includes loans by a non-United States office of any Lender to
United States residents).

         Section 2.18. Increased Commitments; Additional Lenders.

         (a) Subsequent to the Effective Date (but not more than twice in any
calendar year), the Borrower may, upon at least 30 days' notice to the
Administrative Agent (which shall promptly provide a copy of such notice to the
Lenders), propose to increase the aggregate amount of the Commitments by an
amount which (i) is a multiple of $10,000,000 and (ii) when combined with the
aggregate amount by which the Commitments have theretofore been increased
pursuant to this Section 2.18, does not exceed $100,000,000 (the amount of any
such increase, the "INCREASED COMMITMENTS"); provided that no Default shall have
occurred and be continuing. Each Lender party to this Agreement at such time
shall have the right (but no obligation), for a period of 15 days following
receipt of such notice, to elect by notice to the Borrower and the
Administrative Agent to increase its Commitment by a principal amount which
bears the same ratio to the Increased Commitments as its then Commitment bears
to the aggregate Commitments then existing. If a Lender does not respond to such
notice within such period, such Lender shall be deemed to have elected not to
increase its Commitment pursuant to this Section 2.18 at such time.

         (b) If any Lender party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may,
within 30 days of the Lenders' response, designate one or more of the existing
Lenders or other financial institutions acceptable to the Administrative Agent
(such acceptance not to be unreasonably withheld or delayed), the Issuing Banks
and the Borrower which at the time agree to (i) in the case of any such Person
that is an existing Lender, increase its Commitment and (ii) in the case of any
other such Person (an "ADDITIONAL LENDER"), become a party to this Agreement.
The sum of the increases in the Commitments of the existing Lenders pursuant to
this subsection (b) plus the Commitments of the Additional Lenders shall not in
the aggregate exceed the unsubscribed amount of the Increased Commitments.

         (c) An increase in the aggregate amount of the Commitments pursuant to
this Section 2.18 shall become effective upon the receipt by the Administrative
Agent of an agreement in form and substance satisfactory to the Administrative
Agent signed by the Borrower, by each Additional Lender and by each other Lender
whose Commitment is to be increased, setting forth the new Commitments of such
Lenders and setting forth the agreement of each Additional Lender to become a
party to this Agreement and to be bound by all the terms and provisions hereof,
together with such evidence of appropriate corporate authorization on the part
of the Borrower with respect to the Increased Commitments and such opinions of
counsel for the Borrower with respect to the Increased Commitments as the
Administrative Agent may reasonably request.



                                       35


         (d) Upon any increase in the aggregate amount of the Commitments
pursuant to this Section 2.18 that is not pro rata among all Lenders, (i) the
respective Letter of Credit Liabilities of the Lenders shall be redetermined as
of the effective date of such increase and (ii) within five Domestic Business
Days, in the case of any Group of Base Rate Loans then outstanding, and at the
end of the then current Interest Period with respect thereto, in the case of any
Group of Euro-Dollar Loans then outstanding, the Borrower shall prepay such
Group in its entirety and, to the extent the Borrower elects to do so and
subject to the conditions specified in Article 3, the Borrower shall reborrow
Committed Loans from the Lenders in proportion to their respective Commitments
after giving effect to such increase, until such time as all outstanding
Committed Loans are held by the Lenders in such proportion.

                                    ARTICLE 3
                                   CONDITIONS

         Section 3.01. Effectiveness. The Commitments shall become effective
only when all the following conditions have been satisfied:

         (a) the Administrative Agent shall have received, from each party
listed on the signature pages hereof, either a counterpart hereof signed by such
party or facsimile or other written confirmation satisfactory to the
Administrative Agent confirming that such party has signed a counterpart hereof;

         (b) the Administrative Agent shall have received an opinion of the
General Counsel of the Borrower, substantially in the form of Exhibit F hereto,
and covering such additional matters relating to the transactions contemplated
hereby as the Required Lenders may reasonably request;

         (c) the Administrative Agent shall have received an opinion of Davis
Polk & Wardwell, special counsel for the Administrative Agent, substantially in
the form of Exhibit G hereto, and covering such additional matters relating to
the transactions contemplated hereby as the Required Lenders may reasonably
request;

         (d) the Borrower shall have paid to the Administrative Agent for the
account of each Lender a fee in the amount heretofore mutually agreed;

         (e) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and



                                       36


         (f) the Administrative Agent shall have received evidence satisfactory
to it that the commitments under the Existing Credit Agreement shall have
terminated and that all principal of any loans outstanding under, and all
accrued interest and fees under, the Existing Credit Agreement shall have been
paid in full;

provided that the Commitments shall not become effective unless all of the
foregoing conditions are satisfied not later than August 30, 2002. Promptly
after the Effective Date occurs, the Administrative Agent shall notify the
Borrower and the Lenders thereof, and such notice shall be conclusive and
binding on all parties hereto.

         Section 3.02. Borrowings and Issuances of Letters of Credit. The
obligation of any Lender to make a Loan on the occasion of any Borrowing, and
the obligation of an Issuing Bank to issue (or renew or extend the term of) any
Letter of Credit, is subject to the satisfaction of the following conditions:

         (a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03, or receipt by the Issuing Bank of a Notice of
Issuance as required by Section 2.15(b), as the case may be;

         (b) the fact that, immediately after such Borrowing or issuance, no
Default shall exist; and

         (c) the fact that the representations and warranties of the Borrower
contained in this Agreement shall be true in all material respects on and as of
the date of such Borrowing or issuance.

Each Borrowing and each issuance or extension of a Letter of Credit hereunder
shall be deemed to be a representation and warranty by the Borrower on the date
of such Borrowing or issuance as to the facts specified in the foregoing clauses
3.02(b) and 3.02(c).

                                    ARTICLE 4
                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants that:

         Section 4.01. Corporate Existence and Power. The Borrower and each
Significant Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation, has all power
and authority to carry on its business as now being conducted and to own its
properties, and is duly qualified and in good standing as a foreign corporation
in each other jurisdiction in which the failure to qualify would materially and



                                       37


adversely affect the conduct of its business or the enforceability of its
contractual rights.

         Section 4.02. Corporate Authorization. The execution, delivery and
performance by the Borrower of this Agreement and the Notes are within the
Borrower's corporate power, have been duly authorized by all necessary corporate
action and will not contravene, or constitute a default under, any provision of
applicable law or regulation or of the Restated Certificate of Incorporation or
By-Laws of the Borrower, or of any judgment, order, decree, agreement or
instrument binding on the Borrower or result in the creation of any Lien upon
any of its property or assets.

         Section 4.03. Binding Effect. This Agreement constitutes, and the Notes
when duly executed on behalf of the Borrower and delivered in accordance with
this Agreement will constitute, the valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms.

         Section 4.04. Financial Information.

         (a) The consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of July 28, 2001 and the related consolidated statements of
operations and cash flows for the fiscal year then ended, reported on by
Deloitte & Touche and set forth in the Borrower's 2001 Annual Report to
Shareholders and incorporated by reference in the Borrower's 2001 Form 10-K, a
copy of which has been delivered to each of the Lenders, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such fiscal
year.

         (b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of April 27, 2002 and the related unaudited
consolidated statements of operations and cash flows for the 39 weeks then
ended, set forth in the Borrower's quarterly report for the fiscal quarter ended
April 27, 2002 as filed with the Securities and Exchange Commission on Form
10-Q, a copy of which has been delivered to each of the Lenders, fairly present,
in conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such 39-week period (subject to normal year-end
adjustments).

         (c) Since July 28, 2001 there has been no material adverse change in
the business, financial position or results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole.



                                       38


         Section 4.05. Litigation. There are no actions, suits or proceedings
pending against or, to the knowledge of the Borrower, threatened against or
affecting, the Borrower or any Significant Subsidiary in any court or before or
by any governmental department, agency or instrumentality, in which there is a
reasonable possibility of an adverse decision which would materially and
adversely affect the financial condition or business of the Borrower and its
Subsidiaries, taken as a whole.

         Section 4.06. Governmental and Other Approvals. No approval, consent or
authorization of or filing or registration with any governmental authority or
body is necessary for the execution, delivery or performance by the Borrower of
this Agreement or the Notes or for the performance by the Borrower of any of the
terms or conditions hereof or thereof.

         Section 4.07. Full Disclosure. All financial statements and other
documents furnished by the Borrower to the Lenders in connection with this
Agreement do not and will not contain any untrue statement of material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading. The Borrower has disclosed to the Lenders in
writing any and all facts which materially and adversely affect the business,
operations or condition, financial or otherwise, of the Borrower and its
Subsidiaries or the Borrower's ability to perform its obligations under this
Agreement.

         Section 4.08. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.

         Section 4.09. Taxes. United States Federal income tax returns of the
Borrower and its Subsidiaries have been closed through the fiscal year ended
August 1, 1998. The Borrower and its Subsidiaries have filed all United States
Federal income tax returns, and the Borrower and its Significant Subsidiaries
have filed all other material tax returns, which are required to be filed by
them and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Significant Subsidiary except where
the payment of any such taxes is being contested in good faith by appropriate
proceedings.



                                       39


The charges, accruals and reserves on the books of the Borrower and its
Consolidated Subsidiaries in respect of taxes or other governmental charges are,
in the opinion of the Borrower, adequate.

         Section 4.10. Environmental Matters. The Borrower has reasonably
concluded that the costs of compliance with Environmental Laws are unlikely to
have a material adverse effect on the business, financial condition or results
of operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole.

