10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 1, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to

Commission file no. 333-133184-12

Neiman Marcus, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	20-3509435 (I.R.S. Employer Identification No.)
1618 Main Street Dallas, Texas (Address of principal executive offices)	75201 (Zip code)

Registrant’s telephone number, including area code: (214) 743-7600

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o  No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨  No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant is zero.  The registrant is a privately held corporation.

As of October 1, 2009, the registrant had outstanding 1,013,082 shares of its common stock, par value $0.01 per share.

NEIMAN MARCUS, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 1, 2009

TABLE OF CONTENTS

		Page No.
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	10
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
PART II
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 8.	Financial Statements and Supplementary Data	49
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	49
Item 9A.	Controls and Procedures	49
Item 9B.	Other information	50
PART III
Item 10.	Directors and Executive Officers of the Registrant	50
Item 11.	Executive Compensation	53
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
Item 13.	Certain Relationships and Related Transactions, and Director Independence	75
Item 14.	Principal Accounting Fees and Services	77
PART IV
Item 15.	Exhibits and Financial Statement Schedules	78
Signatures	Signatures	84

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PART I

ITEM 1. BUSINESS

Business Overview

We are one of the nation’s leading luxury retailers, offering distinctive merchandise and excellent customer service that cater to the needs of the affluent consumer. Since our founding in the early 1900s, we have established ourselves as a leading fashion authority among luxury consumers and have become a premier U.S. retail channel for many of the world’s most exclusive designers. Currently, we operate 41 Neiman Marcus full-line stores at prime retail locations in major U.S. markets and two Bergdorf Goodman stores on Fifth Avenue in New York City. We also operate catalogs and e-commerce websites under the brands Neiman Marcus®, Bergdorf Goodman® and Horchow®. During fiscal years 2009, 2008 and 2007, we generated revenues of $3,643.3 million, $4,600.5 million and $4,390.1 million, respectively, and operating (loss) earnings of $(652.9) million, $466.4 million and $476.8 million, respectively.

We operate an integrated, multi-channel retailing model as described below:

Specialty Retail.  Our specialty retail store operations (Specialty Retail) consist primarily of our 41 Neiman Marcus stores and two Bergdorf Goodman stores. Specialty Retail accounted for 82.1% of our total revenues in fiscal year 2009, 83.8% in fiscal year 2008 and 83.7% in fiscal year 2007.

·Neiman Marcus Stores.  Neiman Marcus stores offer distinctive luxury merchandise, including women’s couture and designer apparel, contemporary sportswear, handbags, fashion accessories, shoes, cosmetics, men’s clothing and furnishings, precious and designer jewelry, decorative home accessories, fine china, crystal and silver, children’s apparel and gift items. We locate our Neiman Marcus stores at carefully selected venues in major metropolitan markets across the United States and design our stores to provide a feeling of residential luxury by blending art and architectural details from the communities in which they are located. We also operate 28 clearance centers offering end-of-season clearance goods from our Neiman Marcus stores, Bergdorf Goodman stores and direct-to-consumer operations as well as clearance goods purchased directly for resale by our clearance centers.  Our full-line Neiman Marcus stores and clearance centers accounted for 69.7% of our total revenues in fiscal year 2009, 71.2% in fiscal year 2008 and 71.6% in fiscal year 2007 and 84.9% of Specialty Retail revenues in fiscal year 2009, 85.0% in fiscal year 2008 and 85.6% in fiscal year 2007.

·Bergdorf Goodman Stores. Bergdorf Goodman is a premier luxury retailer in New York City well known for its couture merchandise, opulent shopping environment and landmark Fifth Avenue locations. Bergdorf Goodman features high-end apparel, fashion accessories, shoes, decorative home accessories, precious and designer jewelry, cosmetics and gift items. Our Bergdorf Goodman stores accounted for 12.4% of our total revenues in fiscal year 2009, 12.6% in fiscal year 2008 and 12.1% in fiscal year 2007 and 15.1% of Specialty Retail revenues in fiscal year 2009, 15.0% in fiscal year 2008 and 14.4% in fiscal year 2007.

We currently operate 6 stores under the CUSP name. CUSP is a smaller store format (6,000 to 11,000 square feet) that targets a younger, fashion savvy customer with a contemporary point of view. To date, the operations of the CUSP stores are insignificant to the revenues and operating earnings of our Specialty Retail stores.

Direct Marketing.  Our upscale direct-to-consumer operation (Direct Marketing) conducts online and catalog sales of fashion apparel, accessories and home furnishings through the Neiman Marcus brand, online and catalog sales of home furnishings and accessories through the Horchow brand, and online sales of fashion apparel and accessories through the Bergdorf Goodman brand.  In addition, Direct Marketing currently operates 9 designer websites.  In connection with the designer websites, Direct Marketing creates and/or maintains separate e-commerce sites bearing the designers’ brand names.  Direct Marketing procures inventory from each designer to be showcased on that designer’s website and bears all the responsibilities related to the fulfillment of goods purchased on the designer website.

Direct Marketing generated 17.9% of our total revenues in fiscal year 2009, 16.2% in fiscal year 2008 and 16.3% in fiscal year 2007.  Over one million customers made a purchase through one of our websites or catalogs in fiscal year 2009. In recent years, internet revenues have increased as a percentage of Direct Marketing revenues.  As a percentage of total revenues of Direct Marketing, internet revenues were 79.5% in fiscal year 2009, 75.5% in fiscal year 2008 and 69.7% in fiscal year 2007. Our catalog business circulated approximately 68 million catalogs in fiscal year 2009, a decrease of approximately 25% from the prior year.  With the growth of internet revenues, we have reduced catalog circulation in recent years and would expect flat to

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declining catalog circulation in the foreseeable future. We regularly send e-mails to approximately 3.7 million e-mail addresses, alerting our customers to our newest merchandise and the latest fashion trends.

For more information about our reportable segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 17 of the Notes to Consolidated Financial Statements in Item 15.

Our fiscal year ends on the Saturday closest to July 31. Like many other retailers, we follow a 4-5-4 reporting calendar which resulted in an extra week in fiscal year 2008 (the 53rd week). All references to fiscal year 2009 relate to the fifty two weeks ended August 1, 2009; all references to fiscal year 2008 relate to the fifty three weeks ended August 2, 2008 and all references to fiscal year 2007 relate to the fifty two weeks ended July 28, 2007.  References to fiscal years 2010 and years thereafter relate to our fiscal years for such periods.

We make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and related amendments, available free of charge through our website at www.neimanmarcusgroup.com as soon as reasonably practicable after we electronically file such material with (or furnish such material to) the Securities and Exchange Commission. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be part of this Annual Report on Form 10-K.

The Acquisition

On April 22, 2005, Neiman Marcus, Inc. (the Company), formerly Newton Acquisition, Inc., and its wholly-owned subsidiary, Newton Acquisition Merger Sub, Inc. (Merger Sub), were formed and incorporated in the state of Delaware. On April 29, 2005, the Company received subscriptions for 900 shares of its common stock from Newton Holding, LLC (Holding) in exchange for a capital contribution of $900 and Merger Sub issued 900 shares of its common stock to the Company in exchange for a capital contribution of $900. Holding, the Company and Merger Sub were formed by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors) for the purpose of acquiring The Neiman Marcus Group, Inc. (NMG).

In connection with the acquisition of NMG, Holding made an aggregate cash equity contribution of $1,420.0 million and a noncash equity contribution of $25.0 million to the Company in exchange for the Company issuing 999,100 shares of its common stock to Holding. In addition, certain members of executive management of the Company made cash equity contributions aggregating $7.7 million and noncash equity contributions, consisting of shares of common stock and common stock options in NMG, aggregating $17.9 million in exchange for 12,264 shares of common stock in the Company.

The acquisition of NMG was completed on October 6, 2005 through the merger of Merger Sub with and into NMG, with NMG being the surviving entity (the Acquisition). Subsequent to the Acquisition, NMG is a subsidiary of the Company, which is controlled by Holding. In connection with the Acquisition, NMG incurred significant indebtedness and became highly leveraged.  See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”  All references to “we” and “our” relate to the Company for periods subsequent to the Acquisition and to NMG for periods prior to the Acquisition.

Prior to the Acquisition, the Company had no independent assets or operations. After the Acquisition, the Company represents the successor to NMG since the Company’s sole asset is its investment in NMG and its operations consist solely of the operating activities of NMG as well as costs incurred by the Company related to its investment in NMG.  For periods prior to the Acquisition, NMG is deemed to be the predecessor to the Company.  As a result, for periods prior to the Acquisition, the financial statements of the Company consist of the financial statements of NMG for such periods.

Discontinued Operation

In February 1999, NMG acquired a 56% controlling interest in Kate Spade LLC, a designer and marketer of high-end accessories.  In April 2005, the minority investor in Kate Spade LLC exercised the put option with respect to the sale of the full amount of its 44% stake in such company to NMG. In October 2006, we entered into an agreement to settle the put option whereby we purchased the interest held by the minority investor for approximately $59.4 million.

In November 2006, we entered into a definitive agreement to sell 100% of the ownership interests in Kate Spade LLC to Liz Claiborne, Inc. (consisting of both our original 56% interest and the 44% minority interest subsequently purchased by NMG) for pretax net cash proceeds of approximately $121.5 million. Both the purchase of the minority interest

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in Kate Spade LLC and the sale of Kate Spade LLC to Liz Claiborne, Inc. were consummated in December 2006.

Our consolidated financial statements, accompanying notes and other information provided in this Annual Report on Form 10-K reflect Kate Spade LLC as a discontinued operation for all periods presented.

Recent Developments

On September 3, 2009, we announced preliminary total revenues and comparable revenues of approximately $241.0 million and $237.0 million, respectively, for the four-week period ended August 29, 2009. In the four-week August period of fiscal year 2010, total revenues decreased 15.3% and comparable revenues decreased 16.6% compared to the four-week August period of fiscal year 2009. Comparable revenues decreased 19.6% in our Specialty Retail stores and increased 0.1% in our Direct Marketing operation for the four-week August period of fiscal year 2010.

On October 8, 2009, we announced preliminary total revenues and comparable revenues of approximately $353.5 million and $344.2 million, respectively, for the five-week period ended October 3, 2009 and $594.5 million and $581.2 million, respectively, for the nine-week period ended October 3, 2009. In the five-week September period of fiscal year 2010, total revenues decreased 14.8% and comparable revenues decreased 16.9% compared to the five-week September period of fiscal year 2009. Comparable revenues decreased 17.6% in our Specialty Retail stores and 13.6% in our Direct Marketing operation for the five-week September period of fiscal year 2010.  In the nine-week September period of fiscal year 2010, total revenues decreased 15.0% and comparable revenues decreased 16.8% compared to the nine-week September period of fiscal year 2009. Comparable revenues decreased 18.4% in our Specialty Retail stores and 8.3% in our Direct Marketing operation for the nine-week September period of fiscal year 2010.

All the financial data set forth above for the five and nine-week periods ending October 3, 2009 are preliminary and unaudited and subject to revision based upon our review and a review by our independent registered public accounting firm of our financial condition and results of operations for the quarter ending October 31, 2009. Once we and our independent registered public accounting firm have completed our respective reviews of our financial information for the quarter ending October 31, 2009, we may report financial results that are different from those set forth above.

Industry Overview

We operate in the luxury apparel and accessories segment of the U.S. retail industry and market and sell merchandise from luxury-branded fashion vendors, including, but not limited to, Chanel, Prada, Giorgio Armani, David Yurman, St. John, Gucci, Ermenegildo Zegna, Manolo Blahnik and Brioni. Luxury-branded fashion vendors typically manage the distribution and marketing of their merchandise to maximize the perception of brand exclusivity and to facilitate the sale of their goods at premium prices, including limitations on the number of retail locations through which they distribute their merchandise. These retail locations typically consist of a limited number of specialty stores, high-end department stores and, in some instances, vendor-owned proprietary boutiques. Retailers that compete with us for the distribution of luxury fashion brands include Saks Fifth Avenue, Nordstrom, Barney’s New York and other national, regional and local retailers.

Customer Service and Marketing

We are committed to providing our customers with a premier shopping experience through our relationship-based customer service model, with superior merchandise selection and elegant store settings of our stores. Critical elements to our customer service approach are:

·knowledgeable, professional and well-trained sales associates;

·marketing programs designed to promote customer awareness of our offerings of the latest fashion trends;

·loyalty programs designed to cultivate long-term relationships with our customers; and

·facilitating the extension of credit to our customers through a proprietary credit card program.

We believe we offer our customers fair and liberal return policies consistent with the practices of other luxury and specialty retailers.  We believe these policies help to cultivate long-term relationships with our customers.

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Sales Associates.  We seek to maintain a sales force of knowledgeable, professional and well-trained sales associates to deliver personal attention and service to our customers through our relationship-based customer service model. We compensate our sales associates primarily on a commission basis and provide them with training in the areas of customer service, selling skills and product knowledge. Our sales associates participate in active clienteling programs designed to maintain contact with our customers between store visits and to ensure that our customers are aware of the latest merchandise offerings and fashion trends that we present in our stores. We empower our sales associates to act as personal shoppers and in many cases, as the personal style advisor to our customers.

Marketing Programs.  We conduct a wide variety of marketing programs to support our sales associates in the communication of fashion trends to our customers in order to create fashion excitement and enhance our customer relationships. The programs include both in-store events and targeted, brand-consistent print media communications.

We maintain an active calendar of in-store events to promote our sales efforts. The activities include in-store visits and trunk shows by leading designers featuring the newest fashions from the designer, in-store promotions of the merchandise of selected designers or merchandise categories, often through events conducted in connection with our loyalty programs, and participation in charitable functions in each of our markets. Past trunk shows and in-store promotions at our Neiman Marcus and Bergdorf Goodman stores have featured vendors such as Chanel, Giorgio Armani, Oscar de la Renta and Manolo Blahnik.

Through our print media programs, we mail various publications to our customers communicating upcoming in-store events, new merchandise offerings and fashion trends. In connection with these programs, Neiman Marcus produces The Book® approximately eight to nine times each year. The Book is a high-quality publication featuring the latest fashion trends that is mailed on a targeted basis to our customers and has a yearly printing in excess of 3.7 million. Our other print publications include The Book for Men, the Bergdorf Goodman Magazine and specific designer mailers.

We also believe that the online and print catalog operations of Direct Marketing promote brand awareness, which benefits the operations of our retail stores.

