0001104659-03-021933.txt : 20031002 0001104659-03-021933.hdr.sgml : 20031002 20031001195431 ACCESSION NUMBER: 0001104659-03-021933 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20030802 FILED AS OF DATE: 20031002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEIMAN MARCUS GROUP INC CENTRAL INDEX KEY: 0000819539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 954119509 STATE OF INCORPORATION: DE FISCAL YEAR END: 0801 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09659 FILM NUMBER: 03922040 BUSINESS ADDRESS: STREET 1: ONE MARCUS SQUARE STREET 2: 1618 MAIN STREET CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 214-741-6911 MAIL ADDRESS: STREET 1: ONE MARCUS SQUARE STREET 2: 1618 MAIN STREET CITY: DALLAS STATE: TX ZIP: 75201 10-K 1 a03-3701_110k.htm 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 2, 2003

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 incorporation or organization)		(I.R.S. Employer 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:

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

Class B Common Stock, $.01 par value		New York Stock Exchange

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

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý 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. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o

As of January 31, 2003, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $1,293,416,324, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of September 15, 2003, the registrant had outstanding 28,244,014 shares of its Class A Common Stock and 19,666,933 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 16, 2004, which will be filed on or about November 25, 2003.

THE NEIMAN MARCUS GROUP, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 2, 2003

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.

Item 9A.		Controls and Procedures.

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.

Item 14.		Principal Accounting Fees and Services.

PART IV

Item 15.		Exhibits, Financial Statement Schedules and Reports on Form 8-K.

Signatures		Signatures.

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 35 Neiman Marcus stores, two Bergdorf Goodman stores and fourteen clearance centers and through Neiman Marcus Direct, the Company’s direct marketing operation.

The Neiman Marcus stores are in premier retail locations in major markets nationwide and the Bergdorf Goodman stores are located in Manhattan at 58^th 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 upscale direct marketing operation, conducts catalogue and online sales through three brands — Neiman Marcus, Horchow and Chef’s Catalogue. Under the Neiman Marcus brand, Neiman Marcus Direct primarily offers women’s apparel, accessories and home furnishings. The Horchow brand offers quality home furnishings, linens, decorative accessories and tabletop items, while the Chef’s Catalogue brand offers gourmet cookware and high-end kitchenware. Neiman Marcus Direct also operates the NeimanMarcus.com, Horchow.com and ChefsCatalog.com websites, offering luxury goods, home furnishings and high quality cookware to the online consumer.

For more information about the Company’s reportable segments, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 15 to the Consolidated Financial Statements in Item 15.

The Neiman Marcus Group, Inc. is a Delaware corporation that 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.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K available free of charge through its website at www.neimanmarcusgroup.com as soon as reasonably practicable after it electronically files such material with (or furnishes such material to) the Securities and Exchange Commission. The information contained on the Company’s website is not incorporated by reference into this Form 10-K and should not be considered to be part of this Form 10-K.

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 September 15, 2003, the Company operated 35 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 (six stores: Coral Gables, Fort Lauderdale, Orlando, 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 35 stores is approximately 138,000 gross square feet and they range in size from 53,000 gross square feet to 224,000 gross square feet.

The Company plans to open a new Neiman Marcus store in San Antonio, Texas in fiscal year 2006.

The Company 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.

The Company operates two Bergdorf Goodman stores in Manhattan at 58^th 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, cosmetics, 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 fourteen clearance centers that average approximately 27,000 gross square feet. These stores provide an efficient and controlled outlet for the sale of end-of-season clearance merchandise primarily from Neiman Marcus 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, conducts catalogue and online sales through three brands — Neiman Marcus, Horchow and Chef’s Catalogue. Under the Neiman Marcus brand, Neiman Marcus Direct primarily offers women’s apparel, accessories and home furnishings. The Horchow brand offers quality home furnishings, linens, decorative accessories and tabletop items, while the Chef’s Catalogue brand offers gourmet cookware and high-end kitchenware. Neiman Marcus Direct also operates the NeimanMarcus.com, Horchow.com and ChefsCatalog.com websites, offering luxury goods, home furnishings and high quality cookware to the online consumer.

Brand Development Companies. The Company owns a 51 percent interest in Gurwitch Products, LLC, which distributes and markets the Laura Mercier cosmetic line, and a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories.

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 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. The Company competes with other retailers for real estate opportunities principally on the basis of its ability to attract customers.

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 obtains certain merchandise, primarily precious jewelry, on a consignment basis in order to expand its product assortment. As of August 2, 2003, the Company held consigned inventories with a cost basis of approximately $214.0 million. 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. The Company had net outstanding advances to vendors of approximately $30.8 million at August 2, 2003.

Employees

As of September 15, 2003, the Company had approximately 15,100 employees. Neiman Marcus stores had approximately 12,700 employees, Bergdorf Goodman stores had approximately 1,000 employees, Neiman Marcus Direct had approximately 1,300 employees and Neiman Marcus Group had approximately 80 employees. The Company’s staffing requirements fluctuate during the year as a result of the seasonality of the retail industry. None of the Company’s employees are subject to collective bargaining agreements, except for approximately 16 percent of the Bergdorf Goodman employees. The Company believes that its relations with its employees are good.

Seasonality

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

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 subject to review in the ordinary course of business by the Federal Trade Commission and are subject to numerous federal and state laws. 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 all applicable state and federal regulations with respect to such practices.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to July 31. All references to 2003 relate to the fifty-two weeks ended August 2, 2003; all references to 2002 relate to the fifty-three weeks ended August 3, 2002 and all references to 2001 relate to the fifty-two weeks ended July 28, 2001. All references to 2004 relate to the fifty-two weeks ending on July 31, 2004.

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, Texas; New York, New York; and Irving, Texas, respectively. As of September 15, 2003, the approximate aggregate gross square footage used in the Company’s operations was as follows:

	Owned	Owned Subject to Ground Lease	Leased	Total

Specialty Retail Stores	348,000	2,224,000	2,953,000	5,525,000

Distribution, Support and Office Facilities	1,207,000	150,000	866,000	2,223,000

Leases for substantially all of the Company’s stores, including renewal options, range from 15 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. Most leases provide for monthly fixed amount rentals or contingent rentals based upon sales in excess of stated amounts and normally require the Company to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs.

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 operating headquarters and distribution facility is located.

For further information on the Company’s properties and lease obligations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 of the Notes to the Consolidated Financial Statements in Item 15. For more information about the Company’s plans to open additional stores, see “Description of Operations” in Item 1.

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 2, 2003.

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 15, 2003, there were 9,699 record holders of the Company’s Class A Common Stock and 3,450 record holders of the Company’s Class B Common Stock. The Company currently does not intend to pay cash dividends on its common stock.

The following table indicates the quarterly stock price ranges for 2003 and 2002:

2003	NMG.A				NMG.B
Quarter	High		Low		High		Low

First	$	31.70	$	24.95	$	28.79	$	22.70
Second	31.58		28.01		29.05		25.61
Third	32.05		26.05		30.10		23.87
Fourth	$	40.30	$	31.75	$	37.60	$	29.45

2002	NMG.A				NMG.B
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

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 in Item 15 and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. The operating results and financial position data for each of the fiscal years ended August 2, 2003, August 3, 2002, July 28, 2001, July 29, 2000 and July 31, 1999 have been derived from the Company’s audited Consolidated Financial Statements. Additionally, 2002 included fifty-three weeks of operations while the other years presented consist of fifty-two weeks of operations.

	Years Ended
(in millions, except	August 2,			August 3,			July 28,			July 29,		July 31,
per share data)	2003			2002			2001			2000		1999

OPERATING RESULTS
Revenues	$	3,098.1		$	2,948.3		$	3,015.5		$	2,926.4	$	2,580.4
Gross margin	1,024.5			951.0			994.6			1,008.1		831.6
Operating earnings	222.1			177.7		(1)	193.6		(2)	248.4		182.6
Earnings before income taxes, minority interest and change in accounting principle	205.8			162.2			178.4			223.0		157.6
Net earnings	$	109.3		$	99.6		$	107.5		$	134.0	$	94.9

Basic earnings per share:
Earnings before change in accounting principle	$	2.61		$	2.10		$	2.28		$	2.77	$	1.93
Change in accounting principle - writedown of intangible assets, net of taxes	(0.31		)	—			—			—		—
Basic earnings per share	$	2.30		$	2.10		$	2.28		$	2.77	$	1.93

Diluted earnings per share:
Earnings before change in accounting principle	$	2.60		$	2.08		$	2.26		$	2.75	$	1.93
Change in accounting principle - writedown of intangible assets, net of taxes	(0.31		)	—			—			—		—
Diluted earnings per share	$	2.29		$	2.08		$	2.26		$	2.75	$	1.93

	August 2, 2003			August 3, 2002			July 28, 2001			July 29, 2000		July 31, 1999

FINANCIAL POSITION
Cash and cash equivalents	$	207.0		$	178.6		$	97.3		$	175.4	$	29.2
Merchandise inventories	687.1			656.8			648.9			575.3		545.3
Total current assets	1,246.1			1,127.6			1,063.3			1,069.3		841.8
Property and equipment, net	674.2			653.2			586.6			539.7		513.4
Total assets	2,034.4			1,907.5			1,785.9			1,762.1		1,518.9
Current liabilities	530.4			518.5			497.6			492.3		396.2
Long-term liabilities	$	358.0		$	327.2		$	338.9		$	435.1	$	381.3

(1) For 2002, operating earnings reflect 1) a $16.6 million gain from the change in vacation policy made by the Company and 2) $13.2 million of impairment and other charges, related primarily to the impairment of certain long-lived assets.

(2) For 2001, operating earnings reflect a $9.8 million impairment charge related to the Company’s investment in a third-party internet retailer.

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. These forward-looking statements involve a number of risks and uncertainties and, therefore, 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;

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

• political, social, economic or other events resulting in the short or long-term disruption in business at the Company’s stores, distribution centers or offices;

• 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;

• changes in the Company’s relationships with its key customers;

• delays in receipt of merchandise ordered by the Company due to work stoppages and/or other causes of delay in connection with either the manufacture or shipment of such merchandise;

• 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;

• the design and implementation of new information systems as well as enhancements of existing systems;

• changes in foreign currency exchange rates;

• impact of funding requirements related to the Company’s noncontributory defined benefit pension plan;

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

• changes in key management personnel;

• 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 in Item 15. 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. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. 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 makes adjustments to its assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used by the Company in preparing the accompanying consolidated financial statements. Management of the Company believes the following critical accounting policies encompass the more significant judgments and estimates used in preparation of its consolidated financial statements.

Revenues. Revenues include sales of merchandise and services, net commissions earned from leased departments in the Company’s retail stores and shipping and handling revenues related to merchandise sold. 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 operation are recognized when the merchandise is delivered to the customer. The Company maintains reserves for anticipated sales returns primarily based on the Company’s historical trends related to returns by its retail and direct marketing customers.

Merchandise Inventories and Cost of Goods Sold. The Company utilizes the retail method of accounting for substantially all of its merchandise inventories. Merchandise inventories are stated at the lower of cost or market. 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 when merchandise is marked down.

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.

Consistent with industry business practice, the Company receives allowances from certain of its vendors in support of the merchandise purchased by the Company for resale. Certain allowances are received to reimburse the Company for markdowns taken and/or to support the gross margins earned by the Company in connection with the sales of the vendor’s merchandise. These allowances are recognized as an increase to gross margin when the allowances are earned by the Company and approved by the vendor. Other allowances received by the Company represent reductions to the amounts paid by the Company to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized as an increase to gross margin at the time the goods are sold.

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 Master Trust” on the Company’s consolidated balance sheets. All income, net of related expenses, pertaining to both the Sold Interests and the Retained Interests are reflected as a reduction of selling, general and administrative expenses in the Company’s consolidated statements of earnings.

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 credit card 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 may decrease. 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 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 estimated reduce the income earned by the Company. Conversely, credit losses less than those estimated 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. 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 the Retained Interests and the recognition of income on the Retained Interests.

Long-lived Assets. To the extent the Company remodels or otherwise replaces or disposes of property and equipment prior to the end of their assigned depreciable lives, the Company could realize a loss or gain on the disposition. To the extent assets continue to be used beyond their assigned depreciable lives, no depreciation expense is incurred. The Company reassesses the depreciable lives in an effort to reduce the risk of significant losses or gains at disposition and utilization of assets with no depreciation charges. The reassessment of depreciable lives involves utilizing historical remodel and disposition activity and forward-looking capital expenditure plans.

Recoverability of the carrying value of store assets is assessed annually and upon the occurrence of certain events (e.g., opening a new store near an existing store or announcing plans for a store closing). The recoverability assessment requires judgment and estimates for future store generated cash flows. The underlying estimates for cash flows include estimates for future sales, gross margin rates and store expenses and are based upon the stores’ past and expected future performance. New stores may require two to five years to develop a customer base necessary to generate the cash flows of the Company’s more mature stores. To the extent management’s estimates for sales growth and gross margin improvement are not realized, future annual assessments could result in impairment charges.

Recoverability of goodwill and intangible assets is assessed annually and upon the occurrence of certain events. The recoverability assessment requires management to make judgments and estimates regarding the fair values. The fair values are determined using estimated future cash flows, including growth assumptions for future sales, gross margin rates and other estimates. To the extent that management’s estimates are not realized, future assessments could result in impairment charges.

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.

Pension Plan. The Company sponsors a noncontributory defined benefit pension plan (Pension Plan) covering substantially all full-time employees. In calculating its pension obligations and related pension expense, the Company makes various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of pension expense involves calculating the estimated total benefit ultimately payable to Pension Plan participants and allocates this cost to the periods in which services are expected to be rendered. The Company uses the projected unit credit method in recognizing pension liabilities. The Pension Plan is valued annually as of the beginning of each fiscal year.

Significant assumptions related to the calculation of the Company’s pension obligations include the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension Plan and the average rate of compensation increase by Pension Plan participants. These actuarial assumptions are reviewed annually based upon currently available information.

The assumed discount rate utilized is based, in part, upon the Moody’s Aa corporate bond yield as of the measurement date. The discount rate is utilized principally in calculating the actuarial present value of the Company’s pension obligation and net pension expense. At August 1, 2003, the discount rate was 6.50 percent. To the extent the discount rate increases or decreases, the Company’s pension obligation is decreased or increased, accordingly. The estimated effect of a 0.25 percent decrease in the discount rate would increase the pension obligation by $7.4 million and increase annual pension expense by $1.2 million.

The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested to provide for the pension obligation. It is the Company’s current policy to invest the Pension Plan assets in equity securities (approximately 60 percent) and in fixed income securities (approximately 40 percent). The Company periodically evaluates the allocation between investment categories of the assets held by the Pension Plan. The expected average long-term rate of return on assets is based principally on the counsel of the Company’s outside actuaries and advisors. This rate is utilized primarily in calculating the expected return on plan assets component of the annual pension expense. To the extent the actual rate of return on assets realized over the course of a year is greater than the assumed rate, that year’s annual pension expense is not affected. Rather, this gain reduces future pension expense over a period of approximately 12 to 18 years. To the extent the actual rate of return on assets is less than the assumed rate, that year’s annual pension expense is likewise not affected. Rather, this loss increases pension expense over approximately 12 to 18 years. During 2003, the Company utilized 8.0 percent as the expected long-term rate of return on plan assets.

The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees. The Company utilized a rate of 4.5 percent for the periods beginning August 1, 2003. This rate is utilized principally in calculating the pension obligation and annual pension expense. The estimated effect of a 0.25 percent increase in the assumed rate of compensation increase would increase the pension obligation by $1.5 million and increase annual pension expense by $0.4 million.

Self-insurance and Other Employee Benefit Reserves. Management uses estimates in the determination of the required accruals for general liability, workers’ compensation and health insurance as well as short-term disability, supplemental executive retirement benefits and postretirement health care benefits. These estimates are based upon an 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.

Income Taxes. The Company is routinely under audit by federal, state or local authorities in the areas of income taxes. These audits include questioning the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various tax filing positions, the Company accrues charges for probable exposures. Based on its annual evaluations of tax positions, the Company believes it has appropriately accrued for probable exposures. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of recorded reserves, the Company’s effective tax rate in a given financial statement period could be materially impacted.

Litigation. 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 significant legal action. The Company’s accruals may change in the future due to new developments in these matters.

OVERVIEW

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

The Specialty Retail Stores segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. Approximately 81 percent of the Company’s revenues were generated by its Specialty Retail Stores segment in 2003. In September 2002, the Company opened a new store in Coral Gables, Florida and in October 2002 opened a new store in Orlando, Florida. The Company currently plans to open one new Neiman Marcus store in San Antonio, Texas during fiscal year 2006. In 2003, average store revenues per gross square foot were $475, down from $481 for 2002. The Company believes the decrease in average store revenues per gross square foot in 2003 was impacted by new store openings. 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 the merchandise offerings in its stores.

The Company owns a 51 percent interest in Gurwitch Products, LLC, which distributes and markets the Laura Mercier cosmetic line, and a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories. Gurwitch Products, LLC and Kate Spade LLC are hereafter collectively referred to as “Brand Development Companies.”

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

	Years Ended
	August 2, 2003		August 3, 2002		July 28, 2001

Revenues	100.0	%	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs	66.9		67.7		67.0
Selling, general and administrative expenses	25.9		26.3		26.2
Effect of change in vacation policy	—		(0.5	)	—
Impairment and other charges	—		0.5		0.4
Operating earnings	7.2		6.0		6.4
Interest expense, net	0.5		0.5		0.5
Earnings before income taxes, minority interest and change in accounting principle	6.7		5.5		5.9
Income taxes	2.6		2.1		2.2
Earnings before minority interest and change in accounting principle	4.1		3.4		3.7
Minority interest in net earnings of subsidiaries	(0.1	)	—		(0.1	)
Earnings before change in accounting principle	4.0		3.4		3.6
Change in accounting principle	(0.5	)	—		—
Net earnings	3.5	%	3.4	%	3.6	%

Operating Results

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

	Years Ended
(dollars in millions)	August 2, 2003			August 3, 2002			July 28, 2001

REVENUES
Specialty Retail Stores	$	2,524.8		$	2,433.2		$	2,504.8
Direct Marketing	493.5			444.0			437.9
Other (1)	79.8			71.1			72.8
Total	$	3,098.1		$	2,948.3		$	3,015.5

OPERATING EARNINGS
Specialty Retail Stores	$	198.2		$	170.5		$	201.0
Direct Marketing	45.8			22.8			11.1
Other (1)	(21.9		)	(19.0		)	(8.7		)
Effect of change in vacation policy	—			16.6			—
Impairment and other charges	—			(13.2		)	(9.8		)
Total	$	222.1		$	177.7		$	193.6

OPERATING PROFIT MARGIN
Specialty Retail Stores	7.9		%	7.0		%	8.0		%
Direct Marketing	9.3		%	5.1		%	2.5		%
Total	7.2		%	6.0		%	6.4		%

COMPARABLE REVENUES (2)
Specialty Retail Stores	1.8		%	(5.3		)%	1.2		%
Direct Marketing	12.5		%	0.2		%	8.0		%
Total	3.8		%	(4.6		)%	2.3		%

STORE COUNT (3)
Neiman Marcus and Bergdorf Goodman stores:
Open at beginning of period	35			34			33
Opened during the period	2			1			1
Open at end of period	37			35			34
Clearance centers:
Open at beginning of period	12			10			10
Opened during the period	2			2			—
Open at end of period	14			12			10

(1) Other includes the operations of the Brand Development Companies and corporate expenses.

(2) Comparable revenues include 1) revenues derived from the Company’s retail stores open for more than 52 weeks, including stores that have been relocated or expanded, 2) revenues from the Company’s Direct Marketing operations and 3) revenues from the Company’s Brand Development Companies. The calculation of the change in comparable revenues for 2003 is based on revenues for the 52 weeks ended August 2, 2003 compared to revenues for the 52 weeks ended July 27, 2002. The calculation for the change in comparable revenues for 2002 is based on revenues for the 52 weeks ended July 27, 2002 compared to revenues for the 52 weeks ended July 28, 2001.

(3) The Company’s Neiman Marcus Galleries stores have been excluded.

FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002

Revenues. Revenues for 2003 of $3.10 billion increased $149.8 million, or 5.1 percent, from $2.95 billion in the prior year period. The increase in revenues was primarily attributable to both an increase in comparable revenues and revenues generated by new stores. Total revenues for 2002 included sales of approximately $36.6 million for the fifty-third week of 2002.

Comparable revenues in 2003 increased 3.8 percent for the fifty-two weeks ended August 2, 2003 compared to the fifty-two weeks ended July 27, 2002. Comparable revenues increased 1.8 percent for Specialty Retail Stores and 12.5 percent for Direct Marketing for the fifty-two weeks ended August 2, 2003 compared to the fifty-two weeks ended July 27, 2002. Changes in comparable revenues by quarter (thirteen weeks 2003 compared to thirteen weeks 2002) for the Specialty Retail Stores and Direct Marketing segments are as follows:

	2003								2002
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
Specialty Retail Stores	6.4	%	(0.3	)%	(2.1	)%	4.8	%	(3.1	)%	(2.6	)%	(3.3	)%	(12.1	)%

Direct Marketing	15.8	%	10.8	%	11.7	%	12.3	%	0.7	%	1.3	%	1.2	%	(2.8	)%

Total	8.5	%	1.5	%	0.5	%	5.8	%	(2.8	)%	(1.9	)%	(3.0	)%	(10.9	)%

For 2003, the increase in comparable revenues for Specialty Retail Stores was primarily due to increased sales for both Neiman Marcus Stores and Bergdorf Goodman, particularly during the fourth quarter. The increase in comparable revenues for Direct Marketing for 2003 was attributable to increased sales growth in the Neiman Marcus and Horchow brands, primarily the online businesses, offset, in part, by a decrease in the Chef's Catalogue brand.

Comparable revenues for the Brand Development Companies increased in 2003, with an increase for both Gurwitch Products, LLC and Kate Spade LLC.

In the first quarter of 2003, the Company opened two new Neiman Marcus stores in Coral Gables, Florida (September 2002) and Orlando, Florida (October 2002). In the second quarter of 2003, the Company opened a new clearance store in the Denver, Colorado area (November 2002) and completed a 71,000 square foot expansion and remodel of the Las Vegas Neiman Marcus store. In the fourth quarter of 2003, the Company opened another new clearance center in Miami, Florida (May 2003). Sales derived from new stores for 2003 were $79.6 million.

Gross margin. Gross margin was 33.1 percent of revenues in 2003 compared to 32.3 percent in the prior year period. The increase in gross margin was primarily due to a decrease in markdowns.

Markdowns decreased as a percentage of revenues by 0.5 percent in 2003 compared to the prior year period. The Company incurred a lower level of markdowns in the first and second quarters of 2003 compared to the prior year periods as higher markdowns were required in the first and second quarters of 2002 in connection with additional and more aggressive promotional events necessary to clear inventories in response to declines in retail sales in 2002. However, markdowns increased as a percentage of revenues for the third quarter and fourth quarters of 2003 compared to the prior year period. Higher markdowns were necessary in both the third and fourth quarters of 2003 to reduce a build-up of inventories in certain merchandise categories that occurred in the third quarter as a result of lower than anticipated sales. The Company believes that sales in the third quarter of 2003, particularly the earlier weeks, were negatively impacted by economic uncertainties due, in part, to the conflict in Iraq as well as adverse weather conditions in a number of markets in which the Company operates.

represent reductions to the amounts paid by the Company to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized as an increase to gross margin at the time the goods are sold. The amounts of vendor reimbursements received by the Company did not have a significant impact on the year-over-year change in gross margin in 2003.

Selling, general and administrative expenses. Selling, general and administrative expenses (SG&A) were 25.9 percent of revenues in 2003 compared to 26.3 percent of revenues in the prior year period.

SG&A decreased as a percentage of revenues in 2003 primarily due to 1) lower catalogue production and circulation costs for the Direct Marketing segment due to a planned reduction in catalogue circulation in the first and second quarters of 2003, partially offset by planned increases in catalogue production and circulation costs during the third and fourth quarters of 2003, 2) the elimination of amortization of the Company’s intangible assets upon implementation of a new accounting principle in the first quarter of 2003 and 3) lower costs related to incentive compensation.

The decreases in SG&A were offset, in part, by 1) higher retirement and other benefits expenses, 2) increased advertising costs for the Specialty Retail Stores segment due to increased costs related to the Company’s customer loyalty programs as well as a decrease in vendor advertising allowances recorded as a reduction to advertising expenses as a result of the adoption of new accounting rules effective beginning in the third quarter of 2003 and 3) increased preopening costs incurred in connection with the opening of two Neiman Marcus stores in the first quarter of 2003, the opening of a new clearance store in the second quarter of 2003, the completion of the remodel of the Las Vegas Neiman Marcus store in the second quarter of 2003 and the opening of a new clearance center in the fourth quarter of 2003.

Segment operating earnings. Operating earnings for the Specialty Retail Stores segment were $198.2 million for 2003 compared to $170.5 million for the prior year period. This increase was primarily the result of increased sales, reduced markdowns in the first and second quarter of 2003 compared to the prior year offset, in part, by increased markdowns in the third and fourth quarters of 2003 and increased SG&A expenses (primarily benefits, advertising and preopening expenses) as percentages of revenues.

Operating earnings for Direct Marketing increased to $45.8 million for 2003 from $22.8 million for the prior year period, primarily as a result of increased sales and reduced online marketing costs and lower catalogue production and circulation costs, as percentages of revenues, in the first and second quarters of 2003, due to the planned reduction in catalogue circulation, partially offset by increased online marketing costs and planned increases in catalogue production and circulation costs as a percentage of revenues during the third and fourth quarters of 2003.

Interest expense, net. Net interest expense was $16.3 million for 2003 and $15.4 million for the prior year period. Net interest expense increased primarily due to a decrease in capitalized interest charges associated with store construction and reduced investment interest income offset, in part, by reduced interest costs associated with lower borrowings on the Company’s revolving credit facility. Seasonal borrowings under the Company’s revolving credit facility reached $80 million in the second quarter of 2003 compared to $130 million in the prior year.

Income taxes. The Company’s effective income tax rate was 38.5 percent in 2003 and 38.0 percent in the prior year period. The Company expects its effective tax rate to increase to 39.0 percent in 2004 primarily due to higher state income taxes.

Change in accounting principle – writedown of intangible assets, net of taxes. The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” as of the beginning of the first quarter of 2003. SFAS No. 142 established a new fair value-based accounting model for the valuation of goodwill and indefinite-lived intangible assets recorded in connection with business combinations. Pursuant to the provisions of SFAS No. 142, goodwill and indefinite-lived intangible assets are measured for impairment by applying a fair value-based test at least annually and are not amortized. Based upon its review procedures and the valuation results of an independent third party appraisal firm, the Company recorded a $24.1 million writedown in the carrying value of the indefinite-lived intangible assets of its Direct Marketing segment. The writedown ($14.8 million, net of taxes) is reflected as a change in accounting principle in the accompanying consolidated statements of earnings.

Fiscal year 2002 compared to Fiscal year 2001

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

The decrease in revenues in 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 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 2001 in order to lower inventory levels, 2) general economic conditions, 3) the softening in the retail industry that began in 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 2002 with a decrease for Kate Spade LLC being offset, in part, by an increase for Gurwitch Products, LLC.

Gross margin. Gross margin was 32.3 percent of revenues for 2002 compared to 33.0 percent for 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 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 2002 compared to 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 0.1 percent in 2002 compared to 2001. The Company incurred a higher level of markdowns in the first and second quarters of 2002 than in the corresponding periods in the prior year in connection with additional and more aggressive promotional events. These 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 2002 than in the same periods in 2001. In the third and fourth quarters of 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 2001.

Selling, general and administrative expenses. Selling, general and administrative expenses (SG&A) were 26.3 percent of revenues in 2002 compared to 26.2 percent of revenues in 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 earned in connection with the Company’s credit card portfolio.

Segment operating earnings. Operating earnings for the Specialty Retail Stores segment were $170.5 million in 2002 compared to $201.0 million in 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 2002. Operating earnings for Direct Marketing increased to $22.8 million in 2002 from $11.1 million in 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 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 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 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 2002.

