Section 1. Definitions. Unless the context clearly indicates otherwise, when used in this Plan:

Section 2. Severance Benefits. Each Eligible Executive who executes a Release at the time and in the manner prescribed by the Company (and who does not revoke such Release)

Section 3. Treatment of Equity Incentive Awards. Upon the occurrence of a Change of Control during the period in which this Plan is effective, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by the Eligible Executive shall be automatically accelerated or waived effective as of the date of the Change of Control; provided, however, that in the event any such outstanding equity incentive award is replaced as of the occurrence of the Change of Control by comparable types of awards of greater or at least substantially equivalent value, as determined in the sole discretion of the administrator of the equity incentive award plan under which the outstanding award was granted, no such automatic acceleration or waiver shall occur, except to the extent the administrator of the applicable equity incentive award plan, in its sole discretion, provides for such acceleration or waiver, or unless such acceleration or waiver is expressly provided for in connection with such replacement or under the terms of the applicable award agreement.

Section 4. Form and Time of Payment. The cash severance pay benefits payable to an Eligible Executive by his or her Employer under Section 2 shall be paid to such Eligible Executive in a single lump sum less applicable withholdings within the later of (i) 15 business days after the Eligible Executive’s date of termination or (ii) the expiration of the revocation period, if applicable, under the Release, except with respect to any additional bonus amount payable after such time period to the extent required pursuant to Section 2(a)(iii) above and except as provided pursuant to Section 5.

Section 5. Tax Withholding and Deferral. Each Employer shall withhold from any amount payable to an Eligible Executive pursuant to this Plan, and shall remit to the appropriate governmental authority, any income, employment or other tax the Employer is required by applicable law to so withhold from and remit on behalf of such Eligible Executive. Notwithstanding any other provision of this Plan or certain compensation and benefit plans of the Employer, any payments or benefits due under this Plan or such Employer compensation and benefit plans upon or in connection with a termination of Executive’s employment shall be deferred and paid no earlier than six months following such termination of Executive’s employment, if, and only to the extent, required to comply with Section 409A of the Code.

Section 6. Limitation of Certain Payments.

Section 7. Plan Administration. This Plan shall be administered by the Compensation Committee of the Board. The Committee shall have discretionary and final authority to interpret and implement the provisions of this Plan and to determine eligibility for benefits under the Plan. The Committee shall perform all of the duties and exercise all of the powers and discretion that the Committee deems necessary or appropriate for the proper administration of this Plan. Every interpretation, choice, determination or other exercise by the Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under this Plan or otherwise directly or indirectly affected by such action, without restriction, however, upon the right of the Committee to reconsider or redetermine such action. The Committee may adopt such rules and regulations for the administration of this Plan as are consistent with the terms hereof, and shall keep adequate records of its proceedings and acts. The Committee may employ such agents, accountants and legal counsel (who may be agents, accountants and legal counsel for an Employer) as may be appropriate for the administration of the Plan. All reasonable administration expenses incurred by the Committee in connection with the administration of the Plan shall be paid by the Employer.

Section 8. Claims Procedure. If any person (hereinafter called the “Claimant”) feels he or she is being denied a benefit to which he or she is entitled under this Plan, such Claimant may file a written claim for said benefit with the Chairman of the Committee. Within 60 days of the receipt of such claim the Committee shall determine and notify the Claimant as to whether he or she is entitled to such benefit. Such notification shall be in writing and, if denying the claim for benefit, shall set forth the specific reason or reasons for the denial, make specific reference to the pertinent Plan provisions, and advise the Claimant that he or she may, within 60 days of the receipt of such notice, request in writing to appear before the Committee or its designated

representative for a hearing to review such denial. Any such hearing shall be scheduled at the mutual convenience of the Committee or its designated representative and the Claimant, and at such hearing the Claimant and/or his or her duly authorized representative may examine any relevant documents and present evidence and arguments to support the granting of the benefit being claimed. The final decision of the Committee with respect to the claim being reviewed shall be made within 60 days following the hearing thereon, and the Committee shall in writing notify the Claimant of its final decision, again specifying the reasons therefor and the pertinent Plan provisions upon which such decision is based. The final decision of the Committee shall be conclusive and binding upon all parties having or claiming to have an interest in the matter being reviewed.

Section 9. Plan Amendment and Termination. The Company shall have the right and power at any time and from time to time to amend this Plan, in whole or in part, by written document executed by its duly authorized representative and at any time to terminate this Plan; provided, however, that no such amendment or termination shall reduce the amount of severance pay payable under this Plan to a former Executive whose employment with an Employer terminated prior to the date of such amendment or termination, or defer the date for the payment of such former Executive’s benefit hereunder except as provided pursuant to Section 5, without the consent of such former Executive. Any provision of this Plan to the contrary notwithstanding, any action to amend or terminate this Plan on or after the date on which a Change of Control occurs shall not be effective prior to the end of the two-year period beginning on the effective date of the Change of Control.

Section 10. Nature of Plan and Rights. This Plan is an unfunded employee welfare benefit plan and no provision of this Plan shall be deemed or construed to create a trust fund of any kind or to grant a property interest of any kind to any Executive or former Executive. Any payment which becomes due under this Plan to an Eligible Executive shall be made by his or her Employer out of its general assets, and the right of any Eligible Executive to receive a payment hereunder from his or her Employer shall be no greater than the right of any unsecured general creditor of such Employer.

Section 11. Entire Agreement; Offset; Modification.

Section 12. Spendthrift Provision. No right or interest of an Eligible Executive under this Plan may be assigned, transferred or alienated, in whole or in part, either directly or by operation of law, and no such right or interest shall be liable for or subject to any debt, obligation or liability of such Eligible Executive.

Section 13. Notice. Notice of termination without Cause or for Good Reason shall be given in accordance with this Section, and shall indicate the specific termination provision under the Plan relied upon, the relevant facts and circumstances and the effective date of termination. For the purpose of this Plan, any notice and all other communication provided for in this Plan shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as the Company or the Eligible Executive may have furnished to the other in writing in accordance herewith.

Section 14. Applicable Law. This Plan shall be governed and construed in accordance with applicable federal law.

Section 15. Effectiveness. This Plan shall be effective as of the date of adoption by the Board and shall remain in effect until terminated pursuant to Section 9 of this Plan.

Section 1. Definitions. Unless the context clearly indicates otherwise, when used in this Plan:

Section 2. Severance Benefits. Each Eligible Employee who executes a Release at the time and in the manner prescribed by the Company (and who does not revoke such Release) and who agrees to be subject to the restrictive covenants set forth on Exhibit A shall be entitled to the following:

Section 3. Treatment of Equity Incentive Awards. Upon the occurrence of a Change of Control during the period in which this Plan is effective, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by the Eligible Employee shall be automatically accelerated or waived effective as of the date of the Change of Control; provided, however, that in the event any such outstanding equity incentive award is replaced as of the occurrence of the Change of Control by comparable types of awards of greater or at least substantially equivalent value, as determined in the sole discretion of the administrator of the equity incentive award plan under which the outstanding award was granted, no such automatic acceleration or waiver shall occur, except to the extent the administrator of the applicable equity incentive award plan, in its sole discretion, provides for such acceleration or waiver, or unless such acceleration or waiver is expressly provided for in connection with such replacement or under the terms of the applicable award agreement.

Section 4. Form and Time of Payment. The cash severance pay benefits payable to an Eligible Employee by his or her Employer under Section 2 shall be paid to such Eligible Employee in a single lump sum less applicable withholdings, except as provided pursuant to Section 5, within the later of (i) 15 business days after the Eligible Employee’s date of termination or (ii) the expiration of the revocation period, if applicable, under the Release.

Section 5. Tax Withholding and Deferral. Each Employer shall withhold from any amount payable to an Eligible Employee pursuant to this Plan, and shall remit to the appropriate governmental authority, any income, employment or other tax the Employer is required by applicable law to so withhold from and remit on behalf of such Eligible Employee. Notwithstanding any other provision of this Plan or certain compensation and benefit plans of the Employer, any payments or benefits due under this Plan or such Employer compensation and benefit plans upon or in connection with a termination of Employee’s employment shall be deferred and paid no earlier than six months following such termination of Employee’s employment, if, and only to the extent, required to comply with Section 409A of the Code.

Section 6. Limitation of Certain Payments.

Section 7. Plan Administration. This Plan shall be administered by the Compensation Committee of the Board. The Committee shall have discretionary and final authority to interpret and implement the provisions of this Plan and to determine eligibility for benefits under the Plan. The Committee shall perform all of the duties and exercise all of the powers and discretion that the Committee deems necessary or appropriate for the proper administration of this Plan. Every interpretation, choice, determination or other exercise by the Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under this Plan or otherwise directly or indirectly affected by such action, without restriction, however, upon the right of the Committee to reconsider or redetermine such action. The Committee may adopt such rules and regulations for the administration of this Plan as are consistent with the terms hereof, and shall keep adequate records of its proceedings and acts. The Committee may employ such agents, accountants and legal counsel (who may be agents, accountants and legal counsel for an Employer) as may be appropriate for the administration of the Plan. All reasonable administration expenses incurred by the Committee in connection with the administration of the Plan shall be paid by the Employer.

Section 8. Claims Procedure. If any person (hereinafter called the “Claimant”) feels he or she is being denied a benefit to which he or she is entitled under this Plan, such Claimant may file a written claim for said benefit with the Chairman of the Committee. Within 60 days of the receipt of such claim the Committee shall determine and notify the Claimant as to whether he or she is entitled to such benefit. Such notification shall be in writing and, if denying the claim for benefit, shall set forth the specific reason or reasons for the denial, make specific reference to the pertinent Plan provisions, and advise the Claimant that he or she may, within 60 days of the receipt of such notice, request in writing to appear before the Committee or its designated representative for a hearing to review such denial. Any such hearing shall be scheduled at the mutual convenience of the Committee or its designated representative and the Claimant, and at such hearing the Claimant and/or his or her duly authorized representative may examine any relevant documents and present evidence and arguments to support the granting of the benefit being claimed. The final decision of the Committee with respect to the claim being reviewed shall be made within 60 days following the hearing thereon, and the Committee shall in writing notify the Claimant of its final decision, again specifying the reasons therefor and the pertinent Plan provisions upon which such decision is based. The final decision of the Committee shall be conclusive and binding upon all parties having or claiming to have an interest in the matter being reviewed.

Section 9. Plan Amendment and Termination. The Company shall have the right and power at any time and from time to time to amend this Plan, in whole or in part, by written document executed by its duly authorized representative and at any time to terminate this Plan; provided, however, that no such amendment or termination shall reduce the amount of severance pay payable under this Plan to a former Employee whose employment with an Employer terminated prior to the date of such amendment or termination, or defer the date for the payment of such former Employee’s benefit hereunder except as provided pursuant to Section 5, without the consent of such former Employee. Any provision of this Plan to the contrary notwithstanding, any action to amend or terminate this Plan on or after the date on which a Change of Control occurs shall not be effective prior to the end of the two-year period beginning on the effective date of the Change of Control.

Section 10. Nature of Plan and Rights. This Plan is an unfunded employee welfare benefit plan and no provision of this Plan shall be deemed or construed to create a trust fund of any kind or to grant a property interest of any kind to any Employee or former Employee. Any payment which becomes due under this Plan to an Eligible Employee shall be made by his or her Employer out of its general assets, and the right of any Eligible Employee to receive a payment hereunder from his or her Employer shall be no greater than the right of any unsecured general creditor of such Employer.

Section 11. Entire Agreement; Offset; Modification.

Section 12. Spendthrift Provision. No right or interest of an Eligible Employee under this Plan may be assigned, transferred or alienated, in whole or in part, either directly or by operation of law, and no such right or interest shall be liable for or subject to any debt, obligation or liability of such Eligible Employee.

Section 13. Applicable Law. This Plan shall be governed and construed in accordance with applicable federal law.

Section 14. Effectiveness. This Plan shall be effective as of the date of adoption by the Board and shall remain in effect until terminated pursuant to Section 9 of this Plan.

(a) “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.

(b) “Base Salary” means Executive’s annual rate of base salary in effect on the date in question, determined prior to reduction for any employee-elected salary reduction contributions made to an Employer-sponsored non-qualified deferred compensation plan or an Employer-sponsored plan pursuant to Section 401(k) or 125 of the Internal Revenue Code, and excluding bonuses, overtime, allowances, commissions, deferred compensation payments and any other extraordinary remuneration.

(c) “Board” means the board of directors of the Company.

(d) “Bonus” means the amount payable to Executive under the Company’s applicable annual incentive bonus plan with respect to a fiscal year of the Company.

(e) “Cause” means

(f) “Change of Control” means, and shall be deemed to have occurred:

(g) “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(h) “Code” means the Internal Revenue Code of 1986, as amended.

(i) “Committee” means the committee designated pursuant to Section 7 to administer this Plan.

(j) “Company” means The Neiman Marcus Group, Inc., a Delaware corporation and, after a Change of Control, any successor or successors thereto.

(k) “Eligible Executive” means an Executive whose employment with Executive’s Employer (i) is involuntarily terminated by the Employer for any reason other than Cause (A) in connection with or in anticipation of a Change of Control at the request of, or upon the initiative of, the buyer in the Change of Control transaction (an “Anticipatory Termination”), but only if an anticipated Change of Control actually occurs during the period in which this Plan is effective (in which case Executive’s date of termination shall be deemed to have occurred immediately following the Change of Control) or (B) during the two-year period beginning on the effective date of a Change of Control, or (ii) terminates during the two-year period beginning on the effective date of a Change of Control on account of such Executive’s resignation for Good Reason within six months from the date the Executive first becomes aware of the existence of Good Reason; provided, however, that the employment of an Executive shall not be considered to have been “involuntarily terminated” in any of the following circumstances:

(l) “Employer” means the Company and any other Affiliate of the Company which adopts this Plan with the consent of the Board.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “Executive” means an employee of an Employer as of the date of a Change of Control who is listed on Schedule A attached hereto.

(o) “Good Reason” means any of the following actions on or after a Change of Control, without Executive’s express prior written approval, other than due to Executive’s Total Disability or death:

(p) “Plan” means THE NEIMAN MARCUS GROUP, INC. EXECUTIVE CHANGE OF CONTROL SEVERANCE PLAN as in effect from time to time.

(q) “Plan Year” means the calendar year.

(r) “Release” means a release to be signed by an Eligible Executive in such form as the Company shall determine, which shall, to the extent permitted by law, waive all claims and actions against the Employers and Affiliates and such other related parties and entities as the Company chooses to include in the release except for claims and actions for benefits provided under the terms of this Plan (which Release is not revoked by the Eligible Executive).

(s) “Target Bonus” means the greater of (1) Executive’s target Bonus in effect on the date of the Change of Control or (2) Executive’s target Bonus in effect immediately prior to the event set forth in the notice of termination given in accordance with Section 13.

(t) “Total Disability” “ means that, in the Company’s reasonable judgment, either (1) Executive has been unable to perform Executive’s 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 12 consecutive calendar months, or (2) Executive has become totally and permanently incapable of performing the usual duties of his employment with the Company on account of a physical or mental impairment.

(a) Severance Pay. Such an Eligible Executive shall be entitled to receive severance pay from his or her Employer in a lump sum amount equal to (i) 1.5 multiplied by the greater of the Eligible Executive’s Base Salary in effect (A) immediately prior to the date of the Change of Control or (B) immediately prior to the event set forth in the notice of termination given in accordance with Section 13, (ii) 1.5 multiplied by the Target Bonus and (iii) the Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days the Eligible Executive was employed by the Eligible Executive’s Employer in the Employer fiscal year in which the Eligible Executive’s termination occurs and the denominator of which shall equal 365 (the “Bonus Fraction”); provided that if the effective date of the Eligible Executive’s termination occurs after more than 75% of the Company’s fiscal year has elapsed, then, if it is ultimately determined that the Bonus the Eligible Executive would have been entitled to receive for the fiscal year in which such termination occurs, determined based solely upon actual Employer performance for such fiscal year and excluding any qualitative performance criteria that would otherwise apply to such determination (i.e., assuming any qualitative or subjective performance requirements were satisfied in full) (the “Year-End Bonus”), is greater than the Target Bonus, within 15 business days following such determination (and in any event, no later than the date annual bonuses for such fiscal year are otherwise paid to active employees of the Employer), the Employer shall also pay the Eligible Executive an amount in cash equal to the excess of the Year-End Bonus over the Target Bonus multiplied by the Bonus Fraction. In the event of an Anticipatory Termination, such Eligible Executive shall also be entitled to receive an amount equal to Executive’s Base Salary from the date of Executive’s termination through the date immediately following the Change of Control and any Bonus for the previously completed fiscal year, if not previously paid due to Executive’s earlier termination of employment.

(b) Medical, Dental and Life Insurance Benefit Continuation. For 18 months following the Eligible Executive’s termination of employment (the “Welfare Continuation Period”), the Eligible Executive and such Eligible Executive’s spouse and dependents (each as defined under the applicable program) shall receive the following benefits: (i) medical and dental insurance coverages at the same benefit level as provided to the Eligible Executive immediately prior to the Change of Control, for which the Company will (A) reimburse the Eligible Executive during the first 18 months of the Welfare Continuation Period or, if shorter, the period of actual COBRA continuation coverage received by the Eligible Executive during the Welfare Continuation Period, for the total amount of the monthly COBRA medical and dental insurance premiums payable by the Eligible Executive for such continued benefits (by reducing such premium obligations to zero) and (B) provide such coverage for any remaining portion of the Welfare Continuation Period at the same cost to the Eligible Executive as is generally provided to similarly situated active employees of the Company (provided, however, that if, during the Welfare Continuation Period, the Eligible Executive becomes employed by a new employer, continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which the Eligible Executive becomes enrolled); and (ii) life insurance coverage at the same benefit level as provided

to the Eligible Executive immediately prior to the Change of Control and at the same cost to the Eligible Executive as is generally provided to similarly situated active employees of the Company (or if such coverage is no longer provided by the Company, then at the Executive’s cost immediately prior to the Change of Control).

(c) Accrued Benefits. Such Eligible Executive shall be entitled to receive any unpaid Base Salary through the date of such Eligible Executive’s termination, any Bonus earned but unpaid as of the date of such Eligible Executive’s termination for any previously completed fiscal year of the Company, and all compensation previously deferred by such Eligible Executive but not yet paid as well as the Company’s matching contribution with respect to such deferred compensation with respect to the year in which such termination of employment occurs and all accrued interest thereon. In addition, such Eligible Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by such Eligible Executive in accordance with Company policies prior to the date of such Eligible Executive’s termination. Such Eligible Executive shall also receive such other benefits, if any, to which such Eligible Executive may be entitled pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy and as provided in Section 11.

(d) Retirement Benefits. As of the Termination Date, (i) such Eligible Executive, to the extent not then a participant in, shall be deemed a participant in, and to the extent not then vested, shall become fully vested in such Eligible Executive’s benefits under, The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the “SERP”) and (ii) such Eligible Executive shall become entitled to, and the Company shall pay such Eligible Executive a cash lump sum equal to the excess of:

(e) Retiree Medical. Following such Eligible Executive’s entitlement to continued active employee benefits pursuant to Section 2(b), if Executive was eligible for retiree medical benefits as of the Termination Date, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to provide, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control.

(f) Outplacement. For 18 months following such Eligible Executive’s termination of employment, the Company shall promptly pay (or, in the discretion of the Eligible Executive, reimburse the Eligible Executive for all reasonable expenses incurred) for professional outplacement services by Drake Beam Morin, Inc. or another comparable qualified consultant selected by the Company, but for no longer than the date the Eligible Executive first obtains full-time employment after the date of termination of employment.

(g) Discount. At all times from and following such Eligible Executive’s termination of employment, the Company shall provide to the Eligible Executive and the Eligible Executive’s spouse and dependents (each as defined under the Company’s applicable policies) all merchandise discounts available to the Company’s employees immediately prior to the Change of Control.

(h) Equity Incentive Awards. Any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by such Eligible Executive shall, if not previously accelerated or waived pursuant to Section 3, be automatically accelerated or waived effective as of the effective date of such Eligible Executive’s termination of employment.

(i) Restrictive Covenants. In consideration of the provision of the foregoing benefits provided in this Section 2 and as otherwise set forth in the Plan, Executive hereby agrees to be bound by the restrictive covenants set forth in Exhibit A attached hereto.

(a) In the event the Employer determines, based upon the advice of the independent public accountants for the Employer, that part or all of the consideration, compensation or benefits to be paid to Executive under this Plan constitute “parachute payments” under Section 280G(b)(2) of the Code, as amended, then, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to Executive under any other plan, arrangement or agreement which constitute “parachute payments” (collectively, the “Parachute Amount”) exceeds 2.99 times the Executive’s “base amount”, as defined in Section 280G(b)(3) of the Code (the “Executive Base Amount”), the amounts constituting “parachute payments” which would otherwise be payable to or for the benefit of Executive shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Executive Base Amount (the “Reduced Amount”); provided that such amounts shall not be so reduced if the Executive determines, based upon the advice of an independent nationally recognized public accounting firm (which may, but need not be the independent public accountants of the Employer), that without such reduction Executive would be entitled to receive and retain, on a net after tax basis (including, without limitation, any excise taxes payable under Section 4999 of the Code), an amount which is greater than the amount, on a net after tax basis, that the Executive would be entitled to retain upon his receipt of the Reduced Amount.