Loyalty Programs.  We maintain a loyalty program under the InCircle® brand name designed to cultivate long-term relationships with our customers. Our loyalty program focuses on our most active customers. This program includes marketing features, including private in-store events, special magazine issues, as well as the ability to accumulate points for qualifying purchases. Increased points are periodically offered in connection with in-store promotional and other events. Upon attaining specified point levels, customers may redeem their points for a wide variety of gifts ranging from gift cards to designer merchandise and trips to exotic locations. Beginning in calendar 2006, we transitioned customers in our previous Bergdorf Goodman loyalty program to our InCircle loyalty program. Approximately 40% of our total revenues during each of the last two calendar years was generated by our InCircle loyalty program members.

Proprietary Credit Card Program.  In June 2005, we entered into a marketing and servicing alliance with HSBC Bank Nevada, N.A. and HSBC Private Label Corporation (formerly known as Household Corporation) (collectively referred to as HSBC).  Pursuant to the agreement with HSBC (Program Agreement), HSBC offers proprietary credit card accounts to our customers under both the “Neiman Marcus” and “Bergdorf Goodman” brand names.

Under the terms of this alliance, HSBC offers credit cards and non-card payment plans and bears substantially all credit risk with respect to sales transacted on the cards bearing our brands. We receive ongoing payments from HSBC related to credit card sales and compensation for marketing and servicing activities (HSBC Program Income). During fiscal year 2006, we outsourced various administrative elements of the proprietary credit card program, including the processing of data with respect to our proprietary credit card program, to HSBC as provided for in the Program Agreement.  We continue to handle key customer service functions, primarily customer inquiries and collections.

In connection with our Program Agreement, we have changed and may continue to change, the terms of credit offered to our customers.  In addition, HSBC has discretion over certain policies and arrangements with credit card customers and may change these policies and arrangements in ways that affect our relationship with these customers. Any such changes in our credit card arrangements may adversely affect our credit card program and ultimately, our business.

On April 21, 2008, we entered into an amendment to the Program Agreement, dated as of June 8, 2005, with HSBC. The Program Agreement, as amended, provides for 1) the allocation between HSBC and NMG of additional income, if any, to be generated from the credit card program as a result of certain changes made to the terms of credit extended to our customers since the inception of the Program Agreement and 2) the allocation of certain credit card losses between HSBC and NMG. We may enter into additional amendments to the Program Agreement prior to its maturity to alter the allocation of

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both credit card losses and income, as agreed to by the parties in response to current economic conditions and other factors.  We do not expect that any such amendments, if executed, will have a material impact on our future operating results.

Historically, our customers holding a proprietary credit card have tended to shop more frequently and have a higher level of spending than customers paying with cash or third-party credit cards. In fiscal years 2009 and 2008, approximately 50% of our revenues were transacted through our proprietary credit cards.

We utilize data captured through our proprietary credit card program in connection with promotional events and customer relationship programs targeting specific customers based upon their past spending patterns for certain brands, merchandise categories and store locations.

Integrated Multi-Channel Model.  We offer products through our complementary Direct Marketing and Specialty Retail businesses, which enables us to maximize our brand recognition and strengthen our customer relationships across all channels. Our well-established online and catalog operation expands our reach beyond the trading area of our retail stores, as over 40% of our Direct Marketing customers in fiscal years 2009 and 2008 were located outside of the trade areas of our existing retail locations. We also use our e-commerce websites and catalogs as selling and marketing tools to increase the visibility and exposure of our brand and generate customer traffic within our retail stores. We believe the combination of our retail stores and direct selling efforts is the main reason that our multi-channel customers spend more on average than our single-channel customers (over 3 times more in each of fiscal years 2009 and 2008).

Merchandise

We carry luxury merchandise from well-recognized designers as well as emerging designers.  We believe our merchandising experience and in-depth knowledge of our customers and the markets within which we operate, allow us to select an appropriate merchandise assortment for each of our stores that is tailored to our customers’ tastes and lifestyles.

Our percentages of revenues by major merchandise category are as follows:

	Years Ended
	August 1, 2009		August 2, 2008		July 28, 2007
Women’s Apparel	36	%	36	%	37	%
Women’s Shoes, Handbags and Accessories	21	%	20	%	20	%
Cosmetics and Fragrances	11	%	11	%	11	%
Men’s Apparel and Shoes	12	%	12	%	12	%
Designer and Precious Jewelry	11	%	12	%	11	%
Home Furnishings and Décor	7	%	8	%	9	%
Other	2	%	1	%	0	%
	100	%	100	%	100	%

Substantially all of our merchandise is delivered to us by our vendors as finished goods and is manufactured in numerous locations, including Europe and the United States and, to a lesser extent, China, Mexico and South America.

Our major merchandise categories are as follows:

Women’s Apparel:  Women’s apparel consists of dresses, eveningwear, suits, coats, and sportswear separates—skirts, pants, blouses, jackets, and sweaters. Women’s apparel occupies the largest amount of square footage within our stores. We work with women’s apparel vendors to present the merchandise and highlight the best of the vendor’s product. Our primary women’s apparel vendors include Chanel, Prada, Gucci, Giorgio Armani, St. John, Akris and Escada.

Women’s Shoes, Handbags and Accessories:  Women’s accessories include belts, gloves, scarves, hats and sunglasses and complement our shoes and handbags assortments. Our primary vendors in this category include Manolo Blahnik, Prada, Christian Louboutin, Gucci, Chanel and Tory Burch in ladies shoes, and handbags from Chanel, Prada, Gucci, Nancy Gonzalez and Balenciaga.

Cosmetics and Fragrances:  Cosmetics and fragrances include facial and skin cosmetics, skin therapy and lotions, soaps, fragrances, candles and beauty accessories. Our primary vendors of cosmetics and beauty products include La Mer, Chanel, Sisley, Bobbi Brown, La Prairie, Estee Lauder and Laura Mercier.

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Men’s Apparel and Shoes:  Men’s apparel and shoes include suits, dress shirts and ties, sport coats, jackets, trousers, casual wear and eveningwear as well as business and casual footwear.  Bergdorf Goodman has a fully dedicated men’s store in New York. Our primary vendors in this category include Ermenegildo Zegna, Brioni, Giorgio Armani, Prada and Loro Piana in men’s clothing and sportswear and Ermenegildo Zegna, Brioni, Prada, Ferragamo, Gucci and Stefano Ricci in men’s furnishings and shoes.

Designer and Precious Jewelry:  Our designer and precious jewelry offering includes women’s necklaces, bracelets, rings, earrings and watches that are selected to complement our apparel merchandise offering. Our primary vendors in this category include David Yurman, John Hardy, Ippolita and Konstantino in designer jewelry and Cartier and Roberto Coin in precious jewelry. We often sell precious jewelry which has been consigned to us from the vendor.

Home Furnishings and Décor:  Home furnishings and décor include linens, tabletop, kitchen accessories, furniture, rugs, decorative items (frames, candlesticks, vases and sculptures) as well as collectables. Merchandise for the home complements our apparel offering in terms of quality and design. Our primary vendors in this category include Jay Strongwater, Daum, Steuben, Baccarat, MacKenzie-Childs and Lalique.

Vendor Relationships

Our merchandise assortment consists of a wide selection of luxury goods purchased from both well-known luxury-branded fashion vendors as well as new and emerging designers. We communicate with our vendors frequently, providing feedback on current demand for their products, suggesting, at times, changes to specific product categories or items and gaining insight into their future fashion direction. Certain designers sell their merchandise, or certain of their design collections, exclusively to us and other designers sell to us pursuant to their limited distribution policies. We compete for quality merchandise and assortment principally based on relationships and purchasing power with designer resources. Our women’s and men’s apparel and fashion accessories businesses are especially dependent upon our relationships with these designer resources. We monitor and evaluate the sales and profitability performance of each vendor and adjust our future purchasing decisions from time to time based upon the results of this analysis. We have no guaranteed supply arrangements with our principal merchandising sources and, accordingly, there can be no assurance that such sources will continue to meet our needs for quality, style and volume. In addition, our vendor base is diverse, with only one vendor representing slightly more than 5% of the cost of our total purchases in fiscal year 2009. The breadth of our sourcing helps mitigate risks associated with a single brand or designer.

As a result of current economic conditions, some of our vendors have experienced serious cash flow issues, reductions in available credit from banks, factors or other financial institutions, or increases in the cost of capital.  To counteract their cash flow problems, our vendors may attempt to increase their prices, pass through increased costs, alter historical credit and payment terms available to us or seek other relief.  Any of these actions could have an adverse impact on our relationship with the vendor or constrain the amounts or timing of our purchases from the vendor and, ultimately, have an adverse impact on our revenues, profitability and liquidity.

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 or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. We also receive advertising allowances from certain of our merchandise vendors, substantially all of which represent reimbursements of direct, specified and incremental costs we incur to promote the vendors’ merchandise. These allowances are recorded as a reduction of our advertising costs when incurred. In addition, we receive allowances from certain merchandise vendors in conjunction with compensation allowances for employees who sell the vendors’ merchandise, which allowances are netted against the related compensation expenses that we incur.  For more information related to allowances received from vendors, see Note 1 to our audited consolidated financial statements included herein.

In order to expand our product assortment, we offer certain merchandise, primarily precious jewelry, which has been consigned to us from the vendor. As of August 1, 2009 and August 2, 2008, we held consigned inventories with a cost basis of approximately $283.0 million and $388.8 million, respectively (consigned inventories are not reflected in our consolidated balance sheet as we do not take title to consigned merchandise).  From time to time, we make advances to certain of our vendors. These advances are typically deducted from amounts paid to vendors at the time we receive the merchandise or, in the case of advances made for consigned goods, at the time we sell the goods. We had net outstanding advances to vendors of approximately $11.6 million at August 1, 2009 and $22.7 million at August 2, 2008.

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Inventory Management

Our merchandising function is decentralized with separate merchandising functions for Neiman Marcus stores, Bergdorf Goodman and Direct Marketing. Each merchandising function is responsible for the determination of the merchandise assortment and quantities to be purchased and, in the case of Neiman Marcus stores, for the allocation of merchandise to each store. We currently have approximately 400 merchandise buyers and merchandise planners.

The majority of the merchandise we purchase is initially received at one of our centralized distribution facilities. To support our Specialty Retail stores, we utilize a primary distribution facility in Longview, Texas, a regional distribution facility in Dayton, New Jersey and four regional service centers. We also operate two distribution facilities in the Dallas-Fort Worth area to support our Direct Marketing operation.

Our distribution facilities are linked electronically to our various merchandising staffs to facilitate the distribution of goods to our stores. We utilize electronic data interchange (EDI) technology with certain of our vendors, which is designed to move merchandise onto the selling floor quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. In addition, we utilize high-speed automated conveyor systems capable of scanning the bar coded labels on incoming cartons of merchandise and directing the cartons to the proper processing areas. Many types of merchandise are processed in the receiving area and immediately “cross docked” to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor’s bar code and transmit the necessary information to a computer to record merchandise on hand. We utilize third-party carriers to distribute our merchandise to individual stores.

With respect to the Specialty Retail stores, the majority of the merchandise is held in our retail stores.  We primarily operate on a pre-distribution model through which we allocate merchandise on our initial purchase orders to each store. This merchandise is shipped from our vendors to our distribution facilities for delivery to designated stores. We closely monitor the inventory levels and assortments in our retail stores to facilitate reorder and replenishment decisions, satisfy customer demand and maximize sales. Transfers of goods between stores are made primarily at the direction of merchandising personnel and, to a lesser extent, by store management primarily to fulfill customer requests.

We also maintain certain inventories at the Longview distribution facility. The goods held at the Longview distribution facility consist primarily of goods held in limited assortment or quantity by our stores and replenishment goods available to stores achieving high initial sales levels.  With our “locker stock” inventory management program, we maintain a portion of our most in-demand and high fashion merchandise at our distribution facilities.  For products stored in locker stock, we can ship replenishment merchandise to the stores that demonstrate the highest customer demand.  In addition, our sales associates can use the program to ship items directly to our customers, thereby improving customer service and increasing productivity.  This program also helps us to restock inventory at individual stores more efficiently, to maximize the opportunity for full-price selling and to minimize the potential risks related to excess inventories.

Capital Investments

We make capital investments annually to support our long-term business goals and objectives. We invest capital in new and existing stores, distribution and support facilities as well as information technology. We have gradually increased the number of our stores over the past ten years, growing our full-line Neiman Marcus and Bergdorf Goodman store base from 28 stores at the beginning of fiscal year 1999 to our current 43 stores.

We invest capital in the development and construction of new stores in both existing and new markets. We conduct extensive demographic, marketing and lifestyle research to identify attractive retail markets with a high concentration of our target customers prior to our decision to construct a new store. We compete with other retailers for real estate opportunities principally on the basis of our ability to attract customers. In addition to the construction of new stores, we also invest in the on-going maintenance of our stores to ensure an elegant shopping experience for our customers. Capital expenditures for existing stores range from minor renovations of certain areas within the store to major remodels and renovations and store expansions. We are focused on operating only in attractive markets that can profitably support our stores as well as maintaining the quality of our stores and, consequently, our brand. With respect to our major remodels, we only expand after extensive analysis of our projected returns on capital. We generally experience an increase in both total sales and sales per square foot at stores that undergo a remodel or expansion.

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We also believe capital investments for information technology in our stores, distribution facilities and support functions are necessary to support our business strategies. As a result, we are continually upgrading our information systems to improve efficiency and productivity.

In the past three fiscal years, we have made capital expenditures aggregating $433 million related primarily to:

·the construction of new stores in Austin, Natick (suburban Boston), Topanga (greater Los Angeles area) and Bellevue (suburban Seattle);

·the renovation and expansion of our main Bergdorf Goodman store in New York City and Neiman Marcus stores in Atlanta and Westchester; and

·enhancements to merchandising and store systems.

In fiscal year 2010, we anticipate capital expenditures for planned new stores in Walnut Creek, California and San Jose, California.

We receive allowances from developers related to the construction of our stores thereby reducing our cash investment in these stores. We record these allowances as deferred real estate credits which are recognized as a reduction of rent expense on a straight-line basis over the lease term. We received construction allowances aggregating $10.0 million in fiscal year 2009 and $36.8 million in fiscal year 2008.

Competition

The specialty retail industry is highly competitive and fragmented. We compete for customers with specialty retailers, traditional and high-end department stores, national apparel chains, vendor-owned proprietary boutiques, individual specialty apparel stores and direct marketing firms. We compete for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and, in the case of Neiman Marcus and Bergdorf Goodman, store ambiance. Retailers that compete with us for distribution of luxury fashion brands include Saks Fifth Avenue, Nordstrom, Barney’s New York and other national, regional and local retailers. Many of these competitors have greater financial resources than we do. In addition, following consummation of the Acquisition many of those competitors are significantly less leveraged than we are, and therefore may have greater flexibility to respond to changes in our industry.