Impairment and other charges. In the fourth quarter of 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 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. In the second quarter of 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 2002 compared to $15.2 million for 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 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 2002 and 2001.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash requirements consist principally of 1) the funding of its merchandise purchases, 2) capital expenditures for new store growth, store renovations and upgrades of its management information systems, 3) debt service requirements and 4) obligations related to its Pension Plan. 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 $169.0 million for 2003 compared to net cash provided by operating activities of $212.4 million for the prior year period. Despite an increase in net earnings (before the non-cash impact of the accounting change in the first quarter of 2003), cash provided by operating activities decreased by approximately $43.4 million compared to the prior year period. This decrease was primarily the result of a higher net investment in inventory (inventory less accounts payables) and increased funding of the Company’s Pension Plan compared to the prior year period. A significant portion of the higher net investment in inventories in the current year relates to the two new Neiman Marcus stores and two new clearance stores opened since the beginning of 2003.

Net cash used for investing activities was $134.0 million for 2003 and $137.1 million for 2002. The net cash used for investing activities decreased in 2003 principally as a result of decreased capital expenditures and an increase in retained accounts receivable.

The Company’s capital expenditures in 2003 primarily included costs related to the construction of new stores and the renovation of existing stores. Capital expenditures were $100.0 million in 2003 and $149.2 million in 2002. In 2003, major projects included store renovations in San Francisco, California; Las Vegas, Nevada; and Newport Beach, California and the construction of new stores in Orlando, Florida and Coral Gables, Florida and upgrades and replacement of certain store and financial systems. In 2003, the Company implemented various financial and non-merchandise procurement modules of Oracle to replace previous systems, began the rollout of a new point-of-sale system in the Company’s retail stores and implemented a new system for the procurement of foreign merchandise. The Company currently projects capital expenditures for 2004 to be approximately $150 million to $160 million primarily for store renovations and upgrades to information systems.

Net cash used for financing activities was $6.8 million in 2003. Net cash provided by financing activities was $6.1 million in 2002. In 2003, the Company borrowed and repaid $80 million on the Company’s revolving credit facility to fund seasonal working capital requirements and repurchased approximately $15.0 million of the Company’s stock during the second quarter of 2003 pursuant to the Company’s stock repurchase program. During 2002, the Company borrowed and repaid $130 million on the Company’s revolving credit facility to fund seasonal working capital requirements.

The Company’s primary sources of short-term liquidity are comprised of cash on hand and availability under its $300 million revolving credit facility. As of August 2, 2003, the Company had cash and cash equivalents of $207.0 million and no outstanding borrowings under the Company’s $300 million unsecured revolving credit facility. The Company’s cash and cash equivalents consisted principally of invested cash and store operating cash. At August 3, 2002, the Company had cash and cash equivalents of $178.6 million and no outstanding borrowings under the Company’s previous $450 million unsecured revolving credit facility. The amount of cash on hand and borrowings under the credit facility are influenced by a number of factors, including sales, retained accounts receivable, inventory levels, vendor terms, the level of capital expenditures, cash requirements related to financing instruments, Pension Plan funding obligations and the Company’s tax payment obligations, among others.

FINANCING STRUCTURE

The Company’s major sources of funds are comprised of vendor financing, a $300 million revolving credit agreement, $125 million senior unsecured notes, $125 million senior unsecured debentures, a $225 million securitization program, operating leases and capital leases.

types of borrowing options under the Credit Agreement, a “committed” borrowing or a “competitive bid” borrowing. The rate of interest payable under a “committed” borrowing is based on one of two pricing options selected by the Company, the level of outstanding borrowings and the rating of the Company’s senior unsecured long-term debt by Moody’s and Standard & Poor’s. The pricing options available to the Company under a “committed” borrowing are based on either LIBOR plus 0.400 percent to 1.625 percent or a “base” rate, based on the higher of the Prime Rate or 0.500 percent plus the Federal Funds Rate, plus a “base” rate margin of up to 0.625 percent. The rate of interest payable under a “competitive bid” borrowing is based on one of two pricing options selected by the Company. The pricing options are based on either LIBOR plus a competitive bid margin or an absolute rate, both determined in the competitive auction process. 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 that require the Company to maintain certain leverage and fixed charge ratios. At August 2, 2003, the Company had no borrowings outstanding under its unsecured credit facility.

The Company also has an uncommitted money market lending arrangement of $25 million in place with one of its lending banks. The arrangement expires on September 20, 2004 and as of August 2, 2003, the Company had no borrowings outstanding under this arrangement.

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 $265.0 million as of August 2, 2003 and $249.9 million as of August 3, 2002.

In prior years, the Company’s Board of Directors authorized various stock repurchase programs and increases in the number of shares subject to repurchase. During the second quarter of 2003, the Company repurchased 524,177 shares at an average purchase price of $28.65. As of August 2, 2003, approximately 1.4 million shares remained available for repurchase under the Company’s stock repurchase programs.

The estimated significant contractual cash obligations and other commercial commitments at August 2, 2003 are summarized in the following table:

	Payments Due By Period
(in thousands)	Total		Fiscal Year 2004		Fiscal Years 2005 - 2006		Fiscal Years 2007 - 2008		Fiscal Year 2009 and Beyond

Contractual obligations
Senior notes	$	125,000	$	—	$	—	$	125,000	$	—
Senior debentures	125,000		—		—		—		125,000
Capital lease obligations	1,700		1,100		600		—		—
Operating lease obligations	780,300		44,600		84,500		72,100		579,100
Construction commitments	8,600		7,800		800		—		—
NMG Credit Card Master Trust Class A Certificates	225,000		—		225,000		—		—
	$	1,265,600	$	53,500	$	310,900	$	197,100	$	704,100

	Amount of Commitment Expiration Period
	Total		Fiscal Year 2004		Fiscal Years 2005 - 2006		Fiscal Years 2007 - 2008		Fiscal Year 2009 and Beyond

Other commercial commitments
Revolving credit facility:
Outstanding commitment at August 2, 2003	$	300,000	$	—	$	300,000	$	—	$	—
Money market lending facility	25,000		—		25,000		—		—
Letters of credit	8,500		8,400		100		—		—
Surety bonds	2,700		2,100		600		—		—
	$	336,200	$	10,500	$	325,700	$	—	$	—

The Company’s other principal commercial commitments are comprised of Pension Plan funding obligations, short-term merchandise purchase commitments, common area maintenance costs, tax and insurance obligations and contingent rent payments. Substantially all of the Company’s merchandise purchase commitments are cancelable up to 30 days prior to the vendor’s scheduled shipment date.

At August 1, 2003 (the most recent measurement date), the Company’s actuarially calculated projected benefit obligation was $245.0 million and the fair value of the assets was $183.0 million resulting in an underfunded status of $62.0 million. In addition, the Company was required to record an additional minimum pension liability of $39.3 million and reduce shareholders’ equity, net of taxes, by $23.8 million during 2003. These adjustments did not affect the Company’s reported earnings or Pension Plan funding requirements.

When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes. In the third quarter of 2003, the Company made a required contribution of $11.5 million and a voluntary contribution of $13.5 million to the Pension Plan for the plan year ended July 31, 2002. In addition, the Company made contributions of $5.8 million in 2003 for the plan year ending July 31, 2003. Based upon currently available information, the Company will not be required to make an additional contribution to the Pension Plan for the plan year ending July 31, 2003.

While the Company’s contributions to the Pension Plan exceed the minimum funding requirements under ERISA and IRS rules and regulations, the significant decrease in the U.S. equity and bond markets during recent years contributed substantially to the underfunded status. To the extent the U.S. equity and bond markets do not recover or continue to deteriorate, the Company’s cash funding requirements will increase. The Company expects to generate adequate cash flows from operating activities to meet the Pension Plan funding requirements. The

Company anticipates that Pension Plan expense, which was approximately $10.1 million in 2003, will increase by approximately $6.0 million in 2004.

Management believes that operating cash flows, currently available vendor financing and amounts available pursuant to its Credit Agreement and its credit card securitization program should be sufficient to fund the Company’s operations, debt service, Pension Plan funding requirements, contractual obligations and commitments and currently anticipated capital expenditure requirements through the end of 2004.

OFF-BALANCE SHEET ARRANGEMENTS

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 $225 million 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 shown as “Undivided interests in NMG Credit Card Master Trust” on the Company’s consolidated balance sheets. 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 and that the revolving transfers of credit card receivables to the Trust will cease to qualify for off-balance sheet sales type treatment beginning in December 2003, the date when the contractual life of the transferred receivables is estimated to extend to September 2005 when the Repurchase Option becomes exercisable.

As a result, transfers to the Trust subsequent to December 2003 will be accounted for as secured borrowings. Based upon historical information, the Company believes that the $225 million of receivables representing the Sold Interests and the $225 million obligation for the Class A certificates will be brought back onto the Company’s consolidated balance sheet over a four month period beginning in December 2003 during which time the Company will incur an incremental loss of approximately $6 to $7 million.

The Company’s securitization of credit card receivables is more fully described in Note 2 of the Notes to Consolidated Financial Statements in Item 15.

INFLATION AND DEFLATION

The Company believes changes in revenues and net earnings that have resulted from inflation or deflation have not been material during the periods presented. The Company attempts to offset the effects of inflation, which has occurred in recent years in SG&A, through price increases and control of expenses, although the Company’s ability to increase prices is limited by competitive factors in its markets. The Company attempts to offset the effects of merchandise deflation, which has occurred on a limited basis in recent years, through control of expenses. There is no assurance, however, that inflation or deflation will not materially affect the Company in the future.

SEASONALITY

The Company’s business, like that of most retailers, is subject to seasonal influences, with a disproportionately higher level of revenues and net earnings realized during the fall season, which includes the second quarter holiday selling season. In light of these patterns, SG&A expenses are typically higher as a percentage of net revenues during the first, third and fourth quarters of each year, and working capital needs are greater in the first and second quarters of each year. The increases in working capital needs during the first and second quarters have typically been financed with cash flows from operations, borrowings under the Company’s Credit Agreement and cash provided from the Company’s proprietary credit card securitization program.

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 Notes 2 and 5 to the Consolidated Financial Statements in Item 15.

As of August 2, 2003, the Company had no borrowings outstanding under its revolving Credit Agreement. Future borrowings under the Company’s revolving Credit Agreement, to the extent of outstanding borrowings, would be affected by interest rate changes.

The Company’s outstanding long-term debt as of August 2, 2003 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 $265.0 million as of August 2, 2003 and $249.9 million as of August 3, 2002.

Pursuant to a proprietary credit card securitization program that begins to expire in September 2005, the Company sold substantially all of its credit card receivables through a subsidiary 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 2, 2003, the Company estimates a 100 basis point increase in LIBOR would result in an approximate annual decrease of $2.25 million in the pretax 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 $44.3 million as of August 2, 2003 and approximately $32.7 million as of August 3, 2002. The market risk inherent in these instruments was not material to the Company’s consolidated financial position, results of operations, or cash flows in 2003.

The effects of changes in the U.S. equity and bond markets serve to increase or decrease the value of Pension Plan assets, resulting in increased or decreased cash funding by the Company. The Company seeks to manage exposure to adverse equity and bond returns by maintaining diversified investment portfolios and utilizing professional investment managers.

Based on a review of the Company’s financial instruments outstanding at August 2, 2003 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-34 at the end of this Annual Report on Form 10-K:

Index

Independent Auditors’ Report

Consolidated Balance Sheets

Consolidated Statements of Earnings

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’ Equity

Notes to Consolidated Financial Statements

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, as well as other key members of the Company’s management, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

In the ordinary course of business, the Company routinely enhances its information systems by either upgrading its current systems or implementing new systems. No change occurred in the Company’s internal controls concerning financial reporting during the quarter ended August 2, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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 2004 Annual Meeting of Shareholders is incorporated herein by reference.

Executive Officers of the Registrant

Set forth below are the names, ages at September 15, 2003 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 - 65

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 - 50

Senior Vice President and Chief Financial Officer since June 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 - 50

Senior Vice President and General Counsel since April 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 - 54

Senior Vice President, Human Resources since September 2002. Ms. O’Dea served as Vice President, Human Resources from June 2001 until September 2002. Also, Ms. O’Dea has served as Senior Vice President of Human Resources of Neiman Marcus Stores since 1995.

Karen W. Katz - 46

President and Chief Executive Officer of Neiman Marcus Stores since December 2002. Ms. Katz served as President and Chief Executive Officer of Neiman Marcus Direct from May 2000 to December 2002; 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.

Ronald L. Frasch - 54

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.

Brendan L. Hoffman - 35

President and Chief Executive Officer of Neiman Marcus Direct since December 2002. Mr. Hoffman served as Vice President of the Neiman Marcus Last Call Clearance Division from August 2000 to December 2002 and as a Divisional Merchandise Manager of Bergdorf Goodman from October 1998 to August 2000.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the heading “Executive and Director Compensation” in the Company’s definitive Proxy Statement for the 2004 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 2004 Annual Meeting of Shareholders is incorporated herein by reference.

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 2004 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information set forth under the heading “Principal Accounting Fees and Services” in the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Shareholders is incorporated herein by reference.

PART IV

ITEM 15. 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

Independent Auditors’ Report

All 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

On May 8, 2003 the Company filed a Current Report on Form 8-K under Item 9 to disclose under Regulation FD the Company’s press release dated May 8, 2003 announcing revenue results for the four weeks and thirteen weeks ended May 3, 2003.

On June 4, 2003, the Company filed a Current Report on Form 8-K under Item 9 to disclose under Regulation FD the Company’s press release dated June 4, 2003 announcing financial results for the fiscal year third quarter and year-to-date ended May 3, 2003.

On June 4, 2003, the Company filed a Current Report on Form 8-K under Item 9 to disclose under Regulation FD the Company’s press release dated June 4, 2003 announcing revenue results for the four weeks ended May 31, 2003.

On July 10, 2003, the Company filed a Current Report on Form 8-K under Item 9 to disclose under Regulation FD the Company’s press release dated June 10, 2003 announcing revenue results for the five weeks ended July 5, 2003.

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, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.

10.1*		The Neiman Marcus Group, Inc. 1987 Stock Incentive Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.

10.2*		The Neiman Marcus Group, Inc. 1997 Incentive Plan, as amended, incorporated herein by reference to the Company’s Form S-8 dated May 28, 2003.

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*		Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Phillip L. Maxwell dated November 20, 2002. (1)

10.5*		Supplemental Executive Retirement Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.

10.6*		Description of the Company’s Executive Life Insurance Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.

10.7*		Supplementary Executive Medical Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.

10.8*		Key Employee Deferred Compensation Plan, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2002.

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*		Confidentiality, Non-Competition and Termination Benefits Agreement between Bergdorf Goodman, Inc. and Ronald L. Frasch dated November 20, 2002. (1)

10.11*		Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Karen W. Katz dated November 20, 2002. (1)

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, incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2002.

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 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*		Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Nelson A. Bangs dated May 21, 2003. (1)

10.23*		Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and James E. Skinner dated November 20, 2002. (1)

10.24*		Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Marita O’Dea dated November 20, 2002. (1)

10.25*		Confidentiality, Non-Competition and Termination Benefits Agreement between the Company and Brendan L. Hoffman dated January 28, 2003. (1)

10.26*		Separation Agreement and General Release between the Company and Gerald A. Sampson dated January 1, 2003, incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2003.

12.1		Computation of Ratio of Earnings to Fixed Charges (Unaudited). (1)

14.1		The Neiman Marcus Group, Inc. Code of Ethics and Conduct. (1)

14.2		The Neiman Marcus Group, Inc. Code of Ethics for Financial Professionals. (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)

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002. (1)

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002. (1)

32		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002. (1)

(1)	Filed herewith.

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report

Consolidated Balance Sheets

Consolidated Statements of Earnings

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’ Equity

Notes to Consolidated Financial Statements

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 2, 2003 and August 3, 2002, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended August 2, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements 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 2, 2003 and August 3, 2002, and the results of their operations and their cash flows for each of the three years in the period ended August 2, 2003, in conformity with accounting principles generally accepted in the United States of America.

The Company changed its method of accounting for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” for the year ended August 2, 2003, as discussed in Note 3 to the consolidated financial statements.

/s/DELOITTE & TOUCHE LLP

Dallas, Texas
September 18, 2003

F-2

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)	August 2, 2003			August 3, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	206,950		$	178,638
Undivided interests in NMG Credit Card Master Trust	243,145			208,602
Accounts receivable	22,595			19,778
Merchandise inventories	687,062			656,844
Deferred income taxes	17,586			17,746
Other current assets	68,783			46,018
TOTAL CURRENT ASSETS	1,246,121			1,127,626

PROPERTY AND EQUIPMENT
Land, buildings and improvements	598,471			558,330
Fixtures and equipment	631,393			507,289
Construction in progress	110,475			177,721
	1,340,339			1,243,340
Less accumulated depreciation and amortization	666,154			590,174
PROPERTY AND EQUIPMENT, NET	674,185			653,166

OTHER ASSETS, NET	114,124			126,754
TOTAL ASSETS	$	2,034,430		$	1,907,546

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities	$	1,241		$	1,098
Accounts payable	262,909			257,560
Accrued liabilities	266,259			259,800
TOTAL CURRENT LIABILITIES	530,409			518,458

LONG-TERM LIABILITIES
Notes and debentures	249,733			249,710
Other long-term liabilities	108,234			75,222
Deferred income taxes	—			2,251
TOTAL LONG-TERM LIABILITIES	357,967			327,183

MINORITY INTEREST	8,206			6,592

COMMITMENTS AND CONTINGENCIES

COMMON STOCKS
Class A Common Stock - $.01 par value; Authorized – 100 million shares; Issued 28,214,114 shares and 28,029,763 shares	282			280
Class B Common Stock - $.01 par value; Authorized – 100 million shares; Issued 19,666,933 shares and 19,941,835 shares	197			200
ADDITIONAL PAID-IN CAPITAL	458,520			443,788
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME	(25,573		)	906
RETAINED EARNINGS	719,442			610,139
TREASURY STOCK (524,177 shares, at cost)	(15,020		)	—
TOTAL SHAREHOLDERS’ EQUITY	1,137,848			1,055,313
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,034,430		$	1,907,546

See Notes to Consolidated Financial Statements.

F-3

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

	Years Ended
(in thousands, except per share data)	August 2, 2003			August 3, 2002			July 28, 2001

Revenues	$	3,098,124		$	2,948,332		$	3,015,534
Cost of goods sold including buying and occupancy costs	2,073,579			1,997,378			2,020,954
Selling, general and administrative expenses	802,435			776,647			791,189
Effect of change in vacation policy	—			(16,576		)	—
Impairment and other charges	—			13,233			9,763

Operating earnings	222,110			177,650			193,628

Interest expense, net	16,270			15,406			15,188
Earnings before income taxes, minority interest and change in accounting principle	205,840			162,244			178,440
Income taxes	79,248			61,653			67,807
Earnings before minority interest and change in accounting principle	126,592			100,591			110,633
Minority interest in net earnings of subsidiaries	(2,488		)	(1,017		)	(3,149		)

Earnings before change in accounting principle	124,104			99,574			107,484

Change in accounting principle – writedown of intangible assets, net of taxes	(14,801		)	—			—
Net earnings	$	109,303		$	99,574		$	107,484

Weighted average number of common and common equivalent shares outstanding:
Basic	47,462			47,444			47,120
Diluted	47,795			47,835			47,586

Basic earnings per share:
Earnings before change in accounting principle	$	2.61		$	2.10		$	2.28
Change in accounting principle	(0.31		)	—			—
Basic earnings per share	$	2.30		$	2.10		$	2.28

Diluted earnings per share:
Earnings before change in accounting principle	$	2.60		$	2.08		$	2.26
Change in accounting principle	(0.31		)	—			—
Diluted earnings per share	$	2.29		$	2.08		$	2.26

See Notes to Consolidated Financial Statements.

F-4

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended
(in thousands)	August 2, 2003			August 3, 2002			July 28, 2001
CASH FLOWS - OPERATING ACTIVITIES
Net earnings	$	109,303		$	99,574		$	107,484
Change in accounting – non-cash writedown of intangible assets, net of taxes	14,801			—			—
Earnings before change in accounting principle	124,104			99,574			107,484
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	78,976			76,809			73,104
Amortization of intangible assets	—			5,284			5,905
Deferred income taxes	7,444			(10,335		)	(11,784		)
Effect of change in vacation policy	—			(16,576		)	—
Impairment and other charges	—			13,233			9,763
Minority interest	2,488			1,017			3,149
Other – primarily costs related to defined benefit pension and other long-term benefit plans	24,189			13,987			(211		)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(2,817		)	929			(1,428		)
Increase in merchandise inventories	(30,218		)	(7,977		)	(73,523		)
(Increase) decrease in other current assets	(22,135		)	2,402			13,251
Increase in accounts payable and accrued liabilities	17,770			34,047			6,177
Funding of defined benefit pension plan	(30,760		)	—			—

NET CASH PROVIDED BY OPERATING ACTIVITIES	169,041			212,394			131,887

CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	(99,994		)	(149,246		)	(119,987		)
Transactions related to undivided interests in NMG Credit Card Master Trust:
Purchases of held-to-maturity securities	(956,390		)	(946,936		)	(997,863		)
Maturities of held-to-maturity securities	922,427			959,051			988,727

NET CASH USED FOR INVESTING ACTIVITIES	(133,957		)	(137,131		)	(129,123		)

CASH FLOWS - FINANCING ACTIVITIES
Proceeds from borrowings	81,051			130,240			—
Repayment of debt	(81,051		)	(130,000		)	(80,000		)
Acquisition of treasury stock	(15,020		)	—			—
Distributions paid	(2,432		)	(1,688		)	(7,320		)
Proceeds from exercises of stock options and restricted stock grants	10,680			7,532			6,125
Other equity activities	—			—			337

NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES	(6,772		)	6,084			(80,858		)

CASH AND CASH EQUIVALENTS
Increase (decrease) during the year	28,312			81,347			(78,094		)
Beginning balance	178,638			97,291			175,385
Ending balance	$	206,950		$	178,638		$	97,291

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	18,071		$	18,434		$	15,772
Income taxes	$	61,860		$	62,858		$	76,462

See Notes to Consolidated Financial Statements.

F-5

THE NEIMAN MARCUS GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stocks						Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock			Total Shareholders’ Equity
(in thousands)	Class A			Class B

BALANCE AT JULY 29, 2000	$	275		$	200		$	422,186	$	—		$	403,081	$	—		$	825,742
Issuance of 299 shares under stock option plan	3			—			6,122		—			—		—			6,125
Other equity transactions	—			—			4,418		—			—		—			4,418
Comprehensive income:
Net earnings	—			—			—		—			107,484		—			107,484
Unrealized loss on financial instruments, net of tax	—			—			—		(1,029		)	—		—			(1,029		)
Total comprehensive income																	106,455
BALANCE AT JULY 28, 2001	278			200			432,726		(1,029		)	510,565		—			942,740
Issuance of 339 shares under stock option plan	3			—			7,529		—			—		—			7,532
Other equity transactions	(1		)	—			3,533		—			—		—			3,532
Comprehensive income:
Net earnings	—			—			—		—			99,574		—			99,574
Unrealized gain on financial instruments, net of tax	—			—			—		1,945			—		—			1,945
Other, net of tax	—			—			—		(10		)	—		—			(10		)
Total comprehensive income																	101,509
BALANCE AT AUGUST 3, 2002	280			200			443,788		906			610,139		—			1,055,313
Issuance of 392 shares under stock option plan	4			—			10,676		—			—		—			10,680
Acquisition of treasury stock														(15,020		)	(15,020		)
Other equity transactions	(2		)	(3		)	4,056		—			—		—			4,051
Comprehensive income:
Net earnings	—			—			—		—			109,303		—			109,303
Unrealized loss on financial instruments, net of tax	—			—			—		(172		)	—		—			(172		)
Minimum pension liability, net of tax	—			—			—		(26,744		)	—		—			(26,744		)
Other, net of tax	—			—			—		437			—		—			437
Total comprehensive income	—			—			—		—			—		—			82,824
BALANCE AT AUGUST 2, 2003	$	282		$	197		$	458,520	$	(25,573	)	$	719,442	$	(15,020	)	$	1,137,848

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 PRESENTATION

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 operation.

The Company owns a 51 percent interest in Gurwitch Products, LLC, which distributes and markets the Laura Mercier cosmetic line, and a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories. All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments (as well as a change in accounting principle in 2003 as more fully described in Note 3, the change in vacation policy in 2002 as more fully described in Note 10, and impairment and other charges in 2002 as more fully described in Note 11), necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented.

Certain prior period balances have been reclassified to conform to the current period presentation.

ESTIMATES AND CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. 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 makes adjustments to its assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used by the Company in preparing the accompanying financial statements.

Cash and Cash Equivalents. Cash and cash equivalents primarily consist of cash on hand in the stores, deposits with banks and overnight investments with banks and financial institutions. Cash equivalents are stated at cost, which approximates fair value. The Company’s cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable includes $48.9 million of outstanding checks not yet presented for payment at August 2, 2003 and $43.6 million at August 3, 2002.

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.

F-7

Undivided Interests in NMG Credit Card Master Trust. The Company utilizes a credit card securitization program as part of its overall funding strategy. The securitization program 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 in the preparation of the Company’s consolidated financial statements.

The Trust has issued $225 million of certificates (Class A Certificates) representing undivided interests in the credit card portfolio to third-party investors (Sold Interests). 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 sale 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 Master Trust” on the Company’s consolidated balance sheets. Recourse to the Company with respect to the sale of credit card receivables 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, approximated a gain of $0.6 million ($0.4 million, net of tax) as of August 2, 2003. All income, net of related expenses, pertaining to both the Sold Interests and the Retained Interests are reflected as a reduction of selling, general and administrative expenses in the Company’s consolidated statements of earnings.

Income is recorded on the Retained Interests and the IO Strip on the basis of their estimated effective yield to maturity. The Retained Interests 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 credit card 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:

F-8

Accounts Receivable. Accounts receivable primarily consist of the Company’s third-party credit card receivables and the net trade receivables of Gurwitch Products, LLC and Kate Spade LLC.

Merchandise Inventories and Cost Of Goods Sold. The Company utilizes the retail method of accounting for substantially all of its merchandise inventories. Merchandise inventories are stated at the lower of cost or market. The retail inventory method is widely used in the retail industry due to its practicality.

The Company’s sales activities are conducted during two primary selling seasons — Fall and Spring. The Fall selling season is conducted primarily in the Company’s first and second quarters and the Spring selling season is conducted primarily in the third and fourth quarters. During each season, the Company records markdowns to reduce the retail value of its inventories. Factors considered in determining markdowns include current and anticipated demand, customer preferences, age of merchandise and fashion trends. During the season, the Company records both temporary and permanent markdowns. Temporary markdowns are recorded at the time of sale and reduce the retail value of only the goods sold. Permanent markdowns are designated for clearance activity and reduce the retail value of all goods subject to markdown that are held by the Company. At the end of each selling season, the Company records permanent markdowns for clearance goods remaining in ending inventory.

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.

F-9

The Company obtains certain merchandise, primarily precious jewelry, on a consignment basis in order to expand its product assortment. Consignment merchandise with a cost basis of approximately $214.0 million at August 2, 2003 and approximately $233.0 million at August 3, 2002 is not reflected in the consolidated balance sheets.

Forward Exchange Contracts. 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 goods sold in the period the inventory is sold.

As of August 2, 2003, the Company had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $44.3 million. The contracts have varying maturity dates through August 2004. The settlement terms of the forward contracts, including amount, currency and maturity, correspond with the payment terms for purchases of merchandise inventories. These contracts have been designated and accounted for as cash flow hedges.

At August 2, 2003, the fair value of the Company’s outstanding foreign currency exchange contracts was an asset of approximately $0.6 million. This amount, net of taxes ($0.4 million), is reflected in comprehensive income in the accompanying consolidated statements of shareholders’ equity.

Long-lived Assets. Property and equipment are stated at historical cost less accumulated depreciation. For financial reporting purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over 10 to 30 years while fixtures and equipment are depreciated over 2 to 15 years. Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over 3 to 10 years.

The Company receives contributions from developers and merchandise vendors to fund building improvements and the construction of vendor boutiques in the Company’s retail stores. Such contributions are netted against the Company’s capital expenditures and aggregated $35.2 million in 2003, $25.9 million in 2002 and $14.3 million in 2001.

To the extent the Company remodels or otherwise replaces or disposes of property and equipment prior to the end of their assigned depreciable lives, the Company could realize a loss or gain on the disposition. To the extent assets continue to be used beyond their assigned depreciable lives, no depreciation expense is incurred. The Company reassesses the depreciable lives in an effort to reduce the risk of significant losses or gains at disposition and utilization of assets with no depreciation charges. The reassessment of depreciable lives involves utilizing historical remodel and disposition activity and forward-looking capital expenditure plans.