(b) If the determination made pursuant to clause (a) of this Section 6 results in a reduction of the payments that would otherwise be paid to Executive except for the application of clause (a) of this Section 6, Executive may then elect, in his sole discretion, which and how much of any particular entitlement shall be eliminated or reduced and shall advise the Employer in writing of his election within ten days of the determination of the reduction in payments. If no such election is made by Executive within such ten-day period, the Employer may elect which and how much of any entitlement shall be

eliminated or reduced and shall notify Executive promptly of such election. Within ten days following such determination and the elections hereunder, the Employer shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Plan and shall promptly pay to or distribute to or for the benefit of Executive in the future such amounts as become due to Executive pursuant to this Plan.

(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Employer which should not have been made under clause (a) of this Section 6 (“Overpayment”) or that additional payments which are not made by the Employer pursuant to clause (a) of this Section 6 should have been made (“Underpayment”). In the event that there is a final determination by the Internal Revenue Service, or a final determination by a court of competent jurisdiction, that an Overpayment has been made, any such Overpayment shall be repaid by Executive to the Employer together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In the event that there is a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations pursuant to which an Underpayment arises under this Plan, any such Underpayment shall be promptly paid by the Employer to or for the benefit of Executive, together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.

(a) This Plan constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes the provisions of all other prior agreements expressly concerning the payment of severance benefits upon a termination of employment in connection with or following a Change of Control. Without limiting the generality of the preceding sentence, the payment of any amounts and provision of any benefits pursuant to Section 2 of this Plan shall be in lieu of and shall supersede Executive’s entitlement to payments or benefits pursuant to paragraph 1(a) of the Confidentiality, Non-Competition and Termination Benefits Agreement between Executive and the Company (to the extent such agreement is currently in effect). In all other respects, any such Confidentiality, Non-Competition and Termination Benefits Agreement shall remain in full force and effect, including with respect to any amounts payable or benefits to be provided prior to and otherwise not in connection with a Change of Control; provided, that in no event shall payments or benefits provided pursuant to the Confidentiality, Non-Competition and Termination Benefits Agreement or any other

severance agreement or policy entitle Executive to a duplication of payments and benefits pursuant to this Plan and, in the event of an Anticipatory Termination, any amount payable hereunder shall be offset and reduced by the amount of any termination payments or benefits previously provided to Executive under the Confidentiality, Non-Competition and Termination Benefits Agreement or any other severance arrangement with the Company.

(b) Except as expressly provided herein, this Plan shall not interfere in any way with the right of the Company to reduce Executive’s compensation or other benefits or terminate Executive’s employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company.

(a) “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.

(b) “Board” means the board of directors of the Company.

(c) “Bonus” means the amount payable to Employee under the Company’s applicable annual incentive bonus plan with respect to a fiscal year of the Company.

(d) “Cause” means

(e) “Change of Control” means, and shall be deemed to have occurred:

(f) “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(g) “Code” means the Internal Revenue Code of 1986, as amended.

(h) “Committee” means the committee designated pursuant to Section 7 to administer this Plan.

(i) “Company” means The Neiman Marcus Group, Inc., a Delaware corporation and, after a Change of Control, any successor or successors thereto.

(j) “Eligible Employee” means an Employee whose employment with Employee’s Employer is involuntarily terminated by the Employer for any reason other than Cause (i) in connection with or in anticipation of a Change of Control at the request of, or upon the initiative of, the buyer in the Change of Control transaction (an “Anticipatory Termination”), but only if an anticipated Change of Control actually occurs during the period in which this Plan is effective (in which case the Employee’s date of termination shall be deemed to have occurred immediately following the Change of Control) or (ii) during the two-year period beginning on the effective date of a Change of Control;provided, however, that:

(k) “Employee” means an employee of an Employer who holds one of the position classifications specified in Schedule A annexed hereto at the time of a Change of Control or an equivalent position as determined by the Committee, who is not eligible to receive benefits pursuant to The Neiman Marcus Group, Inc. Executive Change of Control Severance Plan and who is not performing services for an Employer as a leased worker or an independent contractor.

(l) “Employer” means the Company and any other Affiliate of the Company which adopts this Plan with the consent of the Board.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “Plan” means THE NEIMAN MARCUS GROUP, INC. GENERAL CHANGE OF CONTROL SEVERANCE PLAN as in effect from time to time.

(o) “Plan Year” means the calendar year.

(p) “Release” means a release to be signed by an Eligible Employee in such form as the Company shall determine, which shall, to the extent permitted by law, waive all claims and actions against the Employers and Affiliates and such other related parties and entities as the Company chooses to include in the release except for claims and actions for benefits provided under the terms of this Plan (which Release is not revoked by the Eligible Executive).

(q) “Total Disability” means that, in the Company’s reasonable judgment, either (1) Employee has been unable to perform Employee’s 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 12 consecutive calendar months, or (2) Employee has become totally and permanently incapable of performing the usual duties of his employment with the Company on account of a physical or mental impairment.

(r) “Weekly Base Compensation” means the greater of (A) the annual base compensation or salary being paid by an Employer to the Employee in effect immediately prior to the date of the Change of Control and (B) the annual base compensation or salary being paid by an Employer to the Employee in effect immediately prior to the effective date of the Employee’s termination, in each case, determined prior to reduction for any employee-elected salary reduction contributions made to an Employer-sponsored non-qualified deferred compensation plan or an Employer-sponsored plan pursuant to Section 401(k) or 125 of the Internal Revenue Code, and excluding bonuses, overtime, allowances, commissions, deferred compensation payments and any other extraordinary remuneration, multiplied by a fraction, the numerator of which shall equal 1 and the denominator of which shall equal 52.

(s) “Years of Service” means the number of whole years of continuous service commencing on an Eligible Employee’s initial date of employment as an Eligible Employee or, if later, his or her date of reemployment as an Eligible Employee with an Employer or an Affiliate and ending on the date such Eligible Employee’s employment as an Eligible Employee with an Employer terminates entitling such Eligible Employee to severance pay benefits hereunder; provided, however, that service prior to an Employee’s reemployment with an Employer or an Affiliate shall not be included in computing Years of Service if (i) ten or more years elapsed from the date of the Employee’s prior termination of employment with an Employer or an Affiliate and the Employee’s date of reemployment as an Eligible Employee with an Employer or an Affiliate, or (ii) the Employee was provided severance pay or other severance benefits by an Employer or Affiliate at the time of such earlier termination of employment under this Plan or any other severance pay plan, program, arrangement, policy or

practice of an Employer or an Affiliate. In determining the number of an Employee’s Years of Service, an Employee’s period of service consisting of a partial year shall be rounded up or down to the nearest whole year. Transfers of employment between and among Employers and Affiliates shall not be considered an interruption or termination of continuous service for purposes of determining an Eligible Employee’s Years of Service.

(a) Severance Pay. Such an Eligible Employee shall be entitled to receive severance pay from his or her Employer in a lump sum amount equal to the sum of (i) the amount of the Eligible Employee’s Weekly Base Compensation multiplied by a minimum number of weeks based on such Eligible Employee’s completion of two or less Years of Service (the “Minimum Weeks of Severance”) and (ii) an additional number of weeks of Weekly Base Compensation (the “Additional Weeks of Severance”) multiplied by each Year of Service above the initial two Years of Service referenced in the preceding clause (i), subject to a specified a maximum number of weeks of severance (the “Maximum Weeks of Severance”). The Minimum Weeks of Severance, Additional Weeks of Severance and Maximum Weeks of Severance shall be based on the Eligible Employee’s position classification, as specified in Schedule A annexed hereto. For purposes of clarification and by way of example only, if a Company Vice President was an Eligible Employee with ten Years of Service and entitled to 16 Minimum Weeks of Severance, four Additional Weeks of Severance and 52 Maximum Weeks of Severance, the such Eligible Employee would be entitled to 48 weeks of severance (16 weeks, plus four weeks multiplied by eight Years of Service (32 weeks)). In the event that an Eligible Employee has previously received severance or retention pay from an Employer or an Affiliate, the amount of which was calculated pursuant to a formula based upon the Employee’s prior period of employment, and all or part of such prior period of employment is also taken into account in determining such Employee’s Years of Service hereunder (such common period of employment to be referred to herein as the “Overlap Years”), then the portion of the amount of the cash severance benefit such Employee shall be eligible to receive pursuant to this Plan in accordance with the preceding provisions of this Section 2 that is attributable to the Overlap Years shall be offset (but not below zero) by an amount equal to the amount of such prior payment that was attributable to the Overlap Years. In the event of an Anticipatory Termination, such Eligible Employee shall also be entitled to receive an amount equal to Employee’s Weekly Base Compensation from the date of Employee’s termination through the date immediately following the Change of Control and any Bonus for the previously completed fiscal year, if not previously paid due to Employee’s earlier termination of employment.

(b) Medical and Dental Insurance Benefit Continuation. For the number of weeks with respect to which such Eligible Employee receives severance which follow such Eligible Employee’s termination of employment (the “Welfare Continuation Period”), the Eligible Employee and such Eligible Employee’s spouse and dependents (each as defined under the

applicable program) shall receive the following benefits: medical and dental insurance coverages at the same benefit level as provided to the Eligible Employee immediately prior to the Change of Control, for which the Company will (A) reimburse the Eligible Employee during the Welfare Continuation Period or, if shorter, the period of actual COBRA continuation coverage received by the Eligible Employee during the Welfare Continuation Period, for the excess of (x) the total amount of the COBRA medical and dental insurance premiums payable by the Eligible Employee for such continued benefits over (y) the premiums that would otherwise have been payable by the Eligible Employee for such coverage as an active employee of the Company (by reducing such premium obligations by such excess) and (B) provide such coverage for any remaining portion of the Welfare Continuation Period at the same cost to the Eligible Employee as is generally provided to similarly situated active employees of the Company (provided, however, that if, during the Welfare Continuation Period, the Eligible Employee becomes employed by a new employer, continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which the Eligible Employee becomes enrolled).

(c) Accrued Benefits. Such Eligible Employee shall be entitled to receive any unpaid Weekly Base Compensation through the date of such Eligible Employee’s termination, any Bonus earned but unpaid as of the date of such Eligible Employee’s termination for any previously completed fiscal year of the Company, and all compensation previously deferred by such Eligible Employee but not yet paid as well as the Company’s matching contribution with respect to such deferred compensation with respect to the year in which such termination of employment occurs and all accrued interest thereon. In addition, such Eligible Employee shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by such Eligible Employee in accordance with Company policies prior to the date of such Eligible Employee’s termination. Such Eligible Employee shall also receive such other benefits, if any, to which such Eligible Employee may be entitled pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy and as provided in Section 11.

(d) Outplacement. Such an Eligible Employee shall be provided professional outplacement services by qualified consultants selected by the Company at the Employer’s cost, at a benefit level based on the Eligible Employee’s position classification as specified in Schedule A annexed hereto (but for no longer than the date the Eligible Employee first obtains full-time employment after the date of termination of employment).

(e) Discount. At all times from and following such Eligible Employee’s termination of employment during which the Employee also meets the age and service requirements for retirement eligibility pursuant to the Employer’s applicable programs and policies, the Company shall provide to the Eligible Employee and the Eligible Employee’s spouse and dependents (each as defined under the Company’s applicable policies) all merchandise discounts available to the Company’s employees immediately prior to the Change of Control.

(f) Equity Incentive Awards. Any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by such Eligible Employee, if not previously accelerated or waived pursuant to Section 3, shall be automatically accelerated or waived effective as of the effective date of Employee’s termination of employment.

(g) Restrictive Covenants. In consideration of the provision of the foregoing benefits provided in this Section 2 and as otherwise set forth in the Plan, Employee hereby agrees to be bound by the restrictive covenants set forth in Exhibit A attached hereto.

(a) In the event the Employer determines, based upon the advice of the independent public accountants for the Employer, that part or all of the consideration, compensation or benefits to be paid to Employee under this Plan constitute “parachute payments” under Section 280G(b)(2) of the Code, as amended, then, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to Employee under any other plan, arrangement or agreement which constitute “parachute payments” (collectively, the “Parachute Amount”) exceeds 2.99 times the Employee’s “base amount”, as defined in Section 280G(b)(3) of the Code (the “Employee Base Amount”), the amounts constituting “parachute payments” which would otherwise be payable to or for the benefit of Employee shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Employee Base Amount (the “Reduced Amount”).

(b) If the determination made pursuant to clause (a) of this Section 6 results in a reduction of the payments that would otherwise be paid to Employee except for the application of clause (a) of this Section 6, Employee may then elect, in his sole discretion, which and how much of any particular entitlement shall be eliminated or reduced and shall advise the Employer in writing of his election within ten days of the determination of the reduction in payments. If no such election is made by Employee within such ten-day period, the Employer may elect which and how much of any entitlement shall be eliminated or reduced and shall notify Employee promptly of such election. Within ten days following such determination and the elections hereunder, the Employer shall pay to or distribute to or for the benefit of Employee such amounts as are then due to Employee under this Plan and shall promptly pay to or distribute to or for the benefit of Employee in the future such amounts as become due to Employee pursuant to this Plan.

(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Employer which should not have been made under clause (a) of this Section 6 (“Overpayment”) or that additional payments which are not made by the Employer pursuant to clause (a) of this Section 6 should have been made (“Underpayment”). In the event that there is a final determination by the Internal Revenue Service, or a final determination by a court of competent jurisdiction, that an Overpayment has been made, any such Overpayment shall be repaid by the Employee to the Employer together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In the event that there is a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations pursuant to which an Underpayment arises under this Plan, any such Underpayment shall be promptly paid by the Employer to or for the benefit of Employee, together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.

(a) This Plan constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes the provisions of all other prior agreements expressly concerning the payment of severance benefits upon a termination of employment of an Employee in connection with or following a Change of Control (the “Prior Agreements”). In all other respects, any Prior Agreement shall remain in full force and effect, including with respect to any amounts payable or benefits to be provided prior to and otherwise not in connection with a Change of Control; provided, that in no event shall payments or benefits provided pursuant to any Prior Agreement or any other severance agreement or policy entitle Employee to a duplication of payments and benefits pursuant to this Plan and, in the event of an Anticipatory Termination, any amount payable hereunder shall be offset and reduced by the amount of any termination payments or benefits previously provided to Employee under any Prior Agreement.

(b) Except as expressly provided herein, this Plan shall not interfere in any way with the right of the Company to reduce Employee’s compensation or other benefits or terminate Employee’s employment, with or without Cause. Any rights that Employee shall have in that regard shall be as set forth in any applicable employment agreement between Employee and the Company.

d. Retirement Benefits. As of the Termination Date, (i) Executive, to the extent not then a participant in, shall be deemed a participant in, and to the extent not then vested, shall become fully vested in Executive’s benefits under, The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the “SERP”) and (ii) Executive shall become entitled to, and the Company shall pay, within the Payment Period, Executive a cash lump sum equal to the excess of:

e. Retiree Medical. Following Executive’s entitlement to continued active employee benefits pursuant to Section 3(b), if Executive was eligible for retiree medical benefits as of the Termination Date, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to provide, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control.

f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for professional outplacement services by Drake Beam Morin, Inc. or another comparable qualified consultant selected by the Company, but for no longer than the date Executive first obtains full-time employment after the Termination Date (not to exceed $75,000). At all times from and following the Termination Date, the Company shall provide to Executive and Executive’s spouse and dependents (each as defined under the Company’s applicable policies) all merchandise discounts available to the Company’s employees immediately prior to the Change of Control.

g. Equity Incentive Awards. Any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by Executive, if not previously accelerated or waived pursuant to the first paragraph of this Section 3, shall be automatically accelerated or waived effective as of the Termination Date.

a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its Affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a “Payment”) is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the “Excise Tax”), Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 5(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the “Safe Harbor Amount”), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, is reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.

b. All determinations required to be made under this Section 5, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive’s residence or place of

employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive’s behalf) when the applicable tax is due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due (“Underpayment”). In the event that the Company exhausts its remedies pursuant to Section 5(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

c. Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax

(including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 5(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. The Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 5, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company’s complying with the requirements of Section 5(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid.

a. This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes the provisions of all other prior agreements expressly concerning the payment of severance benefits upon a termination of employment in connection with or following a Change of Control during the Term. Without limiting the generality of the preceding sentence, the payment of any amounts and provision of any benefits pursuant to Section 3 of this Agreement shall be in lieu of and

shall supersede Executive’s entitlement to payments or benefits pursuant to paragraphs 7(e), 7(f) and 7(g) of the Employment Agreement. In all other respects, the Employment Agreement shall remain in full force and effect, including with respect to any amounts payable or benefits to be provided prior to and otherwise not in connection with a Change of Control; provided, that in no event shall payments or benefits provided pursuant to the Employment Agreement or any other severance agreement or policy entitle Executive to a duplication of payments and benefits pursuant to this Agreement and, in the event of an Anticipatory Termination, any amount payable hereunder shall be offset and reduced by the amount of any termination payments or benefits previously provided to Executive under the Employment Agreement or any other severance arrangement with the Company.

b. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive’s compensation or other benefits or terminate Executive’s employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.

a. Severance Payments. Within the later of (i) 15 business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the “Payment Period”), except with respect to any additional bonus amount payable after the Payment Period to the extent required pursuant to clause (3) below, the Company shall pay Executive a cash lump sum equal to:

b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple (the “Welfare Continuation Period”), the Company shall provide Executive and Executive’s spouse and dependents (each as defined under the applicable program) with the following benefits: (i) medical and dental insurance coverages at the same benefit level as provided to Executive immediately prior to the Change of Control, for which the Company will (A) reimburse Executive during the first 18 months of the Welfare Continuation Period or, if shorter, the period of actual COBRA continuation coverage received by Executive during the Welfare Continuation Period, for the total amount of the monthly COBRA medical and dental insurance premiums payable by Executive for such continued benefits (by reducing such premium obligations to zero) and (B) provide coverage for the remainder of the Welfare Continuation Period at the same cost to Executive as is generally provided to similarly situated active employees of the Company (provided, however, that if, during the Welfare Continuation Period, Executive becomes employed by a new employer, continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled); and (ii) life insurance coverage at the same benefit level as provided to Executive immediately prior to the Change of Control and at the same cost to Executive as is generally provided to similarly situated active employees of the Company (or if such coverage is no longer provided by the Company, then at the Executive’s cost immediately prior to the Change of Control.

c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, and all compensation previously deferred by Executive but not yet paid as well as the Company’s matching contribution with respect to such deferred compensation with respect to the year in which such Termination Date occurs and all accrued interest thereon. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other benefits, if any, to which Executive may be entitled pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy and as provided in Section 14 of this Agreement (payments and benefits in this subsection (c), the “Accrued Benefits”).

d. Retirement Benefits. As of the Termination Date, (i) Executive, to the extent not then a participant in, shall be deemed a participant in, and to the extent not then vested, shall become fully vested in Executive’s benefits under, The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan as in effect immediately prior to the Change of Control (the “SERP”) and (ii) Executive shall become entitled to, and the Company shall pay, within the Payment Period, Executive a cash lump sum equal to the excess of:

e. Retiree Medical. Following Executive’s entitlement to continued active employee benefits pursuant to Section 3(b), if Executive was eligible for retiree medical benefits as of the Termination Date, using the eligibility criteria in effect immediately prior to the Change of Control, Executive shall be entitled to, and Company shall be required to provide, retiree medical coverage at the same benefit level and at the same cost to Executive as specified by the retiree medical plan in effect immediately prior to the Change of Control.

f. Other Benefits. For a period of years following the Termination Date equal to the Severance Multiple, the Company shall promptly pay (or, in the discretion of Executive, reimburse Executive for all reasonable expenses incurred) for professional outplacement services by Drake Beam Morin, Inc. or another comparable qualified consultant selected by the Company, but for no longer than the date Executive first obtains full-time employment after the Termination Date. At all times from and following the Termination Date, the Company shall provide to Executive and Executive’s spouse and dependents (each as defined under the Company’s applicable policies) all merchandise discounts available to the Company’s employees immediately prior to the Change of Control.

g. Equity Incentive Awards. Any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by Executive, if not previously accelerated or waived pursuant to the first paragraph of this Section 3, shall be automatically accelerated or waived effective as of the Termination Date.

a. In the event it shall be determined that any payment, benefit or distribution (or combination thereof) by the Company, any of its Affiliates, or one or more trusts established by the Company for the benefit of its employees, to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, or otherwise) (a “Payment”) is subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, hereinafter collectively referred to as the “Excise Tax”), Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 5(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payment does not exceed 110% of the greatest amount that could be paid to Executive without giving rise to any Excise Tax (the “Safe Harbor Amount”), then no Gross-Up Payment shall be made to Executive and the amounts payable under this Agreement shall be reduced so that the Payment, in the aggregate, is reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 3(a), unless an alternative method of reduction is elected by Executive.

b. All determinations required to be made under this Section 5, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company; provided that for purposes of determining the amount of any Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state and local income taxes at the highest effective rates applicable to individuals in the state or locality of Executive’s residence or place of employment in the calendar year in which any such Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can

be obtained from deduction of such state and local taxes, taking into account limitations applicable to individuals subject to federal income tax at the highest marginal rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by the Company to Executive (or to the appropriate taxing authority on Executive’s behalf) when the applicable tax is due. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall so indicate to Executive in writing. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive was lower than the amount actually due (“Underpayment”). In the event that the Company exhausts its remedies pursuant to Section 5(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

c. Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without

limitation on the foregoing provisions of this Section 5(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; provided, further, that if Executive is required to extend the statute of limitations to enable the Company to contest such claim, Executive may limit this extension solely to such contested amount. The Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

d. If, after the receipt by Executive of an amount paid or advanced by the Company pursuant to this Section 5, Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company’s complying with the requirements of Section 5(c)) promptly pay to the Company the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid.

a. This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes the provisions of all other prior agreements expressly concerning the payment of severance benefits upon a termination of employment in connection with or following a Change of Control during the Term. Without limiting the generality of the preceding sentence, the payment of any amounts and provision of any benefits pursuant to Section 3 of this Agreement shall be in lieu of and shall supersede Executive’s entitlement to payments or benefits pursuant to paragraph 1(a) of the Prior Agreement. In all other respects, the Prior Agreement shall remain in full force and effect, including with respect to

any amounts payable or benefits to be provided prior to and otherwise not in connection with a Change of Control; provided, that in no event shall payments or benefits provided pursuant to the Prior Agreement or any other severance agreement or policy entitle Executive to a duplication of payments and benefits pursuant to this Agreement and, in the event of an Anticipatory Termination, any amount payable hereunder shall be offset and reduced by the amount of any termination payments or benefits previously provided to Executive under the Prior Agreement or any other severance arrangement with the Company.

b. Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company to reduce Executive’s compensation or other benefits or terminate Executive’s employment, with or without Cause. Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company. This Agreement may be changed only by a written agreement executed by the Company and Executive.