We believe we are differentiated from other national retailers by our distinctive merchandise assortment, which we believe is more upscale than other high-end department stores, excellent customer service, prime real estate locations and elegant shopping environment. We believe we differentiate ourselves from regional and local high-end luxury retailers through our diverse product selection, strong national brand, loyalty programs, customer service, prime shopping locations and strong vendor relationships that allow us to offer the top merchandise from each vendor. Vendor-owned proprietary boutiques and specialty stores carry a much smaller selection of brands and merchandise, lack the overall shopping experience we provide and have a limited number of retail locations.

Employees

As of October 1, 2009, we had approximately 14,700 employees. Neiman Marcus stores had approximately 11,900 employees, Bergdorf Goodman stores had approximately 1,000 employees, Direct Marketing had approximately 1,500 employees and Neiman Marcus Group had approximately 300 employees. Our staffing requirements fluctuate during the year as a result of the seasonality of the retail industry. We hire additional temporary associates and increase the hours of part-time employees during seasonal peak selling periods.  Except for approximately 13% of the Bergdorf Goodman employees, none of our employees is subject to a collective bargaining agreement. We believe that our relations with our employees are good.

Seasonality

Our business, like that of most retailers, is affected by seasonal fluctuations in customer demand, product offerings and working capital expenditures. For additional information on seasonality, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Seasonality.”

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Regulation

The credit card operations that are conducted under our arrangements with HSBC are subject to numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. In addition to our proprietary credit cards, credit to our customers is also provided primarily through third parties. Any regulation or change in the regulation of credit arrangements that would materially limit the availability of credit to our customer base could adversely affect our results of operations or financial condition.

Our practices, as well as our competitors, are subject to review in the ordinary course of business by the Federal Trade Commission and are subject to numerous federal and state laws. Additionally, we are subject to certain customs, truth-in-advertising and other laws, including consumer protection regulations that regulate retailers generally and/or govern the importation, promotion and sale of merchandise. We undertake to monitor changes in these laws and believe that we are in material compliance with all applicable state and federal regulations with respect to such practices.

ITEM 1A. RISK FACTORS

Risks Related to Current Economic Conditions

Current economic conditions have adversely affected, and may continue to adversely affect, our business and results of operations.

The recent deterioration in economic conditions, both in the domestic and global economies, has had a significant adverse impact on our business.  Instability in the financial markets, tightening of consumer credit and other economic conditions and uncertainties have caused a reduction in consumer spending.  These conditions have had a significant negative impact on our revenues.

The merchandise we sell consists in large part of luxury retail goods. The purchase of these goods by customers is discretionary, and therefore highly dependent upon the level of consumer spending, particularly among affluent customers. Accordingly, sales of these products may continue to be adversely affected by a continuation or worsening of current economic conditions, increases in consumer debt levels, uncertainties regarding future economic prospects or a decline in consumer confidence. During an actual or perceived economic downturn (as a result of increases in consumer debt levels, increases in interest rates, a tightening of consumer credit, uncertainties regarding future economic performance and tax rates and policies, or a decline in consumer confidence, among other factors), fewer customers may shop our stores and websites and those who do shop may limit the amounts of their purchases.  As a result, we could be required to take significant additional markdowns and/or increase our marketing and promotional expenses in response to the lower than anticipated levels of demand for luxury goods.  In addition, promotional and/or prolonged periods of deep discount pricing by our competitors could have a material adverse effect on our business.

We continue to experience a challenging economic and retail environment and expect these conditions will continue for an extended period of time.  Consistent with the significant declines in overall macroeconomic factors, capital markets and consumer confidence that have existed during fiscal year 2009, customer demand has been well below our initial expectations and the prior year.  The current softness in customer demand exists across all geographic areas, all distribution channels and all merchandise categories, particularly the apparel and home décor categories.  We expect retail demand and revenues will remain weak for an extended period of time.  We will continue to align our inventory levels and purchases with anticipated lower customer demand.  The prolonged continuation of current market conditions could have a material adverse effect on our business.

Current economic conditions may constrain our ability to obtain credit.

Current economic conditions may constrain our ability to obtain credit.  Domestic and global credit and equity markets have recently undergone significant disruption, making it difficult for many businesses to obtain financing on acceptable terms or at all. As a result of this disruption, we have experienced an increase in the cost of borrowings necessary to operate our business.  If these conditions continue or become worse, our cost of borrowing could continue to increase.  It may also become more difficult to obtain financing for our operations or to refinance long-term obligations as they become payable.  In addition, our borrowing costs can be affected by independent rating agencies’ short and long-term debt ratings which are based largely on our performance as measured by credit metrics including interest coverage and leverage ratios.  A decrease in these ratings would likely also increase our cost of borrowing and make it more difficult for us to obtain

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financing.  Based on current economic conditions and our recent operating performance, our long-term debt ratings were downgraded in fiscal year 2009 by all three independent rating agencies.  A significant increase in the costs we incur in order to finance our operations may have a material adverse impact on our business results and financial condition.

Risks Related to Our Structure and NMG’s Indebtedness

Because our ownership of NMG accounts for substantially all of our assets and operations, we are subject to all risks applicable to NMG.

We are a holding company.  NMG and its subsidiaries conduct substantially all of our consolidated operations and own substantially all of our consolidated assets.  As a result, we are subject to all risks applicable to NMG.  In addition, NMG’s Asset-Based Revolving Credit Facility, NMG’s Senior Secured Term Loan Facility and the indentures governing NMG’s senior notes and senior subordinated notes contain provisions limiting NMG’s ability to distribute earnings to us, in the form of dividends or otherwise.

NMG has a substantial amount of indebtedness, which may adversely affect NMG’s cash flow and its ability to operate the business, to comply with debt covenants and make payments on its indebtedness.

We are highly leveraged.  As of August 1, 2009, the principal amount of NMG’s total indebtedness was approximately $2,984.9 million, the unused borrowing availability under the $600.0 million Asset-Based Revolving Credit Facility was $468.5 million and the outstanding letters of credit were $32.8 million.  NMG’s substantial indebtedness, combined with its lease and other financial obligations and contractual commitments, could have other important consequences. For example, it could:

·make it more difficult for NMG to satisfy its obligations with respect to its indebtedness and any failure to comply with the obligations of any of its debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing NMG’s indebtedness;

·make NMG more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

·require NMG to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

·limit NMG’s flexibility in planning for, or reacting to, changes in NMG’s business and the industry in which it operates;

·place NMG at a competitive disadvantage compared to its competitors that are less highly leveraged;

·limit NMG’s ability to obtain credit from our vendors and/or the vendors’ factors; and

·limit NMG’s ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of its business strategy or other purposes.

Any of the above listed factors could materially adversely affect NMG’s business, financial condition and results of operations.

In addition, NMG’s interest expense could increase if interest rates increase because the entire amount of the indebtedness under the senior secured credit facilities bears interest at floating rates.  As of August 1, 2009, NMG had approximately $1,625.0 million principal amount of floating rate debt, consisting of outstanding borrowings under the Senior Secured Term Loan Facility (including $26.6 million of borrowings classified as current liabilities).  In addition, NMG has an Asset-Based Revolving Credit Facility that provides committed financing of up to $600.0 million, subject to a borrowing base.  As of August 1, 2009, NMG had no borrowings outstanding under this facility, $32.8 million of outstanding letters of credit and $468.5 million of unused borrowing availability.  Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness.

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To service NMG’s indebtedness, it will require a significant amount of cash. NMG’s ability to generate cash depends on many factors beyond its control, and any failure to meet its debt service obligations could harm its business, financial condition and results of operations.

NMG’s ability to pay interest on and principal of the debt obligations will primarily depend upon NMG’s future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect its ability to make these payments.

If NMG does not generate sufficient cash flow from operations to satisfy the debt service obligations, NMG may have to undertake alternative financing plans, such as refinancing or restructuring its indebtedness, selling assets, reducing or delaying capital investments or seeking to raise additional capital.  Our ability to restructure or refinance NMG’s debt will depend on the condition of the capital markets and our financial condition at such time.  Any refinancing of NMG’s debt could be at higher interest rates and may require it to comply with more onerous covenants, which could further restrict its business operations.  The terms of existing or future debt instruments may restrict NMG from adopting some of these alternatives.  In addition, our borrowing costs and ability to refinance may be affected by short-term and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on NMG’s performance as measured by indicators such as interest coverage and leverage ratios.  Furthermore, any failure to make payments of interest and principal on NMG’s outstanding indebtedness on a timely basis would likely result in a reduction of NMG’s credit rating, which could harm its ability to incur additional indebtedness on acceptable terms.

Contractual limitations on NMG’s ability to execute any necessary alternative financing plans could exacerbate the effects of any failure to generate sufficient cash flow to satisfy its debt service obligations.  The Asset-Based Revolving Credit Facility permits NMG to borrow up to $600.0 million; however, NMG’s ability to borrow and obtain letters of credit (including amendments, renewals and extensions of letters of credit) thereunder is limited by a borrowing base, which at any time will equal the sum of (a) the lesser of (i) 80% of eligible inventory (valued at the lower of cost or market value) and (ii) 85% of the net orderly liquidation value of eligible inventory, and (b) 85% of the amounts owed by credit card processors to the borrowers under the Asset-Based Revolving Credit Facility in respect of eligible credit card accounts constituting proceeds arising from the sale or disposition of inventory, less certain reserves.  In addition, if at any time the aggregate amount of outstanding revolving loans and incremental term loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-Based Revolving Credit Facility exceeds the reported value of inventory as calculated under that facility, NMG will be required to eliminate such excess.  Further, if (a) the amount available under the Asset-Based Revolving Credit Facility is less than the greater of (i) 20% of the lesser of (A) the aggregate revolving commitments and (B) the borrowing base and (ii) $75 million or (b) an event of default has occurred, NMG will be required to repay outstanding loans and cash collateralize letters of credit.  In addition, under the terms of the Asset-Based Revolving Credit Facility, through April 30, 2011 NMG is required to maintain excess availability of at least the greater of (a) 10% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $50 million.  After April 30, 2011, if at any time, excess availability is less than the greater of (a) 15% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $60 million, NMG will be required to maintain a pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such terms are defined in the credit agreement) of at least 1.1 to 1.0.  Our ability to meet the conditions described in this paragraph may be affected by events beyond our control.

NMG’s inability to generate sufficient cash flow to satisfy its debt service obligations, or to refinance its obligations at all or on commercially reasonable terms, would have an adverse effect, which could be material, on NMG’s business, financial condition and results of operations.

The terms of NMG’s Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility and the indentures governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures may restrict NMG’s current and future operations, particularly its ability to respond to changes in its business or to take certain actions.

The credit agreements governing NMG’s Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility and the indentures governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures contain, and any future indebtedness of NMG would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on NMG’s ability to engage in acts that may be in its best long-term interests. The indentures governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures and the credit agreements governing the senior secured credit facilities include covenants that, among other things, restrict NMG’s ability to:

·incur additional indebtedness;

·pay dividends on NMG’s capital stock or redeem, repurchase or retire its capital stock or indebtedness;

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·make investments;

·create restrictions on the payment of dividends or other amounts to NMG from NMG’s restricted subsidiaries;

·engage in transactions with its affiliates;

·sell assets, including capital stock of NMG’s subsidiaries;

·consolidate or merge;

·create liens; and

·enter into sale and lease back transactions.

In addition, NMG’s ability to borrow under the Asset-Based Revolving Credit Facility is limited by the conditions described above.

Moreover, NMG’s Asset-Based Revolving Credit Facility provides discretion to the agent bank acting on behalf of the lenders to impose additional availability restrictions and other reserves, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair NMG’s liquidity.

A breach of any of the restrictive covenants would result in a default under the Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility.  If any such default occurs, the lenders under the Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility may elect to declare all outstanding borrowings under such facilities, together with accrued interest and other fees, to be immediately due and payable, or enforce their security interest, any of which would result in an event of default under NMG’s Senior Notes and Senior Subordinated Notes and 2028 Debentures. The lenders would also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

The operating and financial restrictions and covenants in these debt agreements and any future financing agreements may adversely affect NMG’s ability to finance future operations or capital needs or to engage in other business activities.

Risks Related to Our Business and Industry

The specialty retail industry is highly competitive.

The specialty retail industry is highly competitive and fragmented. Competition is strong both to attract and sell to customers and to establish relationships with, and obtain merchandise from, key vendors.

A number of different competitive factors could have a material adverse effect on our business, results of operations and financial condition, including:

·increased operational efficiencies of competitors;

·competitive pricing strategies, including deep discount pricing by a broad range of retailers during periods of poor consumer confidence or economic instability;

·expansion of product offerings by existing competitors;

·entry by new competitors into markets in which we currently operate; and

·adoption by existing competitors of innovative retail sales methods.

We compete for customers with specialty retailers, traditional and high-end department stores, national apparel chains, vendor-owned proprietary boutiques, individual specialty apparel stores and direct marketing firms. We compete for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and, in the case of Neiman Marcus and Bergdorf Goodman, store ambiance. In our Specialty Retail business, merchandise assortment is a critical competitive factor, and retail stores compete for exclusive, preferred and limited distribution arrangements with key designers. Many of our competitors are larger than we are and have greater financial resources than we do. In addition, certain designers from whom we source merchandise have established competing free-standing retail stores in the same vicinity as our stores. If we fail to successfully compete for customers or merchandise, our

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business will suffer.

We are dependent on our relationships with certain designers, vendors and other sources of merchandise.

Our relationships with established and emerging designers are a key factor in our position as a retailer of high-fashion merchandise, and a substantial portion of our revenues is attributable to our sales of designer merchandise. Many of our key vendors limit the number of retail channels they use to sell their merchandise and competition among luxury retailers to obtain and sell these goods is intense. Our relationships with our designers have been a significant contributor to our past success. We have no guaranteed supply arrangements with our principal merchandising sources. Accordingly, there can be no assurance that such sources will continue to meet our quality, style and volume requirements.

As a result of current economic conditions, some of our vendors have experienced serious cash flow issues, reductions in available credit from banks, factors or other financial institutions, or increases in the cost of capital.  To counteract their cash flow problems, our vendors may attempt to increase their prices, pass through increased costs, alter historical credit and payment terms available to us or seek other relief.  Any of these actions could have an adverse impact on our relationship with the vendor or constrain the amounts or timing of our purchases from the vendor and, ultimately, have an adverse impact on our revenues, profitability and liquidity.

Moreover, nearly all of the brands of our top designers are sold by competing retailers, and many of our top designers also have their own dedicated retail stores. If one or more of our top designers were to cease providing us with adequate supplies of merchandise or, conversely, were to increase sales of merchandise through their own stores or to the stores of our competitors, our business could be adversely affected. In addition, any decline in the popularity or quality of any of our designer brands could adversely affect our business.