F-10

Benefit Plans. The Company sponsors a noncontributory defined benefit pension plan (Pension Plan) covering substantially all full-time employees. In calculating its pension obligations and related pension expense, the Company makes various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of pension expense involves calculating the estimated total benefit ultimately payable to Pension Plan participants and allocates this cost to the periods in which services are expected to be rendered. The Company uses the projected unit credit method in recognizing pension liabilities. The Pension Plan is valued annually as of the beginning of each fiscal year.

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.

Buying and Occupancy Costs. The Company’s buying costs consist primarily of salaries and expenses incurred by the Company’s merchandising and buying operations. Occupancy costs primarily include rent, depreciation, property taxes and operating costs of the Company’s retail and distribution facilities.

Selling, General and Administrative Expenses. Selling, general and administrative expenses are comprised principally of the costs related to employee compensation and benefits in the selling and administrative support areas, preopening expenses, advertising and catalogue costs, loyalty program costs, insurance expense and income and expenses related the Company’s credit card portfolio.

The Company receives allowances from certain merchandise vendors in conjunction with compensation programs for employees who sell the vendors’ merchandise. These allowances are netted against the related compensation expense incurred by the Company. Amounts received from vendors related to compensation programs were $41.1 million in 2003, $37.0 million in 2002 and $33.5 million in 2001.

Preopening Expenses. Preopening expenses primarily consist of payroll and related media costs incurred in connection with new and replacement store openings and are expensed when incurred. Preopening expenses were $8.0 million for 2003, $5.2 million for 2002 and $2.2 million for 2001.

F-11

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. Deferred direct response advertising amounts included in other current assets in the consolidated balance sheets were $11.0 million as of August 2, 2003 and $7.1 million as of August 3, 2002. 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 advertising expenses were $113.7 million in 2003, $110.3 million in 2002 and $113.9 million in 2001.

Consistent with industry practice, the Company receives advertising allowances from certain of its merchandise vendors. Substantially all the advertising allowances received represent reimbursements of direct, specific and incremental costs incurred by the Company to promote the vendor’s merchandise in connection with the Company’s various advertising programs, primarily catalogues and other print media. As a result, these allowances are recorded as a reduction of the Company’s advertising costs included in the selling, general and administrative expenses when earned. Vendor allowances earned and recorded as a reduction to selling, general and administrative expenses aggregated approximately $53.2 million in 2003, $49.8 million in 2002 and $55.5 million in 2001.

Beginning in the third quarter of 2003, the Company began to record the portion of advertising allowances received by the Company not representing the reimbursement of direct, specific and incremental advertising costs as a reduction of the cost of merchandise purchased in accordance with the provisions of Emerging Issues Task Force Issue (EITF) 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” Under the new rules, these allowances are realized and recorded by the Company as a reduction of cost of goods sold in the periods in which the goods are sold. These allowances were previously recorded as a reduction of selling, general and administrative expenses when received.

The Company believes that the impact of the accounting change related to the implementation of the provisions of EITF 02-16 does not have a material impact on the year-to-year comparison of its operating results for 2003 compared to 2002.

F-12

Stock-Based Compensation. The Company accounts for stock-based compensation awards to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, no compensation expense has been recognized for stock options since all options granted had an exercise price equal to the market value of the Company’s common stock on the grant date.

The following table illustrates the effect on net earnings and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation using the Black-Scholes option-pricing model for 2003, 2002 and 2001:

	Years Ended
(in thousands, except per share data)	August 2, 2003			August 3, 2002			July 28, 2001

Net earnings:
As reported	$	109,303		$	99,574		$	107,484
Less: stock-based employee compensation expense determined under fair value based method, net of related taxes	(7,847		)	(6,542		)	(6,337		)
Pro forma	$	101,456		$	93,032		$	101,147

Basic earnings per share:
As reported	$	2.30		$	2.10		$	2.28
Pro forma	$	2.14		$	1.96		$	2.15

Diluted earnings per share:
As reported	$	2.29		$	2.08		$	2.26
Pro forma	$	2.12		$	1.94		$	2.13

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 2003, 2002 and 2001:

	Years Ended
	August 2, 2003		August 3, 2002		July 28, 2001

Expected life (years)	5		7		7
Expected volatility	36.6	%	40.7	%	37.6	%
Risk-free interest rate	3.0	%	5.4	%	5.5	%

The weighted-average fair value of options granted was $11.40 in 2003, $12.73 in 2002 and $17.80 in 2001.

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 periods due to such factors as the vesting periods of stock options and the potential issuance of additional stock options in future years. In addition, the Black-Scholes option-pricing model has inherent limitations in calculating the fair value of stock options for which no active market exists since the model does not consider the inability to sell or transfer options, vesting requirements and a reduced exercise period upon termination of employment - all of which would reduce the fair value of the options.

F-13

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.

NOTE 2. 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 Trust. The Trust has issued certificates representing undivided interests in the credit card receivables to both third-party investors (Sold Interests) and to the Company (Retained Interests).

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 $471.0 million as of August 2, 2003. Servicing fees earned by the Company were $6.3 million in each of 2003 and 2002.

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 the 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 and that the revolving transfers of credit card receivables to the Trust will cease to qualify for off-balance sheet sales type treatment beginning in December 2003, the date when the contractual life of the transferred receivables is estimated to extend to September 2005.

F-14

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

	Years Ended
(in millions)	August 2, 2003		August 3, 2002

Collections used by the Trust to purchase receivable balances	$	1,719.9	$	1,721.0
Cash flow received related to the IO Strip	$	46.0	$	44.7

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

(in millions, except percentages)	August 2, 2003			August 3, 2002

Total face value of receivables	$	471.0		$	437.1
Delinquent principal over 90 days	1.8		%	1.5		%
Annual credit losses (net of recoveries)	$	14.3		$	15.9

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) are follows:

	August 2, 2003		Range During Fiscal Year 2003
Weighted average life of receivables (in months)	4		4
Expected credit losses (annualized percent)	0.79	%	0.67% - 0.79%
Net interest spread	16.36	%	14.73% - 17.45%
Discount rate (weighted average)	5.95	%	5.95% - 5.97%

F-15

At August 2, 2003, 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	$	(0.7	)
Impact on fair value of 20 percent adverse change	$	(1.1	)

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	$	(1.4	)
Impact on fair value of 20 percent adverse change	$	(2.7	)

Discount Rate (weighted average rate)
Impact on fair value of 10 percent adverse change	$	(0.6	)
Impact on fair value of 20 percent adverse change	$	(1.2	)

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 actuality, changes in one assumption may result in changes in another, which may magnify or counteract the sensitivities.

F-16

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 2, 2003 and for 2003 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:

(in millions)	Amounts Recorded		Pro forma - On-Balance Sheet Financing
Assets:
Undivided interests in NMG Credit Card Master Trust	$	243.1	$	—
Accounts receivable	22.6		484.0

Long-term liability:
Borrowings pursuant to credit card securitization program	$	—	$	225.0

Income:
Finance charge income	$	—	$	70.6
Gains on sales of Sold Interests	7.1		—
Income from Retained Interests, net	39.9		—
Servicing fee income	6.3		—

Expenses:
Interest expense on Class A Certificates	—		(3.9		)
Bad debt expense, net	—		(14.3		)

NOTE 3. Goodwill and Intangible Assets

The significant components of goodwill and intangible assets, included in other assets in the accompanying consolidated balance sheets, are as follows:

(in thousands)	August 2, 2003		August 3, 2002

Goodwill	$	23,747	$	33,202
Trademarks	68,797		126,654
	92,544		159,856
Accumulated amortization	—		(42,432		)
Goodwill and trademarks, net	$	92,544	$	117,424

The Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” as of the beginning of the first quarter of 2003. SFAS No. 142 established a new fair value-based accounting model for the valuation of goodwill and indefinite-lived intangible assets recorded in connection with business combinations. Pursuant to the provisions of SFAS No. 142, goodwill and indefinite-lived intangible assets are measured for impairment by applying a fair value-based test at least annually and are not amortized.

F-17

In connection with the adoption of the provisions of SFAS No. 142, the Company engaged third party appraisal experts to assist with the determination of the fair value of its goodwill and intangible assets. Fair value was determined using a discounted cash flow methodology. For each of the Company’s operating segments, a summary of the intangible assets recorded by the Company as of the beginning of the first quarter of 2003 in accordance with the cost-based accounting model established by previous accounting principles and the adjustments required during 2003 in accordance with the fair value model of SFAS No. 142 are as follows:

(in thousands)	Carrying Value at August 4, 2002		SFAS No. 142 Adjustments						Adjusted Carrying Value
			At Adoption			During 2003
Direct Marketing
Goodwill	$	23,747	$	—		$	—		$	23,747
Indefinite-lived tradenames	60,732		(24,066		)	(814		)	35,852

Other
Indefinite-lived tradenames	32,945		—			—			32,945
	$	117,424	$	(24,066	)	$	(814	)	$	92,544

The $24.1 million writedown in the carrying value of the indefinite-lived intangible assets of the Company’s Direct Marketing segment required upon adoption of SFAS No. 142 is reflected as a change in accounting principle ($14.8 million, net of taxes) in the accompanying consolidated statements of earnings. The additional writedown of $0.8 million was required in 2003 based upon current estimates of future cash flows and is included in selling, general and administrative expenses.

The Company ceased amortization of its goodwill and indefinite-lived intangible assets as of the beginning of 2003. Amortization expense was approximately $5.3 million for 2002 and reduced diluted earnings per share by $0.07 for the period. Amortization expense was approximately $5.9 million for 2001 and reduced diluted earnings per share by $0.08 for the period.

NOTE 4. Accrued Liabilities

The significant components of accrued liabilities are as follows:

(in thousands)	August 2, 2003		August 3, 2002

Accrued salaries and related liabilities	$	43,704	$	33,993
Self-insurance reserves	34,897		31,991
Amounts due customers	36,770		40,882
Income taxes payable	28,994		31,489
Sales returns	26,674		24,162
Sales tax	21,341		25,127
Loyalty program liability	11,514		7,066
Other	62,365		65,090
Total	$	266,259	$	259,800

F-18

NOTE 5. Long-term Debt

The significant components of the Company’s notes and debentures are as follows:

(in thousands)	Interest Rate		August 2, 2003		August 3, 2002

Revolving credit facility	Variable		$	—	$	—
Senior unsecured notes	6.65	%	124,926		124,910
Senior unsecured debentures	7.125	%	124,807		124,800
Total			$	249,733	$	249,710

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 Company has two types of borrowing options under the Credit Agreement, a “committed” borrowing or a “competitive bid” borrowing. The rate of interest payable under a “committed” borrowing is based on one of two pricing options selected by the Company, the level of outstanding borrowings and the rating of the Company’s senior unsecured long-term debt by Moody’s and Standard & Poor’s. The pricing options available to the Company under a “committed” borrowing are based on either LIBOR plus 0.400 percent to 1.625 percent or a “base” rate, based on the higher of the Prime Rate or 0.500 percent plus the Federal Funds Rate, plus a “base” rate margin of up to 0.625 percent. The rate of interest payable under a “competitive bid” borrowing is based on one of two pricing options selected by the Company. The pricing options are based on either LIBOR plus a competitive bid margin or an absolute rate, both determined in the competitive auction process. 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 that require the Company to maintain certain leverage and fixed charge ratios. At August 2, 2003, the Company had no borrowings outstanding under its 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 aggregated $265.0 million as of August 2, 2003 and $249.9 million as of August 3, 2002.

The significant components of interest expense are as follows:

	Years Ended
(in thousands)	August 2, 2003		August 3, 2002		July 28, 2001

Revolving credit facility	$	430	$	1,532	$	933
Senior notes	8,308		8,468		8,308
Senior debentures	8,904		9,075		8,904
Debt issue cost amortization and other	1,298		2,008		2,520
Total interest expense	$	18,940	$	21,083	$	20,665

Less:
Interest income	$	1,245	$	2,561	$	3,523
Capitalized interest	1,425		3,116		1,954
Interest expense, net	$	16,270	$	15,406	$	15,188

F-19

NOTE 6. 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, 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 ensure 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. Effective July 30, 2002, the Executive Stock Purchase Loan Plan (Loan Plan) was terminated. Prior to termination, the Company had previously made loans in accordance with the provisions of the Loan Plan 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 $0.6 million and $1.2 million as of August 2, 2003 and August 3, 2002, respectively. The Company made no new executive stock purchase loans in 2002 or 2003.

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.

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 2, 2003 were granted under the Company’s 1997 Plan and the 1987 Stock Incentive Plan. At August 2, 2003, there were 2.6 million shares of common stock available for grant under the 1997 Plan.

In 2003, the Company made stock-based awards in the form of 1) restricted stock awards for which there was no exercise price payable by the employee and 2) purchased restricted stock awards for which the exercise price was equal to 50 percent of the fair value of the Company’s common stock on the date of grant. The restricted stock and purchased restricted stock awards aggregated 105,110 shares of restricted common stock at a weighted-average fair value of $21.47 as of the grant date. The Company did not make any restricted stock grants in 2002 or in 2001. Compensation expense related to restricted stock grants was $2.4 million in 2003, $2.4 million in 2002 and $3.0 million in 2001.

F-20

A summary of the status of the Company’s 1997 and 1987 Stock Incentive Plans as of August 2, 2003, August 3, 2002 and July 28, 2001 and changes during the fiscal years ended on those dates are presented in the following table:

	August 2, 2003				August 3, 2002				July 28, 2001
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	2,894,300		$	28.59	2,753,900		$	28.78	2,277,100		$	24.28
Granted	822,525		30.93		542,500		24.50		1,064,500		35.44
Exercised	(392,300	)	25.96		(338,550	)	23.52		(299,070	)	20.85
Canceled	(244,820	)	28.93		(63,550	)	27.48		(288,630	)	26.17
Outstanding at end of year	3,079,705		$	29.54	2,894,300		$	28.59	2,753,900		$	28.78
Exercisable at year end	1,012,790		$	29.39	834,570		$	28.39	699,480		$	25.09

Options outstanding at August 2, 2003 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 granted during 2003 cliff vest on the third anniversary of the grant and expire six years from the grant date. Options granted prior to 2003 vest ratably over five years and expire after ten years. There were 150 employees with options outstanding at August 2, 2003.

The following table summarizes information about the Company’s stock options as of August 2, 2003:

Options Outstanding					Options Exercisable
Range Of Exercise Prices	Shares Outstanding At August 2, 2003	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Shares Outstanding At August 2, 2003	Weighted- Average Exercise Price

$ 11.63 - $ 15.38	9,600	1.5	$	14.76	9,600	$	14.76
$ 22.94 - $ 24.94	1,088,480	6.8	$	24.00	398,190	$	23.90
$ 25.94 - $ 32.94	1,150,625	5.2	$	30.59	258,200	$	30.43
$ 33.38 - $ 36.50	831,000	6.7	$	35.51	346,800	$	35.31

$ 11.63 - $ 36.50	3,079,705	6.2	$	29.54	1,012,790	$	29.39

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’s common stock and subsequently divested itself entirely of any holdings in the Company’s common 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.

F-21

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. 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 2003 or 2002. Charges to the Company amounted to $5.2 million in 2001.

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 7. Stock Repurchase Program

In prior years, the Company’s Board of Directors authorized various stock repurchase programs and increases in the number of shares subject to repurchase. During the second quarter of 2003, the Company repurchased 524,177 shares at an average purchase price of $28.65. During 2002 and 2001, there were no stock repurchases under the stock repurchase program. As of August 2, 2003, approximately 1.4 million shares remain available for repurchase under the Company’s stock repurchase programs.

F-22

NOTE 8. Income Taxes

The significant components of income tax expense are as follows:

	Years Ended
(in thousands)	August 2, 2003		August 3, 2002			July 28, 2001

Current:
Federal	$	64,758	$	67,015		$	73,278
State	6,854		4,837			6,313
Foreign	192		136			—
	71,804		71,988			79,591
Deferred:
Federal	6,944		(9,620		)	(10,878		)
State	500		(715		)	(906		)
	7,444		(10,335		)	(11,784		)
Income tax expense	$	79,248	$	61,653		$	67,807

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

	Years Ended
(in thousands)	August 2, 2003			August 3, 2002		July 28, 2001

Income tax expense at statutory rate	$	72,044		$	56,785	$	62,454
State income taxes, net of federal income tax benefit	7,354			4,122		5,407
Other	(150		)	746		(54		)
Total	$	79,248		$	61,653	$	67,807

The Company’s effective income tax rate was 38.5 percent in 2003, 38.0 percent in both 2002 and 2001.

F-23

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

(in thousands)	August 2, 2003			August 3, 2002

Deferred income tax assets:
Accruals and reserves	$	29,096		$	34,124
Employee benefits	41,079			27,933
Other	1,845			1,372
Total deferred tax assets	$	72,020		$	63,429

Deferred income tax liabilities:
Inventory	$	(6,602	)	$	(2,627	)
Depreciation and amortization	(36,803		)	(40,229		)
Other	(3,714		)	(5,078		)
Total deferred tax liabilities	(47,119		)	(47,934		)
Net deferred income tax asset	$	24,901		$	15,495

Net deferred income tax asset:
Current	$	17,586		$	17,746
Non-current	7,315			(2,251		)
Total	$	24,901		$	15,495

The net deferred tax asset increased by $9.4 million in 2003 due to deferred tax benefits of $16.8 million (related primarily to the recording of an additional minimum pension liability of $39.3 million) credited to shareholders’ equity, offset by a $7.4 million deferred tax provision charged to earnings. The net deferred tax asset increased by $9.1 million in 2002 due to deferred tax benefits of $10.3 million credited to earnings and a deferred tax provision of $1.2 million charged to shareholders’ equity. The Company believes it is more likely than not that it will realize the recorded deferred tax assets through future taxable earnings.

NOTE 9. Employee Benefit Plans

The Company sponsors a defined benefit Pension Plan covering substantially all full-time employees. The Company also sponsors an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits. Benefits under both 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.

The components of pension expense for the Pension Plan are as follows:

	Years Ended
(in thousands)	August 2, 2003			August 3, 2002			July 28, 2001

Service cost	$	9,110		$	8,422		$	6,740
Interest cost	15,196			13,571			12,037
Expected return on plan assets	(14,591		)	(14,389		)	(15,718		)
Net amortization of losses (gains) and prior service costs	407			283			(289		)
Pension Plan expense	$	10,122		$	7,887		$	2,770

F-24

The components of the SERP Plan expense are as follows:

	Years Ended
(in thousands)	August 2, 2003		August 3, 2002		July 28, 2001

Service cost	$	1,159	$	961	$	838
Interest cost	3,700		3,199		2,942
Net amortization of losses and prior service costs	1,181		200		695
SERP Plan expense	$	6,040	$	4,360	$	4,475

Retirees and active employees hired prior to March 1, 1989 are eligible for certain limited postretirement health care benefits (Postretirement Plan) 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 $2.3 million during 2003, $1.7 million during 2002 and $1.8 million during 2001.

The components of Postretirement Plan expense are as follows:

	Years Ended
(in thousands)	August 2, 2003		August 3, 2002		July 28, 2001

Service cost	$	92	$	86	$	65
Interest cost	1,614		1,214		723
Net amortization and deferral	322		—		(447		)
Postretirement expense	$	2,028	$	1,300	$	341

The changes in the benefit obligations and the reconciliations of the funded status of the Company’s Pension Plan, SERP Plan and Postretirement Plan to the consolidated balance sheets are as follows:

	Pension Plan						SERP Plan						Postretirement Plan
(in thousands)	2003			2002			2003			2002			2003			2002

Projected benefit obligations at beginning of year	$	197,599		$	178,061		$	46,480		$	43,564		$	22,924		$	17,392
Service cost	9,110			8,422			1,159			961			92			86
Interest cost	15,196			13,571			3,700			3,199			1,614			1,214
Plan amendments	—			—			—			—			—			295
Actuarial loss (gain)	29,446			3,462			7,665			(205		)	2,035			5,041
Benefits paid, net	(6,354		)	(5,917		)	(1,366		)	(1,039		)	(1,758		)	(1,104		)
Projected benefit obligations at end of year	$	244,997		$	197,599		$	57,638		$	46,480		$	24,907		$	22,924

F-25

Change in the assets held by the Pension Plan in 2003 and 2002 are as follows:

	Pension Plan
(in thousands)	2003			2002

Fair value of assets at beginning of year	$	145,945		$	167,982
Actual return on assets	12,692			(16,119		)
Company contributions	30,760			—
Benefits paid	(6,353		)	(5,918		)
Fair value of assets at end of year	$	183,044		$	145,945

The funded status of the Company’s employee benefit plans is as follows:

	Pension Plan						SERP Plan						Postretirement Plan
(in thousands)	2003			2002			2003			2002			2003			2002

Excess of projected benefit obligation over fair value of plan assets	$	(61,953	)	$	(51,653	)	$	(57,638	)	$	(46,480	)	$	(24,907	)	$	(22,924	)
Unrecognized net actuarial loss	75,921			45,239			13,285			6,233			7,643			5,884
Unrecognized prior service (income) cost	(223		)	(791		)	3,934			4,502			250			295
Unrecognized net obligation at transition	785			1,099			—			—			—			—
Asset (liability) recognized in the consolidated balance sheets	$	14,530		$	(6,106	)	$	(40,419	)	$	(35,745	)	$	(17,014	)	$	(16,745	)

The Company’s employee benefit plan obligations and the funded status of such plans are recognized in the Company’s consolidated balance sheets as follows:

	Pension Plan						SERP Plan						Postretirement Plan
(in thousands)	2003			2002			2003			2002			2003			2002

Accrued benefit obligation	$	(24,790	)	$	(6,106	)	$	(49,082	)	$	(35,745	)	$	(17,014	)	$	(16,745	)
Intangible asset	562			—			3,934			—			—			—
Accumulated other comprehensive loss	38,758			—			4,729			—			—			—
Net amount recognized at balance sheet date	$	14,530		$	(6,106	)	$	(40,419	)	$	(35,745	)	$	(17,014	)	$	(16,745	)

In 2003, the Company was required to record additional minimum liabilities of $39.3 million related to the Pension Plan and $8.7 million related to the SERP Plan. In recording the additional minimum liabilities, the Company reduced shareholders’ equity by $43.5 million ($26.7 million, net of tax).

F-26

At August 1, 2003, the projected benefit obligation of the Pension Plan exceeded the plan’s assets by $62.0 million. The underfunded status is reflected in the Company’s consolidated balance sheet as follows:

Prepaid pension contribution reflected in the consolidated balance sheet and not yet charged to expense	$	14,530
Liability charged to shareholders’ equity and not yet recognized in expense	(38,758		)
Liability reflected in other assets and not yet charged to expense	(562		)
Unrecognized liability not yet recognized in expense	(37,163		)
Underfunded status at August 1, 2003	$	(61,953	)

The Company had cumulative unrecognized expense for the Pension Plan of $76.5 million at August 1, 2003 primarily related to the delayed recognition of differences between the Company’s actuarial assumptions and actual results, which has contributed to the $62.0 million underfunded status of the Pension Plan at August 1, 2003. In addition, the Company had cumulative unrecognized expense for the SERP Plan and Postretirement Plan aggregating $25.1 million at August 1, 2003.

Significant assumptions related to the calculation of the Company’s obligations pursuant to its employee benefit plans include the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension Plan, the average rate of compensation increase by Pension Plan and SERP Plan participants and the health care cost trend rate for the Postretirement Plan. These actuarial assumptions are reviewed annually based upon currently available information. The assumptions utilized by the Company in calculating the projected benefit obligations and periodic expense of its employee benefit plans are as follows:

	August 1, 2003		August 1, 2002		August 1, 2001

Pension Plan:
Discount rate	6.50	%	7.25	%	7.25	%
Expected long-term rate of return on plan assets	8.00	%	8.00	%	9.00	%
Rate of future compensation increase	4.50	%	5.00	%	5.00	%

SERP Plan:
Discount rate	6.50	%	7.25	%	7.25	%
Rate of future compensation increase	4.50	%	5.00	%	5.00	%

Postretirement Plan:
Discount rate	6.50	%	7.25	%	7.25	%
Initial health care cost trend rate	11.00	%	12.00	%	6.00	%
Ultimate health care cost trend rate	5.00	%	5.00	%	5.00	%

The assumed discount rate utilized is based, in part, upon the Moody’s Aa corporate bond yield as of the measurement date. The discount rate is utilized principally in calculating the actuarial present value of the Company’s obligations and periodic expense pursuant to its employee benefit plans. At August 1, 2003, the discount rate was 6.50 percent. To the extent the discount rate increases or decreases, the Company’s Pension Plan obligation is decreased or increased, accordingly. The

F-27

estimated effect of a 0.25 percent decrease in the discount rate would increase the Pension Plan obligation by $7.4 million and increase annual Pension Plan expense by $1.2 million. The estimated effect of a 0.25 percent decrease in the discount rate would increase the SERP Plan obligation by $1.5 million and increase the SERP Plan annual expense by $0.2 million. The estimated effect of a 0.25 percent decrease in the discount rate would increase the Postretirement Plan obligation by $0.7 million and increase the Postretirement Plan annual expense by an immaterial amount.

The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested to provide for the pension obligation. It is the Company’s current policy to invest the Pension Plan assets in equity securities (approximately 60 percent) and in fixed income securities (approximately 40 percent). The Company periodically evaluates the allocation between investment categories of the assets held by the Pension Plan. The expected average long-term rate of return on assets is based principally on the counsel of the Company’s outside actuaries and advisors. This rate is utilized primarily in calculating the expected return on plan assets component of the annual pension expense. To the extent the actual rate of return on assets realized over the course of a year is greater than the assumed rate, that year’s annual pension expense is not affected. Rather this gain reduces future pension expense over a period of approximately 12 to 18 years. To the extent the actual rate of return on assets is less than the assumed rate, that year’s annual pension expense is likewise not affected. Rather this loss increases pension expense over approximately 12 to 18 years. During 2003, the Company utilized 8.0 percent as the expected long-term rate of return on plan assets.

If the assumed health care trend rate were increased one percentage point, Postretirement Plan costs for 2003 would have been $0.2 million higher and the accumulated postretirement benefit obligation as of August 2, 2003 would have been $2.4 million higher. If the assumed health care trend rate were decreased one percentage point, Postretirement Plan costs for 2003 would have been $0.2 million lower and the accumulated postretirement benefit obligation as of August 2, 2003 would have been $2.1 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, a profit sharing and retirement plan for employees of Kate Spade LLC and a qualified defined contribution 401(k) plan for employees of Gurwitch Products, LLC. The Company’s aggregate contributions to these plans were approximately $9.3 million for 2003, $8.9 million for 2002 and $6.1 million for 2001. Benefits under the plans are based on the employees’ years of service and compensation over defined periods of employment.

NOTE 10. Effect of Change in Vacation Policy

During the third quarter of 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 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.

F-28

NOTE 11. Impairment and Other Charges

In the fourth quarter of 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 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 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.

NOTE 12. Commitments and Contingencies

The Company leases certain property and equipment under various non-cancelable capital and operating leases. The leases provide for monthly fixed amount rentals or contingent rentals based upon sales in excess of stated amounts and normally require the Company to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs. Generally, the leases have primary terms ranging from 1 to 99 years and include renewal options ranging from 5 to 80 years.

Rent expense under operating leases are as follows:

	Years Ended
(in thousands)	August 2, 2003		August 3, 2002		July 28, 2001

Minimum rent	$	41,200	$	37,400	$	38,400
Contingent rent	16,500		17,000		19,200
Total rent expense	$	57,700	$	54,400	$	57,600

Future minimum rental commitments, excluding renewal options, under capital leases and non-cancelable operating leases are as follows: fiscal year 2004 – $45.7 million; fiscal year 2005 – $43.9 million; fiscal year 2006 – $41.2 million; fiscal year 2007 – $37.2 million; fiscal year 2008 – $34.9 million; all years thereafter – $579.1 million.

Common area maintenance costs were $12.5 million for 2003, $10.0 million for 2002 and $10.0 million for 2001.

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.

F-29

Letters of Credit. The Company had approximately $8.5 million of outstanding irrevocable letters of credit relating to purchase commitments and insurance and other liabilities at August 2, 2003.

The Company had approximately $2.7 million in surety bonds at August 2, 2003 relating primarily to merchandise imports, state sales tax and utility requirements.