(1) the willful and continued failure by Executive to substantially perform duties consistent with Executive’s position with the Company (other than any such failure resulting from incapacity due to physical or mental illness or termination by Executive for Good Reason), after a demand for substantial performance is delivered to Executive by the Board, together with a copy of the resolution of the Board that specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties, which resolution must be passed by at least ²/₃ of the entire Board at a meeting called for the purpose and after an opportunity for Executive and Executive’s counsel to be heard by the Board, and Executive has failed to resume substantial performance of Executive’s duties on a continuous basis within 14 days of receiving such demand;

(2) the willful engaging by Executive in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, as set forth in a resolution of the Board, which resolution must be passed by at least ²/₃ of the entire Board at a meeting called for the purpose and after an opportunity for Executive and Executive’s counsel to be heard by the Board; or

(3) Executive’s conviction of a felony, or conviction of a misdemeanor involving assets of the Company.

For purposes of this definition, no act, or failure to act, on Executive’s part shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company.

(1) upon the consummation of any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation that would result in the stockholders of the Company immediately prior thereto owning voting securities immediately thereafter (either by the securities such stockholders owned immediately prior thereto remaining outstanding or by the securities such stockholders owned immediately prior thereto being converted into voting securities of the surviving entity) representing more than 50% of the combined voting power of the voting securities of the Company, the acquiring entity or such surviving entity, as the case may be, outstanding immediately after such merger or consolidation;

(2) if any person or group (as used in Section 13(d) of the Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 40% of (a) the shares of the Company’s Class B Common Stock then outstanding or (b) the combined voting power (other than in the election of directors) of all voting securities of the Company then outstanding;

(3) if, during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board, and any director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (²/₃) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than death or disability) to constitute at least a majority thereof; or

(4) upon the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a liquidation of the Company into a wholly-owned subsidiary.

(1) if an Executive’s employment with an Employer is terminated by reason of a transfer to the employ of another Employer or an Affiliate,

(2) if an Executive’s employment with an Employer is terminated by reason of a transfer to the employ of another entity into which the Employer is merged or otherwise consolidated; provided such entity adopts this Plan,

(3) if an Executive’s employment with an Employer is terminated upon the expiration of a leave of absence by reason of his or her failure to return to work at such time or the absence at such time of an available position for which the Executive is qualified,

(4) if an Executive’s employment with an Employer is terminated in connection with the sale of stock or the sale or lease by such Employer of all or part of its assets if (i) such Employer determines in its sole discretion that either (A) in connection with such sale or lease such Executive was offered employment for a comparable position at a comparable salary, annual bonus opportunity and employee benefits with the purchaser or lessee, as the case may be, of the Employer’s stock or assets or (B) such Executive voluntarily elected not to

participate in the selection process for such employment and (ii) the purchaser or lessee adopts this Plan,

(5) if an Executive resigns from employment with an Employer under circumstances that do not constitute Good Reason, and

(6) if Executive’s employment is terminated due to a death or Total Disability.

(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;

(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits (excluding, for the avoidance of doubt, the Company’s termination of the Plan in accordance with, and subject to, the provisions of Section 9 of the Plan);

(3) any diminution in Executive’s title or primary reporting relationship, or substantial diminution in duties or responsibilities; provided, however, that no such diminution or substantial diminution, as applicable, shall be deemed to occur (a) solely as a result of (x) the Company ceasing to be a publicly held corporation or (y) the Company becoming a subsidiary or division of another entity, provided that (A) such subsidiary or division continues to represent substantially all of the business operations of the Company as in effect immediately prior to the Change of Control and (B) the Executive does not suffer a diminution in title or primary reporting relationship or substantial diminution in duties or responsibilities with respect to such subsidiary or division relative to his or her title, primary reporting relationship or duties or responsibilities with the Company immediately prior to such Change of Control or (b) as a result of a diminution in connection with a corporate or management reorganization or restructuring which similarly affects a substantial percentage of other Company executives with similar responsibility levels at the Company;

(4) any relocation of Executive’s principal place of business of 50 miles or more, other than normal travel consistent with past practice, or any requirement that Executive engage in excessive business-related travel in a manner inconsistent with past practice in any material respect; or

(5) the failure of any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in connection with any Change of Control, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely and unconditionally to assume and agree to perform this Plan, or the Confidentiality, Non-Competition and Termination Benefits Agreement or any other employment agreement to which the Company and Executive are party, in each case, which remains in effect as of immediately prior to such Change of Control, in the same manner and to the same extent that the Company would be required to perform any such agreement if no such succession or assignment had taken place.

Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.

(1) the willful and continued failure by Employee to substantially perform duties consistent with Employee’s position with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a demand for substantial performance is delivered to Employee, and Employee has failed to resume substantial performance of Employee’s duties on a continuous basis within 14 days of receiving such demand;

(2) the willful engaging by Employee in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or

(3) Employee’s commission of a felony, commission of a misdemeanor involving assets of the Company, or violation of the Company merchandise discount policy.

For purposes of this definition, no act, or failure to act, on Employee’s part shall be deemed “willful” unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee’s action or omission was in the best interest of the Company.

(1) upon the consummation of any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation that would result in the stockholders of the Company immediately prior thereto owning voting securities immediately thereafter (either by the securities such stockholders owned immediately prior thereto remaining outstanding or by the securities such stockholders owned immediately prior thereto being converted into voting securities of the surviving entity) representing more than 50% of the combined voting power of the voting securities of the Company, the acquiring entity or such surviving entity, as the case may be, outstanding immediately after such merger or consolidation;

(2) if any person or group (as used in Section 13(d) of the Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 40% of (a) the shares of the Company’s Class B Common Stock then outstanding or (b) the combined voting power (other than in the election of directors) of all voting securities of the Company then outstanding;

(3) if, during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board, and any director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than death or disability) to constitute at least a majority thereof; or

(4) upon the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a liquidation of the Company into a wholly-owned subsidiary.

(1) the term “Eligible Employee” shall not include:

(2) the employment of an Employee shall not be considered to have been “involuntarily terminated” in any of the following circumstances:

One Marcus Square

1618 Main Street

Dallas, Texas 75201

INDEX

(1) the Severance Multiple times the greater of Executive’s Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and

(2) the Severance Multiple times the Target Bonus; and

(3) Executive’s Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive’s termination occurs and the denominator of which shall equal 365 (the “Bonus Fraction”); provided that if the Termination Date occurs after more than 75% of the Company’s fiscal year has elapsed, then, if it is ultimately

determined that the Bonus Executive would have been entitled to receive for the fiscal year in which such Termination Date occurs, determined based solely upon actual Company performance for such fiscal year and excluding any qualitative performance criteria that would otherwise apply to such determination (i.e., assuming any qualitative or subjective performance requirements were satisfied in full) (the “Year-End Bonus”), is greater than the Target Bonus, within 15 business days following such determination (and in any event, no later than the date annual bonuses for such fiscal year are otherwise paid to active employees of the Company), the Company shall also pay Executive an amount in cash equal to the excess of the Year-End Bonus over the Target Bonus multiplied by the Bonus Fraction; and

(4) in the event of an Anticipatory Termination, an amount equal to Executive’s Base Salary from the date of Executive’s termination through the Termination Date and any Bonus for the previously completed fiscal year, if not previously paid due to Executive’s earlier termination of employment.

(1) the Actuarial Equivalent of the single life annuity that would be payable to Executive under the terms of the SERP based on the accrued benefit as of the Termination Date, after (A) giving effect to the provisions of paragraph 5(c)(iv) of the Employment Agreement and (B) crediting Executive with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date (subject, in each case, to the 25 maximum years of service limitation set forth in the SERP, as applicable) for purposes of eligibility for participation, eligibility for retirement, for early commencement of actuarial subsidies and for purposes of benefit accrual; over

(2) the Actuarial Equivalent of the single life annuity that would be payable to Executive under the terms of SERP (assuming Executive was fully vested therein) in accordance with its terms as in effect immediately prior to the Change of Control, after giving effect to the provisions of paragraph 5(c)(iv) of the Employment Agreement, based on the accrued benefit as of the Termination Date.

(1) the Severance Multiple times the greater of Executive’s Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and

(2) the Severance Multiple times the Target Bonus; and

(3) Executive’s Target Bonus multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company or any of its Subsidiaries in the Company fiscal year in which the Executive’s termination occurs and the denominator of which shall equal 365 (the “Bonus Fraction”); provided that if the Termination Date occurs after more than 75% of the Company’s fiscal year has elapsed, then, if it is ultimately

determined that the Bonus Executive would have been entitled to receive for the fiscal year in which such Termination Date occurs, determined based solely upon actual Company performance for such fiscal year and excluding any qualitative performance criteria that would otherwise apply to such determination (i.e., assuming any qualitative or subjective performance requirements were satisfied in full) (the “Year-End Bonus”), is greater than the Target Bonus, within 15 business days following such determination (and in any event, no later than the date annual bonuses for such fiscal year are otherwise paid to active employees of the Company), the Company shall also pay Executive an amount in cash equal to the excess of the Year-End Bonus over the Target Bonus multiplied by the Bonus Fraction; and

(4) in the event of an Anticipatory Termination, an amount equal to Executive’s Base Salary from the date of Executive’s termination through the Termination Date and any Bonus for the previously completed fiscal year, if not previously paid due to Executive’s earlier termination of employment.

(1) the Actuarial Equivalent of the single life annuity that would be payable to Executive under the terms of the SERP based on the accrued benefit as of the Termination Date, after crediting Executive with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date (subject, in each case, to the 25 maximum years of service limitation set forth in the SERP, as applicable) for purposes of eligibility for participation, eligibility for retirement, for early commencement of actuarial subsidies and for purposes of benefit accrual; over

(2) the Actuarial Equivalent of the single life annuity that would be payable to Executive under the terms of SERP (assuming Executive was fully vested therein) in accordance with its terms as in effect immediately prior to the Change of Control, based on the accrued benefit as of the Termination Date.

(i) any Employee who is eligible to receive severance or similar type payments under the provisions of any other severance pay plan of, or any agreement (including but not limited to any employment or severance agreement) with, an Employer or an Affiliate,

(ii) a temporary Employee, including a project Employee, of an Employer or any other Employee who is not a regular, part-time or full-time Employee (as determined by the Employer in accordance with employment policies and practices established by such Employer),

(iii) any Employee who is not, as of the date immediately prior to his or her termination of employment, being paid on the Employer’s U.S.A. payroll,

(iv) any individual performing services for an Employer who is treated by such Employer as an independent contractor, or

(v) an Employee who is a member of a collective bargaining unit with which an Employer negotiates and with respect to whom no coverage under this Plan has been provided by a collective bargaining agreement; and

(i) an Employee whose employment with an Employer is terminated by reason of a transfer to the employ of another Employer or an Affiliate,

(ii) an Employee whose employment with an Employer is terminated by reason of a transfer to the employ of another entity into which the Employer is merged or otherwise consolidated; provided such entity adopts this Plan,

(iii) an Employee whose employment is terminated upon the expiration of a leave of absence by reason of his or her failure to return to work at such time or the absence at such time of an available position for which the Employee is qualified,

(iv) an Employee whose employment with an Employer is terminated in connection with the sale of stock or the sale or lease by such Employer of all or part of its assets if (i) such Employer determines in its sole discretion that either (A) in connection with such sale or lease such Employee was offered employment for a comparable position at a comparable salary, annual bonus opportunity and employee benefits with the purchaser or lessee, as the case may be, of the Employer’s stock or assets or (B) such Employee voluntarily elected not to participate in the selection process for such employment and (ii) the purchaser or lessee adopts this Plan,

(v) an Employee who resigns from employment with an Employer for any reason, or

(vi) an Employee whose employment is terminated due to death or Total Disability.

INDEX

(1) the Severance Multiple times the greater of Executive’s Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and

(2) the Severance Multiple times the Target Bonus; and

(1) the Severance Multiple times the greater of Executive’s Base Salary in effect (i) immediately prior to the date of the Change of Control or (ii) immediately prior to the event set forth in the notice of termination giving rise to the Termination Date; and

(2) the Severance Multiple times the Target Bonus; and

Construction Allowances. We receive allowances from developers related to the construction of our stores. These allowances are recorded as deferred real estate credits and are recognized as a reduction of rent expense on a straight-line basis over the lease term. Prior to 2005, we recorded these allowances as a reduction of capital expenditures and, as a result, the carrying values of our property and equipment. We have corrected the errors in the classification of construction allowances and, as a result, we have restated our balance sheets at May 1, 2004 and July 31, 2004 and our statement of cash flows for the thirty-nine weeks ended May 1, 2004.

The following table summarizes the impact of these restatements in our previously issued financial statements:

See Note 10 to the Condensed Consolidated Financial Statements for further discussion.

I. “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.

II. “Base Salary” means Executive’s annual rate of base salary in effect on the date in question.

III. “Board” means the board of directors of the Company.

IV. “Bonus” means the amount payable to Executive under the Company’s applicable annual incentive bonus plan with respect to a fiscal year of the Company.

V. “Cause” means

VI. “Change of Control” means, and shall be deemed to have occurred:

VII. “Class B Common Stock” means Class B Common Stock, par value $.01 per share, of the Company.

VIII. “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

IX. “Code” means the Internal Revenue Code of 1986, as amended.

X. “Company” means The Neiman Marcus Group, Inc. and, after a Change of Control, any successor or successors thereto.

XI. “Employment Agreement” means the Employment Agreement between Executive and the Company dated August 3, 2003.

XII. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

XIII. “Good Reason” means any of the following actions on or after a Change of Control, without Executive’s express prior written approval, other than due to Executive’s Total Disability or death:

XIV. “Severance Multiple” means 3.

XV. “Subsidiary” means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor Section thereto).

XVI. “Target Bonus” means the greater of (i) Executive’s target Bonus in effect on the date of the Change of Control or (ii) Executive’s target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.

XVII. “Total Disability” means that, in the Company’s reasonable judgment, either (1) Executive has been unable to perform Executive’s 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 12 consecutive calendar months, or (2) Executive has become totally and permanently incapable of performing the usual duties of his employment with the Company on account of a physical or mental impairment.

I. “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.

II. “Base Salary” means Executive’s annual rate of base salary in effect on the date in question.

III. “Board” means the board of directors of the Company.

IV. “Bonus” means the amount payable to Executive under the Company’s applicable annual incentive bonus plan with respect to a fiscal year of the Company.

V. “Cause” means

VI. “Change of Control” means, and shall be deemed to have occurred:

VII. “Class B Common Stock” means Class B Common Stock, par value $.01 per share, of the Company.

VIII. “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

IX. “Code” means the Internal Revenue Code of 1986, as amended.

X. “Company” means The Neiman Marcus Group, Inc. and, after a Change of Control, any successor or successors thereto.

XI. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

XII. “Good Reason” means any of the following actions on or after a Change of Control, without Executive’s express prior written approval, other than due to Executive’s Total Disability or death:

XIII. “Prior Agreement” means the Confidentiality, Non-Competition and Termination Benefits Agreement between Executive and the Company to the extent such agreement is currently in effect.

XIV. “Severance Multiple” means 2.

XV. “Subsidiary” means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto).

XVI. “Target Bonus” means the greater of (i) Executive’s target Bonus in effect on the date of the Change of Control or (ii) Executive’s target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.

XVII. “Total Disability” means that, in the Company’s reasonable judgment, either (1) Executive has been unable to perform Executive’s 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 12 consecutive calendar months, or (2) Executive has become totally and permanently incapable of performing the usual duties of his employment with the Company on account of a physical or mental impairment.

(1) the Actuarial Equivalent of the single life annuity that would be payable to such Eligible Executive under the terms of the SERP based on the accrued benefit as of the Termination Date, after crediting such Eligible Executive with an additional number of years of service and age equal to the Severance Multiple beyond that accrued as of the Termination Date (subject, in each case, to the 25 maximum years of service limitation set forth in the SERP, as applicable) for purposes of eligibility for participation, eligibility for retirement, for early commencement of actuarial subsidies and for purposes of benefit accrual; over

(2) the Actuarial Equivalent of the single life annuity that would be payable to such Eligible Executive under the terms of SERP (assuming the Eligible Executive was fully vested therein) in accordance with its terms as in effect immediately prior to the Change of Control, based on the accrued benefit as of the Termination Date.

The following table summarizes the impact of these restatements in our previously issued financial statements:

See Note 10 to the Condensed Consolidated Financial Statements for further discussion.

II. “Base Salary” means Executive’s annual rate of base salary in effect on the date in question.

III. “Board” means the board of directors of the Company.

IV. “Bonus” means the amount payable to Executive under the Company’s applicable annual incentive bonus plan with respect to a fiscal year of the Company.

V. “Cause” means

VI. “Change of Control” means, and shall be deemed to have occurred:

VII. “Class B Common Stock” means Class B Common Stock, par value $.01 per share, of the Company.

VIII. “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

IX. “Code” means the Internal Revenue Code of 1986, as amended.

X. “Company” means The Neiman Marcus Group, Inc. and, after a Change of Control, any successor or successors thereto.

XI. “Employment Agreement” means the Employment Agreement between Executive and the Company dated August 3, 2003.

XII. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

XIII. “Good Reason” means any of the following actions on or after a Change of Control, without Executive’s express prior written approval, other than due to Executive’s Total Disability or death:

XIV. “Severance Multiple” means 3.

XV. “Subsidiary” means a subsidiary corporation, as defined in Section 424(f) of the Code (or any successor Section thereto).

XVI. “Target Bonus” means the greater of (i) Executive’s target Bonus in effect on the date of the Change of Control or (ii) Executive’s target Bonus in effect immediately prior to the event set forth in the notice of termination giving rise to the Termination Date.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(1) the willful and continued failure by Executive to substantially perform duties consistent with Executive’s position with the Company (other than any such failure resulting from incapacity due to physical or mental illness or termination by Executive for Good Reason), after a demand for substantial performance is delivered to Executive by the Board, together with a copy of the resolution of the Board that specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties, which resolution must be passed by at least ²/₃ of the entire Board at a meeting called for the purpose and after an opportunity for Executive and Executive’s counsel to be heard by the Board, and Executive has failed to resume substantial performance of Executive’s duties on a continuous basis within 14 days of receiving such demand;

(2) the willful engaging by Executive in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, as set forth in a resolution of the Board, which resolution must be passed by at least ²/₃ of the entire Board at a meeting called for the purpose and after an opportunity for Executive and Executive’s counsel to be heard by the Board; or

(3) Executive’s conviction of a felony, or conviction of a misdemeanor involving assets of the Company.