If we significantly overestimate our future sales, our profitability may be adversely affected.

We make decisions regarding the purchase of our merchandise well in advance of the season in which it will be sold. For example, women’s apparel, men’s apparel and shoes are typically ordered six to nine months in advance of the products being offered for sale while handbags, jewelry and other categories are typically ordered three to six months in advance.  If our sales during any season, particularly a peak season, are significantly lower than we expect for any reason, we may not be able to adjust our expenditures for inventory and other expenses in a timely fashion and may be left with a substantial amount of unsold inventory. If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess inventory. This could have an adverse effect on our margins and operating income. At the same time, if we fail to purchase a sufficient quantity of merchandise, we may not have an adequate supply of products to meet consumer demand. This may cause us to lose sales or harm our customer relationships.

Our failure to identify changes in consumer preferences or fashion trends may adversely affect our performance.

Our success depends in large part on our ability to identify fashion trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. If we fail to adequately match our product mix to prevailing customer tastes, we may be required to sell our merchandise at higher average markdown levels and lower average margins. Furthermore, the products we sell often require long lead times to order and must appeal to consumers whose preferences cannot be predicted with certainty and often change rapidly. Consequently, we must stay abreast of emerging lifestyle and consumer trends and anticipate trends and fashions that will appeal to our consumer base. Any failure on our part to anticipate, identify and respond effectively to changing consumer demands and fashion trends could adversely affect our business.

A breach in information privacy could negatively impact our operations.

The protection of our customer, employee and company data is critically important to us.  We utilize customer data captured through both our proprietary credit card programs and our direct marketing activities. Our customers have a high expectation that we will adequately safeguard and protect their personal information.  The regulatory environment surrounding information security and privacy is evolving and increasingly demanding, with the frequent imposition of new and constantly changing requirements across all our business units.  A significant breach of customer, employee or company data could damage our reputation and relationships with our customers and result in lost sales, fines and lawsuits.

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Our business and performance may be affected by our ability to implement our store expansion and remodeling strategies.

Based upon our expansion strategy, we expect that planned new stores will add over 185,000 square feet of new store space over approximately the next four fiscal years, representing an increase of approximately 3% above the current aggregate square footage of our full-line Neiman Marcus and Bergdorf Goodman stores.  New store openings involve certain risks, including constructing, furnishing and supplying a store in a timely and cost effective manner, accurately assessing the demographic or retail environment at a given location, hiring and training quality staff, obtaining necessary permits and zoning approvals, obtaining commitments from a core group of vendors to supply the new store, integrating the new store into our distribution network and building customer awareness and loyalty. In undertaking store remodels, we must complete the remodel in a timely, cost effective manner, minimize disruptions to our existing operations, and succeed in creating an improved shopping environment. If we fail to execute on these or other aspects of our store expansion and remodeling strategy, we could suffer harm to our sales, an increase in costs and expenses and an adverse effect on our business.

We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs.

Some business processes that are dependent on technology are outsourced to third parties.  Such processes include credit card authorization and processing, insurance claims processing, payroll processing, record keeping for retirement and other benefit plans and other accounting processes.  In addition, we review outsourcing alternatives on a routine basis and may decide to outsource additional business processes in the future.  We make a diligent effort to ensure that all providers of outsourced services are observing proper internal control practices, such as redundant processing facilities; however, there are no guarantees that failures will not occur.  Failure of third parties to provide adequate services could have an adverse effect on our results of operations, financial condition or ability to accomplish our financial and management reporting.

Acts of terrorism could adversely affect our business.

The economic downturn that followed the terrorist attacks of September 11, 2001 had a material adverse effect on our business. Any further acts of terrorism or other future conflicts may disrupt commerce and undermine consumer confidence, cause a downturn in the economy generally, cause consumer spending or shopping center traffic to decline or reduce the desire of our customers to make discretionary purchases. Any of the foregoing factors could negatively impact our sales revenue, particularly in the case of any terrorist attack targeting retail space, such as a shopping center. Furthermore, an act of terrorism or war, or the threat thereof, could negatively impact our business by interfering with our ability to obtain merchandise from foreign manufacturers. Any future inability to obtain merchandise from our foreign manufacturers or to substitute other manufacturers, at similar costs and in a timely manner, could adversely affect our business.

The loss of any of our senior management team or attrition among our buyers or key sales associates could adversely affect our business.

Our success in the specialty retail industry will continue to depend to a significant extent on our senior management team, buyers and key sales associates. We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that would be difficult to replace. If we were to lose a portion of our buyers or key sales associates, our ability to benefit from long-standing relationships with key vendors or to provide relationship-based customer service may suffer. We may not be able to retain our current senior management team, buyers or key sales associates and the loss of any of these individuals could adversely affect our business.

Inflation may adversely affect our business operations in the future.

In recent years, we have experienced certain inflationary conditions in our cost base due primarily to (1) changes in foreign currency exchange rates that have reduced the purchasing power of the U.S. dollar, (2) increases in selling, general and administrative expenses, particularly with regard to employee benefits and (3) increases in fuel prices and costs impacted by increases in fuel prices, such as freight and transportation costs. Inflation can harm our margins and profitability if we are unable to increase prices or cut costs enough to offset the effects of inflation in our cost base. If inflation in these or other costs worsens, we may not be able to offset the effects of inflation and cost increases through control of expenses, passing cost increases on to customers or any other method.  Any future inflation could adversely affect our profitability and our business.

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Failure to maintain competitive terms under our loyalty programs could adversely affect our business.

We maintain loyalty programs that are designed to cultivate long-term relationships with our customers and enhance the quality of service we provide to our customers. We must constantly monitor and update the terms of our loyalty programs so that they continue to meet the demands and needs of our customers and remain competitive with loyalty programs offered by other high-end specialty retailers. Given that approximately 40% of our total revenues during each of the last two calendar years was generated by our InCircle loyalty program members, our failure to continue to provide quality service and competitive rewards to our customers through the InCircle loyalty program could adversely affect our business.

Changes in our credit card arrangements, applicable regulations and consumer credit patterns could adversely impact our ability to facilitate the provision of consumer credit to our customers and adversely affect our business.

We maintain a proprietary credit card program through which credit is extended to customers under the “Neiman Marcus” and “Bergdorf Goodman” names. Because a majority of our revenues are transacted through our proprietary credit cards, changes in our proprietary credit card arrangement that adversely impact our ability to facilitate the provision of consumer credit may adversely affect our performance.

We entered into a five-year program agreement with HSBC in June 2005 which provides for a long-term marketing and servicing alliance under which HSBC offers proprietary credit card accounts to our customers under both the “Neiman Marcus” and “Bergdorf Goodman” brand names.  Under the terms of this alliance, HSBC offers credit cards and non-card payment plans and bears substantially all credit risk with respect to sales transacted on the cards bearing our brands. HSBC has discretion over certain policies and arrangements with our credit card customers and may change these policies and arrangements in ways that affect our relationship with these customers.

We receive ongoing payments from HSBC related to credit card sales and compensation for marketing and servicing activities. During fiscal year 2006, we outsourced various administrative elements of the proprietary credit card program to HSBC, including the processing of data, although we continue to handle key customer service functions, including customer inquiries and collections.

We have entered into various amendments to the Program Agreement with HSBC since its inception. These amendments, among other things, provide for 1) the allocation between HSBC and NMG of additional income, if any, to be generated from the credit card program as a result of certain changes made to the terms of credit extended to our customers and 2) the allocation of certain credit card losses between HSBC and NMG.  We may enter into additional amendments to the Program Agreement prior to its maturity to alter the allocation of both credit card losses and income, as agreed to by the parties in response to current economic conditions and other factors.

Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. Any regulation or change in the regulation of credit arrangements that would materially limit the availability of credit to our customer base could adversely affect our business.  Changes in credit card use, payment patterns, and default rates may result from a variety of economic, legal, social, and other factors that we cannot control or predict with certainty.  In addition, there can be no assurance that, upon expiration of our current alliance with HSBC, that we will be able to enter into a replacement arrangement on terms comparable to the current arrangement. Any changes in our credit card arrangements may adversely affect our credit card program and ultimately, our business.

Our business can be affected by extreme or unseasonable weather conditions.

Extreme weather conditions in the areas in which our stores are located could adversely affect our business. For example, heavy snowfall, rainfall or other extreme weather conditions over a prolonged period might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions would adversely affect our business.

We are subject to numerous regulations that could affect our operations.

We are subject to customs, truth-in-advertising and other laws, including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities. Although we undertake to monitor changes in these laws, if these laws

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change without our knowledge, or are violated by importers, designers, manufacturers or distributors, we could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the controlling regulations, any of which could adversely affect our business.

Our revenues and cash requirements are affected by the seasonal nature of our business.

The specialty retail industry is seasonal in nature, with a higher level of sales typically generated in the fall and holiday selling seasons. We have in the past experienced significant fluctuation in our revenues from quarter to quarter with a disproportionate amount of our revenues falling in our second fiscal quarter, which coincides with the holiday season. In addition, we have significant additional cash requirements in the period leading up to the months of November and December in anticipation of higher sales volume in those periods, including payments relating to additional inventory, advertising and employees.

Our business is affected by foreign currency fluctuations.

We purchase a substantial portion of our inventory from foreign suppliers whose cost to us is affected by the fluctuation of their local currency against the dollar or who price their merchandise in currencies other than the dollar. Fluctuations in the Euro-U.S. dollar exchange rate affect us most significantly; however, we source goods from numerous countries and thus are affected by changes in numerous currencies and, generally, by fluctuations in the U.S. dollar relative to such currencies.  Accordingly, changes in the value of the dollar relative to foreign currencies may increase our cost of goods sold and if we are unable to pass such cost increases on to our customers, our gross margins, and ultimately our earnings, will decrease. Foreign currency fluctuations could have a material adverse effect on our business, financial condition and results of operations in the future.

Conditions in, and the United States’ relationship with, the countries where we source our merchandise could affect our sales.

A substantial majority of our merchandise is manufactured overseas, mostly in Europe. As a result, political instability or other events resulting in the disruption of trade from other countries or the imposition of additional regulations relating to or duties upon imports could cause significant delays or interruptions in the supply of our merchandise or increase our costs, either of which could have a material adverse effect on our business. If we are forced to source merchandise from other countries, those goods may be more expensive or of a different or inferior quality from the ones we now sell. The importance to us of our existing designer relationships could present additional difficulties, as it may not be possible to source merchandise from a given designer from alternative jurisdictions. If we were unable to adequately replace the merchandise we currently source with merchandise produced elsewhere, our business could be adversely affected.

Significant increases in costs associated with the production of catalogs and other promotional materials may adversely affect our operating income.

We advertise and promote in-store events, new merchandise and fashion trends through print catalogs and other promotional materials mailed on a targeted basis to our customers. Significant increases in paper, printing and postage costs could affect the cost of producing these materials and as a result, may adversely affect our operating income.

We are indirectly owned and controlled by the Sponsors, and their interests as equity holders may conflict with those of our creditors.

We are indirectly owned and controlled by the Sponsors and certain other equity investors, and the Sponsors have the ability to control our policies and operations. The interests of the Sponsors may not in all cases be aligned with those of our creditors. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity holders might conflict with our creditors’ interests. In addition, our equity holders may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to holders of our indebtedness. Furthermore, the Sponsors may in the future own businesses that directly or indirectly compete with us. One or more of the Sponsors also may pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us.

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If we are unable to enforce our intellectual property rights, or if we are accused of infringing on a third party’s intellectual property rights, our net income may decline.

We and our subsidiaries currently own our tradenames and service marks, including the “Neiman Marcus” and “Bergdorf Goodman” marks. Our tradenames and service marks are registered in the United States and in various foreign countries, primarily in Europe. The laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Moreover, we are unable to predict the effect that any future foreign or domestic intellectual property legislation or regulation may have on our existing or future business. The loss or reduction of any of our significant proprietary rights could have an adverse effect on our business.

Additionally, third parties may assert claims against us alleging infringement, misappropriation or other violations of their tradename or other proprietary rights, whether or not the claims have merit. Claims like these may be time consuming and expensive to defend and could result in our being required to cease using the tradename or other rights and selling the allegedly infringing products. This might have an adverse affect on our sales and cause us to incur significant litigation costs and expenses.

Failure to successfully maintain and update information technology systems and enhance existing systems may adversely affect our business.

To keep pace with changing technology, we must continuously provide for the design and implementation of new information technology systems as well as enhancements of our existing systems. Any failure to adequately maintain and update the information technology systems supporting our online operations, sales operations or inventory control could prevent our customers from purchasing merchandise on our websites or prevent us from processing and delivering merchandise, which could adversely affect our business.

Delays in receipt of merchandise in connection with either the manufacturing or shipment of such merchandise can affect our performance.

Substantially all of our merchandise is delivered to us by our vendors as finished goods and is manufactured in numerous locations, including Europe and the United States and, to a lesser extent, China, Mexico and South America. Our vendors rely on third party carriers to deliver merchandise to our distribution facilities. In addition, our success depends on our ability to source and distribute merchandise efficiently to our Specialty Retail stores and Direct Marketing customers. Events such as U.S. or foreign labor strikes, natural disasters, work stoppages or boycotts affecting the manufacturing or transportation sectors could increase the cost or reduce the supply of merchandise available to us and could adversely affect our results of operations.

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ITEM 2. PROPERTIES

Our corporate headquarters are located at the Downtown Neiman Marcus store location in Dallas, Texas. The operating headquarters for Neiman Marcus, Bergdorf Goodman and Direct Marketing are located in Dallas, Texas; New York, New York; and Irving, Texas, respectively.