Other. The Company’s other principal commercial commitments are comprised of Pension Plan funding obligations, short-term merchandise purchase commitments, short-term construction commitments, common area maintenance costs, tax and insurance obligations and contingent rent payments. Substantially all of the Company’s merchandise purchase commitments are cancelable up to 30 days prior to the vendor’s scheduled shipment date.

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. No adjustments were made to net earnings for the computations of basic and diluted EPS during the periods presented.

	Years Ended
(in thousands of shares)	August 2, 2003		August 3, 2002		July 28, 2001

Weighted average shares outstanding	47,750		47,726		47,479
Less: shares of non-vested restricted stock	(288	)	(282	)	(359	)
Shares for computation of basic EPS	47,462		47,444		47,120
Effect of dilutive stock options and restricted stock	333		391		466
Shares for computation of diluted EPS	47,795		47,835		47,586

Shares represented by antidilutive stock options	1,469		1,223		954

Antidilutive stock options were not included in the computation of diluted EPS because the exercise price of those options was greater than the average market price of the common shares.

F-30

NOTE 14. Comprehensive Income

The components of comprehensive income are as follows:

	Years Ended
(in thousands)	August 2, 2003			August 3, 2002			July 28, 2001

Net earnings	$	109,303		$	99,574		$	107,484
Other comprehensive income (loss):
Unrealized (loss) gain on financial instruments, net of tax	(172		)	1,945			(1,029		)
Additional minimum pension liability, net of tax	(26,744		)	—			—
Other, net of tax	437			(10		)	—
Total other comprehensive income (loss)	(26,479		)	1,935			(1,029		)

Total comprehensive income	$	82,824		$	101,509		$	106,455

F-31

NOTE 15. 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. The Direct Marketing segment conducts both print catalogue and online operations under the Neiman Marcus, Horchow and Chef’s Catalogue brand names. Other includes the operations of Kate Spade LLC and Gurwitch 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. Interest expense is not allocated by segment.

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

	Years Ended
(in thousands)	August 2, 2003			August 3, 2002			July 28, 2001

REVENUES
Specialty Retail Stores	$	2,524,816		$	2,433,195		$	2,504,806
Direct Marketing (1)	493,473			444,019			437,879
Other	79,835			71,118			72,849
Total	$	3,098,124		$	2,948,332		$	3,015,534

OPERATING EARNINGS
Specialty Retail Stores	$	198,201		$	170,465		$	200,986
Direct Marketing (1)	45,754			22,835			11,065
Other	(21,845		)	(18,993		)	(8,660		)
Subtotal	222,110			174,307			203,391
Effect of change in vacation policy	—			16,576			—
Impairment and other charges	—			(13,233		)	(9,763		)
Total	$	222,110		$	177,650		$	193,628

CAPITAL EXPENDITURES
Specialty Retail Stores	$	91,293		$	137,615		$	105,173
Direct Marketing	6,761			10,118			9,879
Other	1,940			1,513			4,935
Total	$	99,994		$	149,246		$	119,987

DEPRECIATION EXPENSE
Specialty Retail Stores	$	68,153		$	66,168		$	63,098
Direct Marketing	8,692			8,321			7,262
Other	2,131			2,320			2,744
Total	$	78,976		$	76,809		$	73,104

(1) Direct Marketing includes the operations of Neiman Marcus Direct, the Company’s catalogue and online operations. During 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.

F-32

NOTE 16. Quarterly Financial Information (Unaudited)

	Year Ended August 2, 2003
(in millions, except for per share data)	First Quarter			Second Quarter		Third Quarter		Fourth Quarter		Total

Revenues	$	734.1		$	938.5	$	722.9	$	702.7	$	3,098.1
Gross profit	280.2			283.9		259.2		201.3		1,024.5
Earnings before change in accounting principle	43.3			32.5		41.1		7.2		124.1
Change in accounting principle	(14.8		)	—		—		—		(14.8		)
Net earnings	$	28.5		$	32.5	$	41.1	$	7.2	$	109.3

Basic earnings per share:
Earnings before change in accounting principle	$	0.91		$	0.68	$	0.87	$	0.15	$	2.61
Change in accounting principle	(0.31		)	—		—		—		(0.31		)
Basic earnings per share	$	0.60		$	0.68	$	0.87	$	0.15	$	2.30

Diluted earnings per share:
Earnings before change in accounting principle	$	0.90		$	0.68	$	0.87	$	0.15	$	2.60
Change in accounting principle	(0.31		)	—		—		—		(0.31		)
Diluted earnings per share	$	0.59		$	0.68	$	0.87	$	0.15	$	2.29

F-33

	Year Ended August 3, 2002
(in millions, except for per share data)	First Quarter		Second Quarter			Third Quarter			Fourth 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

(1) Net earnings for the second quarter of 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 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 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.

F-34

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 1, 2003

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	President and Chief Executive	October 1, 2003
Burton M. Tansky	Officer, Director

/s/ James E. Skinner	Senior Vice President and Chief	October 1, 2003
James E. Skinner	Financial Officer
	(principal financial officer)

/s/ T. Dale Stapleton	Vice President and	October 1, 2003
T. Dale Stapleton	Controller
	(principal accounting officer)

/s/ Richard A. Smith	Chairman of the Board	October 1, 2003
Richard A. Smith

/s/ Robert A. Smith	Vice Chairman	October 1, 2003
Robert A. Smith

/s/ Brian J. Knez	Vice Chairman	October 1, 2003
Brian J. Knez

/s/ John R. Cook	Director	October 1, 2003
John R. Cook

/s/ Gary L. Countryman	Director	October 1, 2003
Gary L. Countryman

/s/ Matina S. Horner	Director	October 1, 2003
Matina S. Horner

/s/ Vincent M. O’Reilly	Director	October 1, 2003
Vincent M. O’Reilly

/s/ Walter J. Salmon	Director	October 1, 2003
Walter J. Salmon

/s/ Carl Sewell	Director	October 1, 2003
Carl Sewell

/s/ Dr. Paula Stern	Director	October 1, 2003
Dr. Paula Stern

EX-3.2 3 a03-3701_1ex3d2.htm EX-3.2

Exhibit 3.2
 
 
 
BYLAWS
 
OF
 
THE
NEIMAN MARCUS GROUP, INC.
 
 
(As
amended through December 1, 2002)
 








 
TABLE
OF CONTENTS
 

 
  ARTICLE I.  
  PREAMBLE

 

   

 

  ARTICLE II.    MEETINGS OF STOCKHOLDERS

 

   

 

  ARTICLE III.    DIRECTORS

 

   

 

  ARTICLE IV.    OFFICERS

 

   

 

  ARTICLE V.   
  STOCK

 

   

 

  ARTICLE VI.    NOTICES

 

   

 

  ARTICLE VII.    GENERAL PROVISIONS

 

   

 

  ARTICLE VIII.    INDEMNIFICATION

 

   

 

  ARTICLE IX.    AMENDMENTS

 
 
i








 
BYLAWS
OF
THE NEIMAN
MARCUS GROUP, INC.
(hereinafter
called the “Corporation”)
(As
amended through December 1, 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.
 
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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.
 
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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-10.4 4 a03-3701_1ex10d4.htm EX-10.4

Exhibit 10.4

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS

AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of November 20, 2002 between Phillip L. Maxwell (“Executive”) and The Neiman Marcus Group, Inc., a Delaware corporation, (“NMG”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive is employed “at will” as Senior Vice President and Chief Information Officer of NMG and either Executive or NMG may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHEREAS, in connection with the restructuring of the compensation and benefits provided to senior executives of NMG, including Executive, the Board of Directors of NMG has determined that stock option and restricted stock awards should be combined with appropriate post-employment and other restrictions designed to protect the legitimate business interests of NMG and its Affiliates;

WHEREAS, NMG and Executive will be entering into separate stock option and restricted stock agreements (the “Incentive Agreements”) effective November 20, 2002 that set forth the rights and obligations of NMG and Executive with respect to such awards;

WHEREAS, NMG has granted to Executive an ownership interest in NMG in the form of NMG stock;

WHEREAS, by virtue of his new position and responsibilities, Executive will have unique access to and knowledge of NMG’s trade secrets and other confidential and proprietary business information;

WHEREAS, Executive’s association with NMG to the exclusion of its competitors is anticipated to enhance NMG’s goodwill and Executive’s earning capacity; and

WHEREAS, NMG and Executive mutually desire to protect NMG’s goodwill created by Executive’s association with NMG and NMG’s trade secrets and other confidential and proprietary business information and in recognition of the possible interruption of Executive’s earnings after the end of his NMG employment;

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and NMG agree as follows:

1. (a) While Executive is employed at-will by NMG, if NMG terminates Executive’s employment for any reason other than for “Cause,” his “Total Disability,” or his death, subject to paragraphs 1(c) and 1(d) below, NMG shall provide Executive with benefits (“Termination Benefits”) consisting of:

(1) an amount equivalent to 1.5 times his then-current annual base salary, less required withholding, which amount would be paid over an 18-month period (hereinafter, the “Salary Continuance Period”) in regular, bi-weekly installments following such termination; and

(2) if, at the time of his termination, Executive participates in a group medical insurance plan offered by NMG and Executive is eligible for and elects to receive continued coverage under such plan in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, NMG will reimburse Executive during the Salary Continuance Period or, if shorter, the period of such actual COBRA continuation coverage, for the total

amount of the monthly COBRA medical insurance premiums actually paid by Executive for such continued medical insurance benefits.

For the purposes of determining whether or not NMG has terminated Executive’s employment under this paragraph I(a), any material, adverse change in the terms and conditions of his employment, including but not limited to a relocation of Executive’s place of business 50 miles or more from the current location, which change causes Executive to resign his employment with NMG, will be deemed a termination by NMG. A transfer of employment between NMG and its Affiliates shall not be considered as a termination of employment for purposes of this Agreement.

(b) NMG shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely, and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that NMG would be required to perform it if no such succession or assignment had taken place. If NMG fails to obtain such agreement by the effective time of any such succession or assignment, such failure shall be considered a material, adverse change in the terms and conditions of Executive’s employment and will be deemed a termination by NMG for purposes of paragraph 1(a) of this Agreement if such failure causes Executive to resign his employment with NMG; provided that the Termination Benefits to which Executive would be entitled after such resignation pursuant to paragraph 1(a) of this Agreement shall be the sole remedy of Executive for any failure by NMG to obtain such agreement. As used in this Agreement, “NMG” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG that executes and delivers the agreement provided for in this paragraph 1(b) or that otherwise becomes obligated under this Agreement by operation of law.

(c) If, in the reasonable judgment of NMG, Executive engages in any of the Restricted Activities described in paragraph 3 of this Agreement, NMG’s obligation to provide the Termination Benefits shall end as of the date NMG so notifies Executive in writing.

(d) If Executive is arrested or indicted for any felony, other serious criminal offense, or any violation of federal or state securities laws, or has any civil enforcement action brought against him by any regulatory agency, for actions or omissions related to his employment with NMG, or if NMG reasonably believes in its sole judgment that Executive has committed any act or omission that would have entitled NMG to terminate his employment for Cause, whether such act or omission was committed during his employment with NMG or during the Salary Continuance Period, NMG may suspend any payments remaining pursuant to paragraph l(a) of this Agreement until the [mal resolution of such criminal or civil proceedings or until NMG has made a final determination in its sole judgment as to whether Executive committed such an act or omission. If Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if NMG determines in its sole judgment that Executive has committed such an act or omission, (1) NMG’s obligation to provide the Termination Benefits shall immediately end, and (2) Executive shall repay to NMG any amounts paid to him pursuant to paragraph 1(a) of this Agreement within 30 days after a written request to do so by NMG. If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or NMG determines in its sole judgment that Executive has not committed such an act or omission, NMG shall pay to Executive any payments pursuant to paragraph 1(a) of this Agreement that it has suspended, with interest on such suspended payments at its cost of funds, and shall make any remaining payments due thereunder.

a result of his promotion will be an integral part of NMG’s continued success and goodwill; (e) given his new position and responsibilities, he necessarily will be creating Confidential Information that belongs to NMG and enhances NMG’s goodwill, and in carrying out his new responsibilities he in turn will be relying on NMG’s goodwill and the disclosure by NMG to him of Confidential Information; (f) he will have access to Confidential Information that could be used by any Competitor of NMG in a manner that would irreparably harm NMG’s competitive position in the marketplace and dilute its goodwill; and (g) he necessarily would use or disclose Confidential Information if he were to engage in competition with NMG. NMG acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its goodwill and Confidential Information in order to properly carry out his new responsibilities. NMG accordingly promises upon execution and delivery of this Agreement and in connection with Executive’s promotion to provide Executive immediate access to new and additional Confidential Information and authorize him to engage in activities that will create new and additional Confidential Information. NMG and Executive thus acknowledge and agree that upon execution and delivery of this Agreement and in connection with the promotion of Executive and during his employment in his new position, Executive (a) will receive Confidential Information that is unique, proprietary, and valuable to NMG, (b) will create Confidential Information that is unique, proprietary, and valuable to NMG, and (c) will benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill NMG has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during his employment by NMG and thereafter:

(a) all Confidential Information shall remain and be the sole and exclusive property of NMG;

(b) he will protect and safeguard all Confidential Information;

(c) he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of NMG to the extent necessary for the proper performance of his responsibilities unless authorized to do so by NMG or compelled to do so by law or valid legal process;

(d) if he believes he is compelled by law or valid legal process to disclose or divulge any Confidential Information, he will notify NMG in writing sufficiently in advance of any such disclosure to allow NMG the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(e) at the end of his employment with NMG for any reason or at the request of NMG at any time, he will return to NMG all Confidential Information and all copies thereof, in whatever tangible form or medium including electronic; and

(f) absent the promises and representations of Executive in this paragraph and paragraph 3 below, NMG would not promote Executive, would require him immediately to return any tangible Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter into this Agreement or the Incentive Agreements.

3. In consideration of NMG’s promises to promote Executive, provide him with new and additional Confidential Information, and to authorize him to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of NMG in this Agreement and the Incentive Agreements, Executive agrees that, while he is employed by NMG and for a period of 18 months following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

(a) He will not directly or indirectly disparage NMG or its Affiliates, any products, services, or operations of NMG or its Affiliates, or any of the former, current, or future officers, directors, or employees of NMG or its Affiliates;

(b) He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for NMG or its Affiliates to leave that employment or cease performing those services;

( c) He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of NMG or any of its Affiliates to cease being a customer, supplier, or vendor of NMG or any of its Affiliates or to divert all or any part of such person’s or entity’s business from NMG or any of its Affiliates; and

(d) He will not associate directly or indirectly, as an employee, officer, director, agent, partner, stockholder, owner, representative, or consultant, with any Competitor of NMG or any of its Affiliates, unless (1) he has advised NMG in writing in advance of his desire to undertake such activities and the specific nature of such activities; (2) NMG has received written assurances (that will be designed, among other things, to protect NMG’s and its Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and Executive that are, in NMG’s sole discretion, adequate to protect its interests; (3) NMG, in its sole discretion, has approved in writing such association; and (4) Executive and the Competitor adhere to such assurances. This restriction (1) extends to the performance by Executive, directly or indirectly, of the same or similar activities Executive has performed for NMG or any of its Affiliates or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (2) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of NMG or any of its Affiliates. Executive shall not be in violation of this paragraph 3(d) solely as a result of his investment in stock or other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the’-counter market if he and the members of his immediate family do not, directly or indirectly, hold more than a total of one (1) percent of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the activities restricted by this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG.

Executive acknowledges and agrees that the restrictions contained in this paragraph 3 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements; that NMG’s promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements, Executive’s new position and responsibilities with NMG, and NMG granting to Executive ownership in NMG in the form of NMG stock, give rise to NMG’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this paragraph 3 and his common- law obligations and duties owed to NMG; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect NMG’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify NMG in writing should he believe or be advised that the restrictions are not valid or enforceable under Texas law or the law of any other state that he contends or is advised is applicable; that the mutual promises and undertakings of NMG and Executive under paragraphs 2 and 3 of this Agreement are not contingent on the duration of Executive’s employment with NMG; and that absent the promises and representations made by Executive in this paragraph 3 and paragraph 2 above, NMG would not promote Executive, would require him to return any Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter into this Agreement or the Incentive Agreements.

4. The Termination Benefits constitute all of NMG’s obligations to Executive with respect to the end of Executive’s employment with NMG. However, nothing in this Agreement is intended to limit any earned, vested benefits (other than any entitlement to severance or separation pay, if any) that Executive may have under the applicable provisions of any benefit plan of NMG in which Executive is participating at the time of his termination of employment or resignation.

5. Executive acknowledges and agrees that NMG would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of paragraphs 2 or 3 of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, Executive agrees that NMG shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Executive breaches or threatens to breach any of the provisions of such paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury. Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to NMG at law or equity. Executive acknowledges and agrees that NMG shall be entitled to recover its attorneys’ fees, expenses, and court costs, in addition to any other remedies to which it may be entitled, in the event he breaches this Agreement. Executive acknowledges and agrees that no breach by NMG of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

6. If the provisions of paragraphs 2 or 3 of this Agreement are ever deemed by a court to exceed the limitations permitted by applicable law, Executive and NMG agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

7. This Agreement contains the entire agreement between the parties and supersedes all prior agreements and understandings, oral or written, with respect to the ending of Executive’s at-will employment and the subject matter of this Agreement. This Agreement may not be changed orally. It may be changed only by written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced. This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

8. The validity, performance and enforceability of this Agreement shall be determined and governed by the laws of the State of Texas, without regard to its conflict of laws principles. NMG and Executive agree that the exclusive forum for any action concerning this Agreement shall be in a court of competent jurisdiction in Dallas County, Texas, with respect to a state court, or the Dallas Division of the United States District Court for the Northern District of Texas, with respect to a federal court. EXECUTIVE HEREBY CONSENTS TO THE EXERCISE OF JURISDICTION OF A COURT IN THE EXCLUSIVE FORUM AND WAIVES ANY RIGHT HE MAY HAVE TO CHALLENGE OR CONTEST THE REMOVAL AT ANY TIME BY NMG TO FEDERAL COURT OF ANY SUCH ACTION HE MAY BRING AGAINST IT IN STATE COURT. EXECUTIVE AND NMG FURTHER HEREBY MUTUALLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY ACTION CONCERNING THIS AGREEMENT.

9. Executive’s promises and obligations under this Agreement shall survive the end of his employment with NMG, and such promises and obligations shall inure to the benefit of any Affiliates, subsidiaries, divisions, successors, or assigns of NMG.

	THE NEIMAN MARCUS GROUP, INC.


/s/ Phillip L. Maxwell	By:	/s/ Marita O’Dea
Philip L. Maxwell		Marita O’Dea, Senior Vice President

APPENDIX A

Definitions

1. “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole proprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

2. “Cause” means, in NMG’s reasonable judgment, (i) a breach of duty by Executive in the course of his employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty, or moral turpitude; (ii) conduct that is materially detrimental to NMG, monetarily or otherwise, or reflects unfavorably on NMG or Executive to such an extent that NMG’s best interests reasonably require the termination of Executive’s employment; (iii) acts of Executive in violation of his obligations under this Agreement or at law; (iv) Executive’s failure to comply with or enforce NMG’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) Executive’s repeated insubordination or failure to comply with or enforce other personnel policies of NMG or its Affiliates; (vi) Executive’s failure to devote his full working time and best efforts to the performance of his responsibilities to NMG or its Affiliates; or (vii) Executive’s conviction of or entry of a plea agreement or consent decree or similar arrangement with respect to, a felony, other serious criminal offense, or any violation of federal or state securities laws; provided, however, that with respect to items (v) ~d (vi), Executive has been provided prior written notice of the failure and afforded a reasonable opportunity to correct same.

3. “Competitor” means (i) the person or entity that owns or operates Saks Incorporated, Nordstrom, Inc., or Barneys New York, Inc.; (ii) the successors to or assigns of the persons or entities identified in (i); and (iii) any other person or entity that owns or operates a luxury specialty retail store.

4. “Confidential Information” shall mean, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; and customer, vendor, and supplier information; but excluding: any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

5. “Total Disability” means that, in NMG’s reasonable judgment, either (i) Executive has been unable to perform his duties because of a physical or mental impairment for 80% or more of the normal working days during six consecutive calendar months or 50% or more of the normal working days during twelve consecutive calendar months, or (ii) Executive has become totally and permanently incapable of performing the usual duties of his employment with NMG on account of a physical or mental impairment.

EX-10.10 5 a03-3701_1ex10d10.htm EX-10.10

Exhibit 10.10

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of November 20, 2002 between Ronald L. Frasch (“Executive”) and Bergdorf Goodman, Inc., a New York corporation, (“Bergdorf”), and replaces and supersedes in its entirety that certain Termination and Change of Control Agreement between Executive and The Neiman Mar cus Group, Inc., a Delaware corporation (“NMG”), dated April 27, 2000 (the “2000 Agreement”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive is employed “at will” as Chairman and Chief Executive Officer of Bergdorf and either Executive or Bergdorf may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHER EAS, Bergdorf is a wholly-owned subsidiary of NMG;

WHEREAS, in connection with the restructuring of the compensation and benefits provided to senior executives of NMG and its Affiliates, including Executive, the Board of Directors of NMG has determined that stock option and restricted stock awards should be combined with appropriate post-employment and other restrictions designed to protect the legitimate business interests of NMG and its Affiliates, including Bergdorf;

WHEREAS, NMG and Executive have entered into separate stock option and restricted stock agreements (the “Incentive Agreements”) effective November 20, 2002 that set forth the rights and obligations of NMG and Executive with respect to such awards;

WHEREAS, NMG has granted to Executive an ownership interest in NMG in the form of NMG stock;

WHEREAS, by virtue of his position and responsibilities, Executive has unique access to and knowledge of Ber gdorf’s trade secrets and other confidential and proprietary business information;

WHEREAS, Executive’s association with Bergdorf to the exclusion of its competitors has enhanced Bergdorf’s goodwill and Executive’s earning capacity;

WHEREAS, Bergdorf and Executive mutually desire to protect Bergdorf’s goodwill created by Executive’s association with Bergdorf and Bergdorf’s trade secrets and other confidential and proprietary business information, and in recognition of the possible interruption of Ex ecutive’s earnings after the end of his Bergdorf employment; and

WHEREAS, Bergdorf and Executive accordingly desire to make certain modifications to the provisions of the 2000 Agreement, necessitating its replacement with this Agreement;

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and Bergdorf agree as follows:

1. (a) While Executive is employed at-will by Bergdorf, if Bergdorf terminates Executive’s employment for any reason other than for “Cause,” his “Total Disability,” or his death, subject to paragraphs 1(c) and 1(d) below, Bergdorf shall provide Executive with benefits (“Termination Benefits”) consisting of:

(1) an amount equivalent to one and one-half times his then-current annual base salary, less required withholding, which amount would be paid over an eighteen-month period (hereinafter, the “Salary Continuance Period”) in regular, bi-weekly installments following such termination; and

(2) if, at the time of his termination, Executive participates in a group medical insurance plan offered by Bergdorf and Executive is eligibl e for and elects to receive continued coverage under such plan in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, Bergdorf will reimburse Executive during the Salary Continuance Period or, if shorter, the period of such actual COBRA continuation coverage, for the total amount of the monthly COBRA medical insurance premiums actually paid by Executive for such continued medical insurance benefits.

For the purposes of determining whether or not Bergdorf has terminated Executive’s employment under this paragraph 1(a), any material, adverse change in the terms and conditions of his employment, including but not limited to a relocation of Executive’s place of business 50 miles or more from the current location , which change causes Executive to resign his employment with Bergdorf, will be deemed a termination by Bergdorf. A transfer of employment between Bergdorf and NMG or any Affiliate of NMG shall not be considered as a termination of employment for purposes of this Agreement.

(b) Bergdorf shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of Bergdorf, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely, and unconditionally to assume and agree to perform this Agreem ent in the same manner and to the same extent that Bergdorf would be required to perform it if no such succession or assignment had taken place. If Bergdorf fails to obtain such agreement by the effective time of any such succession or assignment, such failure shall be considered a material, adverse change in the terms and conditions of Executive’s employment and will be deemed a termination by Bergdorf for purposes of paragraph 1(a) of this Agreement if such failure causes Executive to resign his employment with Bergdorf; provided that the Termination Benefits to which Executive would be entitled after such resignation pursuant to paragraph 1(a) of this Agreement shall be the sole remedy of Executive for any failure by Bergdorf to obtain such agreement. As used in this Agreement, “Bergdorf” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of Bergdorf that ex ecutes and delivers the agreement provided for in this paragraph 1(b) or that otherwise becomes obligated under this Agreement by operation of law.

It is the expectation of the parties that any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG, if such assets continue to include a controlling interest in the stock of Bergdorf as of the time of such succession or assignment, shall by agreement in writing, in form and substance reasonably satisfactory to Executive, expressly, absolutely, and unconditionally agree to cause Bergdorf to honor and agree to perform this Agreement following such succession or assignment. If such agreement has not been executed and delivered by the effective time of any such succession or assignment, such failure shall be considered a material, adverse change in the terms and conditions of Executive’s employment and will be deemed a termination by Bergdorf for purposes of paragraph 1(a) of thi s Agreement if such failure causes Executive to resign his employment with Bergdorf; provided that the Termination Benefits to which Executive would be entitled after such resignation pursuant to paragraph 1(a) of this Agreement shall be the sole remedy of Executive if no such agreement has been executed and delivered as of the effective time of such succession or assignment. As used in this Agreement, “NMG” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG that executes and delivers the agreement provided for in this paragraph or that otherwise becomes obligated under this Agreement by operation of law.

(c) If, in the reasonable judgment of Bergdorf, Executive engages in any of the Restricted Activities described in paragraph 3 of this Agreement, Bergdorf’s obligation to provide the Termination Benefits shall end as of the date Bergdorf so notifies Executive in writing.

(d) If Executive is arrested or indicted for any felony, other serious criminal offense, or any violation of federal or state securities laws, or has any civil enforcement action brought against him by any regulatory agency, for actions or omissions related to his employ ment with Bergdorf, or if Bergdorf reasonably believes in its sole judgment that Executive has committed any act or omission that would have entitled Bergdorf to terminate his employment for Cause, whether such act or omission was committed during his employment with Bergdorf or during the Salary Continuance Period, Bergdorf may suspend any payments remaining pursuant to paragraph 1(a) of this Agreement until the final resolution of such criminal or civil proceedings or until Bergdorf has made a final determination in its sole judgment as to whether Executive committed such an act or omission. If Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if Bergdorf determines in its sole judgment that Executive has committed such an act or omission, (1) Bergdorf’s obligation to provide the Termination Benefits shall immediately end, and (2) Executive shall repay to Bergdorf any amounts paid to him pur suant to paragraph 1(a) of this Agreement within 30 days after a written request to do so by Bergdorf. If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or Bergdorf determines in its sole judgment that Executive has not committed such an act or omission, Bergdorf shall pay to Executive any payments pursuant to paragraph 1(a) of this Agreement that it has suspended, with interest on such suspended payments at its cost of funds, and shall make any remaining payments due thereunder.

2. Executive acknowledges and agrees that (a) Bergdorf is engaged in a highly competitive business; (b) Bergdorf has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information;

(c) Bergdorf must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (d) in the specialty retail business, his participation in or direction of Bergdorf’s day-to-day operations and strategic planning are an integral part of Bergdorf’s continued success and goodwill; (e) given his position and responsibilities, he necessarily will be creating Confidential Information that belongs to Bergdorf and enhances Bergdorf’s goodwill, and in carrying out his responsibilities he in turn will be relying on Bergdorf’s goodwill and the disclosure by Bergdorf to him of Confidential Information; (f) he will have access to Confidential Information that could be used by any Competitor of Bergdorf in a manner that would irreparably harm Bergdorf’s competitive position in the marketplace and dilute its goodwill; and (g) he necessarily would use or disclose Confidential Information if he were to engage in competition with Bergdorf. Bergdorf acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its goodwill and Confidential Information in order to properly carry out his responsibilities. Bergdorf accordingly promises upon execution and delivery of this Agreement to provide Executive immediate access to new and additional Confidential Information and authorize him to engage in activities that will create new and additional Confidential Information. Bergdorf and Executive thus acknowledge and agree that during Executive’s employment with Bergdorf and upon execution and delivery of this Agreement he (a) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to Bergdorf, (b) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to Bergdorf, and (c) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill Bergdorf has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during his employment by Bergdorf and thereafter:

(a) all Confidential Information shall remain and be the sole and exclusive property of Bergdorf;

(b) he will protect and safeguard all Confidential Information;

(c) he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of Bergdorf or NMG to the extent necessary for the proper performance of his responsibilities unless authorized to do so by Bergdorf or compelled to do so by law or valid legal process;

(d) if he believes he is compelled by law or valid legal process to disclose or divulge any Confidential Information, he will notify Bergdorf in writing sufficiently in advance of any such disclosure to allow Bergdorf the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(e) at the end of his employment with Bergdorf for any reason or at the request of Bergdorf at any time, he will return to Bergdorf all Confidential Information and all copies thereof, in whatever tangible form or medium including electronic; and

(f) absent the promises and representations of Executive in this paragraph and paragraph 3 below, Bergdorf would require him immediately to return any tangible Confidential

Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information and would not enter into this Agreement, and NMG would not have entered into the Incentive Agreements.