(1) upon the consummation of any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation that would result in the stockholders of the Company immediately prior thereto owning voting securities immediately thereafter (either by the securities such stockholders owned immediately prior thereto remaining outstanding or by the securities such stockholders owned immediately prior thereto being converted into voting securities of the surviving entity) representing more than 50% of the combined voting power of the voting securities of the Company, the acquiring entity or such surviving entity, as the case may be, outstanding immediately after such merger or consolidation;

(2) if any person or group (as used in Section 13(d) of the Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 40% of (a) the shares of the Company’s Class B Common Stock then outstanding or (b) the combined voting power (other than in the election of directors) of all voting securities of the Company then outstanding;

(3) if, during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board, and any director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than death or disability) to constitute at least a majority thereof; or

(4) upon the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a liquidation of the Company into a wholly-owned subsidiary.

(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;

(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits (excluding, for the avoidance of doubt, the Company’s election not to extend the Agreement in accordance with, and subject to, the provisions of Section 2 of this Agreement);

(3) any diminution in Executive’s title or primary reporting relationship, or substantial diminution in duties or responsibilities (including, without limitation, the Company becoming a subsidiary or division of a parent operating entity (unless Executive retains or assumes the title and primary reporting relationship (without diminution) and duties and responsibilities (without substantial diminution), as in effect with respect to the Company immediately prior to the Change of Control, at, and with respect to, such parent operating entity)); provided, however, that no such diminution or substantial diminution, as applicable, shall be deemed to occur solely as a result of the Company ceasing to be a publicly held corporation;

(4) any relocation of Executive’s principal place of business of 50 miles or more, other than normal travel consistent with past practice, or any requirement that Executive engage in excessive business-related travel in a manner inconsistent with past practice in any material respect;

(5) the failure of any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in connection with any Change of Control, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement, the Employment Agreement or any other employment agreement to which the Company and Executive are party, in each case, which remains in

effect as of immediately prior to such Change of Control, in the same manner and to the same extent that the Company would be required to perform any such agreement if no such succession or assignment had taken place; or

(6) any additional event which would constitute Good Reason under the Employment Agreement or any other employment agreement to which the Company and Executive are party which remains in effect as of the date of the event giving rise to Good Reason.

(1) the willful and continued failure by Executive to substantially perform duties consistent with Executive’s position with the Company (other than any such failure resulting from incapacity due to physical or mental illness or termination by Executive for Good Reason), after a demand for substantial performance is delivered to Executive by the Board, together with a copy of the resolution of the Board that specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties, which resolution must be passed by at least ²/₃ of the entire Board at a meeting called for the purpose and after an opportunity for Executive and Executive’s counsel to be heard by the Board, and Executive has failed to resume substantial performance of Executive’s duties on a continuous basis within 14 days of receiving such demand;

(2) the willful engaging by Executive in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, as set forth in a resolution of the Board, which resolution must be passed by at least ²/₃ of the entire Board at a meeting called for the purpose and after an opportunity for Executive and Executive’s counsel to be heard by the Board; or

(3) Executive’s conviction of a felony, or conviction of a misdemeanor involving assets of the Company.

(1) upon the consummation of any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation that would result in the stockholders of the Company immediately prior thereto owning voting securities immediately thereafter (either by the securities such stockholders owned immediately prior thereto remaining outstanding or by the securities such stockholders owned immediately prior thereto being converted into voting securities of the surviving entity) representing more than 50% of the combined voting power of the voting securities of the Company, the acquiring entity or such surviving entity, as the case may be, outstanding immediately after such merger or consolidation;

(2) if any person or group (as used in Section 13(d) of the Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 40% of (a) the shares of the Company’s Class B Common Stock then outstanding or (b) the combined voting power (other than in the election of directors) of all voting securities of the Company then outstanding;

(3) if, during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board, and any director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than death or disability) to constitute at least a majority thereof; or

(4) upon the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a liquidation of the Company into a wholly-owned subsidiary.

(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;

(2) any material diminution in the aggregate employee benefits afforded to the Executive immediately prior to the Change of Control; for this purpose employee benefits shall include, but not be limited to pension benefits, life insurance and medical and disability benefits (excluding, for the avoidance of doubt, the Company’s election not to extend the Agreement in accordance with, and subject to, the provisions of Section 2 of this Agreement);

(3) any diminution in Executive’s title or primary reporting relationship, or substantial diminution in duties or responsibilities; provided, however, that no such diminution or substantial diminution, as applicable, shall be deemed to occur solely as a result of (x) the Company ceasing to be a publicly held corporation or (y) the Company becoming a subsidiary or division of another entity, provided that (A) such subsidiary or division continues to represent substantially all of the business operations of the Company as in effect immediately prior to the Change of Control and (B) the Executive does not suffer a diminution in title or primary reporting relationship or substantial diminution in duties or responsibilities with respect to such subsidiary or division relative to his or her title or primary reporting relationship or duties or responsibilities with the Company immediately prior to such Change of Control;

(4) any relocation of Executive’s principal place of business of 50 miles or more, other than normal travel consistent with past practice, or any requirement that Executive engage in excessive business-related travel in a manner inconsistent with past practice in any material respect; or

(5) the failure of any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company in connection with any Change of Control, by agreement in writing in form and substance reasonably satisfactory to Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement, the Prior Agreement or any other employment agreement to which the Company and Executive are party, in each case, which remains in effect as of immediately prior to such Change of Control, in the same manner

and to the same extent that the Company would be required to perform any such agreement if no such succession or assignment had taken place.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(3) Executive’s conviction of a felony, or conviction of a misdemeanor involving assets of the Company.

(4) upon the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a liquidation of the Company into a wholly-owned subsidiary.

(1) any decrease in, or any failure to increase in accordance with an agreement between Executive and the Company or any of its Subsidiaries, Base Salary or Target Bonus;

(4) any relocation of Executive’s principal place of business of 50 miles or more, other than normal travel consistent with past practice, or any requirement that Executive engage in excessive business-related travel in a manner inconsistent with past practice in any material respect;

effect as of immediately prior to such Change of Control, in the same manner and to the same extent that the Company would be required to perform any such agreement if no such succession or assignment had taken place; or

(6) any additional event which would constitute Good Reason under the Employment Agreement or any other employment agreement to which the Company and Executive are party which remains in effect as of the date of the event giving rise to Good Reason.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KvuSCCgs+edsysPKOfrEjYW+9Rr2eRFmxky+xaZKyCzb9e7Dm5rmh42LZ/1+Q2bS U0K1JnjlI3AaSpPYyeLc/g== 0001104659-05-027467.txt : 20050611 0001104659-05-027467.hdr.sgml : 20050611 20050609113921 ACCESSION NUMBER: 0001104659-05-027467 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050430 FILED AS OF DATE: 20050609 DATE AS OF CHANGE: 20050609 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: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09659 FILM NUMBER: 05886788 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-Q 1 a05-7847_410q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended April 30, 2005

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

Commission file no. 1-9659

The Neiman Marcus Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware		95-4119509
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

One Marcus Square
1618 Main Street
Dallas, Texas 75201
(Address of principal executive offices)

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

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ý

NO o

As of June 3, 2005, the number of outstanding shares of each of the issuer’s classes of common stock was:

Class	Outstanding Shares
Class A Common Stock, $.01 Par Value		29,525,199
Class B Common Stock, $.01 Par Value		19,422,379

THE NEIMAN MARCUS GROUP, INC.

Part I.	Financial Information

Item 1.	Condensed Consolidated Balance Sheets as of April 30, 2005, July 31, 2004 and May 1, 2004

	Condensed Consolidated Statements of Earnings for the Thirteen Weeks and Thirty-Nine Weeks Ended April 30, 2005 and May 1, 2004

	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended April 30, 2005 and May 1, 2004

	Notes to Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

Part II.	Other Information

Item 1.	Legal Proceedings

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.	Exhibits

Signatures

THE NEIMAN MARCUS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)	April 30, 2005			July 31, 2004			May 1, 2004
				(As Restated, See Note 9)
ASSETS
Current assets:
Cash and cash equivalents	$	337,589		$	368,367		$	311,985
Restricted cash	37,500			—			—
Accounts receivable, net of allowance of $11,956, $10,078 and $11,104	666,455			551,687			599,581
Merchandise inventories	788,915			720,277			715,539
Other current assets	49,715			65,835			46,372
Total current assets	1,880,174			1,706,166			1,673,477

Property and equipment, net	821,810			750,483			743,852
Other assets	137,822			160,999			119,442
Total assets	$	2,839,806		$	2,617,648		$	2,536,771

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	246,971		$	289,282		$	234,264
Accrued liabilities	352,526			286,833			316,305
Notes payable and current maturities of long-term liabilities	200			1,563			1,237
Current portion of borrowings under Credit Card Facility	187,500			150,000			37,500
Total current liabilities	787,197			727,678			589,306

Long-term liabilities:
Notes and debentures	249,773			249,757			249,751
Borrowings under Credit Card Facility	—			75,000			187,500
Deferred real estate credits	74,429			71,898			73,208
Other long-term liabilities	133,114			112,455			97,307
Total long-term liabilities	457,316			509,110			607,766

Minority interest	13,498			10,298			12,799

Common stocks	497			492			493
Additional paid-in capital	511,338			491,849			484,151
Accumulated other comprehensive loss	(3,432		)	(4,536		)	(26,752		)
Retained earnings	1,099,053			905,330			891,054
Treasury stock, at cost (768,731 shares, 710,227 shares and 699,777 shares)	(25,661		)	(22,573		)	(22,046		)
Total shareholders’ equity	1,581,795			1,370,562			1,326,900
Total liabilities and shareholders’ equity	$	2,839,806		$	2,617,648		$	2,536,771

See Notes to Condensed Consolidated Financial Statements.

THE NEIMAN MARCUS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(in thousands, except per share data)	April 30, 2005			May 1, 2004			April 30, 2005			May 1, 2004

Revenues	$	933,372		$	873,167		$	2,970,533		$	2,740,303
Cost of goods sold including buying and occupancy costs	576,204			544,663			1,892,904			1,773,999
Selling, general and administrative expenses	222,516			208,909			698,054			659,420
Loss on disposition of Chef’s Catalog	—			—			15,348			—

Operating earnings	134,652			119,595			364,227			306,884

Interest expense, net	2,933			4,589			10,948			11,814

Earnings before income taxes and minority interest	131,719			115,006			353,279			295,070

Income taxes	50,713			44,852			136,014			107,576

Earnings before minority interest	81,006			70,154			217,265			187,494

Minority interest in net earnings of subsidiaries	(1,231		)	(1,305		)	(2,787		)	(3,249		)

Net earnings	$	79,775		$	68,849		$	214,478		$	184,245

Weighted average number of common and common equivalent shares outstanding:
Basic	48,390			48,208			48,309			47,929
Diluted	49,695			49,124			49,427			48,806

Earnings per share:
Basic	$	1.65		$	1.43		$	4.44		$	3.84
Diluted	$	1.61		$	1.40		$	4.34		$	3.78

See Notes to Condensed Consolidated Financial Statements.

THE NEIMAN MARCUS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Thirty-Nine Weeks Ended
(in thousands)	April 30, 2005			May 1, 2004
				(As Restated, See Note 9)
CASH FLOWS - OPERATING ACTIVITIES
Net earnings	$	214,478		$	184,245
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Depreciation	79,338			73,093
Loss on disposition of Chef’s Catalog	15,348			—
Minority interest	2,787			3,249
Other – primarily costs related to defined benefit pension and other long-term benefit plans	27,222			24,367
	339,173			284,954
Changes in operating assets and liabilities:
Decrease in undivided interests	—			242,565
Increase in accounts receivable	(114,270		)	(576,986		)
Increase in merchandise inventories	(78,955		)	(28,477		)
Decrease in other current assets	10,530			27,803
Decrease (increase) in other assets	12,276			(4,550		)
Increase in accounts payable and accrued liabilities	38,763			35,347
Increase in deferred real estate credits	2,531			2,866
Funding of defined benefit pension plan	(20,000		)	(30,000		)
Net cash provided by (used for) operating activities	190,048			(46,478		)

CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	(150,830		)	(83,152		)
Increase in cash restricted for repayment of borrowings under Credit Card Facility	(37,500		)	—
Proceeds from sale of Chef’s Catalog	14,419			—
Net cash used for investing activities	(173,911		)	(83,152		)

CASH FLOWS - FINANCING ACTIVITIES
Proceeds from borrowings	7,750			2,000
Repayment of debt	(9,113		)	(1,500		)
Borrowings under Credit Card Facility	—			225,000
Repayment of borrowings under Credit Card Facility	(37,500		)	—
Acquisitions of treasury stock	(3,088		)	(7,026		)
Proceeds from stock-based compensation awards	16,432			23,235
Cash dividends paid	(20,042		)	(6,312		)
Distributions paid	(1,354		)	(732		)
Net cash (used for) provided by financing activities	(46,915		)	234,665

CASH AND CASH EQUIVALENTS
(Decrease) increase during the period	(30,778		)	105,035
Beginning balance	368,367			206,950
Ending balance	$	337,589		$	311,985

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	12,992		$	9,050
Income taxes	$	98,942		$	70,657

See Notes to Condensed Consolidated Financial Statements.

THE NEIMAN MARCUS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

We have prepared the Condensed Consolidated Financial Statements of The Neiman Marcus Group, Inc. and its subsidiaries (Company) in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted for complete financial statements. Therefore, these financial statements should be read in conjunction with our amendment to the Annual Report on Form 10-K/A for the fiscal year ended July 31, 2004.

Our fiscal year ends on the Saturday closest to July 31. All references to the third quarter of 2005 relate to the thirteen weeks ended April 30, 2005 and all references to the third quarter of 2004 relate to the thirteen weeks ended May 1, 2004. All references to 2005 relate to the thirty-nine weeks ended April 30, 2005 and all references to 2004 relate to the thirty-nine weeks ended May 1, 2004.

In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the applicable interim periods. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.

We are required to make estimates and assumptions about future events in preparing financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the Condensed Consolidated Financial Statements. While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. We make adjustments to our 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 in preparing the accompanying Condensed Consolidated Financial Statements.

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

We believe the following critical accounting policies, among others, encompass the more significant judgments and estimates used in the preparation of our financial statements:

• Revenue recognition;

• Valuation of merchandise inventories, including determination of original retail values, recognition of markdowns and vendor allowances, estimation of inventory shrinkage, and determination of cost of goods sold;

• Determination of impairment of long-lived assets;

• Recognition of income and expenses related to our previous securitization program;

• Recognition of advertising and catalog costs;

• Measurement of liabilities related to our loyalty programs;

• Recognition of income taxes; and

• Measurement of accruals for litigation, general liability, workers’ compensation and health insurance, short-term disability, pension and postretirement health care benefits.

A description of our critical accounting policies is included in our amendment to the Annual Report on Form 10-K/A for the fiscal year ended July 31, 2004.

Stock-Based Compensation. We account 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, we have recognized compensation expense on our restricted stock and purchased restricted stock awards but have not recognized compensation expense for stock options since all options granted had an exercise price equal to the market value of our common stock on the grant date.

The following table illustrates the effect on net earnings and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation using the Black-Scholes option-pricing model for 2005 and 2004:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(in thousands, except per share data)	April 30, 2005			May 1, 2004			April 30, 2005			May 1, 2004

Net earnings:
As reported	$	79,775		$	68,849		$	214,478		$	184,245
Add: stock-based employee compensation recorded under intrinsic value method, net of related taxes	1,343			866			3,646			2,233
Less: stock-based employee compensation expense determined under fair value based method, net of related taxes	(3,434		)	(3,076		)	(9,846		)	(8,644		)
Pro forma	$	77,684		$	66,639		$	208,278		$	177,834

Basic earnings per share:
As reported	$	1.65		$	1.43		$	4.44		$	3.84
Pro forma	$	1.61		$	1.38		$	4.31		$	3.71

Diluted earnings per share:
As reported	$	1.61		$	1.40		$	4.34		$	3.78
Pro forma	$	1.56		$	1.36		$	4.21		$	3.64

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.

Reclassification – Loyalty Programs. A substantial portion of the points earned by customers in connection with our loyalty programs are redeemed for gift cards. At the time the qualifying sales giving rise to the loyalty program points are made, we defer the portion of the revenues on the qualifying sales transactions equal to our estimate of the retail value of the gift cards to be issued upon conversion of the points to gift cards. Beginning in the first quarter of 2005, we began to record the deferral of revenues related to gift card awards under our loyalty programs as a reduction of revenues. Previously, we charged such amounts to selling, general and administrative expenses (SG&A). In addition, we now charge the cost of all other awards under our loyalty programs to cost of goods sold (COGS) rather than SG&A. These changes in classification do not impact the previously reported operating earnings, net income or earnings per share amounts.

The following table presents quarterly and annual information giving recognition to the changes in classification related to our loyalty programs:

(in thousands)	Revenues		COGS		SG&A

Fiscal Year 2004:
First quarter	$	818,769	$	510,350	$	211,130
Second quarter	1,048,367		718,985		239,381
Third quarter	873,167		544,663		208,909
Fourth quarter	784,468		553,231		189,033
Total	$	3,524,771	$	2,327,229	$	848,453

Fiscal Year 2003:
First quarter	$	727,832	$	455,307	$	197,281
Second quarter	934,844		655,459		220,981
Third quarter	718,557		465,160		181,565
Fourth quarter	699,120		502,510		179,981
Total	$	3,080,353	$	2,078,436	$	779,808

Recent Accounting Pronouncements. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based Payment.” This standard is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and is effective for the first interim period or annual reporting period beginning after June 15, 2005. We expect to adopt SFAS No. 123R in the first quarter of our fiscal year 2006. We are in the process of evaluating the impact of the adoption of SFAS No. 123R. The adoption of SFAS No. 123R will reduce reported net income and earnings per share because we will be required to recognize compensation expense for our stock options.

2. Loss on Disposition of Chef’s Catalog

In November 2004, we sold our Chef’s Catalog direct marketing business to a private equity firm. Chef’s Catalog is a multi-channel retailer of professional-quality kitchenware with revenues of approximately $73 million in fiscal year 2004. At October 30, 2004, Chef’s Catalog had net tangible assets, primarily inventory, of $12.5 million and net intangible assets of $17.2 million. We received proceeds, net of selling costs, of $14.4 million from the sale. As the carrying value of the Chef’s Catalog assets exceeded the net proceeds from the sale, we incurred a pre-tax loss of $15.3 million in the first quarter of 2005 related to the disposition of Chef’s Catalog.

3. Operating Segments

We have identified two reportable segments: Specialty Retail Stores and Direct Marketing. Our Specialty Retail Stores segment includes all of our Neiman Marcus and Bergdorf Goodman retail stores, including Neiman Marcus clearance stores. Our Direct Marketing segment conducts both print catalog and online operations under the Neiman Marcus, Horchow and Bergdorf Goodman brand names and, until its disposition in November 2004, the Chef’s Catalog brand name. Other includes the operations of Kate Spade LLC and Gurwitch Products, LLC (the Brand Development Companies).

Both the Specialty Retail Stores and Direct Marketing segments, as well as Kate Spade LLC and Gurwitch Products, LLC, derive their revenues from the sales of high-end fashion apparel, accessories, cosmetics and fragrances from leading designers, precious and fashion jewelry and decorative home accessories.

The following table sets forth the information for our reportable segments:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(in thousands)	April 30, 2005			May 1, 2004			April 30, 2005			May 1, 2004
REVENUES:
Specialty Retail Stores	$	766,877		$	717,562		$	2,415,749		$	2,213,811
Direct Marketing	130,532			126,204			458,514			445,694
Other	35,963			29,401			96,270			80,798
Total	$	933,372		$	873,167		$	2,970,533		$	2,740,303

OPERATING EARNINGS:
Specialty Retail Stores	$	125,832		$	114,283		$	343,781		$	276,447
Direct Marketing	16,780			9,791			55,943			45,086
Other	4,572			4,750			10,241			11,821
Subtotal	147,184			128,824			409,965			333,354
Corporate expenses	(12,532		)	(9,229		)	(30,390		)	(26,470		)
Loss on disposition of Chef’s Catalog	—			—			(15,348		)	—
Total	$	134,652		$	119,595		$	364,227		$	306,884

4. Stock Repurchase Program

In prior years, our Board of Directors authorized various stock repurchase programs and increases in the number of shares subject to repurchase. In the third quarter of 2005, we did not repurchase any shares. In the second quarter of 2005, we repurchased 4,100 shares at an average price of $57.60. In the first quarter of 2005, we repurchased 54,404 shares at an average price of $52.40. As of April 30, 2005, approximately 1.2 million shares remain available for repurchase under our stock repurchase programs.

5. Earnings per Share

The weighted average shares used in computing basic and diluted earnings per share (EPS) are presented in the table below. We made no adjustments to net earnings for the computations of basic and diluted EPS during the periods presented.

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands of shares)	April 30, 2005		May 1, 2004		April 30, 2005		May 1, 2004

Weighted average shares outstanding	48,945		48,557		48,847		48,313
Less: shares of non-vested restricted stock	(555	)	(349	)	(538	)	(384	)
Shares for computation of basic EPS	48,390		48,208		48,309		47,929

Effect of dilutive stock options and restricted stock	1,305		916		1,118		877
Shares for computation of diluted EPS	49,695		49,124		49,427		48,806

Shares represented by antidilutive stock options	—		—		190		9

We do not include antidilutive stock options in the computation of diluted EPS because the exercise price of those options is greater than the average market price of the common shares.