Properties that we use in our operations include Neiman Marcus stores, Bergdorf Goodman stores, clearance centers and distribution, support and office facilities. As of October 1, 2009, the approximate aggregate square footage of the properties used in our operations was as follows:

	Owned	Owned Subjectto GroundLease	Leased	Total
Neiman Marcus Stores	752,000	2,513,000	2,302,000	5,567,000
Bergdorf Goodman Stores	—	—	316,000	316,000
Clearance Centers and Other	—	—	857,000	857,000
Distribution, Support and Office Facilities	1,317,000	150,000	1,008,000	2,475,000

Neiman Marcus Stores.  As of October 1, 2009, we operated 41 Neiman Marcus stores, with an aggregate total property size of approximately 5,567,000 square feet. The following table sets forth certain details regarding each Neiman Marcus store:

Neiman Marcus Stores

Locations	Fiscal YearOperationsBegan	GrossStoreSq. Feet
Dallas, Texas (Downtown)(1)	1908	129,000
Dallas, Texas (NorthPark)(2)*	1965	218,000
Houston, Texas (Galleria)(3)*	1969	224,000
Bal Harbour, Florida(2)	1971	97,000
Atlanta, Georgia(2)*	1973	206,000
St. Louis, Missouri(2)	1975	145,000
Northbrook, Illinois(3)	1976	144,000
Fort Worth, Texas(2)	1977	119,000
Washington, D.C.(2)*	1978	130,000
Newport Beach, California(3)*	1978	154,000
Beverly Hills, California(1)*	1979	185,000
Westchester, New York(2)*	1981	138,000
Las Vegas, Nevada(2)	1981	174,000
Oak Brook, Illinois(2)	1982	119,000
San Diego, California(2)	1982	106,000
Fort Lauderdale, Florida(3)*	1983	94,000
San Francisco, California(4)*	1983	251,000
Chicago, Illinois (Michigan Ave.)(2)	1984	188,000
Boston, Massachusetts(2)	1984	111,000
Palo Alto, California(3)*	1986	120,000
McLean, Virginia(4)*	1990	130,000
Denver, Colorado(3)*	1991	90,000
Minneapolis, Minnesota(2)	1992	119,000
Scottsdale, Arizona(2)*	1992	118,000
Troy, Michigan(3)*	1993	157,000
Short Hills, New Jersey(3)*	1996	138,000
King of Prussia, Pennsylvania(3)*	1996	142,000
Paramus, New Jersey(3)*	1997	141,000
Honolulu, Hawaii(3)	1999	181,000
Palm Beach, Florida(2)	2001	53,000
Plano, Texas (Willow Bend)(4)*	2002	156,000
Tampa, Florida(3)*	2002	96,000
Coral Gables, Florida(2)*	2003	136,000
Orlando, Florida(4)*	2003	95,000
San Antonio, Texas(4)*	2006	120,000
Boca Raton, Florida(3)	2006	136,000
Charlotte, North Carolina(3)	2007	80,000
Austin, Texas(3)	2007	80,000
Natick, Massachusetts(1)	2008	102,000
Topanga, California(3)	2009	120,000
Bellevue, Washington(2)	2010	125,000

(1)           Owned subject to partial ground lease.

(2)           Leased.

(3)           Owned subject to ground lease.

(4)           Owned.

*              Mortgaged to secure our senior secured credit facilities and the 2028 Debentures.

We recently opened new stores in Charlotte (80,000 square feet) in September 2006, Austin (80,000 square feet) in March 2007, Natick (102,000 square feet) in September 2007, Topanga (120,000 square feet) in September 2008 and Bellevue, Washington (125,000 square feet) in September 2009 and currently plan to open new stores in Walnut Creek, California in 2012 (85,000 square feet planned) and San Jose, California in 2013 (100,000 square feet planned).

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Bergdorf Goodman Stores.  We operate two Bergdorf Goodman stores, both of which are located in Manhattan at 58th Street and Fifth Avenue. The following table sets forth certain details regarding these stores:

Bergdorf Goodman Stores

Locations	Fiscal YearOperationsBegan	Gross StoreSq. Feet
New York City (Main)(1)	1901	250,000
New York City (Men’s)(1)*	1991	66,000

(1)           Leased.

*              Mortgaged to secure our senior secured credit facilities and the 2028 Debentures.

Clearance Centers.  As of October 1, 2009, we operated 28 clearance centers that average approximately 28,900 square feet each in size.

Distribution, support and office facilities.  We own approximately 41 acres of land in Longview, Texas, where our primary distribution facility is located. The Longview facility is the principal merchandise processing and distribution facility for Neiman Marcus stores. We currently utilize a regional distribution facility in Dayton, New Jersey and four regional service centers in New York, Florida, Texas and California. We also own approximately 50 acres of land in Irving, Texas, where our Direct Marketing operating headquarters and distribution facility is located.   In addition, we currently utilize another regional distribution facility in Dallas, Texas to support our Direct Marketing operation.

Lease Terms.  The terms of the leases for substantially all of our stores, assuming all outstanding renewal options are exercised, range from 1 to 101 years. The lease on the Bergdorf Goodman Main Store expires in 2050, with no renewal options, and the lease on the Bergdorf Goodman Men’s Store expires in 2020, with a 10-year renewal option. Most leases provide for monthly fixed rentals or contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs.

For further information on our properties and lease obligations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 15 of the Notes to Consolidated Financial Statements in Item 15.

ITEM 3. LEGAL PROCEEDINGS

We are currently involved in various legal actions and proceedings that arose in the ordinary course of our business. We believe that any liability arising as a result of these actions and proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

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

No matters were submitted to a vote of our security holders during the quarter ended August 1, 2009.

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PART II

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data is qualified in entirety by our consolidated financial statements (and the related Notes thereto) contained in Item 15 and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7.

	(Successor)												(Predecessor)
(in millions)	Fiscalyear endedAugust 1, 2009			FiscalyearendedAugust 2, 2008			FiscalyearendedJuly 28, 2007			Forty-three weeksendedJuly 29,2006			Nineweeks ended October 1,2005			FiscalyearendedJuly 30,2005
OPERATING RESULTS
Revenues	$	3,643.3		$	4,600.5		$	4,390.1		$	3,397.7		$	632.4		$	3,695.1
Cost of goods sold including buying and occupancy costs (excluding depreciation)	2,536.8			2,935.0			2,753.8			2,219.4			371.5			2,349.2
Selling, general and administrative expenses (excluding depreciation)	882.7			1,045.4			1,015.1			802.4			155.6			907.3
Income from credit card program, net	(50.0		)	(65.7		)	(65.7		)	(49.4		)	(7.8		)	(71.6		)
Depreciation and amortization	223.5			220.6			208.7			166.6			19.2			103.6
Impairment charges	703.2		(2)	31.3		(3)	11.5		(4)	—			—			—
Operating (loss) earnings	(652.9		)(2)	466.4		(3)	476.8		(4)	258.7			70.3		(5)	397.4		(6)
(Loss) earnings from continuing operations before income taxes	(888.5		)	226.6			217.0			41.0			71.2			385.2
(Loss) earnings from discontinued operations, net of tax (7)	—			—			(22.8		)	(14.0		)	(0.8		)	5.0
Net (loss) earnings	$	(668.0	)	$	142.8		$	111.9		$	12.5		$	44.2		$	248.8
	(Successor)												(Predecessor)
(in millions)	August 1, 2009			August 2, 2008			July 28, 2007			July 29, 2006						July 30,2005(1)
FINANCIAL POSITION
Cash and cash equivalents	$	323.4		$	239.2		$	141.2		$	223.7					$	852.6
Merchandise inventories	755.0			978.0			918.3			793.6						729.3
Total current assets	1,221.5			1,363.7			1,215.0			1,135.9						1,708.5
Property and equipment, net	992.7			1,075.3			1,043.7			1,030.3						836.7
Total assets	5,581.0			6,556.8			6,501.0			6,608.0						2,660.7
Current liabilities	563.5			706.7			767.9			699.1						617.3
Long-term liabilities	$	4,098.7		$	4,173.6		$	4,175.1		$	4,474.9					$	457.3

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	(Successor)												(Predecessor)
(in millions, except sales per square foot)	Fiscalyearended August 1, 2009			Fiscalyearended August 2, 2008			FiscalyearendedJuly 28, 2007			Forty-three weeksendedJuly 29,2006			Nineweeks ended October 1,2005			FiscalyearendedJuly 30,2005
OTHER OPERATING DATA
Capital expenditures	$	101.5		$	183.5		$	147.9		$	138.2		$	25.6		$	190.3
Depreciation expense	$	150.8		$	148.4		$	136.5		$	107.0		$	19.2		$	103.6
Rent expense and related occupancy costs	$	85.4		$	92.6		$	87.5		$	69.3		$	12.5		$	72.3
Change in comparable revenues (8)	(21.4		)%	1.7		%	6.7		%	6.8		%	9.8		%	9.8		%
Number of stores open at period end	42			41			40			38			37			36
Sales per square foot	$	475		$	634	(9)	$	638		$	508		$	103		$	577
NON-GAAP FINANCIAL MEASURE
EBITDA (10)	$	(429.4	)(2)	$	687.0	(3)	$	685.6	(4)	$	425.3		$	89.5	(5)	$	501.1	(6)
Adjusted EBITDA (10)	$	273.8		$	685.8		$	686.9		$	425.3		$	113.0		$	510.2

(1)The selected financial data as of July 30, 2005 reflect adjustments to the Predecessor’s audited consolidated financial statements to reclassify the operations of Gurwitch Products, L.L.C. and Kate Spade LLC as discontinued operations.

(2)For fiscal year 2009, operating earnings and EBITDA include pretax impairment charges related to 1) $329.7 million for the writedown to fair value of goodwill, 2) $343.2 million for the writedown to fair value of the net carrying value of tradenames and 3) $30.3 million for the writedown to fair value of the net carrying value of certain long-lived assets.

(3)For fiscal year 2008, operating earnings and EBITDA include 1) $32.5 million of other income related to a pension curtailment gain as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007, offset by 2) $31.3 million pretax impairment charge related to the writedown to fair value of the Horchow tradename.

(4)For fiscal year 2007, operating earnings and EBITDA include 1) $11.5 million pretax impairment charge related to the writedown to fair value of the Horchow tradename, offset by 2) $4.2 million of other income we received in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot and 3) $6.0M of other income related to aged, non-escheatable gift cards.

(5)For the nine weeks ended October 1, 2005, operating earnings and EBITDA include $23.5 million of transaction and other costs incurred in connection with the Acquisition. These costs consist primarily of $4.5 million of accounting, investment banking, legal and other costs associated with the Acquisition and a $19.0 million non-cash charge for stock compensation resulting from the accelerated vesting of Predecessor stock options and restricted stock in connection with the Acquisition.

(6)For fiscal year 2005, operating earnings and EBITDA include a $15.3 million pretax loss related to the disposition of Chef’s Catalog in November 2004 and a $6.2 million pretax gain related to the sale of our credit card portfolio.

(7)(Loss) earnings from discontinued operations, reflects the operations of Kate Spade LLC (prior to its sale in December 2006) and Gurwitch Products, L.L.C. (prior to its sale in July 2006).

(8)Comparable revenues include 1) revenues derived from our retail stores open for more than fifty two weeks, including stores that have been relocated or expanded and 2) revenues from our Direct Marketing operation. Comparable revenues exclude 1) revenues of closed stores, 2) revenues from our discontinued operations (Gurwitch Products, L.L.C. and Kate Spade LLC) and 3) revenues of our previous Chef’s Catalog operations (sold in November 2004).  The calculation of the change in comparable revenues for fiscal year 2008 is based on revenues for the fifty two weeks ended July 26, 2008 compared to revenues for the fifty two weeks ended July 28, 2007.

(9)Sales per square foot for fiscal year 2008 is based on revenues for the fifty two weeks ended July 26, 2008.

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(10)For an explanation of EBITDA and Adjusted EBITDA, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measure-EBITDA and Adjusted EBITDA.”

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

EXECUTIVE OVERVIEW

The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes. Unless otherwise specified, the meanings of all defined terms in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions relating to these statements.

Overview

Neiman Marcus, Inc. (the Company), together with our operating segments and subsidiaries, is a high-end specialty retailer. Our operations include the Specialty Retail stores segment and the Direct Marketing segment. The Specialty Retail stores segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. The Direct Marketing segment conducts both online and print catalog operations under the brand names of Neiman Marcus, Bergdorf Goodman and Horchow.

The Company acquired The Neiman Marcus Group, Inc. (NMG) on October 6, 2005 through a merger transaction with Newton Acquisition Merger Sub, Inc., a wholly-owned subsidiary of Neiman Marcus, Inc.  The acquisition was accomplished through the merger of the Newton Acquisition Merger Sub, Inc. with and into NMG, with NMG being the surviving entity (the Acquisition).  Subsequent to the Acquisition, NMG is a subsidiary of the Company, which is controlled by Newton Holding, LLC (Holding). Both the Company and Holding were formed by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors).  In connection with the Acquisition, NMG incurred significant indebtedness and became highly leveraged.

Our fiscal year ends on the Saturday closest to July 31. Like many other retailers, we follow a 4-5-4 reporting calendar which resulted in an extra week in fiscal year 2008 (the 53rd week).  All references to fiscal year 2009 relate to the fifty two weeks ended August 1, 2009; all references to fiscal year 2008 relate to the fifty three weeks ended August 2, 2008 and all references to fiscal year 2007 relate to the fifty two weeks ended July 28, 2007.

Discontinued Operation

In February 1999, NMG acquired a 56% controlling interest in Kate Spade LLC, a designer and marketer of high-end accessories.  In April 2005, the minority investor in Kate Spade LLC exercised the put option with respect to the sale of the full amount of its 44% stake in such company to NMG. In October 2006, we entered into an agreement to settle the put option whereby we purchased the interest held by the minority investor for approximately $59.4 million.

In November 2006, we entered into a definitive agreement to sell 100% of the ownership interests in Kate Spade LLC to Liz Claiborne, Inc. (consisting of both our original 56% interest and the 44% minority interest subsequently purchased by NMG) for pretax net cash proceeds of approximately $121.5 million. Both the purchase of the minority interest in Kate Spade LLC and the sale of Kate Spade LLC to Liz Claiborne, Inc. were consummated in December 2006.

The Company’s consolidated financial statements, accompanying notes and other information provided in this Annual Report on Form 10-K reflect Kate Spade LLC as a discontinued operation for all periods presented.

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Recent Developments

On September 3, 2009, we announced preliminary total revenues and comparable revenues of approximately $241.0 million and $237.0 million, respectively, for the four-week period ended August 29, 2009. In the four-week August period of fiscal year 2010, total revenues decreased 15.3% and comparable revenues decreased 16.6% compared to the four-week August period of fiscal year 2009. Comparable revenues decreased 19.6% in our Specialty Retail stores and increased 0.1% in our Direct Marketing operation for the four-week August period of fiscal year 2010.

On October 8, 2009, we announced preliminary total revenues and comparable revenues of approximately $353.5 million and $344.2 million, respectively, for the five-week period ended October 3, 2009 and $594.5 million and $581.2 million, respectively, for the nine-week period ended October 3, 2009. In the five-week September period of fiscal year 2010, total revenues decreased 14.8% and comparable revenues decreased 16.9% compared to the five-week September period of fiscal year 2009. Comparable revenues decreased 17.6% in our Specialty Retail stores and 13.6% in our Direct Marketing operation for the five-week September period of fiscal year 2010.  In the nine-week September period of fiscal year 2010, total revenues decreased 15.0% and comparable revenues decreased 16.8% compared to the nine-week September period of fiscal year 2009. Comparable revenues decreased 18.4% in our Specialty Retail stores and 8.3% in our Direct Marketing operation for the nine-week September period of fiscal year 2010.