3. In consideration of Bergdorf’s promises to provide Executive with new and additional Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of Bergdorf in this Agreement and NMG in the Incentive Agreements, Executive agrees that, while he is employed by Bergdorf and for an eighteen month period following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

(a) He will not directly or indirectly disparage Bergdorf, NMG, or their Affiliates, or any products, services, or operations of Bergdorf, NMG or their Affiliates, or any of the former, current, or future officers, directors, or employees of Bergdorf, NMG or their Affiliates;

(b) He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for Bergdorf, NMG, or their Affiliates to leave that employment or cease performing those services;

(c) He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of Bergdorf, NMG, or any of their Affiliates to cease being a customer, supplier, or vendor of Bergdorf, NMG or their Affiliates or to divert all or any part of such person’s or entity’s business from Bergdorf, NMG or their Affiliates; and

(d) He will not associate directly or indirectly, as an employee, officer, director, agent, partner, stockholder, owner, representative, or consultant, with any Competitor of Bergdorf, NMG, or any of their Affiliates, unless (1) he has advised Bergdorf in writing in advance of his desire to undertake such activities and the specific nature of such activities; (2) Bergdorf has received written assurances (that will be designed, among other things, to protect Bergdorf’s, NMG’s and their Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and Executive that are, in Bergdorf’s sole discretion, adequate to protect its interests; (3) Bergdorf, in its sole discretion, has approved in writing such association; and (4) Executive and the Competitor adhere to such assurances. This restriction (1) extends to the performance by Executive, directly or indirectly, of the same or similar activities Executive has performed for Bergdorf, NMG or any of their Affiliates or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (2) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of Bergdorf, NMG, or any of their Affiliates. Executive shall not be in violation of this paragraph 3(d) solely as a result of his investment in stock or other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the-counter market if he and the members of his immediate family do not, directly or indirectly, hold more than a total of

one (1) percent of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the activities restricted by this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of Bergdorf.

Executive acknowledges and agrees that the restrictions contained in this paragraph 3 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements; that the promises and undertakings of Bergdorf set forth in paragraph 2 of this Agreement and those of NMG in the Incentive Agreements, Executive’s position and responsibilities with Bergdorf, and NMG granting to Executive ownership in NMG in the form of NMG stock, give rise to Bergdorf’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this paragraph 3 and his common-law obligations and duties owed to Bergdorf; that the restrictions are reasonable and necessary, are valid and enforceable under New York law, and do not impose a greater restraint than necessary to protect Bergdorf’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify Bergdorf in writing should he believe or be advised that the restrictions are not valid or enforceable under New York law or the law of any other state that he contends or is advised is applicable; that the mutual promises and undertakings of Bergdorf and Executive under paragraphs 2 and 3 of this Agreement are not contingent on the duration of Executive’s employment with Bergdorf; and that absent the promises and representations made by Executive in this paragraph 3 and paragraph 2 above, Bergdorf would require him to return any Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter into this Agreement, and NMG would not have entered into the Incentive Agreements.

4. The Termination Benefits constitute all of Bergdorf’s obligations to Executive with respect to the end of Executive’s employment with Bergdorf. However, nothing in this Agreement is intended to limit any earned, vested benefits (other than any entitlement to severance or separation pay, if any) that Executive may have under the applicable provisions of any benefit plan of Bergdorf in which Executive is participating at the time of his termination of employment or resignation.

5. Executive acknowledges and agrees that Bergdorf would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of paragraphs 2 or 3 of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, Executive agrees that Bergdorf shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Executive breaches or threatens to breach any of the provisions of such paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury. Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to Bergdorf at law or equity. Executive acknowledges and agrees that Bergdorf shall be entitled to recover its attorneys’ fees, expenses, and court costs, in addition to any other remedies to which it may be entitled, in the event he breaches this Agreement. Executive acknowledges and agrees that no breach by Bergdorf of this Agreement or failure to enforce or insist on its rights under this

Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

6. If the provisions of paragraphs 2 or 3 of this Agreement are ever deemed by a court to exceed the limitations permitted by applicable law, Executive and Bergdorf agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

7. This Agreement contains the entire agreement between the parties and supersedes all prior agreements and understandings, oral or writ ten, with respect to the ending of Executive’s at-will employment and the subject matter of this Agreement, including the 2000 Agreement, which is hereby terminated. This Agreement may not be changed orally. It may be changed only by written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced. This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

8. The validity, performance and enforceability of this Agreement shall be determined and governed by the laws of the State of New York, without regard to its conflict of laws principles. Bergdorf and Executive agree that the exclusive forum for any action concerning this Agreement shall be in a court of competent jurisdiction in New York County, New York, with respect to a state court, or the United States District Court for the Southern District of New York, with respect to a federal court. EXECUTIVE HEREBY CONSENTS TO THE EXERCISE OF JURISDICTION OF A COURT IN THE EXCLUSIVE FORUM AND WAIVES ANY RIGHT HE MAY HAVE TO CHALLENGE OR CONTEST THE REMOVAL AT ANY TIME BY BERGDORF TO FEDERAL COURT OF ANY SUCH ACTION HE MAY BRING AGAINST IT IN STATE COURT. EXECUTIVE AND BERGDORF FURTHER HEREBY MUTUALLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY AC TION CONCERNING THIS AGREEMENT.

9. Executive’s promises and obligations under this Agreement shall survive the end of his employment with Bergdorf, and such promises and obligations shall inure to the benefit of any Affiliates, subsidiaries, divisions, successors, or assigns of Bergdorf.

	BERGDORF GOODMAN, INC.


/s/ Ronald L. Frasch	By:	/s/ Marita O’Dea
RONALD L. FRASCH

It is acknowledged and agreed that the 2000 Agreement is hereby replaced and superseded by this Agreement.

THE NEIMAN MARCUS GROUP, INC.


By:	/s/ Marita O’Dea
		Marita O’Dea, Senior Vice President

APPENDIX A

Definitions

1. “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole pr oprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

2. “Cause” means, in Bergdorf’s reasonable judgment, (i) a breach of duty by Executive in the course of his employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty, or moral turpitude; (ii) conduct that is materially detrimental to Bergdorf, monetarily or otherwise, or reflects unfavorably on Bergdorf or Executive to such an extent that Bergdorf’s best interests reasonably require the termination of Ex ecutive’s employment; (iii) acts of Executive in violation of his obligations under this Agreement or at law; (iv) Executive’s failure to comply with or enforce Bergdorf’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) Executive’s repeated insubordination or failure to comply with or enforce other personnel policies of Bergdorf or its Affiliates; (vi) Executive’s failure to devote his full working time and best efforts to the performance of his responsibilities to Bergdorf or its Affiliates; or (vii) Executive’s conviction of or entry of a plea agreement or consent decree or similar arrangement with respect to, a felony, other serious criminal offense, or any violation of federal or state securities laws; provided, however, that with respect to items (v) and (vi), Executive has been provided prior written notice of the failure and afforded a reasonable opportunity to correct same.

4. &# 160; “Confidential Information” shall mean, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; and customer, vendor, and supplier information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

5. “Tot al Disability” means that, in Bergdorf’s reasonable judgment, either (i) Executive has been unable to perform his duties because of a physical or mental impairment for 80% or more of the normal working days during six consecutive calendar months or 50% or more of the normal working days during twelve consecutive calendar months, or (ii) Executive has become totally and permanently incapable of performing the usual duties of his employment with Bergdorf on account of a physical or mental impairment.

EX-10.11 6 a03-3701_1ex10d11.htm EX-10.11

Exhibit 10.11

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of November 20, 2002 between Karen W. Katz (“Executive”) and The Neiman Marcus Group, Inc., a Delaware corporation, (“NMG”), and replaces and supersedes in its entirety that certain Termination and Change of Control Agreement between Executive and NMG dated May 22, 2000 (the “2000 Agreement”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive is employed “at will” as President and Chief Executive Officer of Neiman Marcus Stores and either Executive or NMG may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHEREAS, NMG and Executive have entered into separate stock option and restricted stock agreements (the “Incentive Agreements”), effective November 20, 2002 that set forth the rights and obligations of NMG and Executive with respect to such awards;

WHEREAS, NMG has granted to Executive an ownership interest in NMG in the form of NMG stock;

WHEREAS, by virtue of her new position and responsibilities, Executive has unique access to and knowledge of NMG’s trade secrets and other confidential and proprietary business information;

WHEREAS, Executive’s association with NMG to the exclusion of its competitors is anticipated to enhance NMG’s goodwill and Executive’s earning capacity; and

WHEREAS, NMG and Executive accordingly desire to make certain modifications to the provisions of the 2000 Agreement, necessitating its replacement with this Agreement;

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and NMG agree as follows:

1. (a) While Executive is employed at-will by NMG, if NMG terminates Executive’s employment for any reason other than for “Cause,” her “Total Disability,” or her death, subject to paragraphs 1(c) and 1(d) below, NMG shall provide Executive with benefits (“Termination Benefits”) consisting of:

(1) an amount equivalent to 1.5 times her then-current annual base salary, less required withholding, which amount would be paid over an 18-month period (hereinafter, the “Salary Continuance Period”) in regular, bi-weekly installments following such termination; and

(2) if, at the time of her termination, Executive participates in a group medical insurance plan offered by NMG and Executive is eligible for and elects to receive continued coverage under such plan in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, NMG will reimburse Executive during the Salary Continuance Period or, if shorter, the period of such actual COBRA continuation coverage, for the total amount of the monthly COBRA medical insurance premiums actually paid by Executive for such continued medical insurance benefits.

For the purposes of determining whether or not NMG has terminated Executive’s employment under this paragraph 1(a), any material, adverse change in the terms and conditions of her employment, including but not limited to a relocation of Executive’s place of business 50 miles or more from the current location, which change causes Executive to resign her employment with NMG, will be deemed a termination by NMG. A transfer of employment between NMG and its Affiliates shall not be considered as a termination of employment for purposes of this Agreement.

(b) NMG shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely, and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that NMG would be required to perform it if no such succession or assignment had taken place. If NMG fails to obtain such agreement by the effective time of any such succession or assignment, such failure shall be considered a material, adverse change in the terms and conditions of Executive’s employment and will be deemed a termination by NMG for purposes of paragraph 1(a) of this Agreement if such failure causes Executive to resign her employment with NMG; provided that the Termination Benefits to which Executive would be entitled after such resignation pursuant to paragraph 1(a) of this Agreement shall be the sole remedy of Executive for any failure by NMG to obtain such agreement. As used in this Agreement, “NMG” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG that executes and delivers the agreement provided for in this paragraph 1(b) or that otherwise becomes obligated under this Agreement by operation of law.

payments remaining pursuant to paragraph l(a) of this Agreement until the [mal resolution of such criminal or civil proceedings or until NMG has made a final determination in its sole judgment as to whether Executive committed such an act or omission. If Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if NMG determines in its sole judgment that Executive has committed such an act or omission, (1) NMG’s obligation to provide the Termination Benefits shall immediately end, and (2) Executive shall repay to NMG any amounts paid to him pursuant to paragraph 1(a) of this Agreement within 30 days after a written request to do so by NMG. If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or NMG determines in its sole judgment that Executive has not committed such an act or omission, NMG shall pay to Executive any payments pursuant to paragraph 1(a) of this Agreement that it has suspended, with interest on such suspended payments at its cost of funds, and shall make any remaining payments due thereunder.

2. Executive acknowledges and agrees that (a) NMG is engaged in a highly competitive business; (b) NMG has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information; (c) NMG must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (d) in the specialty retail business, her participation in or direction of NMG’s day-to-day operations and strategic planning as a result of her promotion will be an integral part of NMG’s continued success and goodwill; (e) given her new position and responsibilities, she necessarily will be creating Confidential Information that belongs to NMG and enhances NMG’s goodwill, and in carrying out her new responsibilities she in turn will be relying on NMG’s goodwill and the disclosure by NMG to her of Confidential Information; (f) she will have access to Confidential Information that could be used by any Competitor of NMG in a manner that would irreparably harm NMG’s competitive position in the marketplace and dilute its goodwill; and (g) she necessarily would use or disclose Confidential Information if she were to engage in competition with NMG. NMG acknowledges and agrees that Executive must have and continue to have throughout her employment the benefits and use of its goodwill and Confidential Information in order to properly carry out her new responsibilities. NMG accordingly promises upon execution and delivery of this Agreement and in connection with Executive’s promotion to provide Executive immediate access to new and additional Confidential Information and authorize her to engage in activities that will create new and additional Confidential Information. NMG and Executive thus acknowledge and agree that upon execution and delivery of this Agreement and in connection with the promotion of Executive and during her employment in her new position, Executive (a) will receive Confidential Information that is unique, proprietary, and valuable to NMG, (b) will create Confidential Information that is unique, proprietary, and valuable to NMG, and (c) will benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill NMG has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during her employment by NMG and thereafter:

(a) all Confidential Information shall remain and be the sole and exclusive property of NMG;

(b) she will protect and safeguard all Confidential Information;

(c) she will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an

officer, director, or employee of NMG to the extent necessary for the proper performance of her responsibilities unless authorized to do so by NMG or compelled to do so by law or valid legal process;

(d) if she believes she is compelled by law or valid legal process to disclose or divulge any Confidential Information, she will notify NMG in writing sufficiently in advance of any such disclosure to allow NMG the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(e) at the end of her employment with NMG for any reason or at the request of NMG at any time, she will return to NMG all Confidential Information and all copies thereof, in whatever tangible form or medium including electronic; and

(f) absent the promises and representations of Executive in this paragraph and paragraph 3 below, NMG would not promote Executive, would require her immediately to return any tangible Confidential Information in her possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter into this Agreement or the Incentive Agreements.

3. In consideration of NMG’s promises to promote Executive, provide her with new and additional Confidential Information, and to authorize her to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of NMG in this Agreement and the Incentive Agreements, Executive agrees that, while she is employed by NMG and for a period of 18 months following the end of that employment for any reason, she shall not engage in any of the following activities (the “Restricted Activities”):

(a) She will not directly or indirectly disparage NMG or its Affiliates, any products, services, or operations of NMG or its Affiliates, or any of the former, current, or future officers, directors, or employees of NMG or its Affiliates;

(b) She will not, whether on her own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for NMG or its Affiliates to leave that employment or cease performing those services;

(c) She will not, whether on her own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of NMG or any of its Affiliates to cease being a customer, supplier, or vendor of NMG or any of its Affiliates or to divert all or any part of such person’s or entity’s business from NMG or any of its Affiliates; and

(d) She will not associate directly or indirectly, as an employee, officer, director, agent, partner, stockholder, owner, representative, or consultant, with any Competitor of NMG or any of its Affiliates, unless (1) she has advised NMG in writing in advance of her desire to undertake such activities and the specific nature of such activities; (2) NMG has received written assurances (that will be designed, among other things, to protect NMG’s and its Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and Executive that are, in NMG’s sole discretion, adequate

to protect its interests; (3) NMG, in its sole discretion, has approved in writing such association; and (4) Executive and the Competitor adhere to such assurances. This restriction (1) extends to the performance by Executive, directly or indirectly, of the same or similar activities Executive has performed for NMG or any of its Affiliates or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (2) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of NMG or any of its Affiliates. Executive shall not be in violation of this paragraph 3(d) solely as a result of her investment in stock or other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the-counter market if she and the members of her immediate family do not, directly or indirectly, hold more than a total of one (1) percent of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the activities restricted by this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG.

Executive acknowledges and agrees that the restrictions contained in this paragraph 3 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements; that NMG’s promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements, Executive’s new position and responsibilities with NMG, and NMG granting to Executive ownership in NMG in the form of NMG stock, give rise to NMG’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this paragraph 3 and her common-law obligations and duties owed to NMG; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect NMG’s goodwill, Confidential Information, and other legitimate business interests; that she will immediately notify NMG in writing should she believe or be advised that the restrictions are not valid or enforceable under Texas law or the law of any other state that she contends or is advised is applicable; that the mutual promises and undertakings of NMG and Executive under paragraphs 2 and 3 of this Agreement are not contingent on the duration of Executive’s employment with NMG; and that absent the promises and representations made by Executive in this paragraph 3 and paragraph 2 above, NMG would not promote Executive, would require her to return any Confidential Information in her possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter into this Agreement or the Incentive Agreements.

of such paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury. Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to NMG at law or equity. Executive acknowledges and agrees that NMG shall be entitled to recover its attorneys’ fees, expenses, and court costs, in addition to any other remedies to which it may be entitled, in the event she breaches this Agreement. Executive acknowledges and agrees that no breach by NMG of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

9. Executive’s promises and obligations under this Agreement shall survive the end of her employment with NMG, and such promises and obligations shall inure to the benefit of any Affiliates, subsidiaries, divisions, successors, or assigns of NMG.

	THE NEIMAN MARCUS GROUP, INC.


/s/ Karen W. Katz	By:	/s/ Marita O’Dea
Karen W. Katz		Marita O’Dea, Senior Vice President

APPENDIX A

Definitions

2. “Cause” means, in NMG’s reasonable judgment, (i) a breach of duty by Executive in the course of her employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty, or moral turpitude; (ii) conduct that is materially detrimental to NMG, monetarily or otherwise, or reflects unfavorably on NMG or Executive to such an extent that NMG’s best interests reasonably require the termination of Executive’s employment; (iii) acts of Executive in violation of her obligations under this Agreement or at law; (iv) Executive’s failure to comply with or enforce NMG’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) Executive’s repeated insubordination or failure to comply with or enforce other personnel policies of NMG or its Affiliates; (vi) Executive’s failure to devote her full working time and best efforts to the performance of her responsibilities to NMG or its Affiliates; or (vii) Executive’s conviction of or entry of a plea agreement or consent decree or similar arrangement with respect to, a felony, other serious criminal offense, or any violation of federal or state securities laws; provided, however, that with respect to items (v) and (vi), Executive has been provided prior written notice of the failure and afforded a reasonable opportunity to correct same.

4. “Confidential Information” shall mean, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; and customer, vendor, and supplier information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

5. “Total Disability” means that, in NMG’s reasonable judgment, either (i) Executive has been unable to perform her duties because of a physical or mental impairment for 80% or more of the normal working days during six consecutive calendar months or 50% or more of the normal working days during twelve consecutive calendar months, or (ii) Executive has become totally and permanently incapable of performing the usual duties of her employment with NMG on account of a physical or mental impairment.

EX-10.22 7 a03-3701_1ex10d22.htm EX-10.22

Exhibit 10.22

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS

AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of May 21, 2003 between Nelson A. Bangs (“Executive”) and The Neiman Marcus Group, Inc., a Delaware corporation, (“NMG”), and replaces and supersedes in its entirety that certain Termination and Change of Control Agreement between Executive and NMG dated April 17, 2001 (the “2001 Agreement”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive is employed “at will” as Senior Vice President and General Counsel NMG and either Executive or NMG may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHEREAS, NMG has granted to Executive an ownership interest in NMG in the form of NMG stock;

WHEREAS, by virtue of his position and responsibilities, Executive is a fiduciary of NMG and its Affiliates and has unique access to and knowledge of NMG’s and its Affiliates’ privileged and unprivileged confidential information acquired during the course of and by reason of his legal representation of NMG and its Affiliates and his employment by NMG;

WHEREAS, by virtue of his position and responsibilities, Executive is obligated by the Texas Rules of Disciplinary Conduct and the common law to protect and preserve NMG’s and its Affiliates’ privileged and unprivileged confidential information and not to use that information to the disadvantage of NMG or its Affiliates or for his own or a third party’s benefit;

WHEREAS, Executive’s association with NMG to the exclusion of its competitors has enhanced NMG’s goodwill and Executive’s earning capacity;

WHEREAS, NMG and Executive mutually desire to protect NMG’s goodwill created by Executive’s association with NMG and NMG’s and its Affiliates’ privileged and unprivileged confidential information, and in recognition of the possible interruption of Executive’s earnings after the end of his NMG employment and Executive’s obligations under the Texas Rules of Disciplinary Conduct; and

WHEREAS, NMG and Executive accordingly desire to make certain modifications to the provisions of the 2001 Agreement, necessitating its replacement with this Agreement;

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and NMG agree as follows:

For the purposes of determining whether or not NMG has terminated Executive’s employment under this paragraph 1(a), any material, adverse change in the terms and conditions of his employment, including but not limited to a relocation of Executive’s place of business 50 miles or more from the current location, which change causes Executive to resign his employment with NMG, will be deemed a termination by NMG. A transfer of employment between NMG and its Affiliates shall not be considered as a termination of employment for purposes of this Agreement.

and/or assets of NMG that executes and delivers the agreement provided for in this paragraph 1(b) or that otherwise becomes obligated under this Agreement by operation of law.

(d) If Executive is arrested or indicted for any felony, other serious criminal offense, or any violation of federal or state securities laws, or has any civil enforcement action brought against him by any regulatory agency, for actions or omissions related to his employment with NMG, or if NMG reasonably believes in its sole judgment that Executive has committed any act or omission that would have entitled NMG to terminate his employment for Cause, whether such act or omission was committed during his employment with NMG or during the Salary Continuance Period, NMG may suspend any payments remaining pursuant to paragraph 1(a) of this Agreement until the final resolution of such criminal or civil proceedings or until NMG has made a final determination in its sole judgment as to whether Executive committed such an act or omission. If Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if NMG determines in its sole judgment that Executive has committed such an act or omission, (1) NMG’s obligation to provide the Termination Benefits shall immediately end, and (2) Executive shall repay to NMG any amounts paid to him pursuant to paragraph 1(a) of this Agreement within 30 days after a written request to do so by NMG. If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or NMG determines in its sole judgment that Executive has not committed such an act or omission, NMG shall pay to Executive any payments pursuant to paragraph 1(a) of this Agreement that it has suspended, with interest on such suspended payments at its cost of funds, and shall make any remaining payments due thereunder.

2. Executive acknowledges and agrees that (a) NMG is engaged in a highly competitive business; (b) NMG has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information; (c) NMG must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (d) given his position and responsibilities, he is a fiduciary of NMG and its affiliates; (e) his status as a fiduciary and the proper functioning of the legal system require the preservation by him of the Confidential Information during his employment by NMG and thereafter; (f) he is obligated by the Texas Rules of Disciplinary Conduct and the common law during his employment by NMG and thereafter to protect and preserve NMG and its Affiliates’ Confidential Information and not to use the Confidential Information to the disadvantage of NMG or its Affiliates or for his own or a third party’s benefit; (g) in the specialty retail business, his participation in or direction of NMG’s day-to-day operations, strategic planning, and legal affairs are an integral part of NMG’s continued success and goodwill; (h) given his position and responsibilities, he necessarily will be creating Confidential Information that belongs to NMG and enhances NMG’s goodwill, and in carrying out his responsibilities he in turn will be relying on NMG’s goodwill and the disclosure by NMG to him of Confidential Information; (i) he will have access to Confidential Information that could be used by any Competitor of NMG in a manner that would irreparably harm NMG’s competitive position in the marketplace and dilute its goodwill; and (j) he necessarily would use or disclose Confidential Information if he were to engage in competition with NMG and/or enter

into an attorney-client relationship with a Competitor. NMG acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its goodwill and Confidential Information in order to properly carry out his responsibilities. NMG accordingly promises upon execution and delivery of this Agreement to provide Executive immediate access to new and additional Confidential Information and authorize him to engage in activities that will create new and additional Confidential Information. NMG and Executive thus acknowledge and agree that during Executive’s employment with NMG and upon execution and delivery of this Agreement he (a) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to NMG, (b) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to NMG, and (c) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill NMG has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during his employment by NMG and thereafter:

(a) he will comply in all respects with the Texas Disciplinary Rules of Professional Conduct;

(b) all Confidential Information shall remain and be the sole and exclusive property of NMG;

(d) he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of NMG to the extent necessary for the proper performance of his responsibilities unless authorized to do so by NMG, compelled to do so by law or valid legal process, or required to do so by the Texas Disciplinary Rules of Professional Conduct;

(e) if he believes he is compelled by law or valid legal process or required by the Texas Disciplinary Rules of Professional Conduct to disclose or divulge any Confidential Information, he will notify NMG in writing sufficiently in advance of any such disclosure to allow NMG the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(f) at the end of his employment with NMG for any reason or at the request of NMG at any time, he will return to NMG all Confidential Information and all copies thereof, in whatever tangible form or medium including electronic; and

(g) absent the promises and representations of Executive in this paragraph and paragraph 3 below, NMG would require him immediately to return any tangible Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement or the Incentive Agreements.

3. In consideration of NMG’s promises to provide Executive with new and additional Confidential Information and to authorize him to engage in activities that will create new and

additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of NMG in this Agreement and the Incentive Agreements, Executive agrees that, while he is employed by NMG and for a 1.5 year period following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

(c) He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of NMG or any of its Affiliates to cease being a customer, supplier, or vendor of NMG or any of its Affiliates or to divert all or any part of such person’s or entity’s business from NMG or any of its Affiliates;

(d) He will not enter into an attorney-client relationship, whether as an employee or otherwise, with any Competitor of NMG or any of its Affiliates without the advance written consent of NMG. Executive acknowledges and agrees that the restrictions imposed by this subparagraph do not violate the Texas Disciplinary Rules of Professional Conduct (or the disciplinary or ethical rules of any other state or body) and that entering into an attorney-client relationship with a Competitor of NMG or any of its Affiliates would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG; and

(e) He will not associate directly or indirectly, in a non-legal capacity as an employee, officer, director, agent, partner, stockholder, owner, representative, or consultant, with any Competitor of NMG or any of its Affiliates, unless (1) he has advised NMG in writing in advance of his desire to undertake such activities and the specific nature of such activities; (2) NMG has received written assurances (that will be designed, among other things, to protect NMG’s and its Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and Executive that are, in NMG’s sole discretion, adequate to protect its interests; (3) NMG, in its sole discretion, has approved in writing such association; and (4) Executive and the Competitor adhere to such assurances. This restriction (1) extends to the performance by Executive, directly or indirectly, of the same or similar activities Executive has performed for NMG or any of its Affiliates in a non-legal capacity, if any, or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (2) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of NMG or any of its Affiliates. Executive shall not be in violation of this paragraph 3(d) solely as a result of his investment in stock or other securities of a Competitor or any of its Affiliates listed

on a national securities exchange or actively traded in the over-the-counter market if he and the members of his immediate family do not, directly or indirectly, hold more than a total of one (1) percent of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the activities restricted by this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG.

Executive acknowledges and agrees that the restrictions contained in this paragraph 3 are designed to and do comply with Executive’s obligations under the Texas Disciplinary Rules of Professional Conduct; are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements; that NMG’s promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements, Executive’s position and responsibilities with NMG, and NMG granting to Executive ownership in NMG in the form of NMG stock, give rise to NMG’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this paragraph 3 and his obligations and duties owed to NMG and its Affiliates under the Texas Disciplinary Rules of Professional Conduct and at common law; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect NMG’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify NMG in writing should he believe or be advised that the restrictions are not valid or enforceable under Texas law, the Texas Disciplinary Rules of Professional Conduct, or the law or disciplinary or ethical rules of any other state or body that he contends or is advised is applicable; that the mutual promises and undertakings of NMG and Executive under paragraphs 2 and 3 of this Agreement are not contingent on the duration of Executive’s employment with NMG; and that absent the promises and representations made by Executive in this paragraph 3 and paragraph 2 above, NMG would require him to return any Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement or the Incentive Agreements.

or equity. Executive acknowledges and agrees that NMG shall be entitled to recover its attorneys’ fees, expenses, and court costs, in addition to any other remedies to which it may be entitled, in the event he breaches this Agreement. Executive acknowledges and agrees that no breach by NMG of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

7. This Agreement contains the entire agreement between the parties and supersedes all prior agreements and understandings, oral or written, with respect to the ending of Executive’s at-will employment and the subject matter of this Agreement, including the 2001 Agreement, which is hereby terminated. This Agreement may not be changed orally. It may be changed only by written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced. This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

			THE NEIMAN MARCUS GROUP, INC.