6. Undivided Interests in NMG Credit Card Master Trust

Pursuant to a revolving credit card securitization program (the Credit Card Facility), we transfer substantially all of our 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). At the inception of the Credit Card Facility in September 2000, the Trust issued certificates representing undivided interests in the credit card receivables to third-party investors in the face amount of $225 million (Sold Interests). We hold certificates representing interests in the credit card portfolio equal to the excess of the balance of the credit card portfolio over $225 million (Retained Interests). In order to maintain the committed level of securitized assets, the Trust uses cash collections on the securitized receivables to purchase new credit card balances from us in accordance with the terms of the Credit Card Facility.

From the inception of the Credit Card Facility until December 2003, our transfers and sales of credit card receivables pursuant to the terms of the Credit Card Facility were accounted for as sales (Off-Balance Sheet Accounting). As a result, we removed $225 million of credit card receivables from our balance sheet at the inception of the Credit Card Facility and the Trust’s $225 million repayment obligation to the holders of the certificates representing the Sold Interests was not shown as a liability on our consolidated balance sheet.

Beginning in December 2003, transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting. Rather, credit card receivables transferred to the Trust after November 2003 remain on our balance sheet and our borrowings collateralized by those accounts receivable are recorded as liabilities on our balance sheet (Financing Accounting). The transition period from Off-Balance Sheet Accounting to Financing Accounting (Transition Period) lasted approximately four months (December 2003 to March 2004). During the Transition Period, we allocated cash collections on our credit card receivables to the previous Sold Interests and Retained Interests until such time as those balances were reduced to zero and we recorded a liability for our repayment obligation to the holders of the $225 million of certificates representing the Sold Interests. At the end of the Transition Period, our entire credit card portfolio was included in accounts receivable in our consolidated balance sheet and the $225 million repayment obligation was shown as a liability.

As of the start of the Transition Period in December 2003, the carrying value of the Sold and Retained Interests exceeded face value by approximately $7.6 million as a result of the application of the provisions of current accounting rules related to the calculation of the gains on sale of the previous Sold Interests and the valuation of both Sold and Retained Interests. During the Transition Period, the $7.6 million premium was amortized as a reduction of our net earnings from our credit card portfolio (recorded as a reduction of selling, general and administrative expenses in the consolidated statements of earnings). Of the $7.6 million premium, $2.3 million was amortized in the third quarter of 2004.

Beginning in March 2005, cash collections were used by the Trust to begin repayment of the $225 million principal balance of the Class A Certificates in six monthly installments of $37.5 million. As of April 30, 2005, the Trust had made the first installment repayment of $37.5 million to reduce the principal balance of the Class A Certificates to $187.5 million. In addition, we held cash of $37.5 million at April 30, 2005, generated from collections received in April 2005 on our credit card receivables, restricted to the payment of the second installment repayment required to be made by the Trust in May 2005.

7. Employee Benefit Plans

Description of Benefit Plans. We sponsor a defined benefit pension plan (Pension Plan) covering substantially all full-time employees. We also sponsor an unfunded supplemental executive retirement plan (SERP Plan) that provides additional pension benefits to certain employees. Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment. Pension Plan assets consist primarily of equity and fixed income securities.

Retirees and active employees hired prior to March 1, 1989 are eligible to participate in a plan providing certain limited postretirement health care benefits (Postretirement Plan) if they have met certain service and minimum age requirements.

Costs of Benefits. The components of the expenses incurred under our Pension Plan, SERP Plan and Postretirement Plan are as follows:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(in thousands)	April 30, 2005			May 1, 2004			April 30, 2005			May 1, 2004

Pension Plan:
Service cost	$	3,196		$	2,366		$	9,588		$	8,469
Interest cost	4,636			3,603			13,907			12,894
Expected return on plan assets	(4,712		)	(3,612		)	(14,137		)	(12,928		)
Net amortization of losses and prior service costs	1,208			698			3,626			2,498
Pension Plan expense	$	4,328		$	3,055		$	12,984		$	10,933

SERP Plan:
Service cost	$	361		$	342		$	1,084		$	1,024
Interest cost	1,014			978			3,042			2,930
Net amortization of losses and prior service costs	384			366			1,151			1,099
SERP Plan expense	$	1,759		$	1,686		$	5,277		$	5,053

Postretirement Plan:
Service cost	$	15		$	20		$	44		$	60
Interest cost	318			386			954			1,156
Net amortization of losses	26			110			79			331
Postretirement Plan expense	$	359		$	516		$	1,077		$	1,547

Funding Policy and Plan Assets. Our policy is to fund the Pension Plan at or above the minimum required by law. In the third quarter of 2005, we made a voluntary contribution of $20.0 million for the plan year ended July 31, 2004. In 2004, we made voluntary contributions of $30.0 million in the second quarter for the plan year ended July 31, 2003 and $15.0 million in the fourth quarter for the plan year ended July 31, 2004. Based upon currently available information, we will not be required to make contributions to the Pension Plan for either the 2004 or 2005 plan years.

Effect of Medicare Subsidy on Postretirement Plan. In December 2003, the U.S Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) that will provide a prescription drug subsidy, beginning in 2006, to companies that sponsor postretirement health care plans that provide drug benefits. Based upon the provisions of the legislation enacted in January 2005, we reviewed the provisions of our Postretirement Plan with our actuaries to determine whether the benefits offered by our plan meet the statutory definition of “actuarially equivalent” prescription drug benefits that qualify for the federal subsidy. Based upon this review, we believe that our benefits qualify for the subsidy. We expect to avail ourselves of the benefit of the subsidy although we are still evaluating the manner in which we and/or the participants in the Postretirement Plan will receive the subsidy.

As of July 31, 2004, the projected benefit obligation for our Postretirement Plan, using a discount rate of 6.25 percent, was approximately $21.0 million. In accordance with the provisions of the FASB Staff Position 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” we revalued our projected benefit obligation as of January 31, 2005 to 1) incorporate the benefit associated with the federal subsidy we expect to receive and 2) reduce the discount rate to 5.75 percent. The revised obligation as January 31, 2005 is approximately $19.1 million, reflecting a reduction of approximately $2.6 million for the impact of the federal subsidy, offset by an increase of approximately $0.8 million for the change in discount rate.

8. Commitments and Contingencies

9. Restatements

Retained Interests. Pursuant to the terms of the Credit Card Facility, as more fully described in Note 6, our Retained Interests fluctuate monthly based on the underlying balance of our credit card receivables. We previously reflected the changes in our Retained Interests in the determination of cash flows from investing activities. We have determined that such presentation is not in accordance with generally accepted accounting principles and have corrected such error by restating our statements of cash flows to include the changes in the Retained Interests in the determination of cash flows from operating activities.

				Restatements
	As Originally Reported			Construction Allowances			Changes in Retained Interests			As Restated
Fiscal Year 2004
Consolidated Balance Sheet:
Property and equipment, net	$	693,772		$	56,711		$	—		$	750,483
Other assets	145,812			15,187			—			160,999
Total assets	2,545,750			71,898			—			2,617,648
Deferred real estate credits	—			71,898			—			71,898
Total long-term liabilities	437,212			71,898			—			509,110

Third Quarter 2004
Consolidated Balance Sheet:
Property and equipment, net	$	685,928		$	57,924		$	—		$	743,852
Other assets	104,158			15,284			—			119,442
Total assets	2,463,563			73,208			—			2,536,771
Deferred real estate credits	—			73,208			—			73,208
Total long-term liabilities	534,558			73,208			—			607,766

Consolidated Statement of Cash Flows:
Net cash used for operating activities	$	(291,289	)	$	2,246		$	242,565		$	(46,478	)
Net cash provided by (used for) investing activities	161,659			(2,246		)	(242,565		)	(83,152		)

10. Recent Developments

Sale of Company. On March 16, 2005, we announced that we were exploring various strategic alternatives to enhance shareholder value, including a possible sale of the Company, and that we had retained Goldman Sachs & Co. as the financial advisor to assist us in the review.

On May 1, 2005, our Board of Directors approved a definitive agreement to sell the Company to an investment group consisting of Texas Pacific Group and Warburg Pincus LLC. Under the terms of the agreement, Texas Pacific Group and Warburg Pincus will acquire all of the outstanding Class A and Class B shares of the Company for $100.00 per share in cash, representing a transaction value of approximately $5.1 billion. Each of the investors will own equal stakes in the Company upon completion of the transaction. Completion of this transaction is contingent upon regulatory review and approval by the Company’s shareholders and is expected to occur by November 1, 2005.

10. Recent Developments (continued)

Sale of Credit Card Portfolio. As contemplated in the negotiations that led to the sale of the Company for approximately $5.1 billion, we entered into a strategic alliance with HSBC-North America’s Retail Services (HSBC) on June 8, 2005 to support and enhance our credit card operations. In connection with this transaction, HSBC will purchase the private label credit card accounts and related assets of both Neiman Marcus and Bergdorf Goodman, as well as the outstanding balances associated with such accounts, for an amount equal to the face value of the outstanding receivables and accumulated accounts receivable collections. We expect to close this transaction by July 31, 2005, subject to customary review and closing conditions, for a purchase price of approximately $640 million, of which we will receive net cash proceeds of approximately $527 million and HSBC will assume $113 million of outstanding liabilities under our Credit Card Facility. In addition, we will receive on-going payments based on credit sales generated under the agreement. We will continue to handle key customer service functions including new account processing, transaction authorization, billing adjustments, collection services and customer inquiries.

Litigation. On May 4, 2005, a purported class action complaint, NECA-IBEW Pension Fund (The Decatur Plan) v. The Neiman Marcus Group, Inc. et al. (CA No. 3-05 CV-0898B), was filed by a putative stockholder of the Company in federal court in the Northern District of Texas against the Company and its directors challenging the proposed merger.

The complaint alleges a cause of action for breach of fiduciary duty against our directors, claiming, among other things, that the merger consideration to be paid to the Company’s stockholders in the merger is grossly inadequate and unfair and that the defendants failed to maximize shareholder value through a proper sale of the Company and its assets. In addition, the complaint alleges that the Company’s directors breached their fiduciary duties in connection with the approval of the merger by, among other things, tailoring the transaction to serve the interests of the defendants and the family of Richard A. Smith, Chairman of our board of directors and the Company’s largest stockholder, rather than structuring the merger to obtain the highest price for our stockholders, depriving public stockholders of the value of certain assets of the Company (primarily the Company’s credit card division), failing to realize the financial benefits from a separate sale of the Company’s credit card division, not engaging in a fair process of negotiating at arm’s length and structuring a preferential deal for Company insiders. The complaint seeks, among other things, injunctive relief to enjoin the consummation of the merger, rescind any actions taken to effect the merger, direct the defendants to sell or auction the Company for the highest possible price, and impose a constructive trust in favor of plaintiffs upon any benefits improperly received by defendants.

The lawsuit is in its preliminary stage. We believe that the lawsuit is without merit and intend to defend vigorously against it.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Company Profile

The Neiman Marcus Group, Inc., together with its operating divisions and subsidiaries, is a high-end specialty retailer. Our operations include the Specialty Retail Stores segment and the Direct Marketing segment. Our Specialty Retail Stores segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. Our Direct Marketing segment conducts both print catalog and online operations under the brand names of Neiman Marcus, Horchow and Bergdorf Goodman and until its disposition in November 2004, the Chef’s Catalog brand name. In November 2004, we sold our Chef’s Catalog operations, as more fully described in Note 2 to the Condensed Consolidated Financial Statements.

We own 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 referred to collectively as the “Brand Development Companies.”

The information contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) should be read in conjunction with our Annual Report on Form 10-K/A for the fiscal year ended July 31, 2004. Unless otherwise specified, the meanings of all defined terms in MD&A are consistent with the meanings of such terms as defined in the Notes to the Condensed Consolidated Financial Statements.

Overview of the Business

We believe that our unique product assortment of luxury, designer and fashion merchandise, coupled with our sales promotion activities and our commitment to superior customer service, have been critical to our success in the past. In addition, we believe these factors are critical to our future growth and success.

We conduct our selling activities in two primary selling seasons – Fall and Spring. The Fall Season is comprised of our first and second fiscal quarters and the Spring Season is comprised of our third and fourth fiscal quarters. The first quarter is generally characterized by a higher level of full-price selling with a focus on the initial introduction of Fall Season fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level of markdowns and higher margins are characteristic of this quarter. The second quarter is more focused on promotional activities related to the December holiday season, the early introduction of resort season collections from certain designers and the sale of Fall Season goods on a marked down basis. As a result, margins are typically lower in the second quarter. However, due to the seasonal increase in sales that occurs during the holiday season, the second quarter is typically the quarter in which our sales are the highest and in which expenses are the lowest as a percentage of revenues. Our working capital requirements are also the greatest in the first and second quarters as a result of higher seasonal levels of accounts receivable and inventory.

Similarly, the third quarter is generally characterized by a higher level of full-price selling with a focus on the initial introduction of Spring Season fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level of markdowns and higher margins are again characteristic of this quarter. Sales are generally the lowest in the fourth quarter and are focused on promotional activities offering Spring Season goods to the customer on a marked down basis, resulting in lower margins during the quarter. As a result of the seasonality of our selling activities, inventory management is critical to our success.

Inherent in the successful execution of our business plans, particularly our inventory management strategy, is our ability both to predict the fashion trends that will be of interest to our customers and to anticipate the future spending patterns of our customer base. Accordingly, we monitor the sales performance of our inventories throughout each season. We seek to order additional goods to supplement our original purchasing decisions when the level of customer demand is higher than originally anticipated. However, in certain merchandise categories, particularly fashion apparel, our ability to purchase additional goods can be limited. This can result in lost sales in the event of higher than anticipated demand for the fashion

goods offered or a higher than anticipated level of consumer spending. Conversely, in the event we buy fashion goods that are not accepted by our customer or the level of consumer spending is less than we anticipated, we typically incur a higher than anticipated level of markdowns, net of vendor allowances, to sell the goods that remain at the end of the season, resulting in lower operating profits. We believe that the experience of our merchandising and selling organizations helps to minimize the inherent risk in predicting fashion trends and related demand.

Third Quarter Fiscal Year 2005 Highlights

Diluted earnings per share for the third quarter of 2005 increased 15.0 percent to $1.61 from $1.40 in the prior year period. Other significant highlights for the third quarter of 2005 include:

• Revenues – Our revenues for the third quarter of 2005 were $933.4 million compared to $873.2 million in the prior year period. Revenues increased 6.9 percent in the third quarter of 2005 while comparable revenues increased 8.0 percent. Year to date, revenues have increased 8.4 percent while comparable revenues have increased 9.9 percent. For Specialty Retail Stores, our sales per square foot for the last twelve trailing months increased to $564 as of April 2005 compared to $517 as of April 2004.

• Gross margins – Margins increased to 38.3 percent of revenues in the third quarter of 2005 from 37.6 percent in the third quarter of 2004. Year to date, margins have increased to 36.3 percent of revenues from 35.3 percent in the prior year period. These increases are reflective of the high level of acceptance and demand for the fashion goods we offer as well as our efforts to align purchases and customer demand.

• Selling, general and administrative expenses – Selling, general and administrative (SG&A) expenses decreased to 23.8 percent of revenues in the third quarter of 2005 from 23.9 percent in the third quarter of 2004 and to 23.5 percent of revenues year to date from 24.1 percent in the prior year period.

• Operating earnings – Operating earnings increased 12.6 percent in the third quarter of 2005, representing 14.4 percent of our revenues compared to 13.7 percent in the third quarter of 2004. Year to date, operating earnings increased 18.7 percent, representing 12.3 percent of our revenues for 2005 compared to 11.2 percent in 2004. Operating earnings were 16.4 percent of revenues in the third quarter and 14.2 percent year to date for our Specialty Retail Stores and 12.9 percent of revenues in the third quarter and 12.2 percent year to date for Direct Marketing.

Recent Developments

On May 1, 2005, our Board of Directors approved a definitive agreement to sell the Company to an investment group consisting of Texas Pacific Group and Warburg Pincus LLC. Under the terms of the agreement, Texas Pacific Group and Warburg Pincus will acquire all of the outstanding Class A and Class B shares of The Neiman Marcus Group for $100.00 per share in cash, representing a transaction value of approximately $5.1 billion. Each of the investors will own equal stakes in the company upon completion of the transaction. Completion of this transaction is contingent upon regulatory review and approval by the Company’s shareholders and is expected to occur by November 1, 2005.

OPERATING RESULTS

Performance Summary

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

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	April 30, 2005		May 1, 2004		April 30, 2005		May 1, 2004

Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs	61.7		62.4		63.7		64.7
Selling, general and administrative expenses	23.8		23.9		23.5		24.1
Loss on disposition of Chef’s Catalog	—		—		0.5		—
Operating earnings	14.4		13.7		12.3		11.2
Interest expense, net	0.3		0.5		0.4		0.4
Earnings before income taxes and minority interest	14.1		13.2		11.9		10.8
Income taxes	5.4		5.1		4.6		3.9
Earnings before minority interest	8.7		8.0		7.3		6.8
Minority interest in net earnings of subsidiaries	(0.1	)	(0.1	)	(0.1	)	(0.1	)
Net earnings	8.6	%	7.9	%	7.2	%	6.7	%

Set forth in the following table is certain summary information with respect to our operations for the periods indicated.

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
(dollars in millions)	April 30, 2005			May 1, 2004			April 30, 2005			May 1, 2004

REVENUES
Specialty Retail Stores	$	766.9		$	717.6		$	2,415.7		$	2,213.8
Direct Marketing	130.5			126.2			458.5			445.7
Other (1)	36.0			29.4			96.3			80.8
Total	$	933.4		$	873.2		$	2,970.5		$	2,740.3

OPERATING EARNINGS
Specialty Retail Stores	$	125.8		$	114.3		$	343.8		$	276.5
Direct Marketing	16.8			9.8			55.9			45.1
Other (1)	4.6			4.7			10.2			11.8
Subtotal	147.2			128.8			409.9			333.4
Corporate expenses	(12.5		)	(9.2		)	(30.4		)	(26.5		)
Loss on disposition of Chef’s Catalog	—			—			(15.3		)	—
Total	$	134.7		$	119.6		$	364.2		$	306.9

OPERATING PROFIT MARGIN
Specialty Retail Stores	16.4		%	15.9		%	14.2		%	12.5		%
Direct Marketing	12.9		%	7.8		%	12.2		%	10.1		%
Total	14.4		%	13.7		%	12.3		%	11.2		%

COMPARABLE REVENUES (2)
Specialty Retail Stores (3)	6.5		%	22.2		%	9.1		%	13.7		%
Direct Marketing (4)	16.8		%	14.4		%	15.3		%	18.5		%
Total (3), (4)	8.0		%	22.0		%	9.9		%	14.9		%

SALES PER SQUARE FOOT
Specialty Retail Stores	$	141		$	133		$	445		$	411

STORE COUNT
Neiman Marcus and Bergdorf Goodman stores:
Open at beginning of period	37			37			37			37
Opened during the period	—			—			—			—
Open at end of period	37			37			37			37
Clearance centers:
Open at beginning of period	15			14			14			14
Opened during the period	—			—			1			—
Open at end of period	15			14			15			14

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

(2) Comparable revenues include 1) revenues derived from our retail stores open for more than 52 weeks, including stores that have been relocated or expanded, 2) revenues from our Direct Marketing operations and 3) wholesale revenues from our Brand Development Companies.

(3) The calculation of the changes in comparable revenues has been adjusted to give recognition to the change in classification of revenues deferred in connection with our loyalty programs, as more fully described in Note 1 to the Condensed Consolidated Financial Statements.

(4) The calculation of the changes in comparable revenues has been adjusted to exclude the revenues of Chef’s Catalog for all periods prior to our sale of these operations in November 2004, as more fully described in Note 2 to the Condensed Consolidated Financial Statements.

Thirteen Weeks Ended April 30, 2005 Compared to Thirteen Weeks Ended May 1, 2004

Revenues. Our revenues for the third quarter of 2005 of $933.4 million increased $60.2 million, or 6.9 percent, from $873.2 million in the third quarter of 2004.

Comparable revenues of $927.7 million in the third quarter of 2005 increased 8.0 percent compared to the prior year period. Comparable revenues increased 6.5 percent for Specialty Retail Stores and 16.8 percent for Direct Marketing. Comparable revenues in the third quarter of 2004 increased by 22.0 percent.

Revenues increased in the third quarter of 2005 compared to the prior year at all our operating companies, consistent with a higher level of consumer spending, in general, with a higher increase coming from the affluent luxury customer served by the Company. In addition, we believe the increases in comparable revenues were driven by sales events conducted by our Specialty Retail Stores and by the growth of internet sales for Direct Marketing. In the third quarter of 2005, internet sales by Direct Marketing were $73.8 million, an increase of 47.4 percent from the third quarter of 2004.