                                    ARTICLE 5
                                    COVENANTS

         The Borrower agrees that, so long as any Lender has any Credit Exposure
hereunder:

         Section 5.01. Furnishing of Financial Data and Certificates. The
Borrower will deliver to each of the Lenders:

         (a) As soon as practicable, and in any event within 55 days after the
close of each of the first three quarters of each fiscal year of the Borrower,
(i) the condensed consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at the end of such quarter, (ii) the condensed
consolidated statement of operations of the Borrower and its Consolidated
Subsidiaries for such quarter and for the portion of such fiscal year to and
including such quarter and (iii) the condensed consolidated statements of cash
flows of the Borrower and its Consolidated Subsidiaries for the portion of such
fiscal year to and including such quarter, each of the foregoing to set forth in
comparative form the corresponding figures of the previous year and to be in
reasonable detail and certified by a financial officer of the Borrower, subject
to year-end audit adjustments; delivery by the Borrower of its Quarterly Reports
on Form 10-Q shall be deemed compliance with this provision;

         (b) As soon as practicable, and in any event within 120 days after the
close of each fiscal year of the Borrower, (i) the consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as at the end of such fiscal
year, (ii) the consolidated statement of operations of the Borrower and its
Consolidated Subsidiaries for such fiscal year and (iii) the consolidated
statements of cash flows of the Borrower and its Consolidated Subsidiaries for
such fiscal year, each of the foregoing to set forth in comparative form the
corresponding figures of the previous year and to be in reasonable detail and
audited and certified by Deloitte & Touche or other certified public accountants
of nationally recognized standing reasonably satisfactory to the Lenders;
delivery by the Borrower of its Annual Reports on Form 10-K (together with its
annual report to shareholders, if



                                       40


incorporated by reference therein) shall be deemed compliance with this
provision;

         (c) Promptly after sending or filing, copies of all financial
statements, reports, notices and proxy statements as it shall send to its
shareholders, and of all periodic reports filed by the Borrower with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions;

         (d) Within five Domestic Business Days after any executive officer of
the Borrower becomes aware of any Default, if such Default is then continuing, a
certificate of a financial officer of the Borrower setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto; and

         (e) Such other information (which is readily obtainable by the Borrower
without incurring any undue expense) regarding the financial condition of the
Borrower as any Lender may reasonably request.

Together with each delivery of financial statements required by clauses (a) and
(b) above, the Borrower will deliver to the Lenders a certificate of a financial
officer stating that to the best of his knowledge there exists no Default or, if
any Default exists, specifying the nature thereof, the period of existence
thereof and what action the Borrower proposes to take with respect thereto. The
certificate delivered in conjunction with each delivery of annual and quarterly
financial statements shall in addition demonstrate in reasonable detail
compliance during the preceding fiscal period with Sections 5.08, 5.09 and
5.10(k).

Each certificate of independent certified public accountants delivered with the
financial statements required by clause (b) above shall be accompanied by a
written statement of such accountants that, in conducting the examination
necessary to the giving of such certificate, they have obtained no knowledge of
the existence during the fiscal period under examination of any condition, event
or act which constitutes a Default (insofar as such a condition, event or act
relates to accounting matters), or if in the opinion of such accountants there
shall exist any Default, such statement shall specify the nature thereof.

Information required to be delivered pursuant to clauses (a), (b) and (c) above
shall be deemed to have been delivered on the date on which the Borrower
provides notice to the Lenders that such information has been posted on the
Borrower's website on the Internet at www.neimanmarcus.com, at
sec.gov/edaux/searches.htm or at another website identified in such notice and
accessible by the Lenders without charge; provided that the Borrower shall
deliver paper copies of the information referred to in clauses (a), (b) and (c)
above to any Lender which requests such delivery.



                                       41


         Section 5.02. Payment of Taxes. The Borrower will, and will cause each
Subsidiary to, promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Borrower or
any Subsidiary; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith and if the Borrower or a Subsidiary shall have set aside on its books
adequate reserves with respect thereto in accordance with generally accepted
accounting principles.

         Section 5.03. Maintenance of Corporate Existence; Compliance with Laws.
(a) The Borrower will preserve and maintain its corporate existence.

         (b) The Borrower will, and will cause each Subsidiary to, conduct its
affairs and carry on its business and operations in such manner as to comply
with any and all applicable laws (including, without limitation, Environmental
Laws and ERISA and the rules and regulations thereunder), except (i) where the
necessity of compliance therewith is being contested in good faith or (ii) where
the failure of compliance therewith could not reasonably be expected to have,
individually or in the aggregate, a material adverse change in the business,
assets, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.

         Section 5.04. Maintenance of Property and Leases. The Borrower will,
and will cause each Subsidiary to, keep its properties, whether owned or leased,
in satisfactory repair, working order and condition, except where the failure to
keep such properties in such condition could not reasonably be expected to have,
individually or in the aggregate, a material adverse change in the business,
assets, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.

         Section 5.05. Insurance. The Borrower will, and will cause each
Subsidiary to, maintain with financially sound and reputable insurers insurance
against liability to persons and damage to property to the extent and in the
manner customary for companies of like size in similar businesses, it being
understood that the Borrower may self-insure against exposures which, in the
judgment of its management, are reasonable in relation to its financial
position. The Borrower will deliver to the Lenders from time to time upon
request of any Lender through the Administrative Agent full information as to
the insurance so carried.

         Section 5.06. Accounts and Reports. The Borrower will, and will cause
each Subsidiary to, keep true records and books of account in which full, true
and correct entries will be made of all dealings or transactions in relation to
its businesses and affairs, in accordance with generally accepted accounting
principles consistently applied.



                                       42


         Section 5.07. Inspection. Each Lender or its designee shall have the
right, at its expense, on reasonable notice (given to a senior financial officer
of the Borrower) and at reasonable times to visit and inspect the properties of
the Borrower and its Subsidiaries and to discuss the financial affairs of the
Borrower and its Subsidiaries with the Borrower's senior officers and will be
furnished from the books of the Borrower and its Subsidiaries such financial
information as it may reasonably request and upon such reasonable conditions
relating to confidentiality of the material and information so supplied as the
Borrower might impose. Each Lender shall respect the confidential nature of the
material and information so supplied and shall take reasonable measures to
preserve such confidentiality. It is understood that a Lender may be required to
disclose such confidential material and information or portions thereof (1) at
the request of a bank regulatory agency or in connection with an examination of
the Lender by bank examiners, (2) pursuant to subpoena or other court process,
(3) at the express direction of any other authorized government agency, (4) to
its independent auditors or (5) otherwise as required by law.

         Section 5.08. Coverage of Consolidated Fixed Charges. The Fixed Charge
Coverage Ratio will not at the end of any fiscal quarter be less than 2.75 to 1.

         Section 5.09. Leverage Ratio. The Leverage Ratio will at no time exceed
60%.

         Section 5.10. Restrictions on Liens. The Borrower will not, nor will it
permit any Subsidiary to, create, incur, assume or suffer to exist any Lien upon
any of its property or assets now owned or hereafter acquired, except:

         (a) Liens existing on the date hereof securing Debt outstanding on the
date hereof;

         (b) Liens incidental to the conduct of its business or the ownership of
its properties and assets which were not incurred in connection with the
borrowing of money or the obtaining of advances or credit or the incurrence of
Derivatives Obligations and which do not materially detract from the value of
its property or assets or materially impair the use thereof in the operation of
its business;

         (c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring or constructing
such asset; provided that such Lien attaches to such asset concurrently with or
within 180 days after the acquisition or completion of construction thereof;

         (d) Liens incurred in connection with Guarantees of bonds, notes or
other similar obligations of a state, city, town or other governmental agency or
entity which obligations are issued in order to finance property used or to be
used



                                       43


by the Borrower or any Subsidiary, and Liens incurred in connection with the
acquisition of, or improvements to, real estate; provided, however, that no such
Lien shall extend to or cover any property other than the property so acquired
or improved;

         (e) any Lien existing on any assets of any corporation or other entity
at the time it becomes a Subsidiary and not created in contemplation of such
corporation becoming a Subsidiary, or existing on any assets acquired by the
Borrower or any Subsidiary through purchase, merger, consolidation, or otherwise
and not created in contemplation of such purchase, merger, consolidation or
other transaction;

         (f) any Lien resulting from any order of attachment, distraint or other
legal process arising out of judicial proceedings so long as the execution or
other enforcement thereof is effectively stayed;

         (g) Liens on shares of capital stock or property of a Subsidiary
securing obligations owing by such Subsidiary to the Borrower or to another
Subsidiary;

         (h) Liens arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by this Section 5.10;
provided that such Debt is not increased and is not secured by any additional
assets;

         (i) Liens to banks or other institutions arising in connection with the
issuance of letters of credit or bankers' acceptances in connection with the
shipment or storage of goods in the ordinary course of business;

         (j) Liens on cash and cash equivalents securing Derivatives
Obligations; provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $25,000,000; and

         (k) Liens not otherwise permitted by any of the foregoing clauses of
this Section 5.10 (i) covering assets other than inventory of the Borrower or a
Restricted Subsidiary and (ii) securing Debt in an aggregate principal amount at
any time outstanding not to exceed 15% of Consolidated Net Assets.

         Section 5.11. Restrictions on Sales, Consolidations and Mergers.

         (a) The Borrower will not sell, lease or in any way dispose of all, or
substantially all, of its property or assets to any other Person, nor will the
Borrower consolidate or merge with or into any other Person; provided that this
Section 5.11 shall not prevent any merger involving the Borrower in which the
Borrower is the surviving corporation if, at the time of, and after giving
effect to any such merger, no Default shall have occurred and be continuing.



                                       44


         (b) Neither the Borrower nor any Subsidiary will sell, lease or
otherwise dispose of any of its property or assets, except (i) in the ordinary
course of its business, (ii) to the Borrower or any Subsidiary, (iii) in
connection with a Securitization Transaction or a Sale-Leaseback Transaction or
(iv) other dispositions of property or assets, provided that the aggregate book
value of the property or assets so disposed of pursuant to this clause (iv) in
any fiscal year shall not exceed 20% of the consolidated assets of the Borrower
and its Consolidated Subsidiaries as at the last day of the preceding fiscal
year.

         (c) The aggregate outstanding principal amount of Debt deemed incurred
in respect of Securitization Transactions pursuant to Section 1.02(b) shall at
no time exceed $400,000,000.

         Section 5.12. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any Investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect
any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate; provided, however, that the foregoing
provisions of this Section shall not prohibit (a) the Borrower from declaring or
paying any lawful dividend so long as after giving effect thereto, no Default
shall have occurred and be continuing or (b) the Borrower or any Subsidiary from
engaging in any commercial transaction with an Affiliate so long as such
transaction is on terms and conditions at least as favorable to the Borrower or
such Subsidiary as the terms and conditions which would apply in a similar
transaction with a Person that is not an Affiliate; provided further that a
transaction permitted by this Section may nonetheless give rise to an Event of
Default under another Section of this Agreement.