	/s/ Nelson A. Bangs	By:	/s/ Marita O’Dea
Nelson A. Bangs

APPENDIX A

Definitions

2. “Cause” means, in NMG’s reasonable judgment, (i) a breach of duty by Executive in the course of his employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty, or moral turpitude; (ii) conduct that is materially detrimental to NMG, monetarily or otherwise, or reflects unfavorably on NMG or Executive to such an extent that NMG’s best interests reasonably require the termination of Executive’s employment; (iii) acts of Executive in violation of his obligations under this Agreement or at law; (iv) Executive’s failure to comply with or enforce NMG’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) Executive’s repeated insubordination or failure to comply with or enforce other personnel policies of NMG or its Affiliates; (vi) Executive’s failure to devote his full working time and best efforts to the performance of his responsibilities to NMG or its Affiliates; or (vii) Executive’s conviction of or entry of a plea agreement or consent decree or similar arrangement with respect to, a felony, other serious criminal offense, or any violation of federal or state securities laws; provided, however, that with respect to items (v) and (vi), Executive has been provided prior written notice of the failure and afforded a reasonable opportunity to correct same.

4. “Confidential Information” means any information about NMG or its Affiliates that is protected by the attorney-client privilege and any unprivileged information relating to NMG or its Affiliates or furnished to Executive by NMG or its Affiliates and acquired by Executive during the course of or by reason of Executive’s legal representation of NMG or its Affiliates and Executive’s employment by NMG, including, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; and customer, vendor, and supplier information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

EX-10.23 8 a03-3701_1ex10d23.htm EX-10.23

Exhibit 10.23

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS

AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of November 20, 2002 between James E. Skinner (“Executive”) and The Neiman Marcus Group, Inc., a Delaware corporation, (“NMG”), and replaces and supersedes in its entirety that certain Termination and Change of Control Agreement between Executive and NMG dated June 28, 2001 (the “2001 Agreement”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive is employed “at will” as Senior Vice President and Chief Financial Officer of NMG and either Executive or NMG may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHEREAS, NMG has granted to Executive an ownership interest in NMG in the form of NMG stock;

WHEREAS, by virtue of his new position and responsibilities, Executive will have unique access to and knowledge of NMG’s trade secrets and other confidential and proprietary business information;

WHEREAS, Executive’s association with NMG to the exclusion of its competitors is anticipated to enhance NMG’s goodwill and Executive’s earning capacity;

WHEREAS, NMG and Executive accordingly desire to make certain modifications to the provisions of the 2001 Agreement, necessitating its replacement with this Agreement; and

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and NMG agree as follows:

1. (a) While Executive is employed at-will by NMG, if NMG terminates Executive’s employment for any reason other than for “Cause,” his “Total Disability,” or his death, subject

to paragraphs 1(c) and 1(d) below, NMG shall provide Executive with benefits (“Termination Benefits”) consisting of:

employment for Cause, whether such act or omission was committed during his employment with NMG or during the Salary Continuance Period, NMG may suspend any payments remaining pursuant to paragraph l(a) of this Agreement until the [mal resolution of such criminal or civil proceedings or until NMG has made a final determination in its sole judgment as to whether Executive committed such an act or omission. If Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if NMG determines in its sole judgment that Executive has committed such an act or omission, (1) NMG’s obligation to provide the Termination Benefits shall immediately end, and (2) Executive shall repay to NMG any amounts paid to him pursuant to paragraph 1(a) of this Agreement within 30 days after a written request to do so by NMG. If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or NMG determines in its sole judgment that Executive has not committed such an act or omission, NMG shall pay to Executive any payments pursuant to paragraph 1(a) of this Agreement that it has suspended, with interest on such suspended payments at its cost of funds, and shall make any remaining payments due thereunder.

2. Executive acknowledges and agrees that (a) NMG is engaged in a highly competitive business; (b) NMG has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information; (c) NMG must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (d) in the specialty retail business, his participation in or direction of NMG’s day-to-day operations and strategic planning as a result of his promotion will be an integral part of NMG’s continued success and goodwill; (e) given his new position and responsibilities, he necessarily will be creating Confidential Information that belongs to NMG and enhances NMG’s goodwill, and in carrying out his new responsibilities he in turn will be relying on NMG’s goodwill and the disclosure by NMG to him of Confidential Information; (f) he will have access to Confidential Information that could be used by any Competitor of NMG in a manner that would irreparably harm NMG’s competitive position in the marketplace and dilute its goodwill; and (g) he necessarily would use or disclose Confidential Information if he were to engage in competition with NMG. NMG acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its goodwill and Confidential Information in order to properly carry out his new responsibilities. NMG accordingly promises upon execution and delivery of this Agreement and in connection with Executive’s promotion to provide Executive immediate access to new and additional Confidential Information and authorize him to engage in activities that will create new and additional Confidential Information. NMG and Executive thus acknowledge and agree that upon execution and delivery of this Agreement and in connection with the promotion of Executive and during his employment in his new position, Executive (a) will receive Confidential Information that is unique, proprietary, and valuable to NMG, (b) will create Confidential Information that is unique, proprietary, and valuable to NMG, and (c) will benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill NMG has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during his employment by NMG and thereafter:

(a) all Confidential Information shall remain and be the sole and exclusive property of NMG;

(b) he will protect and safeguard all Confidential Information;

(c) He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of NMG or any of its Affiliates to cease being a customer, supplier, or vendor of NMG or any of its Affiliates or to divert all or any part of such person’s or entity’s business from NMG or any of its Affiliates; and

and its Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and Executive that are, in NMG’s sole discretion, adequate to protect its interests; (3) NMG, in its sole discretion, has approved in writing such association; and (4) Executive and the Competitor adhere to such assurances. This restriction (1) extends to the performance by Executive, directly or indirectly, of the same or similar activities Executive has performed for NMG or any of its Affiliates or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (2) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of NMG or any of its Affiliates. Executive shall not be in violation of this paragraph 3(d) solely as a result of his investment in stock or other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the’-counter market if he and the members of his immediate family do not, directly or indirectly, hold more than a total of one (1) percent of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the activities restricted by this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG.

entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Executive breaches or threatens to breach any of the provisions of such paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury. Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to NMG at law or equity. Executive acknowledges and agrees that NMG shall be entitled to recover its attorneys’ fees, expenses, and court costs, in addition to any other remedies to which it may be entitled, in the event he breaches this Agreement. Executive acknowledges and agrees that no breach by NMG of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

	THE NEIMAN MARCUS GROUP, INC.


/s/ James E. Skinner	By:	/s/ Marita O’Dea
James E. Skinner		Marita O’Dea, Senior Vice President

APPENDIX A

Definitions

EX-10.24 9 a03-3701_1ex10d24.htm EX-10.24

Exhibit 10.24

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS
AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of November 20, 2002 between Marita O’Dea (“Executive”) and The Neiman Marcus Group, Inc., a Delaware corporation, (“NMG”), and replaces and supersedes in its entirety that certain Termination and Change of Control Agreement between Executive and NMG dated October 31, 2001 (the “2001 Agreement”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive is employed “at will” as Senior Vice President, Human Resources of NMG and either Executive or NMG may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHEREAS, NMG has granted to Executive an ownership interest in NMG in the form of NMG stock;

WHEREAS, by virtue of her position and responsibilities, Executive has unique access to and knowledge of NMG’s trade secrets and other confidential and proprietary business information;

WHEREAS, Executive’s association with NMG to the exclusion of its competitors is anticipated to enhanced NMG’s goodwill and Executive’s earning capacity;

WHEREAS, NMG and Executive accordingly desire to make certain modifications to the provisions of the 2001 Agreement, necessitating its replacement with this Agreement;

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and NMG agree as follows:

(b) NMG shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely, and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that NMG would be required to perform it if no such succession or assignment had taken place. If NMG fails to obtain such agreement by the effective time of any such succession or assignment, such failure shall be considered a material, adverse change in the terms and conditions of Executive’s employment and will be deemed a termination by NMG for purposes of paragraph 1(a) of this Agreement if such failure causes Executive to resign her employment with NMG; provided that the Termination Benefits to which Executive would be entitled after such resignation pursuant to paragraph 1(a) of this Agreement shall be the sole remedy of Executive for any failure by NMG to obtain such agreement. As used in this Agreement, “NMG” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG that executes and delivers the agreement provided for in this paragraph 1(b) or that otherwise becomes obligated under this Agreement by operation of law.

or until NMG has made a final determination in its sole judgment as to whether Executive committed such an act or omission. If Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if NMG determines in its sole judgment that Executive has committed such an act or omission, (1) NMG’s obligation to provide the Termination Benefits shall immediately end, and (2) Executive shall repay to NMG any amounts paid to him pursuant to paragraph 1(a) of this Agreement within 30 days after a written request to do so by NMG. If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or NMG determines in its sole judgment that Executive has not committed such an act or omission, NMG shall pay to Executive any payments pursuant to paragraph 1(a) of this Agreement that it has suspended, with interest on such suspended payments at its cost of funds, and shall make any remaining payments due thereunder.

(a) all Confidential Information shall remain and be the sole and exclusive property of NMG;

(b) she will protect and safeguard all Confidential Information;

(c) she will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of NMG to the extent necessary for the proper performance of her

responsibilities unless authorized to do so by NMG or compelled to do so by law or valid legal process;

( c) She will not, whether on her own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of NMG or any of its Affiliates to cease being a customer, supplier, or vendor of NMG or any of its Affiliates or to divert all or any part of such person’s or entity’s business from NMG or any of its Affiliates; and

Executive and the Competitor adhere to such assurances. This restriction (1) extends to the performance by Executive, directly or indirectly, of the same or similar activities Executive has performed for NMG or any of its Affiliates or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (2) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of NMG or any of its Affiliates. Executive shall not be in violation of this paragraph 3(d) solely as a result of her investment in stock or other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the-counter market if she and the members of her immediate family do not, directly or indirectly, hold more than a total of one (1) percent of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the activities restricted by this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG.

Executive acknowledges and agrees that the restrictions contained in this paragraph 3 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements; that NMG’s promises and undertakings set forth in paragraph 2 of this Agreement and in the Incentive Agreements, Executive’s new position and responsibilities with NMG, and NMG granting to Executive ownership in NMG in the form of NMG stock, give rise to NMG’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this paragraph 3 and her common-law obligations and duties owed to NMG; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect NMG’s goodwill, Confidential Information, and other legitimate business interests; that she will immediately notify NMG in writing should she believe or be advised that the restrictions are not valid or enforceable under Texas law or the law of any other state that she contends or is advised is applicable; that the mutual promises and undertakings of NMG and Executive under paragraphs 2 and 3 of this Agreement are not contingent on the duration of Executive’s employment with NMG; and that absent the promises and representations made by Executive in this paragraph 3 and paragraph 2 above, NMG would not promote Executive, would require her to return any Confidential Information in her possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter into this Agreement or the Incentive Agreements.

irreparable injury. Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to NMG at law or equity. Executive acknowledges and agrees that NMG shall be entitled to recover its attorneys’ fees, expenses, and court costs, in addition to any other remedies to which it may be entitled, in the event she breaches this Agreement. Executive acknowledges and agrees that no breach by NMG of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

	THE NEIMAN MARCUS GROUP, INC.


s/s Marita O’Dea	By:	/s/ Nelson A. Bangs
Marita O’Dea		Nelson A. Bangs, Senior Vice President

APPENDIX A

Definitions

4. “Confidential Information” shall mean, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; and customer, vendor, and supplier information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

EX-10.25 10 a03-3701_1ex10d25.htm EX-10.25

Exhibit 10.25

CONFIDENTIALITY, NON-COMPETITION AND TERMINATION BENEFITS

AGREEMENT

This Confidentiality, Non-Competition and Termination Benefits Agreement (“Agreement”) is entered into effective as of January 28, 2003 between Brendan L. Hoffman (“Executive”) and The Neiman Marcus Group, Inc., a Delaware corporation, (“NMG”). All capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A, which is attached hereto and incorporated fully herein by reference.

WHEREAS, Executive has been employed by NMG in a non-executive capacity and is being promoted to an executive position as President and Chief Executive Officer of Neiman Marcus Direct, a division of NMG;

WHEREAS either Executive or NMG may terminate Executive’s employment at any time, with or without notice, and for any reason;

WHEREAS, the Board of Directors of NMG has determined that stock option and restricted stock awards provided to senior executives of NMG, including Executive, should be combined with appropriate post-employment and other restrictions designed to protect the legitimate business interests of NMG and its Affiliates;

WHEREAS, NMG and Executive will be entering into separate stock option and restricted stock agreements (the “Incentive Agreements”) that will set forth the rights and obligations of NMG and Executive with respect to such awards;

WHEREAS, by virtue of his new position and responsibilities, Executive will have unique access to and knowledge of NMG’s trade secrets and other confidential and proprietary business information;

WHEREAS, Executive’s association with NMG to the exclusion of its competitors is anticipated to enhance NMG’s goodwill and Executive’s earning capacity; and

NOW, THEREFORE, in consideration of the Incentive Agreements and the promises and undertakings of the parties set out herein, and intending to be legally bound, Executive and NMG agree as follows:

amount of the monthly COBRA medical insurance premiums actually paid by Executive for such continued medical insurance benefits.

(a) all Confidential Information shall remain and be the sole and exclusive property of NMG;

(b) he will protect and safeguard all Confidential Information;

	THE NEIMAN MARCUS GROUP, INC.


/s/ Brendan L. Hoffman	By:	/s/ Marita O’Dea
Brendan L. Hoffman		Marita O’Dea, Senior Vice President

APPENDIX A

Definitions

EX-12.1 11 a03-3701_1ex12d1.htm EX-12.1

EXHIBIT 12.1

The Neiman Marcus Group, Inc.

Computation of Ratio of Earnings to Fixed Charges

(Unaudited)

	Years Ended
(in thousands, except ratios)	August 2, 2003			August 3, 2002 (1)			July 28, 2001			July 29, 2000			July 31, 1999

Fixed Charges:
Interest on debt	$	18,686		$	20,787		$	20,418		$	28,145		$	26,094
Amortization of debt discount and expense	254			251			247			267			267
Interest element of rentals	19,041			17,952			19,008			17,193			16,005
Total fixed charges	37,981			38,990			39,673			45,605			42,366

Earnings:
Earnings before income taxes, minority interest and change in accounting principle	205,840			162,244			178,440			222,979			157,642
Add back:
Fixed charges	37,981			38,990			39,673			45,605			42,366
Amortization of capitalized interest	401			312			258			232			230
Less:
Capitalized interest	(1,425		)	(3,116		)	(1,954		)	(427		)	(379		)
Total earnings	$	242,797		$	198,430		$	216,417		$	268,389		$	199,859

Ratio of earnings to fixed charges	6.4			5.1			5.5			5.9			4.7

(1) 2002 includes fifty-three weeks of operations while the other years presented consist of fifty-two weeks of operations.

EX-14.1 12 a03-3701_1ex14d1.htm EX-14.1

Exhibit 14.1

CODE of
ETHICS and
CONDUCT

THE NEIMAN MARCUS GROUP, INC.

CONTENTS

	A LETTER TO EMPLOYEES OF THE NEIMAN MARCUS GROUP, INC.

THE CODE
	CONSEQUENCES OF NON-COMPLIANCE
	DUTY TO REPORT

COMPLIANCE WITH LAWS AND RELATED POLICIES

	GENERAL OBLIGATION TO DEAL FAIRLY
	ANTITRUST LAWS
	INSIDER TRADING
	EMPLOYMENT LAWS
			Equal Employment Opportunity
			Sexual Harassment
			Reporting Discrimination and Harassment
			Safety and Health
			Americans with Disabilities Act
	CONTRACTING WITH OTHER PARTIES
			Entering Agreements
			Terminating Agreements
	PRODUCT SAFETY
			Flammability Standards
			Children’s Toys
			Food and Cosmetic Products
			Potentially Hazardous Products
	INTELLECTUAL PROPERTY
			Copyright Compliance
			Trademark Protection
			Trade Secrets and proprietary and Confidential Information
	INTERNATIONAL BUSINESS
			The Foreign Corrupt Practices Act
			Import and Customs Controls
			Export Controls
			Antiboycott Laws
			U.S. Embargoes
	POLITICAL ACTIVITES AND CONTRIBUTIONS
	IMPROPER OR UNRECORDED PAYMENTS; EXCESSIVE GIFTS
	FALSE STATEMENTS AND SCHEMES TO DEFRAUD
	THEFT OR MISUSE OF COMPANY PROPERTY
	WIRETAPPING, EAVESDROPPING AND TAPE RECORDING
	RESPONDING TO INQUIRIES FROM THIRD PARTIES
		Requests by Attorneys and Government Agents
		Requests for Inspections of Premises
		Contacts with the Media and the Financial Community

	ADVERTISING
	RECORD KEEPING
		Preparation of Records
		Retention of Records
	E-MAIL, VOICE MAIL AND THE INTERNET
			Appropriate Use
			Privacy
			Creation and Retention of Messages
	CONFLICTS OF INTEREST
			Gifts
			Entertainment
	DRUG AND ALCOHOL USE AND TESTING
	ENVIRONMENTAL COMPLIANCE

IMPLEMENTATION OF THE CODE

	THE COMPLIANCE COMMITTEE
	DISSEMINATION OF INFORMATION
	TRAINING AND EDUCATION
	DISCIPLINE FOR VIOLATIONS
	INVESTIGATIONS AND RESPONDING TO ALLEGATIONS OF VIOLATIONS
	RETENTION OF OUTSIDE LEGAL COUNSEL

A LETTER TO EMPLOYEES OF THE NEIMAN MARCUS GROUP, INC.

We are writing to tell you about the Neiman Marcus Group, Inc.’s (“NMG” or the “Company”) Code of Ethics and Conduct (“Code”) and how it applies to you. We also want to remind you of certain fundamental ethical principles that guide how we conduct our business.

One unwavering rule lies at the core of NMG’s business philosophy: We conduct our businesses in strict compliance with both the letter and the spirit of the law, and with a scrupulous commitment to the highest standards of business and personal ethics. Our policies and standards of conduct reflect these basic principles, but words alone cannot create a moral conscience or guarantee adherence to these standards. Each employee plays an important part in setting these high standards, and each of us shares responsibility for maintaining them.

Through its operating units, NMG does business in many communities throughout the United States. All employees are ambassadors of the Company, whose conduct, both within and outside their employment context, has a direct and significant impact on the Company’s business and reputation. The Company’s objective is to be respectful and tolerant of different values and customs and to be a model corporate citizen in all of the communities in which we do business. It expects no less of each employee.

This is not just bureaucratic talk. We mean it. As part of our compliance efforts, we have implemented a program to ensure that all employees have a clear understanding of their legal and ethical responsibilities, have access to management in order to obtain guidance when difficult questions arise, and have a full and fair opportunity to advise the Company if they feel illegal or unethical actions have been or will be taken by other employees of the Company or parties with whom the Company does or seeks to do business. The Company supports the efforts of employees who in good faith communicate violations or suspected violations of the Code, and will not tolerate any form of retaliation against individuals who in good faith report possible misconduct, even if upon investigation their suspicions prove to be unwarranted.

The Company is committed to a comprehensive compliance program that includes many elements. The Code reiterates and emphasizes the Company’s long-standing policies on matters such as antitrust, insider trading and equal employment opportunities, and sets forth procedures to ensure compliance with the Code. Educational programs enable each employee to recognize and to respond appropriately to legal and ethical issues that may arise. The Compliance Committee, headed by Tony Bangs, the Company’s General Counsel, oversees the training and compliance program. As part of its responsibilities, the Compliance Committee, in consultation with senior management of each of our operating units, has appointed Compliance Officers within these units to whom questions and reports of violations may be addressed. Employees may discuss matters with whomever they feel most comfortable: their supervisor, a member of the Compliance Committee, their Compliance Officer or any lawyer in the Company’s Legal Department.

We need your help. While we realize that the length of the Code may seem somewhat overwhelming, much of it is intuitive, and the compliance program is intended to protect both the Company and you as a valuable contributor to the success of our many diverse businesses. We have the highest regard for our employees, and we understand that NMG can be successful only if it has motivated, dedicated and

responsible employees who treat each other, as well as those with whom we do business or seek to do business, with respect and integrity. We ask you to read the Code carefully to ensure that you understand the important legal and ethical responsibilities that we all share, as well as the consequences for noncompliance. Each employee will be required to certify that he or she understands the Code and will abide by it. We must rely on each employee’s good judgement and recognition that only employees who abide by the Code and the Company’s policies have a place with us. Working together, we can take personal pride in being part of an organization that is second to none in its pursuit of excellence through commitment to the highest legal and ethical values.

Richard A. Smith		Brian J. Knez		Robert A. Smith		Burton M. Tansky
Chairman of the Board		Vice-Chairman		Vice-Chairman		President and Chief Executive Officer

THE CODE

The Code contains a great deal of information that is important to you as an employee of the Company. While you are expected to read the Code in its entirety and sign the Certification From, the Code’s primary purpose is to serve as a guide for you as situations arise. Keep in mind the general contents of the Code, refer to it periodically to refresh your memory, and ensure that your conduct is in compliance with applicable laws and Company policies. For purposes of this Code, (i) all references to the employees of The Neiman Marcus Group, Inc. or the “Company” shall also include all employees of Neiman Marcus Stores, Neiman Marcus Direct, Neiman Marcus Online, Bergdorf Goodman, Inc., Bergdorf Graphics, Inc., Kate Spade LLP, Gurwitch Products, L.L.C., Horchow, and Chef’s Catalog, and (ii) all references to employees shall specifically include but shall not be limited to the officers and directors of the Company and its subsidiaries.

CONSEQUENCES OF NON-COMPLIANCE

The Company’s activities and those of its employees and others acting on behalf of the Company must always be ethical and in full compliance with applicable laws, regulations, policies, and the Code. Because the Company feels so strongly about maintaining the highest level of business ethics, the Code establishes standards of conduct which, in some instances, go beyond the minimum requirements of the law. Failure to comply with the Code can have severe consequences for both the individuals involved and for the Company. Employees who violate the Code may be subject to disciplinary action up to and including termination of employment. In addition, supervisors who disregard or should have reasonably detected and reported a violation of the Code may be disciplined. Of course, an employee suspected of such a violation will be given an opportunity to explain his or her actions before any disciplinary action is taken.

Employees who violate the Code also may have violated the law. Accordingly, such employees may be subject to prosecution, imprisonment or fines, and may have an obligation to reimburse the Company, the government or any other person or entity for any losses or damages resulting from such violations. Additionally, the Company may be subject to prosecution and/or significant fines for the improper conduct of its employees.

DUTY TO REPORT

Employees must report violations or suspected violations of the Code, or of any laws applicable to the Company’s business, to their supervisor, any attorney in the Legal Department, their designated Compliance Officer, the Compliance Committee, or Associate Relations. Employees also should seek guidance before engaging in conduct they believe may violate the Code. Contact information for the Compliance Committee members, Compliance Officers, and attorneys in the Legal Department is available in the attached Appendices. Supervisors and Compliance Officers should respond to inquiries and/or notify and seek advice from the Compliance Committee or from an attorney in the Legal Department. Supervisors and Compliance Officers who learn of any matter that might expose the Company to potential liability must immediately report it to

the Compliance Committee. Any employee who believes the supervisor to whom he or she has reported a violation or suspected violation has not taken appropriate action should promptly contact his or her designated Compliance Officer, the Legal Department or the Compliance Committee directly.

The Company will not retaliate against anyone who in good faith reports a violation or suspected violation of the Code. On the contrary, the Company welcomes and appreciates efforts on the part of its employees to communicate possible wrongdoing to the Compliance Committee. Any employee responsible for reprisals against coworkers or subordinates for reporting in good faith known or suspected violations will be subject to disciplinary action. On the other hand, any employee who submits a report that the employee knows or suspects may be false will be subject to disciplinary action.

While the Company will not retaliate against an employee because of his or her good faith report of a suspected violation of the Code, an employee who reports a violation or suspected violation of the Code may still be disciplined for misconduct or for any unrelated reasons. In other words, an employee is not exempt from disciplinary action simply because he or she has made a report under the Code. For example, an employee who makes a good faith report of a violation of the Code and who is on probation due to unsatisfactory job performance may still be disciplined based on his or her job performance.

The Company prefers that employees identify themselves when reporting violations or suspected violations because this will better enable the Compliance Committee to investigate the alleged wrongdoing. However, the Company recognizes that in some cases employees may feel it desirable to remain anonymous. The Compliance Committee will investigate anonymous reports, but requests that such reports be described in as much detail as possible with regard to the alleged misconduct, the individuals involved, and the basis for the allegations so that a thorough investigation can be conducted.

COMPLIANCE WITH LAWS AND RELATED POLICIES

Certain laws, policies and ethical principles that are of particular importance to the Company are described below. In addition to the Code, the Company periodically distributes more detailed guidelines regarding compliance with individual policies and laws to employees for whom such guidelines are particularly relevant. Employees are bound by such guidelines and should retain a copy for their reference.

GENERAL OBLIGATION TO DEAL FAIRLY

Employees shall endeavor to deal fairly with the Company’s customers, suppliers, competitors, and other employees. No employee shall take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practice.

ANTITRUST LAWS

Employees are prohibited from making any agreements with competitors in restraint of trade, and shall not engage in price fixing, resale price maintenance, unlawful boycotts, price discrimination or other acts that violate applicable antitrust and trade practice laws.

Federal and state antitrust laws are intended to preserve and to promote fair and open competition, which lies at the foundation of a free enterprise system. While the Company should compete aggressively and creatively, its commitment is to compete in strict compliance with the letter and spirit of all antitrust and trade practice laws. These laws generally forbid agreements or joint actions between competitors regarding prices, product or territory allocations, customers or suppliers, agreements or joint actions between a supplier and a customer that restrain or tend to reduce competition, and any conduct of a single firm that is intended to illegally establish or maintain a dominant market position or monopoly. Associations, joint ventures or mergers with actual or potential competitors pose special problems that need to be analyzed with particular care and must be approved in advance by the Legal Department.

Under antitrust laws, unlawful agreements need not take the form of a written contract or consist of express commitments or mutual assurances. Courts can - and do - infer agreements based on informal discussions or the exchange of information between competitors from which pricing or other collusion could result. Any communication with a competitor’s representative, no matter how innocuous it may seem at the time, may later be subject to antitrust scrutiny and form the basis for accusations of improper or illegal conduct. Employees must conduct all relations with competitors and other third parties, including social activities, as if they were completely in the public view, as those relations may be subject to probing examination and unfavorable interpretation.

For example, trade association meetings and other industry gatherings typically serve perfectly legitimate and worthwhile purposes. However, these meetings also provide an opportunity for unlawful communications to occur because they bring together competitors who share common business interests and problems. Informal gatherings outside official trade association meetings are particularly risky from an antitrust perspective.

Antitrust laws that involve prices and pricing procedures pose particular risks for the Company and its employees. Employees must always make independent pricing decisions that are in the Company’s best interest and are based on factors such as value to the customer, costs and competitive pressure in the marketplace. Employees must not communicate either directly or indirectly with competitors concerning sensitive information such as prices charged, sale dates or percentages, business or marketing strategies, profit margins or credit and billing practices. To avoid any appearance of indirect communications with competitors, vendors and distributors should be discouraged from sharing with the Company any sensitive information concerning other retailers or from disclosing information about the Company to others.

Employees also must not reach agreements with vendors or distributors regarding the price at which products will be resold. Although a manufacturer may suggest retail prices and markdown dates and percentages, any agreement with a vendor requiring the Company to adhere to a retail price or to change the Company’s prices is illegal resale price maintenance.

Finally, vendors and distributors must not discriminate in the prices, terms of sale or advertising or promotional programs and allowances they provide to competing retailers. While it is not the Company’s obligation to ensure that such vendors and distributors do not discriminate against other retailers, employees must not induce or knowingly receive unlawful preferences in price, terms or promotional allowances or

services compared with competitors who purchase similar products from the seller. Thus, while employees are encouraged to negotiate the best possible prices, terms, and cooperative advertising arrangements, they must not affirmatively seek terms that are better than those offered to competing retailers.