Gross margin. Our gross margin was 38.3 percent of revenues for the third quarter of 2005 compared to 37.6 percent in the prior year period. The increase in gross margin from the prior year period was due primarily to:

• the increase in product margins by approximately 0.8 percent of revenues; offset by

• an increase in buying and occupancy costs by approximately 0.2 percent of revenues.

We generated higher product margins during the third quarter of 2005. We believe this increase in product margins was due primarily to:

• the higher level of full-price sales generated during the quarter by our Specialty Retail Stores;

• higher margins realized by Direct Marketing after the disposition of Chef’s Catalog, which generated lower margins than our other Direct Marketing brands; and

• our continued emphasis on inventory management.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. We receive certain allowances to reimburse us for markdowns taken and/or to support the gross margins earned in connection with the sales of the vendor’s merchandise. We recognize these allowances as an increase to gross margin when the allowances are earned and approved by the vendor. Other allowances we receive represent reductions to the amounts paid to acquire the merchandise. We recognize these allowances as a reduction in the cost of the acquired merchandise resulting in an increase to gross margin at the time the goods are sold. As a percentage of revenues, the level of vendor allowances we received in the third quarter of 2005 was consistent with the prior year and did not have a significant impact on the year-over-year change in the gross margin we realized in the third quarter of 2005.

A significant portion of our buying and occupancy costs are fixed in nature. Buying and occupancy costs increased as a percentage of revenues during the third quarter of 2005 compared to the prior year period primarily due to higher depreciation and rent expenses as a percentage of revenues due to:

• a higher level of capital spending in recent years; and

• adjustments to rent and depreciation aggregating approximately $2.6 million, or 0.3 percent of revenues, made in connection with our review of the amortization periods assigned to our leased property and equipment and deferred real estate credits.

Selling, general and administrative expenses. SG&A expenses were 23.8 percent of revenues in the third quarter of 2005 compared to 23.9 percent of revenues in the prior year period.

The net decrease in SG&A expenses as a percentage of revenues in the third quarter of 2005 was primarily due to:

• a decrease in marketing and advertising costs by approximately 0.5 percent of revenues primarily due to the elimination of expenditures for Chef’s Catalog, which were higher as a percentage of revenues than our other Direct Marketing brands; and

• an increase in the net income generated by our credit card portfolio by approximately 0.1 percent of revenues consistent with the increase in our sales.

In addition, SG&A expense declined as a percentage of revenues in the third quarter of 2005 compared to the prior year period by approximately 0.3 percent due to a $2.3 million reduction in the income generated by our credit card portfolio in the third quarter of 2004 related to the required amortization of the premium associated with the carrying values of the Retained and Sold Interests, as more fully described in Note 6 of the Notes to Condensed Consolidated Financial Statements.

These decreases in SG&A expenses, as a percentage of revenues, were partially offset by:

• higher employee benefit expenses, including medical and pension expenses, by approximately 0.3 percent of revenues;

• an increase in costs, primarily payroll, by approximately 0.2 percent of revenues, incurred by our Direct Marketing and the Brand Development Companies in support of new business initiatives and the expansion of Kate Spade operations; and

• the increase in professional fees and other costs incurred in connection with the proposed sale of the Company by approximately 0.1 percent of revenues.

Segment operating earnings. Operating earnings for our Specialty Retail Stores segment were $125.8 million for the third quarter of 2005 compared to $114.3 million for the prior year period. This 10.1 percent increase was primarily the result of increased revenues and gross margins and net decreases in SG&A expenses as a percentage of revenues, offset by increases in buying and occupancy expenses as a percentage of revenues.

Operating earnings for Direct Marketing increased to $16.8 million in the third quarter of 2005 from $9.8 million for the prior year period, primarily as a result of increased revenues and gross margins and net decreases in both buying and occupancy costs and SG&A expenses as percentages of revenues.

Interest expense, net. Net interest expense was $2.9 million in the third quarter of 2005 and $4.6 million for the prior year period. The decrease in net interest expense is primarily due to increases in 1) investment income generated by higher cash balances and 2) capitalized interest charges associated with store construction and remodeling activities.

Income taxes. Our effective income tax rate was 38.5 percent for the third quarter of 2005 and 39.0 percent for the prior year period.

Thirty-Nine Weeks Ended April 30, 2005 Compared to Thirty-Nine Weeks Ended May 1, 2004

Revenues. Our revenues for 2005 of $2,970.5 million increased $230.2 million, or 8.4 percent, from $2,740.3 million in 2004.

Comparable revenues of $2,942.8 million in 2005 increased 9.9 percent compared to the prior year period. Comparable revenues increased 9.1 percent for Specialty Retail Stores and 15.3 percent for Direct Marketing. Comparable revenues in 2004 increased by 14.9 percent.

Excluding the revenues from our Chef’s Catalog operations in 2004, revenues increased in 2005 compared to the prior year at all our operating companies, consistent with a higher level of consumer spending, in general, with a higher increase coming from the affluent luxury customer served by the Company. In addition, we believe the increases in comparable revenues were driven by sales events conducted by our Specialty Retail Stores and by the growth of internet sales for Direct Marketing. In 2005, internet sales by Direct Marketing, excluding Chef’s Catalog, were $233.1 million, an increase of 46.8 percent from 2004.

Gross margin. Gross margin was 36.3 percent of revenues in 2005 compared to 35.3 percent in the prior year period. The increase in gross margin was due primarily to:

• the increase in product margins by approximately 0.9 percent of revenues; and

• a decrease in buying and occupancy costs by approximately 0.2 percent of revenues.

We generated higher product margins at both our Specialty Retail Stores and our Direct Marketing operations during 2005. We believe the increase in product margins at our Specialty Retail Stores was due primarily to the higher level of full-price sales generated for the period, a lower level of net markdowns and our continued emphasis on inventory management. We also generated higher product margins in our Direct Marketing operations in 2005 subsequent to our disposition of Chef’s Catalog in November 2004. Chef’s Catalog generated lower margins than our other Direct Marketing brands. However, we have incurred a higher level of net markdowns in 2005 for Direct Marketing due primarily to lower than anticipated sales in our catalog operations during the December holiday season.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. We receive certain allowances to reimburse us for markdowns taken and/or to support the gross margins earned in connection with the sales of the vendor’s merchandise. We recognize these allowances as an increase to gross margin when the allowances are earned and approved by the vendor. Other allowances we receive represent reductions to the amounts paid to acquire the merchandise. We recognize these allowances as a reduction in the cost of the acquired merchandise resulting in an increase to gross margin at the time the goods are sold. While the dollar value of the vendor reimbursements we received decreased slightly as a percentage of revenues in 2005 compared to the prior year period, primarily due to a higher level of full-price selling, this decrease did not have a significant impact on the year-over-year change in the gross margin we realized in 2005.

A significant portion of our buying and occupancy costs are fixed in nature. Buying and occupancy costs decreased as a percentage of revenues during 2005 compared to the prior year period primarily due to the leveraging of fixed expenses, including payroll expenses and depreciation, over the higher level of revenues we generated during 2005. Included in buying and occupancy costs in 2005 are adjustments to rent and depreciation aggregating approximately $4.8 million, or 0.2 percent of revenues, made in the second and third quarters of 2005 in connection with our review of the amortization periods assigned to our leased property and equipment and deferred real estate credits.

Selling, general and administrative expenses. SG&A expenses were 23.5 percent of revenues in 2005 compared to 24.1 percent of revenues in the prior year period.

The net decrease in SG&A expenses as a percentage of revenues in 2005 was primarily due to:

• a decrease in marketing and advertising costs by approximately 0.3 percent of revenues, primarily due to the elimination of expenditures for Chef’s Catalog which were higher as a percentage of revenues than for our other Direct Marketing brands;

• a decrease in incentive compensation by approximately 0.2 percent of revenues; and

• an increase in the net income generated by our credit card portfolios by approximately 0.1 percent of revenues consistent with the increase in our sales revenues.

In addition, SG&A expense declined as a percentage of revenues in 2005 by approximately 0.3 percent due to a $7.6 million reduction in the income generated by our credit card portfolio in 2004 related to the required amortization of the premium associated with the carrying value of the Retained and Sold Interests, as more fully described in Note 6 of the Notes to Condensed Consolidated Financial Statements.

These decreases in SG&A expenses as a percentage of revenues, were partially offset by:

• an increase in costs, primarily payroll, by approximately 0.2 percent of revenues incurred by Direct Marketing and the Brand Development Companies in support of new business initiatives and the expansion of Kate Spade operations;

• an increase in employee benefit expenses, including medical and pension expenses, by approximately 0.1 percent of revenues; and

• a $3.7 million reduction in SG&A expenses recorded in the second quarter of 2004 for the favorable impact of conclusions of certain sales tax and unclaimed property examinations for which the agreed-on settlements were less than the amounts we previously estimated.

Loss on disposition of Chef’s Catalog. In November 2004, we sold our Chef’s Catalog direct marketing business to a private equity firm. Chef’s Catalog is a multi-channel retailer of professional-quality kitchenware with revenues of approximately $73 million in fiscal year 2004. At October 30, 2004, Chef’s Catalog had net tangible assets, primarily inventory, of $12.5 million and net intangible assets of $17.2 million. We received proceeds, net of selling costs, of $14.4 million from the sale. As the carrying value of the Chef’s Catalog assets exceeded the net proceeds from the sale, we incurred a pre-tax loss of $15.3 million in the first quarter of 2005 related to the disposition of Chef’s Catalog.

Segment operating earnings. Operating earnings for our Specialty Retail Stores segment were $343.8 million for 2005 compared to $276.5 million for the prior year period. This 24.4 percent increase was primarily the result of increased sales and margins and net decreases in both buying and occupancy expenses and SG&A expenses as a percentage of revenues.

Operating earnings for Direct Marketing increased to $55.9 million in 2005 from $45.1 million for the prior year period, primarily as a result of increased revenues and margins and a decrease in SG&A expenses as a percentage of revenues.

Interest expense, net. Net interest expense was $10.9 million in 2005 and $11.8 million for the prior year period.

The net decrease in net interest expense was due to increases in:

• interest income generated by higher cash balances;

• capitalized interest charges associated with store construction and remodeling activities, offset by;

• an increase in the interest expense attributable to the monthly distributions to the holders of the Sold Interests that began to be charged to interest expense in December 2003 as a result of the discontinuance of Off-Balance Sheet Accounting.

Income taxes. Our effective income tax rate was 38.5 percent for 2005 and 36.5 percent for the prior year period. In the second quarter of 2004, the Company recognized a net income tax benefit of $7.5 million related to favorable settlements associated with previous state tax filings. Excluding this benefit, the effective tax rate was 39.0 percent for 2004.

Outlook

Based on current estimates, we anticipate increases in comparable store revenues of 5 to 7 percent for our fourth quarter ending July 30, 2005. Comparable revenues increased by 12.6 percent in our quarter ended July 31, 2004. The accuracy of our assumptions and forecasts is subject to uncertainties and circumstances beyond our control. Consequently, actual results could differ materially from the forecasted results. See “Factors That May Affect Future Results” for a discussion of items and events that could cause our actual results to vary from our expectations.

Inflation and Deflation

We believe changes in revenues and net earnings that have resulted from inflation or deflation have not been material during the periods presented. In recent years, we have experienced certain inflationary conditions related to 1) increases in product costs due primarily to changes in foreign currency exchange rates that have reduced the purchasing power of the U.S. dollar and 2) increases in SG&A. We attempt to offset the effects of inflation through control of expenses and price increases, although our ability to increase prices may be limited by competitive factors. We attempt 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 our operations in the future.

LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements consist principally of:

• the funding of our accounts receivable and merchandise purchases;

• capital expenditures for new store growth, store renovations and upgrades of our management information systems;

• debt service requirements; and

• obligations related to our Pension Plan.

Our working capital requirements fluctuate during the year, increasing substantially during the first and second quarters of each fiscal year as a result of higher seasonal levels of accounts receivable and inventory. We typically finance the increases in working capital needs during the first and second fiscal quarters with cash flows from operations, cash provided from the Credit Card Facility and borrowings under our $350 million unsecured Credit Agreement.

Our primary sources of short-term liquidity are comprised of cash on hand and availability under our Credit Agreement. As of April 30, 2005, we had cash and cash equivalents of $337.6 million and no outstanding borrowings under our Credit Agreement. Our cash and cash equivalents consisted principally of invested cash and store operating cash. At May 1, 2004, we had cash and cash equivalents of $312.0 million and no outstanding borrowings under a previous $300 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 revenues, accounts receivable and inventory levels, vendor terms, the level of capital expenditures, cash requirements related to financing instruments, Pension Plan funding obligations and tax payment obligations, among others.

We believe that operating cash flows, currently available vendor financing and amounts available pursuant to our Credit Agreement should be sufficient to fund our operations and debt service requirements, including repayment of the $225 million Credit Card Facility, Pension Plan funding requirements, contractual obligations and commitments and currently anticipated capital expenditure requirements through the end of 2005.

We generated cash from operations, prior to changes in operating assets and liabilities, of $339.2 million in 2005 compared to $285.0 million in prior year period. This $54.2 million increase in cash generated from operations was due to higher sales and earnings levels realized in 2005. Net cash provided by operating activities was $190.0 million in 2005. In the presentation of net cash flows used for operating activities in 2004 of $46.5 million in the accompanying statement of cash flows, the cash generated from operations was reduced by the increase in the undivided interests in the NMG Credit Card Master Trust and accounts receivable from $265.7 million at August 2, 2003 to $599.6 million at May 1, 2004. This increase in accounts receivable is attributable both to a higher investment in accounts receivable due to higher revenues during 2005 and the discontinuance of Off-Balance Sheet Accounting beginning in December 2003, as more fully described in Note 6 of the Notes to Condensed Consolidated Financial Statements.

Net cash used for investing activities was $173.9 million in 2005 compared to $83.2 million in the prior year period. The increase in cash used for investing activities in 2005 was primarily due to a higher level of capital expenditures in 2005 and the $37.5 million of cash restricted as of April 30, 2005 for the repayment of the outstanding indebtedness on our Credit Card Facility, offset by $14.4 million of proceeds from the sale of Chef’s Catalog in 2005.

Capital expenditures were $150.8 million in 2005 and $83.2 million in the prior year period. We incurred capital expenditures in the third quarter of 2005 related to the ongoing construction of new stores in San Antonio, Texas and Boca Raton, Florida and the remodels of our San Francisco, Houston, Los Angeles and Newport Beach stores. We currently project capital expenditures for 2005 to be approximately $200 million to $210 million primarily for new store construction, store renovations and upgrades to information systems, including warehousing systems to support our Direct Marketing operation and a new human capital management system. In support of our store construction and renovation activities, we expect to receive construction allowances of $20 million to $25 million in 2005. We completed the renovation of our store in Newport Beach in the third quarter of 2005 and we are currently remodeling our stores in Los Angeles, San Francisco and Houston. We expect to complete the expansion and renovation of the Los Angeles store in the fourth quarter of 2005 and the San Francisco and Houston stores in the spring of fiscal year 2006. We expect to open our San Antonio and Boca Raton stores in the first quarter of fiscal year 2006.

Financing Structure

Our major sources of funds are comprised of vendor financing, the $350 million unsecured Credit Agreement, the $225 million Credit Card Facility, $125 million senior unsecured notes, $125 million senior unsecured debentures, operating leases and capital leases.

At April 30, 2005, we had $187.5 million borrowings under our Credit Card Facility. Repayment of this obligation began in April 2005 in six monthly installments of $37.5 million. Borrowings pursuant to the Credit Card Facility bear interest at the contractually-defined rate of one month LIBOR plus 0.27 percent (3.22 percent at April 30, 2005) and are payable monthly to the holders of the Class A Certificates.

In the second quarter of 2005, our Board of Directors increased our quarterly cash dividend to $0.15 per share from $0.13 per share in the prior year quarter. We declared dividends on April 29, 2005 aggregating $7.4 million. These dividends were paid in May 2005.

In prior years, our Board of Directors authorized various stock repurchase programs and increases in the number of shares subject to repurchase. We did not repurchase any shares in the third quarter of 2005. As of April 30, 2005, approximately 1.2 million shares remain available for repurchase under the stock repurchase programs.

Off-Balance Sheet Arrangements

Pursuant to a revolving Credit Card Facility, we transfer substantially all of our 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). At the inception of the Credit Card Facility in September 2000, the Trust issued certificates representing undivided interests in the credit card receivables to third-party investors in the face amount of $225 million (Sold Interests). We hold certificates representing interests in the credit card portfolio equal to the excess of the balance of the credit card portfolio over $225 million (Retained Interests). In order to maintain the committed level of securitized assets, the Trust uses cash collections on the securitized receivables to purchase new credit card balances from us in accordance with the terms of the Credit Card Facility.

From the inception of the Credit Card Facility until December 2003, our transfers and sales of credit card receivables pursuant to the terms of the Credit Card Facility were accounted for as sales (Off-Balance Sheet Accounting). As a result, we removed the $225 million of credit card receivables sold from our balance sheet at the inception of the Credit Card Facility and our $225 million repayment obligation to the holders of the certificates representing the Sold Interests was not required to be shown as a liability on our consolidated balance sheet.

As more fully described in Note 6 of the Notes to Condensed Consolidated Financial Statements, beginning in December 2003, subsequent transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting. Rather, credit card receivables transferred to the Trust after November 2003 remain on our balance sheet and are recorded as secured borrowings. Our entire credit card portfolio is now included in accounts receivable and the outstanding borrowings under the Credit Card Facility are shown as a liability in our condensed consolidated balance sheet.

OTHER MATTERS

Factors That May Affect Future Results

Matters discussed in MD&A include forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “plan,” “project,” “predict,” “expect,” “estimate,” “intend,” “would,” “could,” “should,” “anticipate,” or “believe.” We make these forward-looking statements based on our expectations and beliefs concerning future events, as well as currently available data. 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 our actual results to differ materially from the anticipated or expected results expressed in our forward-looking statements. Factors that could affect future performance include, but are not limited, to:

Political and General Economic Conditions

• current political and general economic conditions or changes in such conditions;

• terrorist activities in the United States;

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

Customer Demographic Issues

• changes in the demographic or retail environment;

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

• changes in consumer preferences or fashion trends;

• changes in our relationships with key customers;

• changes in our proprietary credit card arrangement that adversely impact our ability to provide consumer credit;

Merchandise Procurement and Supply Chain Considerations

• changes in our relationships with designers, vendors and other sources of merchandise, including adverse changes in their financial viability;

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

• changes in foreign currency exchange rates;

• significant increases in paper, printing and postage costs;

Industry and Competitive Factors

• competitive responses to our marketing, merchandising and promotional efforts and/or inventory liquidations by vendors or other retailers;

• seasonality of the retail business;

• adverse weather conditions or natural disasters, particularly during peak selling seasons;

• delays in anticipated store openings and renovations;

Employee Considerations

• changes in key management personnel;

• changes in our relationships with certain of our key sales associates;

Legal and Regulatory Issues

• changes in government or regulatory requirements increasing our costs of operations;

• litigation that may have an adverse effect on our financial results or reputation;

Other Factors

• impact of funding requirements related to our noncontributory defined benefit pension plan; and

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

We undertake 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 preparation of condensed financial statements in conformity with generally accepted accounting principles requires us 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 Condensed Consolidated Financial Statements. While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. We make adjustments to our 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 we used in preparing the accompanying Condensed Consolidated Financial Statements.

See Note 1 of the Notes to Condensed Consolidated Financial Statements in Item 1 for a summary of our critical accounting policies. A complete description of our critical accounting policies is included in our amendment to the Annual Report to Shareholders on Form 10-K/A for the fiscal year ended July 31, 2004.

Reclassification – Loyalty Programs. As more fully described in Note 1, a substantial portion of the points earned by customers in connection with our loyalty programs are redeemed for gift cards. At the time the qualifying sales giving rise to the loyalty program points are made, we defer the portion of the revenues on the qualifying sales transactions equal to our estimate of the retail value of the gift cards to be issued upon conversion of the points to gift cards. Beginning in the first quarter of 2005, we began to record the deferral of revenues related to gift card awards under our loyalty programs as a reduction of revenues. Previously, we charged such amounts to selling, general and administrative expenses. In addition, we now charge the cost of all other awards under our loyalty programs to cost of goods sold rather than SG&A. These changes in classification do not impact the previously reported operating earnings, net income or earnings per share amounts.

Changes in Comparable Revenues. As more fully described in Note 2, we have sold our Chef’s Catalog operations. The changes in comparable revenues have been adjusted 1) to exclude the revenues of Chef’s Catalog operations for all periods prior to the sale and 2) to give recognition to the change in classification of revenues deferred in connection with our loyalty programs and are summarized below:

	Total		Specialty Retail Stores		Direct Marketing

Fiscal Year 2004:
First quarter	10.9	%	9.6	%	13.2	%
Second quarter	12.7	%	10.2	%	25.7	%
Third quarter	22.0	%	22.2	%	14.4	%
Fourth quarter	12.6	%	11.3	%	21.7	%
Fiscal year 2004	14.4	%	13.1	%	19.2	%

Fiscal Year 2003:
First quarter	6.3	%	5.0	%	15.7	%
Second quarter	0.9	%	(2.1	)%	18.7	%
Third quarter	1.6	%	(0.6	)%	14.8	%
Fourth quarter	9.0	%	6.3	%	22.3	%
Fiscal year 2003	4.1	%	1.8	%	17.8	%

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We do not enter into derivative financial instruments for trading purposes. We seek to manage exposure to adverse interest rate changes through our normal operating and financing activities. We are exposed to interest rate risk through our securitization and borrowing activities, which are described in Notes 2 and 5 to our Consolidated Financial Statements in our amendment to the Annual Report on Form 10-K/A for the fiscal year ended July 31, 2004.