All the financial data set forth above for the five and nine-week periods ending October 3, 2009 are preliminary and unaudited and subject to revision based upon our review and a review by our independent registered public accounting firm of our financial condition and results of operations for the quarter ending October 31, 2009. Once we and our independent registered public accounting firm have completed our respective reviews of our financial information for the quarter ending October 31, 2009, we may report financial results that are different from those set forth above.

Factors Affecting Our Results

Revenues.  We generate our revenues from the sale of high-end merchandise through our Specialty Retail stores and Direct Marketing operation. Components of our revenues include:

·Sales of merchandise—Revenues from our Specialty Retail stores are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues from our Direct Marketing operation are recognized when the merchandise is delivered to the customer. We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by both our retail and direct marketing customers. Revenues exclude sales taxes collected from our customers.

·Delivery and processing—We generate revenues from delivery and processing charges related to merchandise delivered to our customers from both our retail and direct marketing operation.

Our revenues can be affected by the following factors:

·general economic conditions, including the recent deterioration of domestic and international capital markets and general economic conditions and the prospects for a meaningful recovery in the near-term;

·changes in the level of consumer spending generally and, specifically, on luxury goods;

·changes in the level of full-price sales;

·changes in the level of promotional events conducted by our Specialty Retail stores and Direct Marketing operation;

·our ability to successfully implement our store expansion and remodeling strategies; and

·the rate of growth in internet revenues by our Direct Marketing operation.

In addition, our revenues are seasonal. For a description of the seasonality of our business, see “Seasonality.”

Cost of goods sold including buying and occupancy costs (excluding depreciation) (COGS).  COGS consists of the following components:

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·Inventory costs—We utilize the retail method of accounting. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of our inventories. The cost of the inventory reflected on the consolidated balance sheet is decreased by charges to cost of goods sold at the time the retail value of the inventory is lowered through the use of markdowns. Hence, earnings are negatively impacted when merchandise is marked down. With the introduction of new fashions in the first and third fiscal quarters and our emphasis on full-price selling in these quarters, a lower level of markdowns and higher margins are characteristic of these quarters.

·Buying costs—Buying costs consist primarily of salaries and expenses incurred by our merchandising and buying operations.

·Occupancy costs—Occupancy costs consist primarily of rent, property taxes and operating costs of our retail, distribution and support facilities. A significant portion of our buying and occupancy costs are fixed in nature and are not dependent on the revenues we generate.

·Delivery and processing costs—Delivery and processing costs consist primarily of delivery charges we pay to third-party carriers and other costs related to the fulfillment of customer orders not delivered at the point-of-sale.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. We received vendor allowances of $107.7 million, or 3.0% of revenues, in fiscal year 2009, $109.6 million, or 2.4% of revenues, in fiscal year 2008 and $96.1 million, or 2.2% of revenues, in fiscal year 2007. The amounts of vendor allowances we received did not have a significant impact on the year-over-year change in gross margin during fiscal years 2009, 2008 or 2007.

Changes in our COGS as a percentage of revenues can be affected by the following factors:

·our ability to order an appropriate amount of merchandise to match customer demand and the related impact on the level of net markdowns incurred;

·customer acceptance of and demand for the merchandise we offer in a given season and the related impact of such factors on the level of full-price sales;

·factors affecting revenues generally, including pricing strategies, product offerings and other actions taken by competitors;

·changes in occupancy costs primarily associated with the opening of new stores or distribution facilities; and

·the amount of vendor reimbursements we receive during the fiscal year.

Selling, general and administrative expenses (excluding depreciation) (SG&A).  SG&A principally consists of costs related to employee compensation and benefits in the selling and administrative support areas, advertising and catalog costs and insurance and long-term benefits expenses. A significant portion of our selling, general and administrative expenses are variable in nature and are dependent on the revenues we generate.

Advertising costs incurred by our Specialty Retail segment consist primarily of print media costs related to promotional materials mailed to our customers, while advertising costs incurred by our Direct Marketing operation relate to the production, printing and distribution of our print catalogs and the production of the photographic content on our websites, as well as online marketing costs. We receive advertising allowances from certain of our merchandise vendors. Substantially all the advertising allowances we receive represent reimbursements of direct, specific and incremental costs that we incur to promote the vendor’s merchandise in connection with our various advertising programs, primarily catalogs and other print media.  As a result, advertising allowances are recorded as a reduction of our advertising costs when earned. Advertising allowances aggregated approximately $65.7 million, or 1.8% of revenues, in fiscal year 2009, $75.7 million, or 1.6% of revenues, in fiscal year 2008 and $63.4 million, or 1.4% of revenues, in fiscal year 2007.

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We also receive allowances from certain merchandise vendors in conjunction with compensation programs for employees who sell the vendor’s merchandise. These allowances are netted against the related compensation expense that we incur. Amounts received from vendors related to compensation programs were $65.8 million, or 1.8% of revenues, in fiscal year 2009, $71.6 million, or 1.6% of revenues, in fiscal year 2008 and $65.4 million, or 1.5% of revenues, in fiscal year 2007.

Changes in our selling, general and administrative expenses are affected primarily by the following factors:

·changes in the number of sales associates primarily due to new store openings and expansion of existing stores, including increased health care and related benefits expenses;

·changes in expenses incurred in connection with our advertising and marketing programs; and

·changes in expenses related to insurance and long-term benefits due to general economic conditions such as rising health care costs.

Income from credit card program, net.  Pursuant to a long-term marketing and servicing alliance with HSBC, HSBC offers credit card and non-card payment plans bearing our brands and we receive 1) ongoing payments from HSBC based on net credit card sales, 2) compensation for marketing and servicing activities, 3) our allocable share of certain income generated from the credit card program and 4) our allocable share of certain credit card losses generated from the credit card portfolio (HSBC Program Income). We recognize HSBC Program Income when earned.  In the future, the HSBC Program Income may be:

·increased or decreased based upon the level of utilization of our proprietary credit cards by our customers;

·increased or decreased based upon future changes to our historical credit card program related to, among other things, the interest rates applied to unpaid balances, the assessment of late fees and the level of usage of promotional no-interest credit programs;

·decreased based upon the level of future services we provide to HSBC;

·increased for our allocable share of certain income, if any, generated from the credit card program as provided pursuant to our contractual agreement with HSBC, or any subsequent amendment thereto; and

·decreased for our allocable share of certain credit card losses generated from the credit card portfolio as provided pursuant to our contractual agreement with HSBC, or any subsequent amendment thereto.

Seasonality

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.

Our first fiscal quarter is generally characterized by a higher level of full-price sales 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 fiscal 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 fiscal quarter. However, due to the seasonal increase in revenues that occurs during the holiday season, the second fiscal quarter is typically the quarter in which our revenues are the highest and in which expenses as a percentage of revenues are the lowest. Our working capital requirements are also the greatest in the first and second fiscal quarters as a result of higher seasonal requirements.

Similarly, the third fiscal quarter is generally characterized by a higher level of full-price sales 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. Revenues are generally the lowest in the fourth fiscal quarter with a focus on promotional activities offering Spring season goods to the customer on a marked down basis, resulting in lower margins during the quarter. Our working capital requirements are typically lower in the third and fourth fiscal quarters than in the other quarters.

A large percentage of our merchandise assortment, particularly in the apparel, fashion accessories and shoe categories, is ordered months in advance of the introduction of such goods. For example, women’s apparel, men’s apparel, shoes and handbags are typically ordered six to nine months in advance of the products being offered for sale while jewelry and other

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categories are typically ordered three to six months in advance. As a result, inherent in the successful execution of our business plans is our ability both to predict the fashion trends that will be of interest to our customers and to anticipate future spending patterns of our customer base.

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 of the fashion goods we offer or a higher than anticipated level of consumer spending. Conversely, in the event we buy fashion goods that are not accepted by the 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, 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.

Fiscal Year 2009 Summary

We continue to experience a challenging economic and retail environment and expect these conditions will continue for an extended period of time.  Consistent with the significant declines in overall macroeconomic factors, capital markets and consumer confidence that have existed during fiscal year 2009, customer demand has been well below our initial expectations and the prior year.  The current softness in customer demand exists across all geographic areas, all distribution channels and all merchandise categories, particularly the apparel and home décor categories.  We believe affluent customers are continuing to react to the economic conditions mentioned above.  However, based on our experience in previous business cycles, we believe our customers’ buying levels will increase once the economic environment improves.

In response to these challenging business conditions, we continue to take the following actions:

·stimulate sales through additional promotional and other events;

·reduce inventory levels and purchases;

·implement expense control initiatives; and

·review future capital expenditures and eliminate or postpone certain projects.

A summary of our operating results is as follows:

·Revenues— Our revenues in fiscal year 2009 were significantly impacted by a lower level of customer demand.  As a result, our revenues for fiscal year 2009 were $3,643.3 million, a decrease of 20.8% as compared to fiscal year 2008 reflecting a decline in comparable revenues of 21.4%.  Comparable revenues decreased in fiscal year 2009 for both our Specialty Retail stores and Direct Marketing operation.

Comparable revenues by quarter for fiscal year 2009 are as follows:

First fiscal quarter	(14.5	)%
Second fiscal quarter	(22.8	)%
Third fiscal quarter	(25.1	)%
Fourth fiscal quarter	(23.4	)%

Revenues in the 53rd week of fiscal year 2008 are not included in our calculations of changes in comparable revenues.

For Specialty Retail stores, our sales per square foot decreased to $475 for the fifty two weeks ended August 1, 2009 from $634 for the fifty two weeks ended July 26, 2008.

·Cost of goods sold including buying and occupancy costs (excluding depreciation)—COGS represented 69.6% of revenues in fiscal year 2009 and 63.8% of revenues in fiscal year 2008.  This increase in COGS was primarily due to 1) lower levels of full-price sales and higher levels of net markdowns and promotional activities required to liquidate on-hand inventories held in excess of sales trends for both our Specialty Retail

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stores and Direct Marketing operation and 2) the deleveraging of our fixed buying and occupancy costs on lower revenues.

·Inventories—As a result of the significant decrease in customer demand we experienced during fiscal year 2009, our inventory purchases and on-hand inventories were significantly in excess of actual demand.  As a result, we generated a lower level of full-price sales in both the Fall and Spring seasons and incurred significantly higher net markdowns and sales promotions costs to liquidate inventories held in excess of customer demand.  In response to the lower levels of customer demand, we reduced our receipts in the Spring season of fiscal year 2009 by approximately 30% compared to the prior year.

At August 1, 2009, on-hand inventories totaled $755.0 million, a 22.8% decrease from the prior fiscal year.  Inventories decreased by 25.1% on a comparable basis.

·Selling, general and administrative expenses (excluding depreciation)—Compared to fiscal year 2008, we reduced SG&A by $162.7 million in fiscal year 2009.  The lower levels of SG&A expenses primarily reflect 1) savings in variable costs, primarily commissions, on lower revenues and 2) savings realized as a result of our on-going initiatives to control our expenses.

Despite the lower levels of SG&A incurred, SG&A deleveraged in fiscal year 2009.  SG&A represented 24.2% of revenues in fiscal year 2009 and 22.7% of revenues in fiscal year 2008.  The increases in SG&A as percentages of revenues are primarily due to the deleveraging of payroll and certain benefits costs on the significant decreases in revenues.

·Expense control initiatives— In addition to savings in variable costs, primarily commissions, on lower revenues, we have implemented both short-term expense control initiatives and longer-term adjustments to our cost structure, which initiatives include headcount and salary reductions and the centralization of various store and corporate job functions.  We believe we realized savings in our non-variable buying and occupancy costs and SG&A expenses aggregating approximately $100 million in fiscal year 2009.  We continue to review and evaluate additional initiatives to reduce our cost structure.

·Impairment of long-lived assets— We tested our long-lived assets for recoverability and determined certain of our property and equipment, tradenames and goodwill to be impaired and recorded non-cash impairment charges aggregating $703.2 million in fiscal year 2009, as more fully described in Note 7 to the consolidated financial statements.

·Operating (loss) earnings—Total operating losses in fiscal year 2009 were $652.9 million, or 17.9% of revenues, which included impairments of our long-lived assets of $703.2 million, or 19.3% of revenues.  Excluding these impairment charges, operating earnings were $50.3 million, or 1.4% of revenues, in fiscal year 2009.  Total operating earnings in fiscal year 2008 were $466.4 million, or 10.1% of revenues.  Excluding the impairment charges in fiscal year 2009, operating earnings margin decreased as a percentage of revenues, by 8.7% primarily due to:

·an increase in COGS by 5.8% of revenues as a result of 1) lower levels of full-price sales, primarily due to weak customer demand, 2) higher net markdowns and higher promotional costs incurred to liquidate on-hand inventories held in excess of sales trends and 3) the deleveraging of our buying and occupancy expenses on lower revenues; and

·increases in both SG&A expenses by 1.5% of revenues and depreciation and amortization expense by 1.3% of revenues, primarily due to the deleveraging of these expenses on lower revenues.

·Liquidity—Cash provided by our operating activities was $210.8 million in fiscal year 2009, a decrease of $74.5 million from the prior fiscal year as a result of lower revenues and earnings.  Despite the decrease in cash provided by operating activities, we held cash balances of $323.4 million at August 1, 2009 compared to $239.2 million at August 2, 2008.  At August 1, 2009, we had no borrowings outstanding under our Asset-Based Revolving Credit Facility, $32.8 million of outstanding letters of credit and $468.5 million of unused borrowing availability.  At October 3, 2009, we had $507.2 million of unused borrowing availability.

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Given the dislocation in the financial markets and the uncertainty as to when reasonable conditions will return, we have elected to pay PIK Interest for the three quarterly interest periods ending October 14, 2009 and to make such interest payments with the issuance of additional Senior Notes at the PIK Interest rate of 9.75% instead of paying interest in cash.  As a result, the original principal amount of Senior Notes of $700.0 million increased by $17.1 million on April 14, 2009 and $17.4 million on July 14, 2009 and will increase by $18.1 million on October 14, 2009.

Prior to the beginning of each eligible interest period in the future, we will evaluate whether to continue utilizing this PIK feature, taking into account market conditions and other relevant factors at that time. After October 15, 2010, we are required to make all interest payments on the Senior Notes entirely in cash.

·Outlook—We expect retail demand and revenues will remain weak for an extended period of time.  We will continue to align our inventory levels and purchases with anticipated lower customer demand. Despite the anticipated continuation of current economic conditions, we believe the cash generated from our operations along with our available sources of financing will enable us to meet our cash obligations for fiscal year 2010.