         Section 5.13. Restriction on Debt of Subsidiaries. The Borrower will
not permit any of its Subsidiaries to incur or at any time be liable with
respect to any Debt, except (a) Debt owing to the Borrower or any Wholly-Owned
Subsidiary, (b) Debt which is secured by a Lien permitted by Section 5.10, (c)
Debt of any corporation at the time such corporation becomes a Subsidiary and
not created in contemplation of such event, (d) Debt of Subsidiaries not
otherwise permitted by any of the foregoing clauses in an aggregate principal
amount at any time outstanding not to exceed $25,000,000, (e) Debt of
Subsidiaries outstanding on the date of this Agreement and (f) Debt arising out
of any extension, renewal or replacement of any Debt permitted by clauses (b),
(c) and (e) above that does not increase the outstanding principal amount
thereof.

         Section 5.14. Use of Proceeds. The proceeds of the Loans made under
this Agreement will be used by the Borrower for general corporate purposes. None
of such proceeds will be used, directly or indirectly, for the purpose,



                                       45


whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.

         Section 5.15. Restricted Payments. The aggregate purchase price paid by
the Borrower and its Subsidiaries during the term of this Agreement for the
purchase or other acquisition of outstanding shares of common stock of the
Borrower shall not exceed the sum of (i) $150,000,000 plus (ii) an amount equal
to 25% of the consolidated net income of the Borrower and its Consolidated
Subsidiaries for the period from August 3, 2002 through the end of the then most
recent fiscal quarter for which financial statements have been delivered
pursuant to Section 5.01 (treated for this purpose as a single accounting
period).

         Section 5.16. Restrictive Agreements. Neither the Borrower nor any
Restricted Subsidiary will, directly or indirectly, enter into or permit to
exist any agreement or other arrangement that prohibits, restricts or imposes
any condition on (a) the ability of the Borrower or any Restricted Subsidiary to
create or permit to exist any Lien on any of its inventory or (b) the ability of
any Restricted Subsidiary to pay dividends or other distributions with respect
to any shares of its capital stock or to make or repay loans or advances to the
Borrower or any other Restricted Subsidiary or to Guarantee Debt of the Borrower
or any other Restricted Subsidiary; provided that (1) the foregoing shall not
apply to restrictions and conditions imposed by law or by this Agreement, (2)
the foregoing shall not apply to restrictions and conditions existing on the
date hereof, or any extension or renewal of any such restriction or condition,
but shall apply to any amendment or modification expanding the scope of such
restriction or condition, (3) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided that such restrictions and conditions
apply only to the Subsidiary that is to be sold and such sale is permitted
hereunder, (4) clause (a) of this Section shall not apply to restrictions or
conditions imposed by any agreement relating to secured Debt permitted by this
Agreement if such restrictions or conditions apply only to the property securing
such Debt and (5) clause (a) of this Section shall not apply to customary
provisions in leases restricting the assignment thereof.

                                    ARTICLE 6
                                    DEFAULTS

         Section 6.01. Events of Default. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:

         (a) the Borrower shall fail to pay when due any principal of any Loan
or any Reimbursement Obligation, or shall fail to pay within three days of the
due date thereof any interest or fees payable hereunder;



                                       46


         (b) the Borrower shall fail to observe or perform any covenant
contained in Section 5.01(d) or Sections 5.08 to 5.16, inclusive;

         (c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Lender;

         (d) any material representation, warranty, certification or statement
made by the Borrower in this Agreement or in any certificate, financial
statement or other document delivered pursuant to this Agreement shall prove to
have been incorrect in any material respect when made (or deemed made), and if
the same shall be susceptible of cure, such incorrectness shall not have been
cured to the reasonable satisfaction of the Required Lenders within 30 days
after notice thereof has been given to the Borrower by the Administrative Agent
at the request of any Lender;

         (e) the Borrower or any Subsidiary shall fail to make payment of any
Material Financial Obligation when due or within any applicable grace period;

         (f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such Debt
or any Person acting on such holder's behalf to accelerate the maturity thereof;

         (g) the Borrower or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;

         (h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Significant Subsidiary seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Significant Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;



                                       47


         (i) any member of the ERISA Group shall fail to pay when due an amount
or amounts (other than amounts being contested in good faith through appropriate
proceedings) aggregating in excess of $25,000,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan in a distress termination under Section 4041(c) of ERISA shall be
filed under Title IV of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate, to impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $25,000,000;

         (j) a judgment or order for the payment of money in excess of
$25,000,000 shall be rendered against the Borrower or any Significant Subsidiary
and such judgment or order shall continue unsatisfied and unstayed for a period
of 30 days; or

         (k) (i) any person or group of persons (within the meaning of Section
13 or 14 of the Exchange Act) other than a member of the Smith Family Group
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of more voting stock or total equity capital of the Borrower
than that beneficially owned by the Smith Family Group, if such person or group
of persons is also the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of at least 30% of either the voting stock
or total equity capital of the Borrower or (ii) more than half of the members of
the Board of Directors of the Borrower shall be persons who are not Continuing
Directors;

then, and in every such event, the Administrative Agent shall (i) if requested
by the Required Lenders, by notice to the Borrower terminate the Commitments and
they shall thereupon terminate, and (ii) if requested by Lenders holding more
than 50% in aggregate principal amount of the Loans, by notice to the Borrower
declare the Loans (together with accrued interest thereon) to be, and the Loans
shall thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Administrative Agent or the Lenders, the
Commitments shall thereupon terminate and the Loans (together with accrued
interest thereon) shall become immediately due and payable without presentment,



                                       48


demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.

         Section 6.02. Notice of Default. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) or (d) promptly upon being
requested to do so by any Lender and shall thereupon notify all the Lenders
thereof.

         Section 6.03. Cash Cover. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the
Administrative Agent upon the instruction of Lenders having more than 50% of the
Letter of Credit Liabilities, pay to the Administrative Agent an amount in
immediately available funds (which funds shall be held as collateral pursuant to
arrangements satisfactory to the Administrative Agent) equal to the aggregate
amount available for drawing under all Letters of Credit outstanding at such
time; provided that, upon the occurrence of any Event of Default specified in
Section 6.01(g) or 6.01(h) with respect to the Borrower, the Borrower shall pay
such amount forthwith without any notice or demand or any other act by the
Administrative Agent or the Lenders.

                                    ARTICLE 7
                                   THE AGENTS

         Section 7.01. Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement as are delegated to
the Administrative Agent by the terms hereof, together with all such powers as
are reasonably incidental thereto.

         Section 7.02. Agents and Affiliates. Each Agent shall have the same
rights and powers under this Agreement as any other Lender and may exercise or
refrain from exercising the same as though it were not one of the Agents. Each
Agent and its affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with the Borrower or any Subsidiary or affiliate
of the Borrower as if it were not one of the Agents.

         Section 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.



                                       49


         Section 7.04. Consultation With Experts. Each Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.

         Section 7.05. Liability of Agents. None of the Agents, their affiliates
and their respective directors, officers, agents and employees shall be liable
for any action taken or not taken by it in connection herewith (i) with the
consent or at the request of the Required Lenders (or such different number of
Lenders as any provision hereof expressly requires for such consent or request)
or (ii) in the absence of its own gross negligence or willful misconduct;
provided that the provisions of this sentence are for the sole benefit of the
Agents, their affiliates and their respective directors, officers, agents and
employees and shall not release any Lender from liability it would otherwise
have to the Borrower. None of the Agents, their affiliates and their respective
directors, officers, agents and employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3 except, in the case of the Administrative Agent, receipt of items
required to be delivered to it; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. No Agent shall incur any liability by acting
in reliance upon any notice, consent, certificate, statement or other writing
(which may be a bank wire, telex, facsimile or similar writing) believed by it
to be genuine or to be signed by the proper party or parties. Without limiting
the generality of the foregoing, the use of the term "AGENT" in this Agreement
with reference to any Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any applicable
law. Instead, such term is used merely as a matter of market custom and is
intended to create or reflect only an administrative relationship between
independent contracting parties.

         Section 7.06. Indemnification. The Lenders shall, ratably in proportion
to their Credit Exposures, indemnify each Agent and Issuing Bank, their
respective affiliates and their respective directors, officers, agents and
employees (to the extent not reimbursed by the Borrower) against any cost,
expense (including counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from such indemnitees' gross negligence or
willful misconduct) that such indemnitees may suffer or incur in connection with
this Agreement or any Letter of Credit or any action taken or omitted by such
indemnitees hereunder or thereunder.



                                       50


         Section 7.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance on any other Lender Party, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance on any other
Lender Party, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.

         Section 7.08. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving notice thereof to the Lenders and the Borrower.
Upon any such resignation, the Borrower shall have the right to appoint a
successor Administrative Agent from among the Lenders, subject to the approval
of the Required Lenders, which shall not be unreasonably withheld. If no
successor Administrative Agent shall have been so appointed by the Borrower and
approved by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent gives notice of
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $500,000,000. Upon
the acceptance of its appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent resigns as Administrative Agent hereunder, the provisions
of this Article shall inure to its benefit as to actions taken or omitted to be
taken by it while it was Administrative Agent.

         Section 7.09. Administrative Agent's Fee. The Borrower shall pay to the
Administrative Agent for its own account fees in the amounts and at the times
previously agreed upon by the Borrower and the Administrative Agent.

         Section 7.10. Syndication Agents. The Syndication Agents, in their
capacity as such, shall not have any duties or obligations of any kind under
this Agreement.