In addition to price fixing, resale price maintenance, and price discrimination, antitrust laws prohibit other noncompetitive activities including: predatory pricing (i.e., selling below cost); group boycotts; allocation of customers, territories, products or services; unlawful tying of separate products; certain exclusivity agreements; monopolization; unlawful termination of dealers, suppliers or distributors; and, under certain circumstances, attempts to engage in many of these types of activities. Moreover, antitrust laws generally prohibit any unfair or deceptive trade practices or methods of competition, including misleading advertising, disparaging a competitor’s products or services, harassing a competitor and stealing trade secrets or confidential business information.

The above description does not exhaust the reach of all antitrust laws. It does demonstrate, however, that antitrust laws, which attempt to ensure that superior market position is achieved only by superior products and performance, affect nearly every business decision made by employees on the Company’s behalf. The costs and consequences of an antitrust investigation or litigation can be serious for individual employees, as well as for the Company itself, even if the employees and the Company are ultimately vindicated. Individual violators of antitrust laws can be imprisoned for up to three (3) years and fined in excess of $350,000 per violation. Corporations that violate antitrust laws can be subject to criminal penalties in excess of $10 million per violation. In addition, companies can be subject to treble damage awards in civil lawsuits.

INSIDER TRADING

Employees shall not trade securities of the Company or other firms based on material non-public information. Employees also shall not provide such non-public information to individuals outside the Company.

It is a cornerstone of federal securities laws that a purchaser and seller of securities should be on as equal footing as is possible with respect to information regarding the issuer of the securities being traded. Consequently, federal securities laws forbid the purchase or sale of a security based upon “inside” information unavailable to the other party. Federal securities laws also prohibit employers, directors, officers and employees from knowingly or recklessly failing to take steps to prevent the trading on, or tipping of, inside information by those whom they directly or indirectly control.

The consequences of insider trading can be severe. Employees who trade on inside information, or tip information to others, are subject to civil penalties of up to three (3) times the profit gained or loss avoided, criminal fines of up to $1 million, and incarceration of up to ten (10) years. If the Company or supervisory personnel fail to take appropriate steps to prevent insider trading by employees, they are subject to civil penalties up to the greater of $1 million or three (3) times the profit gained or loss avoided as a result of the employee’s violation, as well as criminal penalties of up to $2.5 million.

Employees who know material information which has not been publicly disclosed, and which concerns the financial condition, earnings or business of the Company, or any important development in which the Company is or may be involved, shall not buy or sell shares of stock or other securities of the Company (or puts, calls, options or other rights to buy or sell such securities) until a reasonable time after public disclosure of such inside information. Employees also shall not disclose such inside information to individuals not employed by the Company until a reasonable time after the Company publicly discloses

the information. In addition, employees are never to advise others to buy or sell securities of the Company. These same rules also apply to the use of material nonpublic information about other companies.

What is “material”? Any fact which may affect the price of the securities and/or which a reasonable investor would consider important in deciding whether to purchase or sell shares of stock or other securities of the Company is generally considered material. Examples of what may be considered to be material information include: financial results or forecasts; a significant proposed acquisition or disposition of a business; hiring, firing or resignation of a Director or Officer of the Company; a stock split or change in dividend; significant litigation; or changes in customary earnings and earnings trends.

What constitutes public disclosure? Information effectively is disclosed to the public if it is contained in an annual or quarterly report to stockholders, a press release issued by the Company, or in public filings with securities regulatory authorities.

What is a reasonable period of time after which purchases and sales can be made? Essentially, the investing public must have had time to digest and analyze the information which has been disclosed. For information disclosed through a press release, a good rule of thumb is that purchases and sales can be made beginning two (2) business days after the release. For information disclosed in a report mailed to stockholders, purchases and sales should not be made until one (1) week after the date of mailing.

The purpose of this discussion is not to present an exhaustive statement of the law with respect to the use of inside information, but to advise you of legal considerations whenever you either purchase or sell shares of stock or other securities of the Company or talk about Company matters to outsiders. Only the CEO, CFO and individuals specifically designated by them are authorized to discuss Company affairs with securities analysts, members of the press, or other persons who do not have a direct relationship with the Company.

Employees should be aware that discussing the affairs and prospects of the Company could lead to serious legal liability. Employees should take care not to have conversations concerning confidential matters in public areas where they can be overheard or intercepted, such as on an airplane, in an elevator, on a public telephone or on a cellular telephone. Similarly, employees should secure confidential documents and not leave them where they can be read by a casual observer.

EMPLOYMENT LAWS

Employees must comply with all labor and employment laws. Employees shall also promote the Company’s goals of ensuring equal treatment in connection with the recruitment, hiring, placement, training, compensation, benefits, education and development, transfer, promotion, demotion, discipline and termination of employees and providing a safe and healthy workplace that is free of sexual harassment or other types of illegal harassment or misconduct.

EQUAL EMPLOYMENT OPPORTUNITY

The Company is an equal employment opportunity employer. The Company’s policy is to deal with each employee and each job applicant without regard to race, religion, national origin, gender, sexual orientation, age, disability or any other category protected by law. Consistent with this policy, the Company will not tolerate harassment of or by its employees, customers, or other third parties based upon any of these protected classes.

Employees must refrain from any act that is designed to cause or that does cause unlawful employment discrimination or harassment. This includes decisions concerning advertising, recruiting, hiring, placement, training, compensation, benefits, education and development, transfer, promotion, demotion, discipline, or termination.

In addition to ensuring compliance with the law, the Company believes that its commitment to developing and respecting a diverse workforce empowers employees to achieve their full potential and helps to foster teamwork toward meeting the Company’s business objectives. Consistent with this commitment, employees must treat each other with dignity and respect for one another’s cultures, lifestyles and uniqueness.

SEXUAL HARASSMENT

The Company prohibits sexual harassment of an employee by another person. All employees, male and female, have the right to work in an environment that is free of sexual harassment. Sexual harassment is a form of misconduct that undermines the integrity of the employment relationship, and no employee should be subjected to unwelcome sexual conduct by a co-worker, a contractor, a customer, a supplier, or any other third party.

Sexual harassment does not refer to occasional compliments of a socially acceptable nature. It refers to conduct of a sexual nature, whether verbal, physical, or visual, that is unwelcome and creates a work environment that is hostile, offensive or coercive. While sexual harassment is not easy to define, it may include: unwelcome sexual jokes, language, epithets, advances or propositions; unwelcome touching, leering, whistling, or suggestive, insulting or obscene comments or gestures; demands for sexual favors in exchange for favorable reviews, assignments, promotions, or continued employment; questions about sexual conduct or practices; unwelcome comments about an individual’s body or sexual activity; and the display of sexually suggestive objects, pictures, posters or drawings.

The Company has no desire to interfere with consensual relationships between co-workers, however, individuals may be or may appear to be improperly influenced by the existence of a personal relationship. Therefore, situations where one of the parties in such a relationship supervises or evaluates the other must be disclosed. The Company reserves the right to take appropriate action to avoid potential problems including, but not limited to, changing the reporting relationship between the parties involved.

REPORTING DISCRIMINATION AND HARASSMENT

An employee who believes he or she has been subjected to or who becomes aware of a situation involving discrimination or harassment based on any category protected by law, as described above, is encouraged to immediately notify either their supervisor, the Human Resources Department, Associate Relations, his or her designated Compliance Officer, the Compliance Committee, or the Legal Department. Any manager or executive to whom discrimination or harassment is reported must immediately forward that information to the Human Resources Department for investigation. The Company will promptly and thoroughly investigate all complaints of discrimination or harassment. If the allegations of employee misconduct are substantiated, disciplinary action ranging from counseling to termination of employment will be taken, commensurate with the factual circumstances and seriousness of the offense. If the allegations relate to the inappropriate conduct of a contractor, customer, supplier or other third party, the Company will take appropriate steps to eliminate the problem if the claims are substantiated.

A complaint of discrimination or harassment, the investigation of it, and any corrective action taken will be treated with as much confidentiality as possible. In

addition, the Company will not permit retaliation of any kind against any employee who makes a good faith complaint of discrimination or harassment or who assists in an investigation of a complaint. The Company will take corrective action against any employee who retaliates against another. Any instance of retaliation should be reported immediately.

The Company will not tolerate false accusations of discrimination or harassment made either maliciously or recklessly. In such cases, the accuser will be subject to disciplinary action commensurate with the factual circumstances and seriousness of the matter.

SAFETY AND HEALTH

The Company is committed to complying with all applicable occupational safety and health laws and standards, eliminating recognized hazards from the workplace, and providing its employees with a safe and healthy work environment.

Employees must conduct themselves in accordance with all applicable federal, state and local health and safety laws, and report any unsafe conditions, hazards, broken equipment or machinery, and injuries or accidents to their supervisor, their designated Compliance Officer, or to the Compliance Committee. In certain situations, criminal liability may be imposed on the Company and its managers for failure to notify employees of potential dangers in the workplace.

To ensure that all employees are provided with a healthy work environment, employees who contract diseases that are dangerous and easily communicable to co-workers must notify their supervisor, their Human Resources Department, their designated Compliance Officer, or the Compliance Committee.

AMERICANS WITH DISABILITIES ACT

The Americans with Disabilities Act (“ADA”) is intended to protect individuals with qualified disabilities against discrimination in employment and in the provision of services to the public. The ADA’s purpose is to provide such disabled individuals with the opportunity to compete for jobs and to participate in public services and activities on an equal basis with other individuals. The Company is committed to compliance with the ADA.

As noted in the discussion of equal employment opportunities, and consistent with the ADA, the Company prohibits discrimination on the basis of an applicant’s or employee’s qualified disability. In addition, the Company is obligated to ensure the accessibility of its stores to individuals with qualified disabilities under the ADA.

CONTRACTING WITH OTHER PARTIES

ENTERING AGREEMENTS

Employees are not to sign any agreements on behalf of the Company or any of its subsidiaries without the approval of the Legal Department, except where the agreement is an unmodified Company form that the Legal Department has approved in advance; or where the agreement is on a commonly printed form and related to commercial travel, car rental, shipment of goods, magazine subscriptions or any other purely routine matter that common sense dictates may be transacted without legal review. The reason for this broad requirement is that even an agreement involving relatively minor amounts of money may contain inappropriate indemnification obligations or other contractual burdens, or raise troublesome antitrust issues or other legal concerns.

The term “agreement” refers to letters of intent, offer letters, and exchanges of

correspondence involving the express or implied acceptance of an offer, as well as to formal contracts. It is the Company’s policy to formalize all agreements in writing; exceptions to this rule may be made under certain circumstances, but only with the Legal Department’s prior approval. Every new agreement must be approved by the Legal Department unless an identical form agreement has been previously approved.

Unless it is inappropriate under the circumstances, the Company, and not the other contracting party, should take the initiative in preparing agreements. To this end, the Legal Department should be conferred with at the earliest opportunity, even at the earliest stages of negotiation, so that it may function in a timely manner to anticipate legal problems and to work constructively with management personnel rather than having to react later under unnecessary time constraints.

TERMINATING AGREEMENTS

Periodically, the Company may wish to terminate an agreement before it is due to expire. Sometimes the Company has the right to take this action unilaterally; at other times, termination must be by consent of both parties. In either event, because it can give rise to certain liabilities that may not be readily apparent, termination of an agreement is as critical as execution of an agreement. Therefore, no agreement shall be terminated (before the agreement would normally expire by its terms) by anyone on behalf of the Company or any of its subsidiaries without the Legal Department’s prior approval.

PRODUCT SAFETY

The Company is committed to complying with all applicable product safety laws and regulations. Although the Company’s vendors or ultimately responsible for ensuring the safety and usability of their products, the Company must take steps to ensure that their products indeed satisfy applicable legal requirements. Such steps protect the Company’s reputation and customer relationships, and limit the risk of potential legal liability.

While not an exhaustive list, some of the most pertinent requirements to ensure product safety include:

FLAMMABILITY STANDARDS

Textiles used to manufacture clothing sold in the United States must meet required flammability standards. Commonly used fabrics subject to these standards include rayon, sheer fabrics and highly napped fabrics such as chenille, velour and cotton terry cloth. In addition, stricter standards apply for fabrics used in children’s sleepwear. Employees involved in buying apparel made from such fabrics are responsible for obtaining from vendors copies of test results indicating that the fabrics used in clothing sold to the Company meet the flammability standards. Alternatively, vendors may provide copies of applicable Continuing Guarantees of compliance filed by them with the Consumer Products Safety Commission.

CHILDREN’S TOYS

Toys and other children’s items that present potential choking or ingestion hazards must be properly labeled to identify that they are not intended for use by children under three (3) years of age. In addition, electrically operated toys or other electrical products intended for use by children must meet applicable regulations. Finally, the surfaces of toys and other items intended for use by children must not be

coated with paint or other products containing lead.

FOOD AND COSMETIC PRODUCTS

It is illegal to adulterate or to misbrand meat, poultry, other food products, or cosmetics. Employees involved in buying these products must confirm with vendors that food and cosmetic items satisfy the applicable regulations. Employees must also ensure that food vendors adhere to nutritional labeling requirements. In addition, employees must obtain copies of Continuing Pure Food and Drug Guarantees filed by vendors with the Food and Drug Administration.

POTENTIALLY HAZARDOUS PRODUCTS

In addition to specific safety regulations, the law generally prohibits the sale of products that contain defects or could pose safety hazards to consumers. If an employee ever becomes aware that a product sold by the Company does not comply with applicable safety regulations or otherwise contains a defect that may pose a safety hazard to consumers, the employee must notify the Legal Department immediately.

INTELLECTUAL PROPERTY

Employees must use the Company’s copyrights, tradenames, patents, trademarks and trade secrets in a manner that will safeguard them as valuable assets of the Company, and employees must not misappropriate or infringe upon the trade secrets, trademarks, patents or copyrights works of others.

Federal and state laws govern the use of material and/or information which may be the subject of a trademark or copyright, or which may be treated as a trade secret. The Company owns and uses copyrights, trademarks and trade secrets. At times it also may have in its possession material that the Company has purchased or used pursuant to an agreement with a third party (such as merchandise, photographs or advertisements), which may be protected by copyright or trademark and/or may be a trade secret of another party. The Company’s use of these materials must be in accordance with the terms of any applicable agreement and must comply with the laws regulating the use of such materials.

COPYRIGHT COMPLIANCE

Federal copyright laws grant a copyright to the creator of any work of authorship, such as books, articles, magazines, drawings, computer software and photographs. Works created by employees in the course of their employment are owned exclusively by the Company. Copyright laws prohibit the unauthorized copying of copyrighted materials except under limited circumstances. A violation of this prohibition can subject both the employees involved and the Company to substantial civil and/or criminal penalties. Employees should direct any questions concerning exceptions to this prohibition to the Legal Department.

TRADEMARK PROTECTION

A trademark is a word, symbol, name, device or any combination of these things used to identify a product or line of products or services and to distinguish them from the products and services of other companies. The Company owns a number of trademarks which are well recognized by the public and are extremely valuable. Employees must be vigilant to protect the Company’s trademarks, to use the Company’s trademarks

correctly, and to notify the Legal Department of any unauthorized use of the Company’s trademarks by a third party. Trademarks and tradenames must not be altered or modified in any manner without the approval of the Legal Department.

Similarly, the Company is committed to respecting the trademark rights of others, and to avoiding the use of trademarks confusingly similar to those of other companies. A claim of infringement may arise from the use of a word or design that sounds like or is visually similar to a third party’s trademark, particularly where there is similarity in product and/or in the packaging, concept or image of the product. Any questions regarding the use of certain words or designs should be directed to the Legal Department.

TRADE SECRETS AND PROPRIETARY AND CONFIDENTIAL INFORMATION

Trade secrets and proprietary and confidential information may consist of any formula, pattern, device or compilation of information (e.g., customer lists, business plans or projections) that the Company maintains in secrecy and uses to conduct its businesses or to gain competitive advantages. The Company has developed its own trade secrets and proprietary and confidential information, and often has access to the trade secrets and proprietary and confidential information of other parties with whom it does business.

Employees must not use trade secrets or proprietary or confidential information for their own purposes or disclose such information to unauthorized employees or third parties such as customers, clients or outside contractors without prior approval from the Legal Department. Employees also must not use trade secrets or proprietary or confidential information obtained from former employers or other third parties, such as suppliers or customers.

Immediately before or upon termination of employment, employees must return all property belonging to the Company, including any hard copy and computer files, customer lists, personal computer hardware and software, statistical analyses, product pricing and other business formulas and models, identification cards, and access cards. Employees must also not retain copies of any such property. To the extent permitted by law, the Company reserves the right to withhold any funds due to an employee until all such property has been returned.

Without proper authorization, employees may not use, distribute, modify, destroy or provide access to records, systems or data pertaining to the Company or its customers or suppliers.

Employees should direct any questions concerning whether information is a trade secret or is proprietary or confidential to the Legal Department and should not use or disclose any questionable information unless and until they are certain such use or disclosure is permitted.

Employees shall maintain the confidentiality of information entrusted to them by the Company or its customers, except when disclosure is authorized or legally mandated. Employees shall not, at any time, either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation any confidential or non-public information concerning or relating to the business of the Company, including the names of any of its customers, the prices at which it sells its services, or any other information of, about, or concerning the Company or its manner of operation, strategies, practices, business plans, or any other information which may, if disclosed, be harmful to the Company or its customers, or be useful to its competitors. This obligation shall survive any termination of employment with the Company.

Further information concerning the use and disclosure of trade secrets and proprietary and confidential information is contained in the discussion of the Company’s insider trading policy.

INTERNATIONAL BUSINESS

Employees must strictly comply with all laws of each country in which they conduct business, and with all U.S. laws governing foreign operations. Such laws include control laws, the Foreign Corrupt Practices Act and laws prohibiting cooperation with foreign boycotts or requiring adherence to State Department-mandated embargoes. Employees also must be respectful and tolerant of the values and legally permissible customs of the communities and of the countries in which the Company does or seeks to do business. Illegal activities are inexcusable, even if a particular community or country does not enforce certain laws, and therefore does not penalize or censure violators of those laws.

THE FOREIGN CORRUPT PRACTICES ACT

Employees or their agents shall not make payments or offers of payment to any foreign official, employee or agent of a foreign official, political party official or candidate for political office to induce that person to affect any governmental act or decision or to assist the Company in obtaining or retaining business. This policy applies to payments in the form of gifts as well as money, and includes the use of personal as well as Company funds.

While the law allows certain types of payments to foreign officials, including payments to “facilitate” routine government actions, determining what payments are permissible involves analysis of the foreign country’s laws and practices. The FCPA also requires the Company to maintain accurate books and records of all transactions. Violation of the FCPA is a felony that may expose both the Company and its employees to criminal prosecution, large fines and imprisonment. Therefore, either an employee’s designated Compliance Officer or the Compliance Committee must pre-approve any payment an employee believes is “facilitating” or otherwise exempt from the law.

IMPORT AND CUSTOMS CONTROLS

It is the express policy of the Company to comply fully with the laws of the United States and regulations of the United States Customs Service (“Customs”) and those of any other applicable Federal agencies relating to, or governing, the importation or exportation of goods and technology to and from the United States. This policy also applies with respect to the laws and regulations relating to international trade of any other country in which the Company does or seeks to do business. Accordingly, strict adherence to U.S. and foreign customs laws and regulations is required of every Company employee whose work causes, affects, or supports imports and exports.

United States customs and trade laws provide that all imported goods must enter the United States with the appropriate quota or export/import licenses, labels, markings, bills of lading, and commercial invoices. All goods must be adequately and correctly described and all payments and/or charges related to the importation must be disclosed to Customs. In addition, certain types of products (e.g., consumer products and textiles) are subject to special laws and regulations. All import transactions are subject to strict recordkeeping requirements by the various agencies having oversight of the goods and/or transactions. U.S. customs regulations require that records be retained for a period of five (5) years from the date of the transaction and may be subject to review by Customs.

Further, U.S. customs law and Company policy forbid the importation of goods produced by illegally employed underage workers, convicts or other forced labor. Also forbidden is the importation of transshipped goods, which are goods misrepresented on entry to the U.S. as the product of a second country in order to avoid additional duties or quantity limitations imposed on the country actually producing them. Consistent with this policy, the Company should ascertain that the factories engaged to produce goods are

not on the Customs list of transshippers, and that they observe appropriate labor practices. Where on-site factory visits are made, Company employees should be alert to any indications of these prohibited activities and report them immediately to their Compliance Officer, the Compliance Committee or the Legal Department. Where possible, the Company should secure in writing a representation and warranty that the factory or factories contracted will not supply any goods to the Company where the originating country is not legally identified or which is produced by underage or involuntary labor.

Any questions concerning the legitimacy of any import or export transaction, and any violations or possible violations of U.S. customs laws or regulations that come to the attention of any employee must be brought immediately to the attention of the Compliance Committee or the Legal Department.

EXPORT CONTROLS

Under the Export Administration Regulations, the export of goods and services from the United States may require a specific export license from the Commerce Department. The same may apply to transshipment of U.S. origin goods from the country of original destination to a third country, and to exports of foreign made goods with U.S. content. Employees must consult with the Legal Department before exporting any goods.

ANTIBOYCOTT LAWS

Employees shall conduct the Company’s business in accordance with the U.S. antiboycott laws, which are designed to prevent businesses from cooperating with unsanctioned foreign boycotts of countries friendly to the United States. In general, antiboycott laws and regulations prohibit cooperation with a foreign boycott, whether by way of: (i) refusing to do business with another person; (ii) applying discriminatory employment practices; (iii) furnishing information on the race, religion, gender or national origin of any U.S. person; (iv) furnishing information concerning any person’s affiliations or business relationships with a boycotted country or any person believed to be restricted from doing business in the boycotting countries; or (v) utilizing letters of credit containing boycott provisions. As the Company is required to report boycott requests, employees must inform their designated Compliance Officer, the Compliance Committee, or the Legal Department of any such requests.

U.S. EMBARGOES

Employees shall conduct the Company’s business in accordance with the trade restrictions imposed under the International Emergency Economic Powers Act and the Trading With the Enemy Act. The prohibitions and restrictions imposed under these laws affect exports, imports, travel, currency transactions and assets and accounts with certain countries, whether directly or through third parties. Before doing business with a foreign country, employees must confirm that no trade restrictions are in effect with respect to that country.

POLITICAL ACTIVITIES AND CONTRIBUTIONS

Employees shall comply with all campaign finance and ethics laws, including those prohibiting the use of Company funds, assets, facilities, or services to support or oppose political parties or candidates or to reimburse employees who make donations to support or oppose political parties or candidates.

Employees who participate in the political process, express their personal views on legislative or political matters, engage in political activities, and/or make personal political contributions must conduct such activities on their own time and at their own

personal expense, as campaign finance and ethics laws and Company policy generally prohibit the use of Company funds, assets, services or facilities on behalf of a political party or candidate. Unless authorized by the Company, employees who engage in such political activities or make any public political statements must avoid any references to their affiliation with the Company or any of its subsidiaries, and must make clear that they are acting personally and not for the Company. While there may be limited circumstances when it is legal for the Company to make political contributions, or to reimburse employees or individuals associated with the Company for political contributions, such contributions or reimbursements must not be made without prior approval from the Company’s General Counsel.

Various federal, state and local laws govern the conduct of persons who communicate with legislative or regulatory officials on behalf of the Company with the intent to persuade such officials to support the interests of the Company. Although such communications (often referred to as “lobbying”) are permitted, lobbyists may be subject to registration, reporting, and financial disclosure requirements. Employees must consult with the Legal Department prior to engaging in any lobbying activity.

As further discussed in the next section regarding improper payments and excessive gifts, it is generally illegal to offer or give any gift (including meals or entertainment) to any government or political official or to a candidate for such a position if the intent of the gift is to induce the official or candidate to act in a manner that benefits the Company.

IMPROPER OR UNRECORDED PAYMENTS; EXCESSIVE GIFTS

Employees shall not make, facilitate or accept bribes, kickbacks or other improper payments, loans or gifts to or from government officials, customers, vendors, suppliers or other business contacts. Employees also must not create or maintain secret or unrecorded funds or assets or make false or fictitious entries in the Company’s books or records so as to conceal such funds or assets.

Improper payments may be in the form of gifts or the provision of services, as well as money. Such payments remain improper whether made or received directly or indirectly, including arrangements which aid or abet others to make or receive an improper payment.

Improper payments include payments prohibited by law, such as payments of any kind to or from government or regulatory officials or payments which represent bribes, kickbacks, or payoffs to or from government officials, customers, vendors, suppliers or others with whom the Company does or seeks to do business. In addition, any payment that an employee falsely reports or intentionally does not report in accounting records is improper. Employees must immediately report all payments made or received, and they must include supporting documentation stating the purpose for such payments or receipts. Unrecorded, off-the-record payments or receipts are prohibited.

Employees should be aware that gifts or payments to government and regulatory officials may violate federal or state laws, even if given without intending to influence such official. As discussed regarding the Foreign Corrupt Practices Act, federal law also prohibits bribery of international as well as domestic government officials. Employees must immediately report to their supervisor, their designated Compliance Officer, the Compliance Committee or the Legal Department any request by a government or regulatory official for an improper payment.

Company policy also prohibits employees from giving or receiving excessive or

uncustomary gifts or services to or from others with whom the Company does business or seeks to do business, regardless of whether such gifts or services constitute unlawful or otherwise improper payments. Additional information concerning this prohibition is included in the discussion of conflicts of interest.

The Company is legally required to collect sales tax in all states where it conducts business. Each state’s law varies in the requirements for collecting tax, ranging from different tax rates to varied taxable items. It is mandatory that the Company comply with the laws that the states have put into place. An employee shall never offer a customer the option or opportunity to ship a purchase in order to avoid paying sales tax.

The Point of Sale (POS) system has been programmed to collect the proper sales tax in each store and account for most tax exceptions. All employees shall abide by the rules set forth in the Company’s Sales Tax Policy. Failure to adhere to these rules will result in disciplinary action up to and including termination of employment.

FALSE STATEMENTS AND SCHEMES TO DEFRAUD

Employees shall not engage in any scheme to defraud any customer, supplier or other person or entity with whom the Company does business or seeks to do business. In addition, employees are prohibited from wrongfully withholding or converting the property of others, making untruthful statements about the Company’s products and services, willfully concealing material facts from anyone with whom the Company does business or seeks to do business, and knowingly making commitments that the Company cannot fulfill.

These prohibitions are particularly critical when dealing with government officials. Employees shall not knowingly or willfully make or cause to be made oral or written false statements to government officials, or conceal or cause to be concealed material facts called for in a governmental report, application, filing, investigation or request for information. An employee can violate this policy and the law even if the employee does not personally make the false statement or conceal the material fact. For example, employees are prohibited from providing false information to any other employee or third party knowing that the information will be (or is likely to be) provided to the government. For additional information, please also see the policy described below concerning responses to inquiries from third parties.

THEFT OR MISUSE OF COMPANY PROPERTY

All employees shall protect the Company’s assets and ensure their efficient use. All Company assets should be used for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Company’s profitability. Employees shall not steal or misuse Company assets, provide any products to any person or entity not in accordance with established Company policy, or retain any uncustomary personal benefit from a customer, vendor, supplier or other person with whom the Company does business or seeks to do business.

Employee theft or misuse of Company property can take many different forms including, but not limited to: stealing the Company’s supplies, equipment or other property; misusing the Company’s equipment, such as telephones, computers, photocopy machines or telecopiers; misusing employee discounts; submitting falsified

time sheets or expense reports; and using the Company’s proprietary information, trade secrets or other assets improperly or without proper authorization.

Because theft and misuse of Company property are serious offenses, employees must immediately notify the Human Resources Department, Loss Prevention, their designated Compliance Officer, the Compliance Committee, or an attorney in the Legal Department if they learn of or suspect such offenses by other employees. Strict disciplinary action, including possible termination, will be taken against any employee engaged in theft or abuse of Company property and, if warranted, against the employee’s supervisor and others in the employee’s chain of command.

For additional information, refer to the Code provisions below regarding e-mail, voice mail and the Internet and conflicts of interest.

WIRETAPPING, EAVESDROPPING AND TAPE RECORDING

The Company and its employees shall comply fully with all laws governing wiretapping, tape recording and other forms of electronic surveillance, and shall not sue any devise to record, monitor or listen to communications between others without the prior approval of the Legal Department, and without consent of all parties to the communications required under the law.

Without express permission from the Legal Department, employees may not use any electronic, mechanical or other device to listen to, monitor or record any oral or electronic communication. This includes, but is not limited to, the use of telephone extensions to overhear other individuals’ conversations. It also applies to any interception of electronic mail or other electronic communications.