As of April 30, 2005, we had no borrowings outstanding under our Credit Agreement. Future borrowings under our Credit Agreement, to the extent of outstanding borrowings, would be affected by interest rate changes.

Our outstanding long-term debt as of April 30, 2005 is at fixed interest rates and would not be affected by interest rate changes. Based upon quoted prices, the fair value of our senior notes and debentures (face value of $250 million) was $273.9 million as of April 30, 2005.

Pursuant to our proprietary credit card securitization program that begins to expire in September 2005, we have sold substantially all of our credit card receivables through a subsidiary in exchange for certificates representing undivided interests in such receivables. We sold the Class A Certificates, which have an aggregate principal value of $225 million, 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 April 30, 2005, we estimate a 100 basis point increase in LIBOR would result in an approximate annual increase of $2.25 million in the interest distributions to the Class A Certificate holders.

We use derivative financial instruments to manage foreign currency risk related to the procurement of merchandise inventories from foreign sources. We enter into foreign currency contracts denominated in the euro and British pound. We had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $35.7 million as of April 30, 2005. The market risk inherent in these instruments was not material to our consolidated financial position, results of operations or cash flows in the third quarter of 2005.

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 an increase or decrease in our cash funding obligation. We seek to manage exposure to adverse equity and bond returns by maintaining diversified investment portfolios and utilizing professional investment managers.

Based on a review of our financial instruments outstanding at April 30, 2005 that are sensitive to market risks, we have determined that there was no material market risk exposure to our consolidated financial position, results of operations, or cash flows as of such date.

ITEM 4. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we 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 our management, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information we are required to disclose in our 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, we routinely enhance our information systems by either upgrading our current systems or implementing new systems. No change in our internal controls occurred during the quarter ended April 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

We are involved in various suits and claims in the ordinary course of business. We do not believe that the disposition of any such suits or claims will have a material adverse effect upon our consolidated results of operations, cash flows or financial position. This belief is subject to the risks and uncertainties discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Future Results.”

On May 4, 2005, a purported class action complaint, NECA-IBEW Pension Fund (The Decatur Plan) v. The Neiman Marcus Group, Inc. et al. (CA No. 3-05 CV-0898B), was filed by a putative stockholder of the Company in federal court in the Northern District of Texas against the Company and its directors challenging the proposed merger.

The lawsuit is in its preliminary stage. We believe that the lawsuit is without merit and intend to defend vigorously against it.

The following table indicates our repurchases of equity securities in the third quarter of 2005:

Third Quarter 2005	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs

February 2005 (1/30/05 to 2/26/05)	—	—	—	1,155,869

March 2005 (2/27/05 to 4/2/05)	—	—	—	1,155,869

April 2005 (4/3/05 to 4/30/05)	—	—	—	1,155,869

(1) In April 2000, the Board of Directors authorized up to 4.0 million shares to be repurchased, with no expiration date.

ITEM 6. EXHIBITS

2.1		Agreement and Plan of Merger, dated May 1, 2005, among The Neiman Marcus Group, Inc., Newton Acquisition, Inc., and Newton Merger Sub, Inc., incorporated herein by reference to the Company’s Current Report on Form 8-K dated May 4, 2005.

3.1		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.

3.2		Bylaws of the Company, incorporated herein by reference to the Company’s Current Report on Form 8-K dated April 8, 2005.

4.1		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, 2004.

4.2		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 July 31, 2004.

4.3		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 July 31, 2004.

4.4		Form of 7.125 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 July 31, 2004.

4.5		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.

4.6		First Amendment to the Amended and Restated Rights Agreement, dated as of May 1, 2005, between The Neiman Marcus Group, Inc. and other parties signatory thereto, incorporated herein by reference to the Company’s Current Report on Form 8-K dated May 4, 2005.

10.43*		Change of Control Termination Protection Agreement between the Company and Burton M. Tansky dated April 1, 2005. (1)

10.44*		Form of Change of Control Termination Protection Agreement between the Company and certain eligible executives, including the named executive officers, dated April 1, 2005, (1)

10.45*		The Neiman Marcus Group, Inc. Executive Change of Control Severance Plan dated April 1, 2005, (1)

10.46*		The Neiman Marcus Group, Inc. General Change of Control Severance Plan dated April 1, 2005. (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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	THE NEIMAN MARCUS GROUP, INC.
	(Registrant)

EX-10.43 2 a05-7847_4ex10d43.htm EX-10.43

Exhibit 10.43

TIER I

CHANGE OF CONTROL TERMINATION PROTECTION AGREEMENT

(BURTON M. TANSKY)

AGREEMENT effective April 1, 2005 between The Neiman Marcus Group, Inc. and Burton M. Tansky (the “Executive”).

Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company. The Company believes that its best interests will be served if Executive is encouraged to remain with the Company or its Subsidiaries. The Company has determined that Executive’s ability to perform Executive’s responsibilities and utilize Executive’s talents for the benefit of the Company, and the Company’s ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in control of the Company. Accordingly, the Company and Executive agree as follows:

1. Defined Terms.

Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.

2. Effective Date; Term.

This Agreement shall be effective as of April 1, 2005 (the “Effective Date”) and shall remain in effect until April 1, 2007 (the “Term”); provided, however, that commencing with April 1, 2006 and on each anniversary thereof (each an “Extension Date”), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto at least 60 days’ prior written notice before the applicable Extension Date that the Term shall not be so extended. Notwithstanding the foregoing, this Agreement and the Term shall, if in effect on the date of a Change of Control, remain in effect for two years following the Change of Control.

3. Change of Control Benefits.

Upon the occurrence of a Change of Control during the Term, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any outstanding equity incentive award then held by Executive shall be automatically accelerated or waived effective as of the date of the Change of Control; provided, however, that in the event any such outstanding equity incentive award is replaced as of the occurrence of the Change of Control by comparable types of awards of greater or at least substantially equivalent value, as determined in the sole discretion of the administrator of the equity incentive award plan under which the outstanding award was granted, no such automatic acceleration or waiver shall occur, except to the extent the administrator of the applicable equity incentive award plan, in its sole discretion, provides for such acceleration or waiver, or unless such acceleration or waiver is

expressly provided for in connection with such replacement or under the terms of the applicable award agreement.

If Executive’s employment with the Company and its Subsidiaries is terminated at any time within two years following a Change of Control by the Company and any of its Subsidiaries without Cause or by Executive for Good Reason (the effective date of either such termination hereafter referred to as the “Termination Date”), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive’s execution of a general release in favor of the Company substantially in the form attached hereto as Exhibit A (the “Release”) (which Release is not revoked by Executive), the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement. If Executive’s employment by the Company and any of its Subsidiaries is terminated prior to a Change of Control by the Company and any of its Subsidiaries without Cause in connection with or in anticipation of such Change of Control at the request of, or upon the initiative of, the buyer in the Change of Control transaction (an “Anticipatory Termination”), Executive shall be entitled to, and the Company shall be required to provide, subject to Executive’s execution of the Release (which Release is not revoked by Executive), the benefits provided hereafter in Section 3 and as otherwise set forth in this Agreement (but only if an anticipated Change of Control actually occurs during the Term) and Executive’s Termination Date shall be deemed to have occurred immediately following the Change of Control.

Notice of termination without Cause or for Good Reason shall be given in accordance with Section 13, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances and the Termination Date.

a. Severance Payments. Within the later of (i) fifteen business days after the Termination Date or (ii) the expiration of the revocation period, if applicable, under the Release (the “Payment Period”), except with respect to any additional bonus amount payable after the Payment Period to the extent required pursuant to clause (3) below, the Company shall pay Executive a cash lump sum equal to:

b. Continuation of Active Employee Benefits. For a period of years following the Termination Date equal to the Severance Multiple (the “Welfare Continuation Period”), the Company shall provide Executive and Executive’s spouse and dependents (each as defined under the applicable program) with the following benefits: (i) medical and dental insurance coverages at the same benefit level as provided to Executive immediately prior to the Change of Control, for which the Company will (A) reimburse Executive during the first 18 months of the Welfare Continuation Period or, if shorter, the period of actual COBRA continuation coverage received by Executive during the Welfare Continuation Period, for the total amount of the monthly COBRA medical and dental insurance premiums payable by Executive for such continued benefits (by reducing such premium obligations to zero) and (B) provide such coverage for the remainder of the Welfare Continuation Period at the same cost to Executive as is generally provided to similarly situated active employees of the Company (provided, however, that if, during the Welfare Continuation Period, Executive becomes employed by a new employer, continuing medical and dental coverage from the Company will become secondary to any coverage afforded by the new employer in which Executive becomes enrolled); and (ii) life insurance coverage at the same benefit level as provided to Executive immediately prior to the Change of Control and at the same cost to Executive as is generally provided to similarly situated active employees of the Company (or if such coverage is no longer provided by the Company, then at the Executive’s cost immediately prior to the Change of Control).

c. Payment of Earned But Unpaid Amounts. Within the Payment Period, the Company shall pay Executive any unpaid Base Salary through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year of the Company, and all compensation previously deferred by Executive but not yet paid as well as the Company’s matching contribution with respect to such deferred compensation with respect to the year in which such Termination Date occurs and all accrued interest thereon. In addition, Executive shall be entitled to prompt reimbursement of any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date. Executive shall also receive such other benefits, if any, to which Executive may be entitled pursuant to the terms and conditions of the employee compensation, incentive, equity, benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy and as provided in Section 14 of this Agreement (payments and benefits in this subsection (c), the “Accrued Benefits”).

The Actuarial Equivalent shall be determined based upon the assumptions set forth in the NMG Retirement Plan (Basic Plan) and the benefit under this Section 3(d) shall be calculated in a manner consistent with the methodology and assumptions set forth in the illustrative example attached as Exhibit B.

In consideration of the provision of the foregoing benefits provided in this Section 3 and as otherwise set forth in this Agreement, Executive hereby agrees to be bound by the restrictive covenants of paragraphs 8, 9 and 10 of the Employment Agreement.

4. Mitigation.

Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.

5. Gross-Up.

6. Excluded Termination Events.

Nothing in this Agreement shall be construed to prevent the Company or any of its Subsidiaries from terminating Executive’s employment for Cause or due to Executive’s Total Disability. If Executive is terminated (i) during the Term by the Company for Cause or Total

Disability or due to Executive’s death or resignation without Good Reason or (ii) for any reason following the expiration of the Term, the Company shall have no obligation to make any payments under this Agreement.

7. Indemnification; Director’s and Officer’s Liability Insurance.

(a) Executive shall retain all rights to indemnification under the Company’s Certificate of Incorporation or By-Laws, and (b) the Company shall maintain Director’s and Officer’s liability insurance on behalf of Executive, in both cases at the level in effect immediately prior to the Termination Date or immediately prior to the Change in Control, whichever is greater, for a number of years equal to the Severance Multiple following the Termination Date, and throughout the period of any applicable statute of limitations.

8. Arbitration.

All disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted before one arbitrator sitting in Dallas, Texas, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of employment disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be made within thirty days following the close of the hearing on any dispute or controversy and shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction.

9. Costs of Proceedings.

The Company shall pay all costs and expenses of the Company and, at least monthly, Executive in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement; provided that if Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall reimburse the Company for all costs and expenses of Executive previously paid by the Company pursuant to this Section 9.

10. Assignment.

Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 10 shall continue to apply to each subsequent

employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.

11. Withholding and Deferral.

Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder. Notwithstanding any other provision of this Agreement or certain compensation and benefit plans of the Company or its Subsidiaries, any payments or benefits due under this Agreement or such plans upon or in connection with a termination of Executive’s employment shall be deferred and paid no earlier than 6 months following such termination of Executive’s employment, if, and only to the extent, required to comply with Section 409A of the Code.

12. Applicable Law.

This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflicts of laws principles thereof.

13. Notice.

For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when received at the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith.

If to the Company:

The Neiman Marcus Group, Inc.

1618 Main Street

Dallas, TX 75201

Attention: General Counsel

If to Executive:

To the most recent address of Executive set forth in the personnel records of the Company.

14. Entire Agreement; Offset; Modification.

15. Counterparts.

This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement on the 1st day of April, 2005.

		THE NEIMAN MARCUS GROUP, IN.C

	By:	/s/ Nelson a. Bangs
		Nelson A. Bangs
		Senior Vice President & General Counsel

		/s/ Burton M. Tansky
		Burton M. Tansky

Schedule A

CERTAIN DEFINITIONS

As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:

For purposes of this definition, no act, or failure to act, on Executive’s part shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company.

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A-3

A-4

Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.

A-5

Exhibit A

WAIVER AND RELEASE OF CLAIMS

In consideration of, and subject to, the payments to be made to me by The Neiman Marcus Group, Inc., or any of its subsidiaries, or its or their successor(s) or assigns (the “Company”), pursuant to the attached Change of Control Termination Protection Agreement (“TPA”) dated April 1, 2005, I agree to and do release and forever discharge the Company, and its respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Company or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Act, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment.

Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights under the TPA; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of the Company which are accrued but unpaid as of the date of my termination; or (iii) my rights to indemnification under any indemnification agreement, applicable law, and certificates of incorporation and bylaws of the Company, and my rights under any directors’ and officers’ liability insurance policy covering me.

I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Company’s acknowledgement of my rights reserved under the second paragraph above.

I acknowledge that I have been given not less than [twenty-one (21)] [forty-five (45)] days to review and consider this Waiver and Release of Claims, and that I have had the opportunity to consult with an attorney or other advisors of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven days or less after its execution by providing written notice to the Company.

Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.


	Employee’s Signature


	Print name


	Date Signed

Exhibit B

Methodology for Change of Control Lump Sum Calculation
And Definition of Actuarial Equivalent

(Capitalized terms used herein without definition have the meanings specified in the
Agreement or Plan to which this Exhibit B is attached)

The methodology for the Change of Control Lump Sum Calculation follows the steps below:

1. Calculate the participant’s total benefit under the SERP as of the date of the participant’s termination of employment (the “Termination Date”) after adding the participant’s Severance Multiple to the number of years of age and service (the “Age and Service Enhancement”) for purposes of eligibility for participation, eligibility for retirement, for early commencement of actuarial subsidies and for purposes of benefit accrual (the “Enhanced Change of Control Benefit”). Calculate the early retirement benefit payable at the Termination Date (if eligible) or the age 65 accrued benefit amount (if not eligible for early retirement). This calculation is without offset for the benefit under the NMG Retirement Plan (Basic Plan) (the “Basic Plan”).

2. Calculate the Lump Sum of the benefit in step 1, based on the Actuarial Equivalent described below.

3. Calculate the participant’s total benefit under the SERP as of the Termination Date without taking into account the Age and Service Enhancement (the “Normal SERP Benefit”). Calculate the early retirement benefit payable at the Termination Date (if eligible) or the age 65 accrued benefit amount (if not eligible for early retirement). This calculation is also without offset for the Basic Plan benefit.

4. Calculate the Lump Sum of the benefit in step 3, based on the Actuarial Equivalent described below.

5. Subtract the Lump Sum in step 4 from the Lump Sum in step 2 to determine the Lump Sum amount of the incremental Change of Control benefit.

Note that these calculations are not offset by the Basic Plan benefit because the SERP provisions provide for a more generous early retirement subsidy than the Basic Plan, and that subsidy is calculated on the full SERP benefit (before the benefit under the Basic Plan is offset from it). Therefore, in order to capture the full value of the SERP benefit at early retirement (and, by extension, the full value of the incremental Change of Control benefit), the benefits prior to the Basic Plan offset must be used.

There are three different calculation scenarios, depending on the Participant’s age and service as of the Termination Date:

(1) If the participant is eligible for an immediate SERP benefit (without taking into account the Age and Service Enhancement), then the Lump Sum amounts for both the Normal SERP Benefit

and the Enhanced Change of Control Benefit are based on the immediately payable early retirement benefits.

(2) If the participant is not eligible for an immediate SERP benefit even with the Age and Service Enhancement, then the Lump Sum amounts for both the Normal SERP Benefit and the Enhanced Change of Control Benefit are based on the Age 65 accrued benefits.

(3) If the participant is eligible for an immediate SERP benefit only because of the Age and Service Enhancement, then the Lump Sum for the Normal SERP Benefit is based on the Age 65 accrued benefit and the Lump Sum for the Enhanced Change of Control Benefit is based on the immediately payable early retirement benefit.

The following example illustrates this third scenario:

Severance Multiple:		2.0 years

Actual Age at Termination Date		54.0 years
Enhanced Age at Termination Date:		56.0 years

Service at Termination Date:		20.0 years
Enhanced Service at Termination Date:		22.0 years

This participant is not eligible for an immediate benefit under the regular SERP provisions. With the Age and Service Enhancement, he is eligible for an immediate benefit, so the full early retirement subsidy is provided by the Enhanced Change of Control benefit.

Total Enhanced Change of Control Benefit at Termination Date

(a) Total Enhanced Change of Control Benefit at Termination Date Payable at age 65 = $7,000

(b) Total Enhanced Change of Control Early Retirement Benefit Payable at age 54 = $5,320

(Early Retirement Factor of .76 based on enhanced age 56 * (a))

(d) Lump Sum Value of Total Enhanced Change of Control Benefit at Termination = (b) * (c) * 12 = $973,407

Total Normal SERP Benefit at Termination Date

(e) Total SERP accrued benefit at Termination Date Payable at age 65 = $5,000

(f) Age 54 Deferred to Age 65 Lump Sum Factor = 6.7961

(g) Lump Sum Value of Normal SERP Benefit at Termination Date = (e) * (f) * 12 = $407,766

(h) Incremental Change of Control Benefit = $973,407 - $407,766 = $565,641

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the 30-Year Treasury Rate for the month of March in the Plan Year prior to the Plan Year of distribution, and (c) the participant’s actual age at distribution date.

The example shown above assumes that both the Termination Date and distribution date are in the Plan Year Ending July 31, 2005, so the interest rate used is the March 2004 30-Year Treasury Rate of 4.74%. The March 2005 30-Year Treasury Rate which would be used for distributions made in the Plan Year Ending July 31, 2006 is not yet known.

A participant who is not vested in the SERP upon his actual termination date is automatically vested under the Change of Control contract language (but with no Basic Plan benefit available to him). In addition, any employee who is not yet a participant in the Basic Plan as of his actual Termination Tate but who would otherwise be eligible for the SERP, is automatically a participant under the SERP (again, with no Basic Plan benefit).

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EX-10.44 3 a05-7847_4ex10d44.htm EX-10.44

Exhibit 10.44

TIER II

Form of

CHANGE OF CONTROL TERMINATION PROTECTION AGREEMENT

AGREEMENT effective April 1, 2005 between The Neiman Marcus Group, Inc. and (the “Executive”).

1. Defined Terms.

Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.

2. Effective Date; Term.

3. Change of Control Benefits.

expressly provided for in connection with such replacement or under the terms of the applicable award agreement.

methodology and assumptions set forth in the illustrative example attached as Exhibit C.

4. Mitigation.

Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and, subject to Section 3(b), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement. No amounts payable under this Agreement shall be subject to reduction or offset in respect of any claims which the Company or any of its Subsidiaries (or any other person or entity) may have against Executive.

5. Gross-Up.

6. Excluded Termination Events.

following the expiration of the Term, the Company shall have no obligation to make any payments under this Agreement.

7. Indemnification; Director’s and Officer’s Liability Insurance.

8. Arbitration.

9. Costs of Proceedings.

10. Assignment.

11. Withholding and Deferral.

12. Applicable Law.

This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflicts of laws principles thereof.

13. Notice.

If to the Company:

The Neiman Marcus Group, Inc.

1618 Main Street

Dallas, TX 75201

Attention: General Counsel

If to Executive:

To the most recent address of Executive set forth in the personnel records of the Company.

14. Entire Agreement; Offset; Modification.

15. Counterparts.

This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement on the 1st day of April, 2005.

		THE NEIMAN MARCUS GROUP, IN.C


	By:	Nelson A. Bangs
		Senior Vice President & General Counsel


		Executive

CERTAIN DEFINITIONS

As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:

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A-3

A-4

Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason to resign for Good Reason.

A-5

Exhibit A

WAIVER AND RELEASE OF CLAIMS

Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.