                                    ARTICLE 8
                             CHANGE IN CIRCUMSTANCES

         Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Euro-Dollar Loan
or Competitive Bid LIBOR Loan:



                                       51


         (a) the Administrative Agent is advised by the Reference Bank that
deposits in dollars (in the applicable amounts) are not being offered to the
Reference Bank in the London interbank market for such Interest Period, or

         (b) in the case of Euro-Dollar Loans, Lenders having 50% or more of the
aggregate principal amount of the affected Loans advise the Administrative Agent
that the London Interbank Offered Rate as determined by the Administrative Agent
will not adequately and fairly reflect the cost to such Lenders of funding their
Euro-Dollar Loans for such Interest Period, the Administrative Agent shall
forthwith give notice thereof to the Borrower and the Lenders, whereupon until
the Administrative Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Lenders to
make Euro-Dollar Loans or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the
Administrative Agent at least one Domestic Business Day before the date of any
Fixed Rate Borrowing for which a Notice of Borrowing has previously been given
that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a
Committed Borrowing, such Borrowing shall instead be made as a Base Rate
Borrowing and (ii) if such Fixed Rate Borrowing is a Competitive Bid LIBOR
Borrowing, the Competitive Bid LIBOR Loans comprising such Borrowing shall bear
interest for each day from and including the first day to but excluding the last
day of the Interest Period applicable thereto at the Base Rate for such day.

         Section 8.02. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Lender (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Lender shall so notify the Administrative Agent, the Administrative Agent
shall forthwith give notice thereof to the other Lenders and the Borrower,
whereupon until such Lender notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Lender to make Euro-Dollar Loans or to convert outstanding
Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to
the Administrative Agent pursuant to this Section, such Lender shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan
of such Lender then outstanding shall be converted to a Base Rate Loan either
(a) on the last day of the



                                       52


then current Interest Period applicable to such Euro-Dollar Loan if such Lender
may lawfully continue to maintain and fund such Loan to such day or (b)
immediately if such Lender shall determine that it may not lawfully continue to
maintain and fund such Loan to such day.

         Section 8.03. Increased Cost and Reduced Return. (a) If on or after (x)
the date hereof, in the case of any Committed Loan or any Letter of Credit or
any obligation to make Committed Loans or to issue or participate in Letters of
Credit or (y) the date of the related Competitive Bid Quote, in the case of any
Competitive Bid Loan, the adoption of any applicable law, rule or regulation, or
any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
with respect to any Euro-Dollar Loan any such requirement with respect to which
such Lender is entitled to compensation for the relevant Interest Period under
Section 2.17), special deposit, insurance assessment or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Lender (or its Applicable Lending Office) or shall impose on any Lender (or
its Applicable Lending Office) or on the London interbank market any other
condition affecting its Fixed Rate Loans, its Notes, its participation in the
Letters of Credit or its obligation to make Fixed Rate Loans or to issue or
participate in Letters of Credit and the result of any of the foregoing is to
increase the cost to such Lender (or its Applicable Lending Office) of making or
maintaining any Fixed Rate Loan or of issuing, maintaining or participating in
any Letter of Credit, or to reduce the amount of any sum received or receivable
by such Lender (or its Applicable Lending Office) under this Agreement or under
its Notes with respect thereto, by an amount deemed by such Lender to be
material, then, within 30 days after demand by such Lender (with a copy to the
Administrative Agent), the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender for such increased cost or
reduction.

         (b) If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Lender (or its Parent) as a consequence of such Lender's
obligations hereunder to a level



                                       53


below that which such Lender (or its Parent) could have achieved but for such
adoption, change, request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, then from time to time, within 30 days after demand by such Lender
(with a copy to the Administrative Agent), the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender (or its Parent)
for such reduction.

         (c) Each Lender will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Lender to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Lender, be otherwise disadvantageous to
such Lender. A certificate of any Lender claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. In determining
such amount, such Lender may use any reasonable averaging and attribution
methods. Each such certificate shall be accompanied by such information as the
Borrower may reasonably request as to the computation set forth therein. No
payment made to any Lender under this Section shall duplicate any other payments
made to such Lender under any other provision of this Agreement.

         Section 8.04. Taxes. (a) For the purposes of this Section 8.04, the
following terms have the following meanings:

         "TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Lender and the Administrative
Agent, taxes imposed on its net income, and franchise or similar taxes imposed
on it, by a jurisdiction under the laws of which such Lender or the
Administrative Agent (as the case may be) is organized or in which its principal
executive office is located or, in the case of each Lender, in which its
Applicable Lending Office is located and (ii) in the case of each Lender, any
United States withholding tax imposed with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, but only up to the rate
(if any) at which United States withholding tax would apply to such payments to
such Lender at the time such Lender first becomes a party to this Agreement.

         "OTHER TAXES" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
the execution or delivery of, or otherwise with respect to, this Agreement or
any Note.



                                       54


         (b) Any and all payments by the Borrower to or for the account of any
Lender or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions for any Taxes or Other Taxes (including
deductions applicable to additional sums payable under this Section) such Lender
or the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions, (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law and (iv) the Borrower shall furnish to the Administrative
Agent, at its address referred to in Section 9.01, the original or a certified
copy of a receipt evidencing payment thereof.

         (c) The Borrower agrees to indemnify each Lender and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section) paid by such Lender or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid within 30 days after such Lender or the Administrative Agent (as the
case may be) makes demand therefor.

         (d) Each Lender organized under the laws of a jurisdiction outside the
United States shall provide the Borrower and the Administrative Agent with
Internal Revenue Service Form W-8BEN, W-8ECI, or other type of W-8, as
appropriate, or any successor form prescribed by the Internal Revenue Service:
(i) on or prior to the date of its execution and delivery of this Agreement in
the case of each Lender listed on the signature pages hereof and on or prior to
the date on which it becomes a Lender in the case of each other Lender, (ii)
from time to time on reasonable request, and (iii) at any time that a change of
circumstances occurs that makes any information on the form so provided
incorrect, certifying that such Lender is entitled to benefits under an income
tax treaty to which the United States is a party which exempts such Lender from
United States withholding tax or reduces to zero the rate of withholding tax on
payments under this Agreement or under any Note or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States. Further, each such Lender that is
not an exempt recipient listed in Treasury Regulation 1.6049-4(c)(1) shall
provide the Borrower and the Administrative Agent with Internal Revenue Service
Form W-8 or W-9, as appropriate, or other successor form prescribed by the
Internal Revenue Service, certifying that it is exempt from United States
back-up withholding.



                                       55


         (e) For any period with respect to which a Lender has failed to provide
the Borrower or the Administrative Agent with the appropriate forms pursuant to
Section 8.04(d) (unless such failure is due to a change in treaty, law or
regulation occurring subsequent to the date on which such form originally was
required to be provided), such Lender shall not be entitled to indemnification
under Section 8.04(d) or (c) with respect to Taxes imposed by the United States;
provided that if a Lender, which is otherwise exempt from or subject to a
reduced rate of withholding tax, becomes subject to Taxes because of its failure
to deliver a form required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.

         (f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section, then such Lender will change the
jurisdiction of its Applicable Lending Office if, in the judgment of such
Lender, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Lender.

         Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate. If
(i) the obligation of any Lender to make, or convert outstanding Loans to,
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Lender
has demanded compensation under Section 8.03 or 8.04 with respect to its
Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Lender through the Administrative Agent, have elected
that the provisions of this Section shall apply to such Lender, then, unless and
until such Lender notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer exist, all Loans which
would otherwise be made by such Lender as (or continued as or converted into)
Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Lenders). If such Lender notifies the Borrower that the
circumstances giving rise to such notice no longer apply, the principal amount
of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the
first day of the next succeeding Interest Period applicable to the related
Euro-Dollar Loans of the other Lenders.

         Section 8.06. Substitution of Bank. If (i) the obligation of any Lender
to make, or to convert or continue outstanding Loans as or into, Euro-Dollar
Loans has been suspended pursuant to Section 8.02 or (ii) any Lender has
demanded compensation under Section 8.03 or 8.04, the Borrower shall have the
right, with the assistance of the Administrative Agent, to designate a
substitute bank or banks (which may be one or more of the Lenders) mutually
satisfactory to the Borrower and the Administrative Agent (which consent shall
not be unreasonably withheld or delayed) to purchase (and, if such right is
exercised, such Lender shall sell and assign) for cash, pursuant to an
Assignment and Assumption Agreement substantially in the form of Exhibit H
hereto, the outstanding Loans (including



                                       56


any Competitive Bid Loans) and Letter of Credit Liabilities of such Lender and
assume the Commitment of such Lender, without recourse to or warranty by, or
expense to, such Lender, for a purchase price equal to the principal amount of
all of such Lender's outstanding Loans and Letter of Credit Liabilities plus any
accrued but unpaid interest or fees thereon and the accrued but unpaid fees in
respect of such Lender's Commitment hereunder plus such amount, if any, as would
be payable pursuant to Section 2.13 if the outstanding Loans of such Lender were
prepaid in their entirety on the date of consummation of such assignment.

                                    ARTICLE 9
                                  MISCELLANEOUS

         Section 9.01. Notices. (a) All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile or similar writing) and shall be given to such party: (i) in
the case of the Borrower or the Administrative Agent, at its address, facsimile
number or telex number set forth on the signature pages hereof, (ii) in the case
of any Lender, at its address, facsimile number or telex number set forth in its
Administrative Questionnaire or (iii) in the case of any party, at such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Administrative Agent and the Borrower. Each
such notice, request or other communication shall be effective (A) if given by
telex, when transmitted to the telex number referred to in this Section and the
appropriate answerback is received, (B) if given by facsimile, when transmitted
to the facsimile number referred to in this Section and confirmation of receipt
is received, (C) if given by mail or by any other means, when delivered at the
address referred to in this Section; provided that notices to the Administrative
Agent under Article 2 or Article 8 shall not be effective until received.

         (b) Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to Article 2 unless otherwise agreed by the
Administrative Agent and the applicable Lender. The Administrative Agent or the
Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

         Section 9.02. No Waivers. No failure or delay by any Lender Party in
exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or



                                       57


privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.

         Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Agents, including reasonable fees
and disbursements of special counsel for the Agents, in connection with the
preparation of this Agreement, any waiver or consent hereunder or any amendment
hereof or any Default or alleged Default hereunder and (ii) if an Event of
Default occurs, all reasonable out-of-pocket expenses incurred by each Lender
Party, including (without duplication) the reasonable fees and disbursements of
outside counsel and the reasonable allocated cost of inside counsel, in
connection with such Event of Default and any collection, bankruptcy,
insolvency, reorganization or other enforcement proceedings resulting therefrom;
provided that each Lender Party shall use reasonable efforts to avoid
inappropriate duplication of expense in connection with any matter for which the
Borrower is responsible under this Section 9.03(a).

         (b) The Borrower agrees to indemnify each Lender Party, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of this Agreement or any actual or proposed use of
proceeds of Loans hereunder; provided that no Indemnitee shall have the right to
be indemnified hereunder for its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction; provided further that each
Lender Party shall use reasonable efforts to avoid inappropriate duplication of
expense in connection with any matter for which the Borrower is responsible
under this Section 9.03(b).

         Section 9.04. Sharing. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest then due with
respect to the Loans and Letter of Credit Liabilities held by it which is
greater than the proportion received by any other Lender in respect of the
aggregate amount of principal and interest then due with respect to the Loans
and Letter of Credit Liabilities held by such other Lender, the Lender receiving
such proportionately greater payment shall purchase such participations in the
Loans held by the other Lenders, and such other adjustments shall be made, as
may be required so that all such payments of principal and interest with respect
to the Loans and Letter of Credit Liabilities held by the Lenders shall be
shared by the Lenders pro rata; provided that nothing in this Section shall
impair the right of any Lender to exercise any right of set-off or counterclaim
it may have and to apply the amount



                                       58


subject to such exercise to the payment of indebtedness of the Borrower other
than its indebtedness hereunder.

         Section 9.05. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Lenders (and, if
the rights or duties of any Issuing Bank or Agent are affected thereby, by it);
provided that no such amendment or waiver shall:

         (a) (i) increase or decrease the Commitment of any Lender (except for a
ratable decrease in the Commitments of all the Lenders) or subject any Lender to
any additional obligation without the written consent of such Lender, (ii)
reduce the principal of or interest on any Loan or the amount to be reimbursed
in respect of any Letter of Credit or any interest thereon or any fees
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or for reimbursement in respect of any Letter of Credit or any fees hereunder or
for the termination of any Commitment, or (except as expressly provided in
Section 2.15) the expiry date of any Letter of Credit, without the written
consent of each Lender affected thereby, (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans, or the
number of Lenders which shall be required for the Lenders or any of them to take
any action under this Section or any other provision of this Agreement,
including this Section 9.05(a), without the written consent of each Lender, or
(v) change the provisions of Section 9.04, without the written consent of each
Lender; or

         (b) unless signed by a Designated Lender or its Designating Lender, (i)
subject such Designated Lender to any additional obligation, (ii) affect its
rights hereunder (unless the rights of all the Lenders hereunder are similarly
affected) or (iii) change this Section 9.05(b).

For avoidance of doubt, the operation of Section 2.18 in accordance with its
terms is not an amendment subject to this Section 9.05.

         Section 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder (except as provided in Section 5.07) without the prior written consent
of each Lender (and any attempted assignment or transfer by the Borrower without
such consent shall be null and void).

         (b) Any Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans and Letter of Credit Liabilities at the



                                       59


time owing to it); provided that (i) the aggregate amount of the Commitment
(which for this purpose includes Loans outstanding thereunder) subject to each
such assignment (determined as of the date the Assignment and Assumption
Agreement with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000, except that this clause (i) shall not
apply to an assignment of the entire remaining amount of the assigning Lender's
Commitment and the Loans at the time owing to it; (ii) each of the
Administrative Agent and (so long as no Event of Default exists) the Borrower
shall consent to such assignment (each such consent not to be unreasonably
withheld or delayed), except that no such consent of the Borrower shall be
required for an assignment to a Lender or an affiliate of a Lender or an
Approved Fund with respect to a Lender; (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement with respect to the Loans, Letter of
Credit Liabilities or the Commitment assigned, except that this clause (iii)
shall not apply to rights in respect of outstanding Competitive Bid Loans; and
(iv) the parties to each assignment shall execute and deliver to the
Administrative Agent and the Borrower an agreement, substantially in the form of
Exhibit H hereto (an "ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with a
processing and recordation fee of $3,500, and the Eligible Assignee, if it shall
not be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire. Subject to acceptance and recording thereof by the Administrative
Agent pursuant to paragraph (c) of this Section, from and after the effective
date specified in each Assignment and Assumption Agreement, the Eligible
Assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Assumption Agreement, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption Agreement, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption Agreement covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 8.03, 8.04 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (d) of this Section. For avoidance of doubt, no assignment by a Lender
which is also an Issuing Bank of all or any portion of its Commitment, its
Letter of Credit Liabilities or its Loans pursuant to this paragraph (b) shall
affect its rights and obligations in its capacity as an Issuing Bank.

         (c) Any Lender may, without the consent of, or notice to, the Borrower
or the Administrative Agent, sell participations to one or more banks or other
entities (a "PARTICIPANT") in all or a portion of such Lender's rights and/or



                                       60

obligations under this Agreement (including all or a portion of its Commitment
and/or the Loans and/or Letter of Credit Liabilities owing to it); provided that
(i)such Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Borrower, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in clause (i), (ii) or (iii)
of Section 9.05(a) that affects such Participant. Subject to paragraph (d) of
this Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Section 2.17 and Article 8 to the same extent as if it were a Lender
and had acquired its interest by assignment pursuant to paragraph (b) of this
Section. To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 9.04 as though it were a Lender, provided such
Participant agrees to be subject to Section 9.04 as though it were a Lender.

         (d) An Eligible Assignee or Participant shall not be entitled to
receive any greater payment under Section 8.03 or 8.04 than the applicable
Lender would have been entitled to receive with respect to the rights assigned
or the participation sold to such Participant, unless the assignment to such
Eligible Assignee or sale of the participation to such Participant is made with
the Borrower's prior written consent. A Participant organized under the laws of
a jurisdiction outside the United States shall not be entitled to the benefits
of Section 8.03 or 8.04 unless the Borrower is notified of the participation
sold to such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with Section 8.03 or 8.04 as though it were a Lender.

         (e) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.

         Section 9.07. Designated Lenders. Subject to the provisions of this
Section, any Lender may at any time designate an Approved Fund to provide all or
a portion of the Loans to be made by such Lender pursuant to this Agreement;
provided that such designation shall not be effective unless the Borrower and
the Administrative Agent consent thereto (which consents shall not be
unreasonably



                                       61


withheld). When a Lender and its Approved Fund shall have signed an agreement
substantially in the form of Exhibit I hereto (a "DESIGNATION AGREEMENT") and
the Borrower and the Administrative Agent shall have signed their respective
consents thereto, such Approved Fund shall become a Designated Lender for
purposes of this Agreement. The Designating Lender shall thereafter have the
right to permit such Designated Lender to provide all or a portion of the Loans
to be made by such Designating Lender pursuant to Section 2.01 or 2.03, and the
making of such Loans or portion thereof shall satisfy the obligation of the
Designating Lender to the same extent, and as if, such Loans or portion thereof
were made by the Designating Lender. As to any Loans or portion thereof made by
it, each Designated Lender shall have all the rights that a Lender making such
Loans or portion thereof would have had under this Agreement and otherwise;
provided that (x) its voting rights under this Agreement shall be exercised
solely by its Designating Lender, (y) its Designating Lender shall remain solely
responsible to the other parties hereto for the performance of such Designated
Lender's obligations under this Agreement, including its obligations in respect
of the Loans or portion thereof made by it and (z) such Designated Lender shall
be subject (A) to the limitations of Section 9.06(d) to the same extent as a
Participant and (B) to the provisions of Section 9.09. No additional Note shall
be required to evidence the Loans or portion thereof made by a Designated
Lender; and the Designating Lender shall be deemed to hold its Note as agent for
its Designated Lender to the extent of the Loans or portion thereof funded by
such Designated Lender. Each Designating Lender shall act as administrative
agent for its Designated Lender and give and receive notices and other
communications on its behalf. Any payments for the account of any Designated
Lender shall be paid to its Designating Lender as administrative agent for such
Designated Lender and neither the Borrower nor the Administrative Agent shall be
responsible for any Designating Lender's application of such payments. In
addition, any Designated Lender may, with notice to (but without the prior
written consent of) the Borrower and the Administrative Agent, assign all or
portions of its interest in any Loans to its Designating Lender.

         Section 9.08. No Reliance on Margin Stock. Each Lender represents to
the Administrative Agent and each of the other Lenders that it in good faith is
not relying upon any "margin stock" (as defined in Regulation U) as collateral
in the extension or maintenance of the credit provided for in this Agreement.

         Section 9.09. Confidentiality. Each Lender (including any Designated
Lender) and Agent shall exercise the same degree of care that it exercises with
respect to its own proprietary information of the same types to maintain the
confidentiality of any Confidential Information received pursuant to this
Agreement except that disclosure of such Confidential Information may be made
(i) to the agents, employees, subsidiaries or affiliates of such Person in
connection with its present or prospective business relations with the Borrower
arising out of this Agreement; provided that such Person will cause such agents,
employees,



                                       62


subsidiaries or affiliates to comply with the provisions of this Section 9.09
with respect to such Confidential Information, (ii) to prospective transferees
or purchasers of any interest in the Loans (including any Participant); provided
that they have agreed to be bound by the provision of this Section 9.09, (iii)
as required by law, regulations, rule, request or order, subpoena, judicial
order or similar order and in connection with any litigation; provided that each
Lender and the Agent agrees to provide the Borrower with prompt notice of any
such requirement to the extent permitted by such requirement so as to permit the
Borrower to seek a protective order or other appropriate remedy and (iv) as may
be required in connection with the examination, audit or similar investigation
of such Person.

         Section 9.10. Governing Law; Jurisdiction. This Agreement and each Note
shall be governed by and construed in accordance with the laws of the State of
New York. The Borrower hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Southern District of New York and of any
New York State court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.

         Section 9.11. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.

         Section 9.12. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.



                                       63

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

                                       THE NEIMAN MARCUS GROUP, INC.