OPERATING RESULTS

Performance Summary

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

	Fiscal year ended
	August 1,2009		August 2,2008		July 28,2007
Revenues	100.0	%	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs (excluding depreciation)	69.6		63.8		62.7
Selling, general and administrative expenses (excluding depreciation)	24.2		22.7		23.1
Income from credit card program, net	(1.4	)	(1.4	)	(1.5	)
Depreciation expense	4.1		3.2		3.1
Amortization of intangible assets	1.5		1.2		1.2
Amortization of favorable lease commitments	0.5		0.4		0.4
Impairment charges	19.3		0.7		0.3
Other income	—		(0.7	)	(0.2	)
Operating (loss) earnings	(17.9	)	10.1		10.9
Interest expense, net	6.5		5.2		5.9
(Loss) earnings from continuing operations before income taxes	(24.4	)	4.9		4.9
Income tax (benefit) expense	(6.1	)	1.8		1.9
(Loss) earnings from continuing operations	(18.3	)	3.1		3.1
Loss from discontinued operation, net of taxes	—		—		(0.5	)
Net (loss) earnings	(18.3	)%	3.1	%	2.5	%

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

	Fiscal year ended
(in millions, except sales per square foot)	August 1,2009			August 2,2008			July 28,2007
REVENUES
Specialty Retail stores	$	2,991.3		$	3,853.0		$	3,674.6
Direct Marketing	652.0			747.5			715.5
Total	$	3,643.3		$	4,600.5		$	4,390.1
OPERATING (LOSS) EARNINGS
Specialty Retail stores	$	112.4		$	476.7		$	490.6
Direct Marketing	70.6			117.7			116.0
Corporate expenses	(60.0		)	(57.0		)	(56.2		)
Amortization of intangible assets and favorable lease commitments	(72.7		)	(72.2		)	(72.3		)
Impairment charges (1)	(703.2		)	(31.3		)	(11.5		)
Other income (2)	—			32.5			10.2
Total	$	(652.9	)	$	466.4		$	476.8
OPERATING PROFIT (LOSS) MARGIN
Specialty Retail stores	3.8		%	12.4		%	13.4		%
Direct Marketing	10.8		%	15.7		%	16.2		%
Total	(17.9		)%	10.1		%	10.9		%
CHANGE IN COMPARABLE REVENUES (3)
Specialty Retail stores	(23.2		)%	1.3		%	6.2		%
Direct Marketing	(12.2		)%	3.8		%	9.2		%
Total	(21.4		)%	1.7		%	6.7		%
SALES PER SQUARE FOOT
Specialty Retail stores	$	475		$	634	(4)	$	638
STORE COUNT
Neiman Marcus and Bergdorf Goodman stores:
Open at beginning of period	41			40			38
Opened during the period	1			1			2
Open at end of period	42			41			40
Clearance centers:
Open at beginning of period	24			20			18
Opened during the period	4			4			2
Closed during the period	(1		)	—			—
Open at end of period	27			24			20
NON-GAAP FINANCIAL DATA
EBITDA (5)	$	(429.4	)	$	687.0		$	685.6
Adjusted EBITDA (5)	$	273.8		$	685.8		$	686.9

(1)For fiscal year 2009, impairment charges consist of pretax charges of 1) $329.7 million for the writedown to fair value of goodwill, 2) $343.2 million for the writedown to fair value of the net carrying value of tradenames and 3) $30.3 million for the writedown to fair value of the net carrying value of certain long-lived assets.

For fiscal years 2008 and 2007, impairment charges consist of a $31.3 million and $11.5 million pretax impairment charge related to the writedown to fair value of the Horchow tradename.

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(2)For fiscal year 2008, other income includes a pension curtailment gain of $32.5 million as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.

For fiscal year 2007, other income includes 1) $4.2 million of other income we received in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot and 2) $6.0M of other income related to aged, non-escheatable gift cards.

(3)Comparable revenues include 1) revenues derived from our retail stores open for more than fifty two weeks, including stores that have been relocated or expanded and 2) revenues from our Direct Marketing operation. Comparable revenues exclude 1) revenues of closed stores and 2) revenues from our discontinued operation (Kate Spade LLC sold in December 2006). The calculation of the change in comparable revenues for fiscal year 2008 is based on revenues for the fifty two weeks ended July 26, 2008 compared to revenues for the fifty two weeks ended July 28, 2007.

(4)Sales per square foot for fiscal year 2008 is based on revenues for the fifty two weeks ended July 26, 2008.

(5)For an explanation of EBITDA and Adjusted EBITDA as measures of our operating performance, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measure-EBITDA and Adjusted EBITDA.”

Fiscal Year Ended August 1, 2009 Compared to Fiscal Year Ended August 2, 2008

Revenues.Our revenues for fiscal year 2009 of $3,643.3 million decreased $957.2 million, or 20.8%, from $4,600.5 million in fiscal year 2008.  The decrease in revenues was due to decreases in comparable revenues for both our Specialty Retail stores and Direct Marketing operation as a result of the current challenging economic environment and lower customer demand.  Customer demand, especially during the holiday selling season, was well below our initial expectations and the prior year and the lower level of customer demand continued throughout the Spring season of fiscal year 2009.

Comparable revenues for the fifty two weeks ended August 1, 2009 were $3,575.4 million compared to $4,548.5 million in fiscal year 2008, representing a decrease of 21.4%.  Comparable revenues decreased in fiscal year 2009 by 23.2% for Specialty Retail stores and 12.2% for Direct Marketing.  New stores generated revenues of $67.9 million in fiscal year 2009.

Comparable revenues by quarter for fiscal years 2009 and 2008 are as follows:

	Fiscal year 2009								Fiscal year 2008
	FourthQuarter		ThirdQuarter		SecondQuarter		FirstQuarter		FourthQuarter		ThirdQuarter		SecondQuarter		FirstQuarter
Specialty Retail stores	(25.0	)%	(27.1	)%	(25.0	)%	(15.8	)%	(1.8	)%	(3.4	)%	3.4	%	6.4	%
Direct Marketing	(15.7	)%	(14.3	)%	(12.1	)%	(7.0	)%	0.7	%	2.0	%	5.2	%	7.1	%
Total	(23.4	)%	(25.1	)%	(22.8	)%	(14.5	)%	(1.4	)%	(2.5	)%	3.7	%	6.5	%

Internet revenues generated by Direct Marketing were $518.5 million for fiscal year 2009, a decrease of 8.2% compared to the prior fiscal year. In addition, catalog revenues decreased 27.0% compared to the prior fiscal year.

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS for fiscal year 2009 were 69.6% of revenues compared to 63.8% of revenues for fiscal year 2008.

The increase in COGS as a percentage of revenues in fiscal year 2009 was primarily due to decreased product margins generated by both our Specialty Retail stores and Direct Marketing operation of approximately 4.6% of revenues.  We experienced a lower than anticipated level of customer demand in fiscal year 2009.  As a result, we generated a lower level of full-price sales and incurred significantly higher net markdowns and sales promotions costs to liquidate inventories held in excess of customer demand, resulting in lower product margins.  Additionally, buying and occupancy costs increased by 1.2% of revenues primarily due to the deleveraging of payroll and rent expenses on the lower level of revenues generated, net of savings realized as a result of our initiatives to control our expenses (approximately $10 million).

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Selling, general and administrative expenses (excluding depreciation).  SG&A expenses decreased by $162.7 million in fiscal year 2009 compared to the prior fiscal year.  The decrease in SG&A expenses reflects 1) savings in variable costs, primarily commissions, on lower revenues and 2) savings realized as a result of our initiatives to control our expenses (approximately $90 million).

Despite a decrease in SG&A expenses, SG&A expenses as a percentage of revenues increased to 24.2% of revenues in fiscal year 2009 compared to 22.7% of revenues in the prior fiscal year.  The net increase in SG&A expenses as a percentage of revenues in fiscal year 2009 of approximately 1.5% of revenues was primarily due to:

·the deleveraging of a significant portion of our SG&A expenses, primarily payroll and related benefits net of lower incentive compensation requirements, by approximately 1.1% of revenues; and

·expenses, primarily consulting fees and severance, aggregating $21.3 million, or 0.6% of revenues, incurred in connection with our initiatives to control expenses and to reduce our cost structure, which initiatives included headcount and salary reductions and the centralization and redesign of various store and corporate job functions; offset by

·a lower level of advertising and promotions costs incurred in fiscal year 2009 of approximately 0.1% of revenues, primarily due to a lower level of spending by our Specialty Retail stores.  During the first quarter of fiscal year 2008, we incurred incremental advertising and promotions costs in connection with the celebration of the 100th anniversary of Neiman Marcus in October 2007.

Income from credit card program, net.  We earned HSBC Program Income of $50.0 million, or 1.4% of revenues, in fiscal year 2009 compared to $65.7 million, or 1.4% of revenues, in fiscal year 2008.

Depreciation expense.  Depreciation expense was $150.8 million, or 4.1% of revenues, in fiscal year 2009 compared to $148.4 million, or 3.2% of revenues, in fiscal year 2008.  The increase in depreciation expense as a percentage of revenues results primarily from the deleveraging of these costs on lower revenues.

Amortization expense.  Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $72.7 million, or 2.0% of revenues, in fiscal year 2009 compared to $72.2 million, or 1.6% of revenues, in fiscal year 2008.  The increase in amortization expense as a percentage of revenues results primarily from the deleveraging of these costs on lower revenues.

Impairment charges.In fiscal year 2009, we recorded impairment charges, related primarily to our tradenames and goodwill, aggregating $703.2 million in connection with the review of our long-lived assets for recoverability, as more fully explained in Note 7 in our notes to consolidated financial statements.

In the fourth quarter of fiscal year 2008, we recorded a $31.3 million, or 0.7% of revenues, pretax impairment charge related to the writedown to fair value of the Horchow tradename.

Other income.  In the first quarter of fiscal year 2008, we recorded a pension curtailment gain of $32.5 million, or 0.7% of revenues, as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007, as more fully explained in Note 14 in our notes to consolidated financial statements.

Segment operating earnings.  Segment operating earnings for our Specialty Retail stores and Direct Marketing segments do not reflect either the impact of adjustments to revalue our assets and liabilities to estimated fair value at the Acquisition date or impairment charges related to declines in fair value subsequent to the Acquisition date.  The reconciliation of segment operating earnings to total operating loss is as follows:

Specialty Retail stores	$	112.4
Direct Marketing	70.6
Amortization of intangible assets and favorable lease commitments	(72.7		)
Corporate expenses	(60.0		)
Impairment charges	(703.2		)
Total operating loss	$	(652.9	)

Operating earnings for our Specialty Retail stores segment were $112.4 million, or 3.8% of Specialty Retail stores revenues, for fiscal year 2009 compared to $476.7 million, or 12.4% of Specialty Retail stores revenues, for the prior fiscal

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year.  The decrease in operating margin as a percentage of revenues was primarily due to:

·lower level of full-price sales as a result of weak customer demand and higher net markdowns and promotional costs incurred to liquidate on-hand inventories held in excess of sales trends; and

·the deleveraging of a significant portion of our expenses on the lower level of revenues; partially offset by

·a lower level of spending for advertising and promotion costs.

Operating earnings for Direct Marketing were $70.6 million, or 10.8% of Direct Marketing revenues, in fiscal year 2009 compared to $117.7 million, or 15.7% of Direct Marketing revenues, for the prior fiscal year.  The decrease in operating margin as a percentage of revenues for Direct Marketing was primarily the result of:

·a decrease in margins primarily due to higher net markdowns in response to weak customer demand; and

·the deleveraging of a significant portion of our expenses.

Interest expense, net.  Net interest expense was $235.6 million, or 6.5% of revenues, in fiscal year 2009 and $239.8 million, or 5.2% of revenues, for the prior fiscal year.  The net decrease in interest expense is primarily due to 1) the decrease in interest rates on our variable-rate indebtedness, partially offset by 2) incremental PIK interest on the Senior Notes, 3) lower interest income and 4) lower capitalized interest as a result of lower capital expenditures.  The significant components of interest expense are as follows:

	Fiscal year ended
(in thousands)	August 1,2009		August 2,2008
Senior Secured Term Loan Facility	$	90,952	$	106,504
2028 Debentures	8,906		8,903
Senior Notes	66,356		63,000
Senior Subordinated Notes	52,028		51,875
Amortization of debt issue costs	17,185		14,217
Other	3,709		3,275
Total interest expense	239,136		247,774
Less:
Interest income	2,569		4,933
Capitalized interest	993		3,036
Interest expense, net	$	235,574	$	239,805

Income tax (benefit) expense.  Our effective income tax rate for fiscal year 2009 was 24.8% compared to 37.0% for fiscal year 2008.  No income tax benefit exists related to the $329.7 million of goodwill impairment charges recorded in fiscal year 2009.  Excluding the impact of the goodwill impairment charges, our effective income tax rate was 39.5% for fiscal year 2009.

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions.  During the third quarter of fiscal year 2009, we closed the IRS examination of fiscal years 2005 and 2006 and received net refunds of approximately $2.8 million.  In addition, as a result of the completion of the audit and IRS determination regarding certain deductions taken in connection with the Acquisition, we recorded a decrease in the gross amount of unrecognized tax benefits of $13.7 million and a decrease in accrued interest and penalties of $2.2 million. This $15.9 million reduction in our liability for unrecognized tax benefits resulted in a decrease to goodwill of $17.3 million and a tax benefit of $1.3 million, offset by a decrease to deferred tax liabilities of $2.7 million during fiscal year 2009.  Finally, in the fourth quarter of fiscal year 2009, we recorded a decrease to our recorded liability for unrecognized tax benefits and a corresponding reduction to goodwill of $0.7 million as a result of the expiration of statutes of limitation in various taxing jurisdictions.

During the fourth quarter of fiscal year 2008, we entered into a negotiated settlement with a state tax authority regarding a state non-filing position which resulted in a decrease in our accruals for uncertain tax positions and a reduction to our gross unrecognized tax benefits of $7.2 million and a corresponding decrease to goodwill of $3.0 million related to the resolution of uncertainties that existed at the time of the Acquisition.

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The IRS is now examining our federal tax returns for fiscal year 2007.  We believe our recorded tax liabilities as of August 1, 2009 are sufficient to cover any potential assessments to be made by the IRS upon the completion of their examinations. We will continue to monitor the progress of the IRS examinations and review our recorded tax liabilities for potential audit assessments.  With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal years before 2005.  We believe it is reasonably possible that additional adjustments in the amounts of our unrecognized tax benefits could occur within the next 12 months as a result of settlements with tax authorities or expiration of statutes of limitation.  At this time, we do not believe such adjustments will have a material impact on our consolidated financial statements.