	Employee’s Signature


	Print name


	Date Signed

Exhibit B

CONFIDENTIALITY AND NON-COMPETITION RESTRICTIVE COVENANTS

I. Executive acknowledges and agrees that (a) the Company is engaged in a highly competitive business; (b) the Company has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information (as defined in Section V below); (c) the Company 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, Executive’s participation in or direction of the Company’s day-to-day operations and strategic planning are and will be an integral part of the Company’s continued success and goodwill; (e) given Executive’s position and responsibilities, Executive necessarily will be creating Confidential Information that belongs to the Company and enhances the Company’s goodwill, and in carrying out Executive’s responsibilities Executive in turn will be relying on the Company’s goodwill and the disclosure by the Company to him of Confidential Information; (f) Executive will have access to Confidential Information that could be used by any competitor of the Company in a manner that would irreparably harm the Company’s competitive position in the marketplace and dilute its goodwill; and (g) Executive necessarily would use or disclose Confidential Information if Executive were to engage in competition with the Company. The Company acknowledges and agrees that Executive must have and continue to have throughout Executive’s employment the benefits and use of its goodwill and Confidential Information in order to properly carry out Executive’s responsibilities. The Company accordingly promises upon execution and delivery of the 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. The Company and Executive thus acknowledge and agree that upon execution and delivery of the Agreement Executive (x) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to the Company, (y) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to the Company, and (z) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill the Company has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during Executive’s employment by the Company and thereafter:

(i) all Confidential Information shall remain and be the sole and exclusive property of the Company;

(ii) Executive will protect and safeguard all Confidential Information;

(iii) Executive 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 the Company to the extent necessary for the proper performance of Executive’s responsibilities unless authorized to do so by the Company or compelled to do so by law or valid legal process;

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

(v) at the end of Executive’s employment with the Company for any reason or at the request of the Company at any time, Executive will return to the Company all Confidential Information and all copies thereof, in whatever tangible form or medium (including electronic); and

(vi) absent the promises and representations of Executive in this Section I and in Section II below, the Company would require him immediately to return any tangible Confidential Information in Executive’s 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 the Agreement.

II. In consideration of the Company’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 the Agreement, and the other promises and undertakings of the Company in the Agreement, Executive agrees that, while Executive is employed by the Company and for a period of 12 months following the end of that employment for any reason, Executive shall not engage in any of the following activities (the “Restricted Activities”):

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

(b) Executive will not, whether on Executive’s 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 the Company or its Affiliates to leave that employment or cease performing those services;

(c) Executive will not, whether on Executive’s 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 the Company or any of its Affiliates to cease being a customer, supplier, or vendor of the Company or any of its Affiliates or to divert all or any part of such person’s or entity’s business from the Company or any of its Affiliates; and

(d) Executive will not associate directly or indirectly, as an employee, officer, director, agent, partner, stockholder, owner, representative, or consultant, with any Competitor (as defined in Section V below), unless (i) Executive has advised the Company in writing in advance of Executive’s desire to undertake such activities and the specific nature of such activities; (ii) the Company has received written assurances (that will be designed, among other

B-2

things, to protect the Company’s and its Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and Executive that are, in the Company’s sole discretion, adequate to protect its interests; (iii) the Company, in its sole discretion, has approved in writing such association; and (iv) Executive and the Competitor adhere to such assurances. After the end of Executive’s employment with the Company and any Affiliate, the restriction immediately set forth above in this Section II(d) applies only to conduct of Executive that takes place anywhere in, or is directed at any part of, the Noncompetition Area (as defined in Section V below). Executive shall not be in violation of this Section II(d) solely as a result of Executive’s 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 Executive and the members of Executive’s immediate family do not, directly or indirectly, hold more than a total of one percent (1%) of all such shares of stock or other securities issued and outstanding. Executive acknowledges and agrees that engaging in the Restricted Activities described in this subparagraph would result in the inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of the Company.

Executive acknowledges and agrees that the restrictions contained in this Section II are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Section II; that the Company’s promises and undertakings set forth in Section II, and Executive’s position and responsibilities with the Company, give rise to the Company’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 Section II and Executive’s common-law obligations and duties owed to the Company; 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 the Company’s goodwill, Confidential Information, and other legitimate business interests; that Executive will immediately notify the Company in writing should Executive believe or be advised that the restrictions are not valid or enforceable under Texas law or the law of any other state that Executive contends or is advised is applicable; that the mutual promises and undertakings of the Company and Executive under Section I and Section II are not contingent on the duration of Executive’s employment with the Company; and that absent the promises and representations made by Executive in Section I and Section II, the Company would require him to return any Confidential Information in Executive’s 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 the Agreement.

III. Executive acknowledges and agrees that the Company would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Section I or Section II were not performed in accordance with their specific terms or were otherwise breached. Accordingly, Executive agrees that the Company 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 Sections, 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 the provisions of Section I or Section II by Executive, but shall be in addition to all other remedies available to the Company at law or equity. Executive acknowledges and agrees that the

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Company 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 Executive breaches the provisions of Section I or Section II. Executive acknowledges and agrees that no breach by the Company 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.

IV. If the provisions of Section I or Section II are ever deemed by a court to exceed the limitations permitted by applicable law, Executive and the Company agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

V. Definitions:

“Competitor” means (a) each of Saks Incorporated, Nordstrom, Inc., Barneys New York, Inc., any Affiliate of any of them, and any other person or entity that owns, operates or controls any of them or any of their Affiliates, directly or indirectly; (b) the successors to or assigns of the persons or entities identified in (a); and (c) the retail operations of any person or entity, or successor or assign of such person or entity, who, at any time during Executive’s employment with the Company or within 12 months following the end of Executive’s employment with the Company, was a vendor of the Company and had an annual gross revenue of $100 million or more, and the Affiliates of such vendors. To the extent that any of the corporate names used in (a) of this definition are not the legally correct corporate names of the entities commonly referred to by the corporate names used above absent the corporate form designation, the definition shall be deemed to apply to the entities with the correct corporate names, along with the Affiliates, successors, and assigns of such correctly named entities.

“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 plan; 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 Section I or Section II above or other unauthorized disclosure by Executive.

“Noncompetition Area” means the following geographic areas: (a) any foreign country where the Company or its Affiliates engage in business of any kind, including selling, purchasing, or ordering goods, at any time during Executive’s employment with the Company or its Affiliates; and (b) the United States of America.

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Exhibit C

Methodology for Change of Control Lump Sum Calculation
And Definition of Actuarial Equivalent

(Capitalized terms used herein without definition have the meanings specified in the
Agreement or Plan to which this Exhibit C is attached)

The methodology for the Change of Control Lump Sum Calculation follows the steps below:

2. Calculate the Lump Sum of the benefit in step 1, based on the Actuarial Equivalent described below.

4. Calculate the Lump Sum of the benefit in step 3, based on the Actuarial Equivalent described below.

5. Subtract the Lump Sum in step 4 from the Lump Sum in step 2 to determine the Lump Sum amount of the incremental Change of Control benefit.

There are three different calculation scenarios, depending on the Participant’s age and service as of the Termination Date:

(1) If the participant is eligible for an immediate SERP benefit (without taking into account the Age and Service Enhancement), then the Lump Sum amounts for both the

C-1

Normal SERP Benefit and the Enhanced Change of Control Benefit are based on the immediately payable early retirement benefits.

The following example illustrates this third scenario:

Severance Multiple:		2.0 years

Actual Age at Termination Date		54.0 years
Enhanced Age at Termination Date:		56.0 years

Service at Termination Date:		20.0 years
Enhanced Service at Termination Date:		22.0 years

Total Enhanced Change of Control Benefit at Termination Date

(a) Total Enhanced Change of Control Benefit at Termination Date Payable at age 65 = $7,000

(b) Total Enhanced Change of Control Early Retirement Benefit Payable at age 54 = $5,320

(Early Retirement Factor of .76 based on enhanced age 56 * (a))

(d) Lump Sum Value of Total Enhanced Change of Control Benefit at Termination = (b) * (c) * 12 = $973,407

Total Normal SERP Benefit at Termination Date

(e) Total SERP accrued benefit at Termination Date Payable at age 65 = $5,000

(f) Age 54 Deferred to Age 65 Lump Sum Factor = 6.7961

(g) Lump Sum Value of Normal SERP Benefit at Termination Date = (e) * (f) * 12 = $407,766

(h) Incremental Change of Control Benefit = $973,407 - $407,766 = $565,641

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The lump sum factors are based on the Actuarial Equivalent definition from the Basic Plan used for determining a lump sum value, i.e., the GATT specified mortality and interest under IRC Section 417(e)(3). The assumptions are (a) the 1994 Group Annuity Reserve mortality table, (b) the 30-Year Treasury Rate for the month of March in the Plan Year prior to the Plan Year of distribution, and (c) the participant’s actual age at distribution date.

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EX-10.45 4 a05-7847_4ex10d45.htm EX-10.45

Exhibit 10.45

TIER III

THE NEIMAN MARCUS GROUP, INC.
EXECUTIVE
CHANGE OF CONTROL SEVERANCE PLAN

THIS EXECUTIVE CHANGE OF CONTROL SEVERANCE PLAN, made and executed at Dallas, Texas, by THE NEIMAN MARCUS GROUP, INC., a Delaware corporation, is being established to provide for the payment of severance benefits to certain of its eligible employees.

and who agrees to be subject to the restrictive covenants set forth on Exhibit A shall be entitled to the following:

If to the Company:

The Neiman Marcus Group, Inc.

1618 Main Street

Dallas, TX 75201

Attention: General Counsel

If to Executive:

To the most recent address of Executive set forth in the personnel records of the Company.

IN WITNESS WHEREOF, this Plan has been executed this 1^st day of April, 2005, to be effective as of April 1, 2005.

		THE NEIMAN MARCUS GROUP, IN.C

	By:	/s/ Nelson a. Bangs
		Nelson A. Bangs
		Senior Vice President & General Counsel

TIER III

SCHEDULE A

Barnes

Galvin

Goddard

Hershey

Hussey

Joselove

Kaner

Kazor

Kornajcik

Lind

Paolini

Patrick

Shields

Shirley

Spaniolo

Stangle

Stapleton

Yee

Exhibit A

CONFIDENTIALITY AND NON-COMPETITION RESTRICTIVE COVENANTS

I. Executive acknowledges and agrees that (a) the Company is engaged in a highly competitive business; (b) the Company has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information (as defined in Section V below); (c) the Company 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, Executive’s participation in or direction of the Company’s day-to-day operations and strategic planning are and will be an integral part of the Company’s continued success and goodwill; (e) given Executive’s position and responsibilities, Executive necessarily will be creating Confidential Information that belongs to the Company and enhances the Company’s goodwill, and in carrying out Executive’s responsibilities Executive in turn will be relying on the Company’s goodwill and the disclosure by the Company to him of Confidential Information; (f) Executive will have access to Confidential Information that could be used by any competitor of the Company in a manner that would irreparably harm the Company’s competitive position in the marketplace and dilute its goodwill; and (g) Executive necessarily would use or disclose Confidential Information if Executive were to engage in competition with the Company. The Company acknowledges and agrees that Executive must have and continue to have throughout Executive’s employment the benefits and use of its goodwill and Confidential Information in order to properly carry out Executive’s responsibilities. The Company accordingly promises upon execution and delivery of the Plan 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. The Company and Executive thus acknowledge and agree that upon execution and delivery of the Plan Executive (x) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to the Company, (y) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to the Company, and (z) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill the Company has generated and from the Confidential Information. Accordingly, Executive acknowledges and agrees that at all times during Executive’s employment by the Company and thereafter:

(i) all Confidential Information shall remain and be the sole and exclusive property of the Company;

(ii) Executive will protect and safeguard all Confidential Information;

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II. In consideration of the Company’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 the Plan, and the other promises and undertakings of the Company in the Plan, Executive agrees that, while Executive is employed by the Company and for a period of 12 months following the end of that employment for any reason, Executive shall not engage in any of the following activities (the “Restricted Activities”):

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any other remedies to which it may be entitled, in the event Executive breaches the provisions of Section I or Section II. Executive acknowledges and agrees that no breach by the Company of this Plan or failure to enforce or insist on its rights under this Plan shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

V. Definitions:

A-4

Exhibit B

Methodology for Change of Control Lump Sum Calculation
And Definition of Actuarial Equivalent

(Capitalized terms used herein without definition have the meanings specified in the
Agreement or Plan to which this Exhibit B is attached)

The methodology for the Change of Control Lump Sum Calculation follows the steps below:

2. Calculate the Lump Sum of the benefit in step 1, based on the Actuarial Equivalent described below.

4. Calculate the Lump Sum of the benefit in step 3, based on the Actuarial Equivalent described below.

5. Subtract the Lump Sum in step 4 from the Lump Sum in step 2 to determine the Lump Sum amount of the incremental Change of Control benefit.

There are three different calculation scenarios, depending on the Participant’s age and service as of the Termination Date:

(1) If the participant is eligible for an immediate SERP benefit (without taking into account the Age and Service Enhancement), then the Lump Sum amounts for both the Normal SERP Benefit and the Enhanced Change of Control Benefit are based on the immediately payable early retirement benefits.

B-1

The following example illustrates this third scenario:

Severance Multiple:		2.0 years

Actual Age at Termination Date		54.0 years
Enhanced Age at Termination Date:		56.0 years

Service at Termination Date:		20.0 years
Enhanced Service at Termination Date:		22.0 years

Total Enhanced Change of Control Benefit at Termination Date

(a) Total Enhanced Change of Control Benefit at Termination Date Payable at age 65 = $7,000

(b) Total Enhanced Change of Control Early Retirement Benefit Payable at age 54 = $5,320

(Early Retirement Factor of .76 based on enhanced age 56 * (a))

(d) Lump Sum Value of Total Enhanced Change of Control Benefit at Termination = (b) * (c) * 12 = $973,407

Total Normal SERP Benefit at Termination Date

(e) Total SERP accrued benefit at Termination Date Payable at age 65 = $5,000

(f) Age 54 Deferred to Age 65 Lump Sum Factor = 6.7961

(g) Lump Sum Value of Normal SERP Benefit at Termination Date = (e) * (f) * 12 = $407,766

(h) Incremental Change of Control Benefit = $973,407 - $407,766 = $565,641

B-2

B-3

EX-10.46 5 a05-7847_4ex10d46.htm EX-10.46

Exhibit 10.46

THE NEIMAN MARCUS GROUP, INC.
GENERAL

CHANGE OF CONTROL SEVERANCE PLAN

THIS GENERAL CHANGE OF CONTROL SEVERANCE PLAN, made and executed at Dallas, Texas, by THE NEIMAN MARCUS GROUP, INC., a Delaware corporation, is being established to provide for the payment of severance benefits to certain of its eligible employees.

IN WITNESS WHEREOF, this Plan has been executed this 1^st day of April, 2005, to be effective as of April 1, 2005.

		THE NEIMAN MARCUS GROUP, IN.C

	By:	/s/ Nelson a. Bangs
		Nelson A. Bangs
		Senior Vice President & General Counsel

SCHEDULE A

Position Classification	“Minimum Weeks of Severance” (for under 2 Years of Service)	“Additional Weeks of Severance” (for each year over 2 Years of Service)	“Maximum Weeks of Severance”	Outplacement Benefit Level
* Div. SVP (Benefit Levels 57, 47, 45); * NMG Officer (Benefit Levels 56, 53)	16	4	52	Executive
Div. VP (Benefit Levels 54, 56, 44, 46)	12	3	52	Executive
NMG or Div. Director (Benefit Levels 53, 43)	10	3	36	Executive
All Other Exempt (Benefit Levels 52, 42, 51)	8	2	26	2-Day Workshop
Hourly (Benefit Levels 50, 40)	6	2	26	2-Day Workshop

* The division and subsidiary Senior Vice Presidents and Officers of the Company that are eligible to receive benefits under this Plan are those individuals who are not otherwise entitled to receive benefits under The Neiman Marcus Group, Inc. Executive Change of Control Severance Plan.

Exhibit A

CONFIDENTIALITY AND RESTRICTIVE COVENANTS

I. Employee acknowledges and agrees that (a) the Company is engaged in a highly competitive business; (b) the Company has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information (as defined in Section V below); (c) the Company 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, Employee’s participation in or direction of the Company’s day-to-day operations and strategic planning are and will be an integral part of the Company’s continued success and goodwill; (e) given Employee’s position and responsibilities, Employee necessarily will be creating Confidential Information that belongs to the Company and enhances the Company’s goodwill, and in carrying out Employee’s responsibilities Employee in turn will be relying on the Company’s goodwill and the disclosure by the Company to him of Confidential Information; (f) Employee will have access to Confidential Information that could be used by any competitor of the Company in a manner that would irreparably harm the Company’s competitive position in the marketplace and dilute its goodwill; and (g) Employee necessarily would use or disclose Confidential Information if Employee were to engage in competition with the Company. The Company acknowledges and agrees that Employee must have and continue to have throughout Employee’s employment the benefits and use of its goodwill and Confidential Information in order to properly carry out Employee’s responsibilities. The Company accordingly promises upon execution and delivery of the Plan to provide Employee immediate access to new and additional Confidential Information and authorize him to engage in activities that will create new and additional Confidential Information. The Company and Employee thus acknowledge and agree that upon execution and delivery of the Plan Employee (x) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to the Company, (y) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to the Company, and (z) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill the Company has generated and from the Confidential Information. Accordingly, Employee acknowledges and agrees that at all times during Employee’s employment by the Company and thereafter:

(i) all Confidential Information shall remain and be the sole and exclusive property of the Company;

(ii) Employee will protect and safeguard all Confidential Information;

(iii) Employee 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 the Company to the extent necessary for the proper performance of Employee’s responsibilities unless authorized to do so by the Company or compelled to do so by law or valid legal process;

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

(v) at the end of Employee’s employment with the Company for any reason or at the request of the Company at any time, Employee will return to the Company all Confidential Information and all copies thereof, in whatever tangible form or medium (including electronic); and

(vi) absent the promises and representations of Employee in this Section I and in Section II below, the Company would require him immediately to return any tangible Confidential Information in Employee’s possession, would not provide Employee with new and additional Confidential Information, would not authorize Employee to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into the Plan.

II. In consideration of the Company’s promises to provide Employee 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 the Plan, and the other promises and undertakings of the Company in the Plan, Employee agrees that, while Employee is employed by the Company and for a period of 12 months following the end of that employment for any reason, Employee shall not engage in any of the following activities (the “Restricted Activities”):

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

(b) Employee will not, whether on Employee’s 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 the Company or its Affiliates to leave that employment or cease performing those services; and

(c) Employee will not, whether on Employee’s 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 the Company or any of its Affiliates to cease being a customer, supplier, or vendor of the Company or any of its Affiliates or to divert all or any part of such person’s or entity’s business from the Company or any of its Affiliates.

Employee acknowledges and agrees that the restrictions contained in this Section II are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Section II; that the Company’s promises and undertakings set forth in Section II, and Employee’s position and responsibilities with the Company, give rise to the Company’s interest in restricting Employee’s post-employment activities; that such

A-2

restrictions are designed to enforce Employee’s promises and undertakings set forth in this Section II and Employee’s common-law obligations and duties owed to the Company; 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 the Company’s goodwill, Confidential Information, and other legitimate business interests; that Employee will immediately notify the Company in writing should Employee believe or be advised that the restrictions are not valid or enforceable under Texas law or the law of any other state that Employee contends or is advised is applicable; that the mutual promises and undertakings of the Company and Employee under Section I and Section II are not contingent on the duration of Employee’s employment with the Company; and that absent the promises and representations made by Employee in Section I and Section II, the Company would require him to return any Confidential Information in Employee’s possession, would not provide Employee with new and additional Confidential Information, would not authorize Employee to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into the Plan.

III. Employee acknowledges and agrees that the Company would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Section I or Section II were not performed in accordance with their specific terms or were otherwise breached. Accordingly, Employee agrees that the Company shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Employee breaches or threatens to breach any of the provisions of such Sections, 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 the provisions of Section I or Section II by Employee, but shall be in addition to all other remedies available to the Company at law or equity. Employee acknowledges and agrees that the Company 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 Employee breaches the provisions of Section I or Section II. Employee acknowledges and agrees that no breach by the Company of this Plan or failure to enforce or insist on its rights under this Plan shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

IV. If the provisions of Section I or Section II are ever deemed by a court to exceed the limitations permitted by applicable law, Employee and the Company agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

V. Definitions:

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EX-31.1 6 a05-7847_4ex31d1.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 quarterly report on Form 10-Q 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 third fiscal quarter) 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: June 9, 2005

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

EX-31.2 7 a05-7847_4ex31d2.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 quarterly report on Form 10-Q 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: June 9, 2005

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

EX-32 8 a05-7847_4ex32.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 quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2005:

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 Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended April 30, 2005 (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: June 9, 2005	/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: June 9, 2005	/s/ JAMES E. SKINNER
	James E. Skinner Senior Vice President and Chief Financial Officer

(1)A signed original for 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.

-----END PRIVACY-ENHANCED MESSAGE-----

Signature

/s/ T. Dale Stapleton

Vice President and Controller

June 9, 2005

T. Dale Stapleton

and Duly Authorized Officer

(principal accounting officer)