                                       By: /s/ Stacie R. Shirley
                                          --------------------------------------
                                          Title: Vice President





                                       Administrative Agent


                                       JPMORGAN CHASE BANK,
                                       as Administrative Agent and as a Lender


                                       By: /s/ Allen K. King
                                          --------------------------------------
                                          Title: Vice President





                                       Syndication Agents


                                       BANK OF AMERICA, N.A.,
                                       as Syndication Agent and as a Lender


                                       By: /s/ Amy Krovocheck
                                          --------------------------------------
                                          Title: Vice President



                                       BANK ONE, NA,
                                       as Syndication Agent and as a Lender


                                       By: /s/ Catherine A. Muszynski
                                          --------------------------------------
                                          Title: Director



                                       FLEET NATIONAL BANK,
                                       as Syndication Agent and as a Lender


                                       By: /s/ Linda H. Thomas
                                          --------------------------------------
                                          Title: Managing Director





                                       Other Lenders


                                       THE BANK OF NEW YORK


                                       By: /s/ William Barnum
                                          --------------------------------------
                                          Title: Vice President





                                       MELLON BANK, N.A.


                                       By: /s/ Louis E. Flori
                                          --------------------------------------
                                          Title: Vice President





                                       U.S. BANK NATIONAL ASSOCIATION


                                       By: /s/ Amanda Smith
                                          --------------------------------------
                                          Title: Assistant Vice President





                                       COMMERCEBANK, N.A.


                                       By: /s/ Edward P. Tietjen
                                          --------------------------------------
                                          Title: Senior Vice President


                                       By: /s/ Eugene Correa
                                          --------------------------------------
                                          Title: Vice President





                                       WELLS FARGO BANK, N.A.


                                       By: /s/ Mary D. Falck
                                          --------------------------------------
                                          Title: Senior Vice President



                                       By: /s/ Melissa Nachman
                                          --------------------------------------
                                          Title: Vice President





                                       FIRST HAWAIIAN BANK


                                       By: /s/ Charles L. Jenkins
                                          --------------------------------------
                                          Title: Vice President, Manager





                                       ISRAEL DISCOUNT BANK OF NEW YORK


                                       By: /s/ Karen Chen
                                          --------------------------------------
                                          Title: Assistant Manager




                                       By: /s/ Timothy McCurry
                                          --------------------------------------
                                          Title: Assistant Vice President



                               COMMITMENT SCHEDULE





LENDER                                                               COMMITMENT
- ------                                                              ------------
                                                                 
JPMorgan Chase Bank                                                 $ 47,500,000
Bank of America, N.A.                                               $ 47,500,000
Bank One, NA                                                        $ 40,000,000
Fleet National Bank                                                 $ 40,000,000
The Bank of New York                                                $ 25,000,000
Mellon Bank, N.A.                                                   $ 25,000,000
U.S. Bank National Association                                      $ 25,000,000
Commercebank, N.A.                                                  $ 15,000,000
Wells Fargo Bank, N.A.                                              $ 15,000,000
First Hawaiian Bank                                                 $ 10,000,000
Israel Discount Bank of New York                                    $ 10,000,000
                                                                    ------------
Total                                                               $300,000,000






                           THREE-YEAR PRICING SCHEDULE



         Each of "FACILITY FEE RATE", "EURO-DOLLAR MARGIN" and "BASE RATE
MARGIN" means, for any day, the rate (in basis points per annum) set forth below
in the row and column corresponding to the Status and Utilization that apply on
such day:



                                 Level I     Level II     Level III     Level IV      Level V     Level VI
                                 -------     --------     ---------     --------      -------     --------
                                                                                
FACILITY FEE RATE                  10           15           17.5          22.5         30           50

EURO-DOLLAR MARGIN
Utilization < or = to 33%          40           47.5         70            90          107.5        150
Utilization > 33%                  52.5         60           82.5         102.5        120          162.5

BASE RATE MARGIN
Utilization < or = to 33%          --           --           --            --            7.5         50
Utilization > 33%                  --           --           --             2.5         20           62.5


For purposes of this Schedule, the following terms have the following meanings:

         "LEVEL I STATUS" exists at any date if, at such date, the higher of the
two Ratings meets the following level:

         A- or higher by S&P or A3 or higher by Moody's.

         "LEVEL II STATUS" exists at any date if, at such date, (i) Level I
Status does not exist and (ii) the higher of the two Ratings meets the following
level:

         BBB+ or higher by S&P or Baa1 or higher by Moody's.

         "LEVEL III STATUS" exists at any date if, at such date, (i) neither
Level I Status nor Level II Status exists and (ii) the higher of the two Ratings
meets the following level:

         BBB or higher by S&P or Baa2 or higher by Moody's.

         "LEVEL IV STATUS" exists at any date if, at such date, (i) none of
Level I Status, Level II Status and Level III Status exists and (ii) the higher
of the two Ratings meets the following level:

         BBB- or higher by S&P or Baa3 or higher by Moody's.





         "LEVEL V STATUS" exists at any date if, at such date, (i) none of Level
I Status, Level II Status, Level III Status and Level IV Status exists and (ii)
the higher of the two Ratings meets the following level:

         BB+ or higher by S&P or Ba1 or higher by Moody's.

         "LEVEL VI STATUS" exists at any date if, at such date, no other Status
exists.

         "MOODY'S" means Moody's Investors Service, Inc.

         "S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.

         "RATING AGENCIES" means Moody's and S&P.

         "RATINGS" means the credit ratings assigned to the senior unsecured
long-term debt securities of the Borrower without third-party credit enhancement
by the Rating Agencies. If there is no rating assigned to debt securities, the
corporate credit rating will be used. Any rating assigned to any other debt
security of the Borrower shall be disregarded. The rating in effect at any date
is that in effect at the close of business on such date. In the case of split
ratings from S&P or Moody's, the rating to be used to determine which Pricing
Level applies is the higher of the two (e.g., BBB+/Baa2 results in Level II
Status); provided that if the split is more than one full rating category, the
rating category immediately above the lower of the two rating categories will be
used (e.g., BBB+/Baa3 results in Level III Status, as does A-/Baa3).

         "STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.

         "UTILIZATION" means, at any date, the percentage equivalent of a
fraction, (i) the numerator of which is the sum of the aggregate outstanding
principal amount of the Loans and the aggregate Letter of Credit Liabilities at
such date (after giving effect to any borrowing, issuance or payment on such
date) and the denominator of which is the aggregate amount of the Commitments at
such date (after giving effect to any reduction on such date). If for any reason
any Lender has any Credit Exposure after termination of the Commitments,
Utilization shall be deemed to be 100%.





                                                                       EXHIBIT A

                                      NOTE

                                                              New York, New York
                                                            ___________ __, ____


         For value received, THE NEIMAN MARCUS GROUP, INC., a Delaware
corporation (the "BORROWER"), promises to pay to the order of
______________________ (the "LENDER"), for the account of its Applicable Lending
Office, the unpaid principal amount of each Loan made by the Lender to the
Borrower pursuant to the Credit Agreement (defined below) on the maturity date
provided for in the Credit Agreement. The Borrower promises to pay interest on
the unpaid principal amount of each such Loan on the dates and at the rate or
rates provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of JPMorgan Chase Bank, 270 Park
Avenue, New York, New York.

         The date, amount and maturity of each Loan made by the Lender and all
repayments of the principal thereof shall be recorded by the Lender and, if the
Lender so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Lender on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Lender to make (or any error in
making) any such recordation or endorsement shall not affect the Borrower's
obligations hereunder or under the Credit Agreement.

         This note is one of the Notes referred to in the Three-Year Credit
Agreement dated as of August 26, 2002 among The Neiman Marcus Group, Inc., the
Lenders party thereto, Bank of America, N.A., Bank One, NA and Fleet National
Bank, as Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent
(as the same may be amended from time to time, the "CREDIT AGREEMENT"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.

                                       THE NEIMAN MARCUS GROUP, INC.


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:





                         LOANS AND PAYMENTS OF PRINCIPAL





                                                        AMOUNT OF
                                                        PRINCIPAL
          DATE               AMOUNT OF LOAN              REPAID                  NOTATION MADE BY
          ----               --------------             ---------                ----------------
                                                                        











                                                                       EXHIBIT B



                      FORM OF NOTICE OF COMMITTED BORROWING

                                                                          [Date]


To:      JPMorgan Chase Bank, as Administrative Agent

From:    The Neiman Marcus Group, Inc. (the "BORROWER")

Re:      Three-Year Credit Agreement (as amended from time to time, the "CREDIT
         AGREEMENT") dated as of August 26, 2002 among the Borrower, the Lenders
         party thereto and the Agents party thereto.

         We hereby irrevocably give notice pursuant to Section 2.02 of the
Credit Agreement of the Committed Borrowing specified below:

         1. The [Domestic Business Day][Euro-Dollar Business Day] of the
proposed Borrowing is [date].

         2. The aggregate amount of the proposed Borrowing is [specify amount].

         3. The Loans comprising such Borrowing are to bear interest initially
at [the Base Rate][a Euro-Dollar Rate].

         [4. The duration of the initial Interest Period applicable thereto is
[specify duration].]

         Terms used herein have the meanings assigned to them in the Credit
Agreement.


                                       THE NEIMAN MARCUS GROUP, INC.


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:





                                                                       EXHIBIT C


                      FORM OF COMPETITIVE BID QUOTE REQUEST


                                                                          [Date]



To:      JPMorgan Chase Bank
         (the "ADMINISTRATIVE AGENT")

From:    The Neiman Marcus Group, Inc. (the "BORROWER")

Re:      Three-Year Credit Agreement (the "CREDIT AGREEMENT") dated as of August
         26, 2002 among the Borrower, the Lenders party thereto and the Agents
         party thereto.

         We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Competitive Bid Quotes for the following proposed Competitive
Bid Borrowing(s):

Date of Borrowing:
                  ------------------




PRINCIPAL AMOUNT(1)                                INTEREST PERIOD(2)
- -------------------                                ------------------
                                                
$




         Such Competitive Bid Quotes should offer a Competitive Bid [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]

         Terms used herein have the meanings assigned to them in the Credit
Agreement.