RESPONDING TO INQUIRIES FROM THIRD PARTIES

Employees who are contact by government representatives, attorneys who do not represent the Company, the media, or other third parties inquiring about Company matters must immediately notify appropriate management personnel before attempting to respond to any written or verbal requests for information.

REQUESTS BY ATTORNEYS AND GOVERNMENT AGENTS

Employees who are contacted by attorneys, government agents (e.g., from the Department of Justice, the Federal Trade Commission, the Equal Employment Opportunity Commission, the Securities Exchange Commission, or other federal, state or local agencies), investigators, or other third parties concerning potential or actual litigation or investigations, whether or not the matter involves the Company, must immediately notify the Legal Department. Employees shall promptly refer any verbal or written requests for information, documents or testimony to the Legal Department. Immediate reporting to the Legal Department is particularly critical when requests are made in the form of a summons, subpoena, order to show cause, or other document legally requiring that an appearance be made or a response be given. The original legal document must be sent immediately to the Legal Department.

Employees must also report to the Legal Department any inquiries or requests from attorneys who are not affiliated with the Company, even if litigation is not pending or threatened. The Legal Department will assess the situation, advise employees and

determine the appropriate response.

REQUESTS FOR INSPECTIONS OF PREMISES

Government agencies (e.g., occupational safety and health agencies, customs officials or taxing authorities) and building code enforcement officials periodically may seek to inspect Company premises. The manager of the relevant facility, or an alternate designee in his or her absence, should be prepared to handle such inspections. The manager should ask the visitor seeking to conduct an official inspection to produce credentials and to cite the statutory authority for the inspection. The inspector should be asked to state the specific purpose of the inspection, the matters to be investigated, and the persons to whom the inspector wishes to speak.

If the inspection is unannounced and is not a routine one (such as an annual licensing inspection), the visitor should be told that Company policy requires you to contact the Legal Department, and he or she should be invited to wait until a Company attorney authorizes the inspection.

CONTACTS WITH THE MEDIA AND THE FINANCIAL COMMUNITY

The Company has a legal responsibility to provide its shareholders and the public with periodic reports concerning its financial condition (e.g., annual reports and quarterly earnings statements) and to issue periodic press releases with regard to important corporate developments. To ensure that all such reports and press releases concerning the Company are supplied to the public in an authoritative and consistent manner, no employees are to provide such information to anyone outside the Company without the prior approval of the Company’s Chief Financial Officer, Vice President of Finance, or General Counsel.

Only the Chief Executive Officer, the Chief Financial Officer, the Vice President of Finance, and the General Counsel are authorized to respond to requests for copies of public reports, including financial reports filed with the Securities and Exchange Commission, reports regarding meetings with members of the financial community and previously issued press releases. Employees are to refer any such requests to the Chief Financial Officer, Vice President of Finance or General Counsel.

Additionally, no one other than employees authorized by the Company’s Chief Executive Officer, Chief Financial Officer, or Vice President of Finance may respond to inquiries made by the media, investment analysts or other third parties (e.g., financial writers or editors) concerning the Company or any of its subsidiaries or divisions. This includes inquiries concerning finances, operations, marketing plans, industry issues, litigation or investigations. Such inquiries must be referred to the Vice President of Finance or the Chief Financial Officer, who will decide whether or not to provide the requested information. In addition, no employee is to issue a press release to the general, financial or trade media without the approval of the Vice President of Finance.

Officers and employees who are authorized to discuss matters disclosed in the Company’s published statements or publicly filed reports should limit their discussion to the information contained in the printed report, and should refer any inquiries for additional information to the Vice President of Finance or the Chief Financial Officer.

ADVERTISING

Employees shall not create, approve or disseminate any advertising or promotional materials that are false or deceptive, are not adequately substantiated, or otherwise violate applicable laws and regulations.

Fair and accurate advertising and sales practices are critically important in preserving the Company’s goodwill and reputation with its customers and the general public. Federal and state laws, Federal Trade Commission regulations, and Company policy prohibit false, misleading or deceptive advertising and related activities in the promotion and sale of products sold or offered by the Company. Therefore, all advertising claims and other representations to customers and potential customers must be truthful and have a reasonable basis. In addition, all advertising claims made in any print or non-print medium, including, for example, catalogues, brochures, posters, newspapers, magazines, radio, television, e-mail or the Internet, must be substantiated before publication or dissemination.

Because the Company holds a prominent position in the retail industry, the conduct of the Company and its representatives may be subjected to higher scrutiny than some of its competitors. While this does not prevent the Company from competing vigorously, it does mean that employees should be particularly sensitive to the consequences of their competitive conduct, including even casual remarks made to vendors, distributors, suppliers, customers or competitors. As a general rule, employees must avoid all advertising claims, representations or conduct that could be characterized as unfair, deceptive, or coercive.

Deceptive advertising, misrepresentations and unfair or coercive conduct are serious matters that consumers readily understand. Such conduct can damage the Company’s reputation, nullify the Company’s efforts to promote consumer goodwill, and subject the Company and individuals to civil and criminal liability.

In addition to the general requirement that all advertising and promotional claims must be truthful and not misleading, there are laws and regulations that apply to particular types of advertising and/or the advertisement of specific products or services. Employees involved in the preparation or publication of advertising must seek advice from the Legal Department regarding specific laws and regulations before disseminating advertising claims.

RECORD KEEPING

Employees must accurately prepare all Company records to fairly reflects its transactions, assets and liabilities, and must maintain and safeguard such records and supporting documentation in accordance with the Company’s policies and procedures and applicable legal and accounting requirements.

PREPARATION OF RECORDS

The law requires the Company to keep books, records, and accounts which accurately and fairly reflect all transactions, disposition of assets and all other events that are the subject of specific regulatory record keeping requirements (e.g., generally accepted accounting principles and other applicable rules, regulations, and criteria for preparing financial statements). In addition, the Company must maintain records of all of its assets and liabilities. Under no circumstances may there be any unrecorded fund or asset of the Company, regardless of the purposes for which the fund or asset may have been intended, or any improper or inaccurate entry knowingly made on the books and records of the Company.

No payment on behalf of the Company may be approved or made with the

intention, understanding, or awareness that any part of the payment is to be used for any purpose other than that described by the documents supporting the payments. All receipts and disbursements must be fully and accurately described on the books and records of the Company and must be supported by appropriate documentation properly describing the purposes thereof.

RETENTION OF RECORDS

Numerous federal and state statutes require the proper retention of many categories of records and documents that are commonly maintained by companies. These statutes apply to records in any form, including e-mail messages, electronic and recorded data, as well as hard copies of documents. In consideration of those legal requirements and the Company’s business needs, the Company’s record retention policies set forth the appropriate retention periods for the types of records created and received by each business unit or subsidiary.

In addition to the applicable statutory requirements, the existence of pending or threatened litigation, investigations or subpoenas may require that certain information and records be retained for longer than the law and the Company’s record retention policies require. Accordingly, the Legal Department will issue notices regarding such matters as they arise and will instruct that certain categories of documents not be discarded until the matter is resolved. It is a violation of law to conceal, alter or destroy records that are subject to a subpoena or may be evidence in a pending or threatened lawsuit or investigation.

Unless the Legal Department has issued a notice of a pending matter requiring the continued retention of certain documents, all records in any form are to be permanently discarded at the end of the period set forth in the record retention policy applicable to the relevant subsidiary or business unit of the Company.

E-MAIL, VOICE MAIL AND THE INTERNET

The Company encourages the use of electronic mail and voice mail because these methods of communication are efficient and effective. It also encourages the sue of the Internet as a valuable source of information about our vendors, suppliers, business partners and competitors. However, employees must ensure that electronic mail, voice mail and the Internet are used appropriately, understand that messages sent or received and data gathered are not private, compose messages with care and retain them only as long as necessary.

APPROPRIATE USE

E-mail, voice mail and the Internet must be used responsibly and are intended for business purposes only. Although personal use of electronic communication systems may be understandable and acceptable at times, this is a privilege that the Company reserves the right to control and monitor.

Under no circumstances may e-mail, voice mail or the Internet be used for any illegal, immoral, or unethical purpose, or for any other purpose that violates the Code or may lead to liability or cause harm to the Company. The Internet, in particular, also may not be used for transmitting, retrieving or storing any communications of an obscene, discriminatory, harassing, or otherwise inappropriate nature. The Company retains the sole right to determine whether or not employees are using these methods of communication properly.

All files downloaded from the Internet are subject to the limitation of copyright

laws and policy. This means that such files may not be further copied, distributed or forwarded to anyone except as expressly permitted by the copyright owner or with the prior approval of the Legal Department. The Company’s copyright policy is described in the Copyright Compliance section of the Code.

Each outgoing Internet e-mail message is identified as originating with the Company or one of its divisions or subsidiaries. As a result, like other official communications, e-mail messages sent via the Internet must responsibly represent the Company.

Employees must not post confidential or sensitive Company information on the Internet, including websites, news groups, chat rooms, and other similar locations. Employees shall not develop or establish websites using the Company’s name or any of it’s trademarks without proper authorization.

PRIVACY

All telephone and computer equipment and the data, documents and messages stored on them are the property of the Company. With the Legal Department’s express approval, the Company reserves the right to monitor and review any e-mail or voice mail messages created, received or maintained on Company property. The Company also reserves the right to review employee use of the Internet. Employees shall have no expectation of privacy in the use of e-mail, voice mail, or the Internet when using Company equipment and/or resources.

Employees also should be cautious when sending e-mail messages over the Internet because such messages are subject to potential unauthorized interception. Therefore, employees should not transmit confidential, proprietary or sensitive information via the Internet. Such information includes non-public Company information or other personal or confidential material.

Finally, voice mail and e-mail messages (including messages sent via an internal e-mail system as well as those sent over the Internet) are subject to disclosure to third parties in the course of litigation or investigation. Indeed, because messages can be recreated even after they are erased, even deleted messages are subject to disclosure.

CREATION AND RETENTION OF MESSAGES

Because e-mail and voice mail messages are not private and may be subject to interception or disclosure to third parties, it is critical to compose them as carefully and professionally as you would handwritten letters, inter-office memoranda or any written document. The nearly instantaneous nature of electronic messages may make such communications seem less concrete than a piece of paper, but this is not the case. Every e-mail message can be printed by an employee or any recipient, and every message is likely to be stored in numerous places (including on the employee’s own computer, the system server, the recipients’ computers, and back up tapes) for indefinite lengths of time. As noted above, e-mail messages can be recreated even after they are deleted. Consequently, employees should be conscientious about what they write in e-mail and professional in the manner in which they write it.

It also is critical to retain messages only as long as necessary. Generally, voice mail messages should be deleted immediately after listening to them, and e-mail messages should be deleted within 120 days of the date that it was sent or received. Records that need to be maintained for longer than 120 days should be saved in a format other than e-mail. E-mail over 120 days old will be automatically deleted. Advance notice will be communicated within Lotus Notes prior to deletion.

CONFLICTS OF INTEREST

Employees must not occupy positions or become involved in situations that place them in a conflict of interest with the Company. This includes accepting gifts from, working for, owning an interest in, or using confidential information of a vendor, supplier, customer or competitor of the Company. Even the appearance of a conflict of interest can be detrimental to the Company and must be avoided.

A conflict of interest arises when an employee engages in any activity that detracts from or interferes with the employee’s objectivity, effectiveness, duty of loyalty, and timely performance of services for the Company. A conflict of interest also arises when an employee or a member of the employee’s family has a financial or other interest which might influence the employee’s judgment on behalf of the Company. The Company construes the phrase “member of the employee’s family” broadly to include at least an employee’s spouse, domestic partner, child, spouse or domestic partner of a child, parent, in-law, sibling, dependent, aunts, uncles, or any adult sharing the employee’s residence.

Conflicts of interest can arise in many situations. For example, an employee has a conflict if he or she operates or has a financial interest in an enterprise, or has a family member who operates or has a financial interest in an enterprise, in the same industry as one in which the Company is engaged. An employee also has a conflict if he or she, or a member of his or her family, purchases goods or services from a supplier of the Company at less than retail price (other than the normal discount available to all employees of the Company or to the general public). In addition, an employee has a conflict if he or she, or a member of his or her family, may benefit from the employee’s position at the Company’s expense.

Loans and/or guarantees for any financial obligations granted to any employee, including but not limited to officers and directors are of special concern and must be disclosed to and approved by the Board of Directors.

In general, no employee should: (a) accept a gift from; (b) be employed by, consult, serve as a director, volunteer or otherwise render services to; (c) own or have an ownership interest in; (d) be a creditor of; or (e) obtain confidential information for personal benefit from any person, firm or entity that supplies goods or services to, purchases goods or services from, or is a competitor of the Company, its subsidiaries or affiliates. The only exceptions to this general rule are that it is not a conflict for employees to own insubstantial amounts of stock in publicly-held companies with whom the Company does business or competes, or to accept non-cash gifts and/or entertainment more specifically described below.

Employees, officers and directors are also prohibited from (a) taking for themselves personally opportunities that are discovered through the use of Company property, information or position; (b) using Company property, information, or position for personal gain; and (c) competing with the Company. Employees, officers and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

GIFTS

Employees are prohibited from soliciting gifts, gratuities, or any other personal benefit or favor of any kind from vendors or potential vendors. Gifts include not only merchandise and products, but also personal services, theater tickets, tickets for sports events, and any other tangible or intangible items, services or favors that are valuable and not available to all employees on an equal basis. Except as provided below, employees are discouraged from accepting unsolicited gifts, and are prohibited from accepting gifts of money and gifts in any form which would induce or obligate them to

give special consideration to the person or company making the gift.

During any calendar year, employees may accept unsolicited, non-monetary gifts provided: (1) they are items of nominal intrinsic value ($150.00 or less in aggregate retail value); or (2) they are product samples, clearly marked with company or brand names, and distributed to a large group of our employees on an equal basis. Any gift of more than nominal intrinsic value must be reported to Marita O’Dea, Lee Roever or Nina Fabian in the Human Resources Department to determine whether it can be accepted. Whether or not the gift is accepted, employees should tactfully discourage the person or company making the gift from making similar gifts in the future.

ENTERTAINMENT

Employees shall not encourage or solicit entertainment from any individual or company with whom our Company does business. Entertainment includes, but is not limited to, activities such as dinner parties, theater parties and sports events. From time to time, employees may accept unsolicited entertainment, but only under the following conditions:

(1) the entertainment occurs infrequently;

(2) the entertainment arises out of the ordinary course of business;

(3) the entertainment involves reasonable, not lavish, expenditures (the amounts involved should be ones employees are accustomed to spending normally for their own business or personal entertainment);

(4) the entertainment takes place in settings that also are reasonable, appropriate and fitting to our employees, their hosts and the business at hand; and

(5) the employee is not tempted to give and does not feel obligated to give to the individual or company providing the entertainment any special consideration.

An employee who becomes involved in a situation that creates a conflict of interest, or the appearance of one, should notify his or her supervisor and seek guidance from the Compliance Committee or the Legal Department. The Company ordinarily will expect the conflict of interest to be eliminated, but there are occasions when apparent conflicts may be acceptable depending upon all of the circumstances. The Company reserves the right to take all necessary actions to eliminate any such conflict in its sole discretion.

DRUG AND ALCOHOL USE AND TESTING

It is the Company’s intention to provide a safe and productive work environment for all of its employees. Drug and alcohol use threaten the safety and productivity of the work environment.

While working on Company premises, employees shall not use, possess, sell, distribute, purchase or be under the influence of illegal narcotics or other controlled substances (unless pursuant to a current, valid prescription issued by a medical professional). Any employee convicted of improper use, possession or dealing in narcotics or other controlled substances may be discharged immediately. Off the job illegal drug use also may subject employees to discipline if such use could adversely affect job performance or jeopardize Company interests or the safety of other employees or the public.

In addition, the unauthorized use or being under the influence of alcoholic beverages while on the job may subject employees to disciplinary action up to and including immediate termination of employment. An employee whose job requires the operation of a motor vehicle and who is convicted for driving under the influence of alcohol will be immediately discharged.

The Company encourages employees who may have a problem with or who are dependent upon drugs and/or alcohol to use the Company’s Employee Assistance Program (“EAP”) at 1-800-445-8988, which is intended to assist employees with personal problems. Information regarding the EAP is available from the Human Resources Department.

An employee whose job performance or behavior indicates that he or she may be unfit for duty shall not be permitted to work. If allowed under applicable state laws, the Company may require a medical examination by a doctor, including diagnostic tests, as a condition of continued employment. If use of drugs or alcohol is substantiated, disciplinary action may be imposed. Refusal to consent to such tests will force the Company to determine the appropriate discipline based on information available to it and without the benefit of potentially exculpatory test results.

ENVIRONMENTAL COMPLIANCE

Employees must conduct the Company’s business in a manner that reduces potential adverse environmental impacts, enhances conservation of energy and natural resources, and complies in all respects with applicable laws designed to protect the natural and workplace environment.

Employees shall abide by all applicable environmental laws and regulations, and must not authorize, direct, approve, or condone violations of those laws or regulations by any other person. Employees also must not knowingly enter any false information on any governmental environmental form, on any monitoring report, or in response to any request for environmental information from any governmental agency.

Violation of environmental laws or regulations can have serious consequences for the Company and for the individuals involved. The Company and individual employees may be liable not only for the costs of cleaning up pollution resulting from the Company’s activities, but also for significant penalties. Violations of environmental laws can subject the Company to civil penalties of tens of thousands of dollars per day. In egregious situations, very large criminal fines and imprisonment of individual employees may also be imposed.

IMPLEMENTATION OF THE CODE

THE COMPLIANCE COMMITTEE

The Company’s General Counsel is the Chairman of the Compliance Committee, with ultimate responsibility for all matters overseen or addressed by the Committee, including the Company’s compliance with applicable laws and the Code. The General Counsel has appointed several officers of NMG to serve on the Compliance Committee, as listed in Appendix 1. In consultation with management, the Compliance Committee has appointed Compliance Officers for each operating division and subsidiary of the Company who are accessible at a local level and to whom employees may address questions and report violations.

DISSEMINATION OF INFORMATION

All employees receive a copy of the Code and are required to sign a Certification representing that they have received and reviewed it, understand their obligation to comply with the Code’s requirements and to report any violations. Periodically, employees may be asked to re-certify their understanding and compliance with the Code. Signed Certifications are submitted to the appropriate Human Resources Department for inclusion in the employee’s personnel file.

The Company retains the right to update, amend, or modify the Code at any time without prior notice. The Compliance Committee and Compliance Officers are available to answer all employee questions concerning the meaning and application of the Code and its related policies. Employees also may ask their supervisors to relay questions or concerns to a Compliance Officer, a member of the Compliance Committee, or to the Legal Department.

TRAINING AND EDUCATION

The Compliance Committee oversees and coordinates the training of designated employees regarding the Code and its policies. The Legal Department may conduct periodic compliance meetings and distribute guidelines to further educate employees regarding the Code’s contents.

The Code summarizes certain key laws, policies and ethical principles under which difficulties may arise so that an employee can bring possible problems to the Company’s attention before illegal or unethical activities occur. The Company recognizes, however, that the materials contained in the Code and those distributed to supplement the Code cannot possibly anticipate all potential problems that employees may encounter. To a significant extent, the Company must rely upon each individual employee to act with integrity, to use his or her best judgment, to seek guidance when necessary and to do the right thing in any given situation.

DISCIPLINE FOR VIOLATIONS

Employees are expected to follow the letter and the spirit of the law and the Code. Supervisors are responsible for the behavior of employees under their direction and control.

The Company will follow whatever procedures and take whatever disciplinary action it deems appropriate under the particular circumstances. In addition to disciplinary action that the Company may impose in the ordinary course of conducting its business, the Code provides specific disciplinary guidelines. Under the Code, disciplinary action up to and including termination of employment may be taken against the following:

• Employees who authorize or participate directly in actions that violate the law or the Code;

• Employees who fail to report a violation of the law or the Code, or who withhold relevant and material information concerning a violation of which they are aware or should be aware;

• The violator’s supervisor(s), to the extent that the circumstances of the violation reflect inadequate supervision or lack of diligence by the supervisor(s);

• Employees who attempt or encourage others to retaliate, directly or

indirectly, against individuals who report violations of the law or the Code; and

• Employees who submit reports of violations or suspected violations which the employees know or should know are false.

INVESTIGATING AND RESPONDING TO ALLEGATIONS OF VIOLATIONS

All reported violations of the law or the Code will be investigated promptly and will be treated confidentially to the extent reasonable and possible under the circumstances. The Compliance Committee coordinates all investigations of wrongdoing and confers with Company management regarding any recommended corrective action.

Employees are expected to cooperate in the investigation of alleged violations of the law or the Code. It is imperative, however, that employees not conduct even a preliminary investigation of any possible violations without first obtaining the approval of the Compliance Committee. Investigations may raise complicated legal issues, and if conducted without the approval, advice and supervision of the Compliance Committee could result in adverse consequences.

RETENTION OF OUTSIDE LEGAL COUNSEL

Periodically, the Company will retain outside counsel to provide advice regarding legal compliance, assist in conducting internal investigations, or represent the Company in litigation or governmental investigations. Only the Legal Department may decide when to retain outside counsel to represent or to advise the Company, and it will select, hire and supervise outside counsel. No one other than the Legal Department may retain outside counsel with respect to any Company matter.

THE NEIMAN MARCUS GROUP, INC.

CODE OF ETHICS AND CONDUCT

CERTIFICATION

I have received The Neiman Marcus Group, Inc.’s Code of Ethics and Conduct (the “Code”). I have read the Code, understand its contents, and agree to abide by it. I acknowledge that the Code is a statement of legal and ethical principles and of individual and business conduct. It is not an employment contract between me and the Company, and does not change my at-will employment status. I understand that my failure to comply with the Code or other Company policies may subject me to disciplinary action, up to and including the immediate termination of my employment.

I further understand my responsibility to report violations of the Code, potential violations of the Code, and violations of any laws and that I should report such matters to my supervisor, any attorney in the Legal Department, my designated Compliance Officer, the Compliance Committee, or Associate Relations.

The Company reserves the right to update, amend or modify the Code at any time without prior notice.

Signature

Print name

Associate #

Title

Company

Date

Please return this form to your Department Manager or Human Resources Department.

EX-14.2 13 a03-3701_1ex14d2.htm EX-14.2

Exhibit 14.2

NEIMAN MARCUS GROUP CODE OF ETHICS
FOR FINANCIAL PROFESSIONALS

The Neiman Marcus Group (“NMG”) encourages professional conduct in the practice of its financial management companywide. Employees of the finance organization hold an important and elevated role in corporate governance in that they are uniquely capable and empowered to ensure that all stakeholders’ interests are appropriately balanced, protected and preserved. This Code of Ethics is intended to supplement the NMG Code of Ethics and Conduct and provides specific financial principles to which NMG financial associates are expected to adhere and advocate in addition to the principles detailed in the NMG Code of Ethics and Conduct. NMG expects all of its financial associates to act in accordance with the highest standards of personal and professional integrity in all aspects of their activities, to comply with all applicable laws, rules and regulations, to deter wrongdoing and abide by the NMG Code of Ethics and Conduct and other policies and procedures adopted by NMG that govern the conduct of its associates. The Code of Ethics for Financial Professionals applies to the NMG Chief Executive Officer and Chief Financial Officer, Financial and Accounting Officers at all NMG divisions and subsidiaries, and all professionals serving in a finance, accounting, treasury, tax or investor relations role throughout the NMG organization.

All financial associates of The Neiman Marcus Group will:

(a) Act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.

(b) Avoid conflicts of interest and promptly report any possible violation of this Code of Ethics to the Compliance Committee or any of the parties or channels listed in the Neiman Marcus Group Code of Ethics and Conduct.

(c) Respect the confidentiality of information acquired in the course of one’s work except when authorized or otherwise legally obligated to disclose.

(d) Provide stakeholders with information that is accurate, complete, objective, relevant, timely and understandable.

(e) Comply with applicable governmental laws, rules and regulations, as well as the rules and regulations of self-regulatory organizations of which NMG and its subsidiaries are a member. Compliance includes, but is not limited to, rules and regulations set forth by the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), and adherence with Generally Accepted Accounting Principles (GAAP).

(f) Act responsibly in good faith, with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated.

(g) Not use confidential information acquired in the course of one’s work for personal advantage. This includes not taking for yourself any opportunity for financial gain that you find out about because of your position within the company or through the use of company property or information.

(h) Not falsify or distort the true nature of any transaction, always recording and classifying transactions in the proper accounting period, and supporting transactions with accurate documentation.

(i) Support, with appropriate documentation, any estimates and accruals that are necessary in company reports and records, based on good faith judgment.

(j) Achieve responsible use of and control over all assets and resources employed or entrusted.

You are specifically prohibited from directly or indirectly taking any action to influence, coerce, manipulate or mislead NMG’s independent public auditors as they render their opinion regarding the fairness of the financial statements of NMG or its subsidiaries.

You understand that you will be held accountable for your adherence to this Code of Ethics for Financial Professionals. Your failure to observe the terms of this Code may result in disciplinary action, up to and including termination of employment. Violations of this Code of Ethics for Financial Professionals may also constitute violations of law and may result in civil and criminal penalties for you, your supervisors and/or NMG.

If you have any questions regarding the best course of action in a particular situation, you should promptly contact the Company’s General Counsel, who is Chairman of the Compliance Committee. You may choose to remain anonymous in reporting any possible violation of this Code of Ethics. For Financial Professionals

EX-21.1 14 a03-3701_1ex21d1.htm 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 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.

NMGP, LLC	Virginia	The Neiman Marcus Group, Inc.

NM Nevada Trust	Massachusetts	The Neiman Marcus Group, Inc. (90 shares) Bergdorf Goodman, Inc. (10 shares)

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

Worth Avenue Leasing Company	Florida	The Neiman Marcus Group, Inc.

EX-23.1 15 a03-3701_1ex23d1.htm EX-23.1

EXHIBIT 23.1

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statements No. 33-35299, No. 333-35829, No. 333-58906 and No. 333-105604 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 18, 2003, appearing in the Annual Report on Form 10-K of The Neiman Marcus Group, Inc. for the year ended August 2, 2003.

/s/DELOITTE & TOUCHE LLP

Dallas, Texas
October 1, 2003

EX-31.1 16 a03-3701_1ex31d1.htm EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 1, 2003


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

EX-31.2 17 a03-3701_1ex31d2.htm EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James E. Skinner, certify that:

1. I have reviewed this annual report on Form 10-K of The Neiman Marcus Group, Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 1, 2003


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

EX-32 18 a03-3701_1ex32.htm EX-32

EXHIBIT 32

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the following certifications are being made to accompany the Registrant’s annual report on Form 10-K for the fiscal year ended August 2, 2003:

Certification of Chief Executive Officer(1)

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Neiman Marcus Group, Inc. (the Company) hereby certifies, to such officer’s knowledge, that:

(i) the Annual Report on Form 10-K of the Company for the fiscal year ended August 2, 2003 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: October 1, 2003		/s/ Burton M. Tansky
		Burton M. Tansky
		President and Chief Executive Officer

Certification of Chief Financial Officer(1)

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: October 1, 2003		/s/ James E. Skinner
		James E. Skinner
		Senior Vice President and Chief Financial Officer

(1)A signed original of this written statement required by Section 906 has been provided to The Neiman Marcus Group, Inc. and will be retained by The Neiman Marcus Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

INDEPENDENT AUDITORS’ REPORT

NOTE 1. Summary of Significant Accounting Policies

NOTE 2. Securitization of Credit Card Receivables

August 2, 2003

Range During Fiscal Year 2003

NOTE 3. Goodwill and Intangible Assets

NOTE 5. Long-term Debt

NOTE 6. Common Shareholders’ Equity

NOTE 9. Employee Benefit Plans

NOTE 10. Effect of Change in Vacation Policy

NOTE 11. Impairment and Other Charges

NOTE 12. Commitments and Contingencies

Years Ended

NOTE 15. Segment Reporting

NOTE 16. Quarterly Financial Information (Unaudited)

Article I. PREAMBLE

Article II. MEETINGS OF STOCKHOLDERS

Article III. DIRECTORS

Article IV. OFFICERS

Article V. STOCK

Article VI. NOTICES

Article VII. GENERAL PROVISIONS

Article VIII. INDEMNIFICATION

INDEPENDENT AUDITORS’ CONSENT

August 2,
2003

Range During
Fiscal Year 2003