- ----------

         (1) Amount must be $5,000,000 or a larger multiple of $1,000,000.

         (2) Not less than one month (LIBOR Auction) or not less than 5 days
(Absolute Rate Auction), subject to the provisions of the definition of Interest
Period.





         Such Competitive Bid Quotes should offer a Competitive Bid [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]

         Terms used herein have the meanings assigned to them in the Credit
Agreement.





                                       THE NEIMAN MARCUS GROUP, INC.


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:





                                                                       EXHIBIT D


                  FORM OF INVITATION FOR COMPETITIVE BID QUOTES


To:      [Name of Lender]

Re:      Invitation for Competitive Bid Quotes to The Neiman Marcus Group, Inc.
         (the "BORROWER")

         Pursuant to Section 2.03 of the Three-Year Credit Agreement dated as of
August 26, 2002 among the Borrower, the Lenders party thereto and the Agents
party thereto, we are pleased on behalf of the Borrower to invite you to submit
Competitive Bid Quotes to the Borrower for the following proposed Competitive
Bid Borrowing(s):

Date of Borrowing:
                  ------------------




PRINCIPAL AMOUNT(3)                                INTEREST PERIOD(4)
- -------------------                                ------------------
                                                
$




         Such Competitive Bid Quotes should offer a Competitive Bid [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]

         Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].

- ----------

         (3) Amount must be $5,000,000 or a larger multiple of $1,000,000.

         (4) Not less than one month (LIBOR Auction) or not less than 5 days
(Absolute Rate Auction), subject to the provisions of the definition of Interest
Period.





                                       JPMORGAN CHASE BANK,
                                       as Administrative Agent


                                       By:
                                          --------------------------------------
                                          Authorized Officer





                                                                       EXHIBIT E


                          FORM OF COMPETITIVE BID QUOTE


To:      JPMorgan Chase Bank, as Administrative Agent

Re:      Competitive Bid Quote to The Neiman Marcus Group, Inc. (the "BORROWER")

         In response to your invitation on behalf of the Borrower dated
_____________, ____, we hereby make the following Competitive Bid Quote on the
following terms:

1.       Quoting Lender:
                        --------------------------------

2.       Person to contact at Quoting Lender:

         -----------------------------

3.       Date of Borrowing:                     (5)
                           ---------------------

4.       We hereby offer to make Competitive Bid Loan(s) in the following
         principal amounts, for the following Interest Periods and at the
         following rates:


- ----------

         (5) As specified in the related Invitation.








PRINCIPAL                                             COMPETITIVE BID
AMOUNT(2)                     INTEREST PERIOD(3)        [MARGIN](4)           [ABSOLUTE RATE](5)
- ---------                     ------------------      ---------------         ------------------
                                                                     
$
$


[provided that the aggregate principal amount of Competitive Bid Loans for which
the above offers may be accepted shall not exceed $____________.]

         We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Three-Year Credit
Agreement dated as of August 26, 2002 among the Borrower, the Lenders party
thereto and the Agents party thereto, irrevocably obligate(s) us to make the
Competitive Bid Loan(s) for which such offer(s) are accepted, in whole or in
part.


- ----------

         (2) Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Lender is willing to lend. Each bid
must be made for $5,000,000 or a larger multiple of $1,000,000.

         (3) Not less than one month or not less than 5 days, as specified in
the related Invitation. No more than five bids are permitted for each Interest
Period or the Competitive Bid Quote shall be disregarded.

         (4) Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (to the nearest 1/10,000
of 1%) and specify whether "PLUS" or "MINUS".

         (5) Specify rate of interest per annum (to the nearest 1/10,000 of 1%).





                                       Very truly yours,

                                       [NAME OF LENDER]


Dated:                                 By:
      ----------------                    --------------------------------------
                                          Authorized Officer





                                                                       EXHIBIT F


                       OPINION OF COUNSEL FOR THE BORROWER

                                                                [Effective Date]


To the Lenders and the Agents
         Referred to Below
c/o JPMorgan Chase Bank,
         as Administrative Agent
         270 Park Avenue
         New York, New York 10017

Ladies and Gentlemen:

         In my capacity as Senior Vice President and General Counsel of The
Neiman Marcus Group, Inc. (the "BORROWER"), I, together with
_____________________, have acted as counsel to the Borrower in connection with
the preparation, execution and delivery of the Three-Year Credit Agreement dated
as of August 26, 2002 among the Borrower, the Lenders party thereto, Bank of
America, N.A., Bank One, NA and Fleet National Bank, as Syndication Agents, and
JPMorgan Chase Bank, as Administrative Agent (the "CREDIT AGREEMENT").
Capitalized terms used in this opinion which are not defined herein shall have
the same meaning as in the Credit Agreement.

         I have examined the originals, or copies certified to my satisfaction,
of the Credit Agreement, the Notes, the charter documents and the By-Laws of the
Borrower and the Significant Subsidiaries, records of the Borrower's corporate
proceedings, all Debt instruments and other material agreements and instruments
to which the Borrower or a Significant Subsidiary is a party and of which I have
knowledge, certificates of public officials and such other documents,
agreements, certificates and records as I have deemed necessary to examine as a
basis for the opinions hereinafter expressed.

         I am an attorney admitted to practice in the State of Texas. I am not,
and do not purport to be, an expert in or qualified to express opinions
concerning the laws of any jurisdiction other than Texas, the United States of
America and the corporate laws of the State of Delaware to the extent necessary
to express the opinions hereinafter set forth. For the purposes of this opinion,
I have assumed without investigation that the laws of the State of New York are
the same as those of the State of Texas.

         Based upon the foregoing, and having regard for such legal
considerations as I have deemed relevant, I am of the opinion that:





         1. The Borrower and each Significant Subsidiary (i) is a corporation
duly organized, validly existing and in good standing under the laws of its
respective state of incorporation, (ii) has all requisite corporate power and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted and as presently contemplated
and (iii) is in good standing as a foreign corporation and is duly qualified to
conduct business in each jurisdiction in which its property or business as
presently conducted or contemplated makes such qualification necessary, except
in those jurisdictions in which the failure to be so qualified would not have a
material adverse effect upon the business or financial condition of the Borrower
or such Significant Subsidiary and would not (after qualification) preclude the
Borrower or such Significant Subsidiary from enforcing claims against any party
in the courts of such jurisdictions.

         2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official, except
for the filing of the Credit Agreement with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, and the
Credit Agreement and the Notes do not contravene, or constitute a default under,
any provision of applicable law or of the Restated Certificate of Incorporation
or By-Laws of the Borrower or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any Significant
Subsidiary.

         3. The Credit Agreement has been duly and validly executed and
delivered by authorized officers of the Borrower. The Credit Agreement
constitutes, and each Note, if and when issued in accordance with the Credit
Agreement, will constitute a valid and binding obligation of the Borrower, in
each case enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that the availability of the remedy of specific
enforcement or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.

         4. Various suits and claims arising in the ordinary course of business,
some of which involve substantial amounts, are pending against the Borrower and
its Subsidiaries. While the ultimate effect of such litigation cannot be
ascertained at this time, in my opinion, there are no actions, suits,
proceedings or investigations pending, or to my knowledge threatened, against
the Borrower or any Subsidiary in which there is a reasonable possibility of an
adverse decision which would materially adversely affect the business, assets or
financial condition of the Borrower and its Subsidiaries, taken as a whole.

                                       Very truly yours,





                                                                       EXHIBIT G

                        OPINION OF DAVIS POLK & WARDWELL,
                  SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT

                                                                [Effective Date]

To the Lenders and Agents
         Referred to Below
c/o  JPMorgan Chase Bank,
         as Administrative Agent
         270 Park Avenue
         21st Floor
         New York, NY 10017

Dear Sirs:

         We have participated in the preparation of the Three-Year Credit
Agreement dated as of August 26, 2002 (the "CREDIT AGREEMENT") among The Neiman
Marcus Group, Inc., a Delaware corporation (the "BORROWER"), the Lenders party
thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as
Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent (the
"ADMINISTRATIVE AGENT"), and have acted as special counsel for the
Administrative Agent for the purpose of rendering this opinion pursuant to
Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement
are used herein as therein defined.

         We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.

         Upon the basis of the foregoing, we are of the opinion that the Credit
Agreement constitutes a valid and binding agreement of the Borrower [and each
Note of the Borrower delivered today constitutes a valid and binding obligation
of the Borrower, in each case] enforceable in accordance with its terms except
as the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.

         We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States and the General Corporation Law of the State of Delaware. In
giving the foregoing opinion, we express no opinion as to the effect (if any) of
any law of any jurisdiction (except the State of New York) in which any Lender
is located which limits the rate of interest that such Lender may charge or
collect.





         This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other Person without our prior written consent.

                                       Very truly yours,





                                                                       EXHIBIT H


                       ASSIGNMENT AND ASSUMPTION AGREEMENT


         AGREEMENT dated as of ________ __, ____ among [NAME OF ASSIGNOR] (the
"ASSIGNOR") and [NAME OF ASSIGNEE] (the "ASSIGNEE").

         WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the Three-Year Credit Agreement dated as of August 26, 2002 (as
amended from time to time, the "CREDIT AGREEMENT") among The Neiman Marcus
Group, Inc., the Lenders party thereto, Bank of America, N.A., Bank One, NA and
Fleet National Bank, as Syndication Agents, and JPMorgan Chase Bank, as
Administrative Agent;

         WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower in an aggregate principal amount at any
time outstanding not to exceed $____________;

         WHEREAS, [Committed] Loans made to the Borrower by the Assignor under
the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof;

         WHEREAS, the Assignor has Letter of Credit Liabilities in an aggregate
amount of $___________ under the Credit Agreement at the date hereof; and

         WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of each of its outstanding [Committed]
Loans and Letter of Credit Liabilities, and the Assignee proposes to accept such
assignment and assume the corresponding obligations of the Assignor under the
Credit Agreement;

         NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:

         Section 1. Definitions. All capitalized terms not otherwise defined
herein have the respective meanings set forth in the Credit Agreement.

         Section 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount and a corresponding portion of each of its
outstanding [Committed] Loans, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount. Upon the execution and
delivery hereof by the Assignor and the Assignee [and





the execution of the consent attached hereto by the Borrower and the
Administrative Agent](6) and the payment of the amounts specified in Section 3
required to be paid on the date hereof, (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Lender under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount and acquire the rights of the Assignor with respect to a
corresponding portion of each of its outstanding [Committed] Loans and Letter of
Credit Liabilities and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by the Assigned Amount, and the Assignor shall be released
from its obligations under the Credit Agreement to the extent such obligations
have been assumed by the Assignee. The assignment provided for herein shall be
without recourse to the Assignor.

         Section 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.(7) Fees
accrued before the date hereof with respect to amounts assigned to the Assignee
hereunder are for the account of the Assignor and such fees accruing on and
after the date hereof with respect to such amounts are for the account of the
Assignee. Each of the Assignor and the Assignee agrees that if it receives any
amount under the Credit Agreement which is for the account of the other party
hereto, it shall receive the same for the account of such other party to the
extent of such other party's interest therein and promptly pay the same to such
other party.

         Section 4. [Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower and the Administrative
Agent pursuant to Section 9.06(b) of the Credit Agreement.(8)]

         Section 5. Administrative Questionnaire. Attached is an Administrative
Questionnaire duly completed by the Assignee.

         Section 6. No Reliance on Assignor. The Assignor represents and
warrants that it is the legal and beneficial owner of the interest being
assigned hereby and that such interest is free and clear of any other adverse
claim created by it. The Assignor makes no representation or warranty (other
than that mentioned immediately above) in connection with, and shall have no
responsibility with respect to, the solvency, financial condition or statements
of the Borrower, or the validity and enforceability of the Borrower's


- ----------

         (6) Delete if consent is not required.

         (7) Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.

         (8) Delete if consent is not required.





obligations under the Credit Agreement or any Note. The Assignee acknowledges
that it has, independently and without reliance on the Assignor, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.

         Section 7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

         Section 8. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

                                       [NAME OF ASSIGNOR]


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:



                                       [NAME OF ASSIGNEE]


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:





The undersigned consent to the foregoing assignment.


                                       THE NEIMAN MARCUS GROUP, INC.


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:


                                       JPMORGAN CHASE BANK,
                                       as Administrative Agent and as Issuing
                                       Bank


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:





                                                                       EXHIBIT I



                              DESIGNATION AGREEMENT


                                          dated as of ________________ __, _____


         Reference is made to the Three-Year Credit Agreement dated as of August
26, 2002 (as amended from time to time, the "CREDIT AGREEMENT") among The Neiman
Marcus Group, Inc., a Delaware corporation (the "BORROWER"), the Lenders party
thereto, Bank of America, N.A., Bank One, NA and Fleet National Bank, as
Syndication Agents, and JPMorgan Chase Bank, as Administrative Agent (the
"ADMINISTRATIVE AGENT"). Terms defined in the Credit Agreement are used herein
with the same meaning.

         _________________ (the "DESIGNATOR") and ________________ (the
"DESIGNEE") agree as follows:

         1. The Designator designates the Designee as its Designated Lender
under the Credit Agreement and the Designee accepts such designation.

         2. The Designator makes no representations or warranties and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto.

         3. The Designee (i) confirms that it is an Approved Fund; (ii) appoints
and authorizes the Designator as its administrative agent and attorney-in-fact
and grants the Designator an irrevocable power of attorney to receive payments
made for the benefit of the Designee under the Credit Agreement and to deliver
and receive all communications and notices under the Credit Agreement, if any,
that the Designee is obligated to deliver or has the right to receive
thereunder; (iii) acknowledges that the Designator retains the sole right and
responsibility to vote under the Credit Agreement, including, without
limitation, the right to approve any amendment or waiver of any provision of the
Credit Agreement; and (iv) agrees that the Designee shall be bound by all such
votes, approvals, amendments and waivers and all other agreements of the
Designator pursuant to or in connection with the Credit Agreement, all subject
to Section 9.05(b) of the Credit Agreement.





         4. The Designee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements referred
to in Article 4 or delivered pursuant to Article 4 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Designation Agreement and (ii) agrees
that it will, independently and without reliance upon the Administrative Agent,
the Designator or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking any action it may be permitted to take under
the Credit Agreement.

         5. Following the execution of this Designation Agreement by the
Designator and the Designee and the consent hereto by the Borrower, it will be
delivered to the Administrative Agent for its consent. This Designation
Agreement shall become effective when the Administrative Agent consents hereto
or on any later date specified on the signature page hereof.

         6. Upon the effectiveness hereof, the Designee shall have the right to
make Loans or portions thereof as a Lender pursuant to Section 2.01 or 2.03 of
the Credit Agreement and the rights of a Lender related thereto. The making of
any such Loans or portions thereof by the Designee shall satisfy the obligations
of the Designator under the Credit Agreement to the same extent, and as if, such
Loans or portions thereof were made by the Designator.

         7. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.





         IN WITNESS WHEREOF, the parties have caused this Designation Agreement
to be executed by their respective officers hereunto duly authorized, as of the
date first above written.

                                                  Effective Date:______ __, ____


                                       [NAME OF DESIGNATOR]


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:


                                       [NAME OF DESIGNEE]


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:


The undersigned consent to the foregoing designation.

                                       THE NEIMAN MARCUS GROUP, INC.


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:


                                       JPMORGAN CHASE BANK,
                                       as Administrative Agent


                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

EX-12.1

                                                                    EXHIBIT 12.1


                          The Neiman Marcus Group, Inc.
                Computation of Ratio of Earnings to Fixed Charges
                                   (Unaudited)



                                                                  Years Ended
                                -------------------------------------------------------------------------------
                                August 3,         July 28,         July 29,          July 31,         August 1,
(in thousands, except ratios)    2002 (1)           2001             2000             1999              1998
                                ---------        -----------       --------         ----------       ----------
                                                                                      
Fixed Charges:
   Interest on debt             $  20,787         $   20,418       $ 28,145           $ 26,094       $   24,047
   Amortization of debt
      discount and expense            251                247            267                267               62
   Interest element of rentals     17,952             19,008         17,193             16,005           14,883
                                ---------        -----------       --------         ----------       ----------
      Total fixed charges          38,990             39,673         45,605             42,366           38,992
                                =========        ===========       ========         ==========       ==========

Earnings:
   Earnings before income
      taxes and minority
      interest                    162,244            178,440        222,979            157,642          176,712
   Add back:
      Fixed charges                38,990             39,673         45,605             42,366           38,992
      Amortization of
          capitalized interest        312                258            232                230              222
   Less:
      Capitalized interest         (3,116)            (1,954)          (427)              (379)          (1,422)
                                ---------        -----------       --------         ----------       ----------
         Total earnings         $ 198,430        $   216,417       $268,389         $  199,859       $  214,504
                                =========        ===========       ========         ==========       ==========
Ratio of earnings to fixed
   charges                            5.1                5.5            5.9                4.7              5.5
                                =========        ===========       ========         ==========       ==========



(1) Fiscal year 2002 includes fifty-three weeks of operations while the other
    years presented consist of fifty-two weeks of operations.

EX-21.1

                                                                    EXHIBIT 21.1
                          THE NEIMAN MARCUS GROUP, INC.
                           SUBSIDIARIES OF THE COMPANY




   JURISDICTION
        OF
SUBSIDIARY/AFFILIATE               INCORPORATION            SHAREHOLDER
- --------------------               -------------            -----------

                                                 
Bergdorf Goodman, Inc.              New York            Neiman Marcus Holdings, Inc.

Bergdorf Graphics, Inc.             New York            Bergdorf Goodman, Inc.

Chef's Catalog, Inc.                Delaware            The Neiman Marcus Group, Inc.

Ermine Trading Corporation          California          The Neiman Marcus Group, Inc.

Gurwitch Bristow Products, LLC      Delaware            The Neiman Marcus Group, Inc. (51%)
                                                        Gurwitch Partners  Limited (17.89%)
                                                        Stephens Group, Inc. (18.57%)
                                                        Other Investors (12.54%)

Kate Spade LLC                      Delaware            The Neiman Marcus Group, Inc. (56%)
                                                        Alex Noel, Inc. (44%)

NEMA Beverage Corporation           Delaware            NEMA Beverage Holding Corporation

NEMA Beverage Holding Corporation   Texas               NEMA Beverage Parent Corporation

NEMA Beverage Parent Corporation    Texas               The Neiman Marcus Group, Inc.

NM Direct de Mexico, S.A. de C.V.   Mexico              The Neiman Marcus Group, Inc. (49,999 shares)
                                                        Neiman Marcus Holdings, Inc. (1 share)

NM Financial Services, Inc.         Delaware            The Neiman Marcus Group, Inc.

NM Nevada Trust                     Massachusetts       The Neiman Marcus Group, Inc. (90 shares)
                                                        Bergdorf Goodman, Inc. (10 shares)

NM Office, Inc.                     Florida             The Neiman Marcus Group, Inc.

NM Visual, Inc.                     Florida             The Neiman Marcus Group, Inc.

Neiman Marcus Funding Corporation   Delaware            The Neiman Marcus Group, Inc.

Neiman Marcus Holdings, Inc.        California          The Neiman Marcus Group, Inc.

Neiman Marcus Special Events, Inc.  Delaware            The Neiman Marcus Group, Inc.

Quality Call Care Solutions, Inc.   Ontario, Canada     The Neiman Marcus Group, Inc.

Pastille by Mail, Inc.              Delaware            The Neiman Marcus Group, Inc.

Worth Avenue Leasing Company        Florida             The Neiman Marcus Group, Inc.

EX-23.1

                                                                    EXHIBIT 23.1



INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
33-35299, No. 333-35829 and No. 333-58906 on Form S-8, and No. 333-49893 on Form
S-3 of The Neiman Marcus Group, Inc. and subsidiaries of our report, dated
September 10, 2002, appearing in the Annual Report on Form 10-K of The Neiman
Marcus Group, Inc. for the year ended August 3, 2002.



/s/DELOITTE & TOUCHE LLP

Dallas, Texas
October 2, 2002