Fiscal Year Ended August 2, 2008 Compared to Fiscal Year Ended July 28, 2007

Revenues.Our revenues for fiscal year 2008 of $4,600.5 million increased $210.4 million, or 4.8%, from $4,390.1 million in fiscal year 2007.  The increase in revenues was due to increases in comparable revenues, revenues from new stores, higher internet revenues and revenues generated in the 53rd week of fiscal year 2008.  Revenues increased in fiscal year 2008 compared to the prior fiscal year at all our operating companies.

Comparable revenues for the fifty two weeks ended July 26, 2008 were $4,464.4 million compared to $4,390.1 million in fiscal year 2007, representing an increase of 1.7%.  Comparable revenues increased in fiscal year 2008 by 1.3% for Specialty Retail stores and 3.8% for Direct Marketing compared to fiscal year 2007. New stores generated sales of $86.4 million for the fifty two weeks ended July 26, 2008 while revenues for the 53rd week were $49.8 million.

Our comparable revenues trends were stronger in the first part of fiscal year 2008.  We began to experience a lower level of customer spending in the second quarter of fiscal year 2008 which continued into the third and fourth quarters of fiscal year 2008.

Changes in comparable revenues by fiscal quarter are as follows:

	Fiscal Year 2008								Fiscal Year 2007
	FourthQuarter		ThirdQuarter		SecondQuarter		FirstQuarter		FourthQuarter		ThirdQuarter		SecondQuarter		FirstQuarter
Specialty Retail stores	(1.8	)%	(3.4	)%	3.4	%	6.4	%	6.6	%	5.6	%	7.0	%	5.4	%
Direct Marketing	0.7	%	2.0	%	5.2	%	7.1	%	9.0	%	8.7	%	6.1	%	14.7	%
Total	(1.4	)%	(2.5	)%	3.7	%	6.5	%	7.0	%	6.1	%	6.8	%	6.8	%

The increase in comparable revenues for Direct Marketing was due to higher internet revenues.  Internet revenues were $564.5 million for fiscal year 2008, an increase of 13.1% compared to the prior fiscal year. The increase in internet revenues was partially offset by decreases in catalog revenues as well as a decrease in revenues from the home décor category, primarily offered by our Horchow brand.

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS for fiscal year 2008 was 63.8% of revenues compared to 62.7% of revenues for fiscal year 2007.

The net increase in COGS as a percentage of revenues in fiscal year 2008 was primarily due to decreased margins generated by both our Specialty Retail stores and Direct Marketing operation of approximately 1.1% of revenues.  The increase in COGS as a percentage of revenues reflects the lower level of customer demand we experienced in fiscal year 2008.  As a result, we generated a lower level of full-price sales in fiscal year 2008 and incurred higher markdowns and sales promotions costs to liquidate on-hand inventories held in excess of sales trends.  In addition, our Direct Marketing operation realized lower margins on delivery and processing revenues as a result of discounted and free shipping promotions.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses were 22.7% of revenues in fiscal year 2008 compared to 23.1% of revenues in the prior fiscal year.

The net decrease in SG&A expenses as a percentage of revenues in fiscal year 2008 of approximately 0.4% of revenues was primarily due to:

·Lower payroll costs, including estimated annual incentive compensation, of approximately 0.4% of revenues; and

·a decrease in marketing and advertising costs of approximately 0.2% of revenues incurred by Direct Marketing primarily due to higher internet revenues, which have a lower expense to revenue ratio than catalog revenues.

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

·higher benefits expenses of approximately 0.2% of revenues reflecting increases in long-term benefits; and

·a higher level of advertising and promotions costs of approximately 0.1% of revenues incurred by our Specialty Retail stores during fiscal year 2008 in connection with 1) the celebration of the 100th anniversary of Neiman Marcus in October 2007 and 2) promotional events and activities conducted to facilitate the sell-through of on-hand inventories held in excess of sales trends.

Income from credit card program.  We earned HSBC Program Income of $65.7 million, or 1.4% of revenues, in fiscal year 2008 compared to $65.7 million, or 1.5% of revenues, in fiscal year 2007.

Depreciation expense.  Depreciation expense was $148.4 million, or 3.2% of revenues, in fiscal year 2008 compared to $136.5 million, or 3.1% of revenues, in fiscal year 2007.

Amortization expense.  Amortization of intangible assets (customer lists and favorable lease commitments) aggregated $72.2 million, or 1.6% of revenues, in fiscal year 2008 compared to $72.3 million, or 1.6% of revenues, in fiscal year 2007.

Impairment charges.  In the fourth quarter of fiscal year 2008, we recorded a $31.3 million, or 0.7% of revenues, pretax impairment charge related to the writedown to fair value of the Horchow tradename based upon lower revenues and royalty rate expectations with respect to the Horchow brand in light of current operating performance and future operating expectations.

In the fourth quarter of fiscal year 2007, we recorded a $11.5 million, or 0.3% of revenues, pretax impairment charge related to the writedown to fair value of the Horchow tradename.

Other income.In the first quarter of fiscal year 2008, we recorded a pension curtailment gain of $32.5 million, or 0.7% of revenues, as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.

In fiscal year 2007, other income of $10.2 million was comprised of income related to proceeds received from an investment and gift card breakage.  In the first quarter of fiscal year 2007, we received consideration aggregating $4.2 million, or 0.1% of revenues, in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot. We accounted for our investment in Wedding Channel.com under the cost method. In prior years, we had previously reduced our carrying value of this investment to zero.

In the fourth quarter of fiscal year 2007, we recorded $6.0 million, or 0.1% of revenues, of other income for the breakage on gift cards we previously sold and issued.  The income was recognized based upon our analysis of the aging of these gift cards, our determination that the likelihood of future redemption was remote and our determination that such balances were not subject to escheatment laws applicable to our operations.  Prior to the fourth quarter of fiscal year 2007, we had not recognized breakage on gift cards pending, among other things, our final determination of the applicable escheatment laws applicable to our operations.  Gift card breakage during fiscal year 2008 was not significant.

Segment operating earnings.  Segment operating earnings for our Specialty Retail stores and Direct Marketing segments do not reflect the impact of adjustments to revalue our assets and liabilities to estimated fair value at the Acquisition date.  The reconciliation of segment operating earnings to total operating earnings is as follows:

Specialty Retail stores	$	476.7
Direct Marketing	117.7
Amortization of intangible assets and favorable lease commitments	(72.2		)
Corporate expenses and other	(55.8		)
Total operating earnings	$	466.4

Operating earnings for our Specialty Retail stores segment were $476.7 million, or 12.4% of Specialty Retail stores revenues, for fiscal year ended August 2, 2008 compared to $490.6 million, or 13.4% of Specialty Retail stores revenues, for the prior fiscal year.  The decrease in operating margin as a percentage of revenues was primarily due to:

·lower than anticipated demand resulting in a lower level of full-price sales and higher markdowns; and

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·net increases in advertising and promotion costs; partially offset by

·lower estimated annual incentive compensation costs.

Operating earnings for Direct Marketing were $117.7 million, or 15.7% of Direct Marketing revenues, in fiscal year 2008 compared to $116.0 million, or 16.2% of Direct Marketing revenues, for the prior fiscal year.  The decrease in operating margin as a percentage of revenues for Direct Marketing was primarily the result of 1) a decrease in margins realized on delivery and processing revenues, partially offset by 2) a decrease in advertising and marketing costs, as a percentage of revenues, due to the continued growth in internet revenues.

Total operating earnings in fiscal year 2008 were $466.4 million, or 10.1% of revenues.  Total operating earnings in fiscal year 2007 were $476.8 million, or 10.9% of revenues.  Operating earnings margin decreased in fiscal year 2008 by 0.8% of revenues as a result of 1) an increase in COGS by 1.1% of revenues due primarily to lower margins at both Specialty Retail stores and Direct Marketing, partially offset by 2) a decrease in SG&A expenses by 0.4% of revenues (primarily lower incentive compensation).

Interest expense, net.  Net interest expense was $239.8 million, or 5.2% of revenues, in fiscal year 2008 and $259.8 million, or 5.9% of revenues, for the prior fiscal year.  The decrease in interest expense is primarily due to the decrease in term loan interest rates as well as the paydown of $250 million of debt during fiscal year 2007.  The significant components of interest expense are as follows:

(in thousands)	Fiscal yearendedAugust 2,2008		Fiscal yearendedJuly 28,2007
Senior Secured Term Loan Facility	$	106,504	$	128,380
2028 Debentures	8,903		8,915
Senior Notes	63,000		63,000
Senior Subordinated Notes	51,875		51,875
Amortization of debt issue costs	14,217		14,141
Other	3,275		3,689
Total interest expense	247,774		270,000
Less:
Interest income	4,933		7,370
Capitalized interest	3,036		2,825
Interest expense, net	$	239,805	$	259,805

Income taxes.  Our effective income tax rate for fiscal year ended August 2, 2008 was 37.0% compared to 37.9% for fiscal year ended July 28, 2007.  Our effective tax rate for fiscal year 2008 was favorably impacted by a decrease in tax liabilities resulting from settlements with taxing authorities.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) in the first quarter of fiscal year 2008.  The cumulative effect of adopting FIN 48 resulted in a net increase to our accruals for uncertain tax positions of $9.1 million for the derecognition of certain tax benefits. This increase to our accruals was offset by a corresponding increase to goodwill as these uncertainties existed at the time of the Acquisition.

During the fourth quarter of fiscal year 2008, we entered into a negotiated settlement with a state tax authority regarding a state non-filing position which resulted in a reduction to our gross unrecognized tax benefits of $7.2 million and a corresponding decrease to goodwill of $3.0 million related to the resolution of uncertainties that existed at the time of the Acquisition.

Non-GAAP Financial Measure — EBITDA and Adjusted EBITDA

We present the non-GAAP financial performance measures of EBITDA and Adjusted EBITDA because we use these measures to monitor and evaluate the performance of our business and believe the presentation of these measures will enhance investors’ ability to analyze trends in our business, evaluate our performance relative to other companies in our industry and

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evaluate our ability to service our debt.  In addition, we use performance targets based on Adjusted EBITDA as a component of the measurement of incentive compensation as described under “Executive Compensation — Compensation Discussion and Analysis — 2009 Executive Officer Compensation.”

EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP and our computation of EBITDA and Adjusted EBITDA may vary from others in our industry.  In addition, EBITDA and Adjusted EBITDA contain some, but not all, adjustments that are taken into account in the calculation of the components of various covenants in the indentures governing NMG’s senior secured Asset-Based Revolving Credit Facility, Senior Secured Term Loan Facility, Senior Notes and Senior Subordinated Notes.  EBITDA and Adjusted EBITDA should not be considered as alternatives to operating earnings or net earnings as measures of operating performance.  In addition, EBITDA and Adjusted EBITDA are not presented as and should not be considered as alternatives to cash flows as measures of liquidity.  EBITDA and Adjusted EBITDA have important limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.  For example, EBITDA and Adjusted EBITDA:

·do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

·do not reflect changes in, or cash requirements for, our working capital needs;

·do not reflect our considerable interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

·exclude tax payments that represent a reduction in available cash; and

·do not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.

The following table reconciles (loss) earnings from continuing operations as reflected in our consolidated statements of operations prepared in accordance with GAAP to EBITDA and Adjusted EBITDA:

	Fiscal year ended
(dollars in millions)	August 1, 2009			August 2, 2008			July 28, 2007
(Loss) earnings from continuing operations	$	(668.0	)(1)	$	142.8	(2)	$	134.7	(3)
Income tax (benefit) expense	(220.5		)	83.8			82.3
Interest expense, net	235.6			239.8			259.8
Depreciation expense	150.8			148.4			136.5
Amortization of intangible assets and favorable lease commitments	72.7			72.2			72.3
EBITDA	(429.4		)(1)	687.0		(2)	685.6		(3)
EBITDA rate	(11.8		)%	14.9		%	15.6		%
Non-cash impairment of long-lived assets	703.2			31.3			11.5
Other income	—			(32.5		)	(10.2		)
Adjusted EBITDA	$	273.8		$	685.8		$	686.9
Adjusted EBITDA rate	7.5		%	14.9		%	15.6		%

(1)For fiscal year 2009, operating loss and EBITDA include pretax impairment charges related to 1) $329.7 million for the writedown to fair value of goodwill, 2) $343.2 million for the writedown to fair value of the net carrying value of tradenames and 3) $30.3 million for the writedown to fair value of the net carrying value of certain long-lived assets.

(2)For fiscal year 2008, operating earnings and EBITDA include 1) $32.5 million of other income related to a pension curtailment gain as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007, offset by 2) $31.3 million pretax impairment charge related to the writedown to fair value of the Horchow tradename.

(3)For fiscal year 2007, operating earnings and EBITDA include 1) $11.5 million pretax impairment charge related to the writedown to fair value of the Horchow tradename, offset by 2) $4.2 million of other income we received in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot and 3) $6.0M of other income related to aged, non-escheatable gift cards.

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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 primarily due 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 purchase a substantial portion of our inventory from foreign suppliers whose costs are affected by the fluctuation of their local currency against the dollar or who price their merchandise in currencies other than the dollar. Fluctuations in the Euro-U.S. dollar exchange rate affect us most significantly; however, we source goods from numerous countries and thus are affected by changes in numerous currencies and, generally, by fluctuations in the U.S. dollar relative to such currencies. Accordingly, changes in the value of the dollar relative to foreign currencies may increase our cost of goods sold and if we are unable to pass such cost increases to our customers, our gross margins, and ultimately our earnings, would decrease. Foreign currency fluctuations could have a material adverse effect on our business, financial condition and results of operations in the future. We attempt to offset the effects of inflation through price increases and control of expenses, 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 merchandise purchases;

·capital expenditures for new store construction, store renovations and upgrades of our management information systems;

·debt service requirements;

·income tax payments; and

·obligations related to our Pension Plan.

Our primary sources of short-term liquidity are comprised of cash on hand, availability under our Asset-Based Revolving Credit Facility and vendor financing. The amounts of cash on hand and borrowings under the Asset-Based Revolving Credit Facility are influenced by a number of factors, including revenues, working capital levels, vendor terms, the level of capital expenditures, cash requirements related to financing instruments and debt service obligations, Pension Plan funding obligations and tax payment obligations, among others.  As to vendor financing, some of our vendors have experienced serious cash flow issues, reductions in available credit from banks, factors or other financial institutions, or increases in the cost of capital as a result of current economic conditions.  To counteract their cash flow problems, our vendors may attempt to increase their prices, pass through increased costs, alter historical credit and payment terms available to us or seek other relief.  Any of these actions could have an adverse impact on our relationship with the vendor or constrain the amounts or timing of our purchases from the vendor and, ultimately, have an adverse impact on our revenues, profitability and liquidity.

Our working capital requirements fluctuate during the fiscal year, increasing substantially during the first and second quarters of each fiscal year as a result of higher seasonal levels of inventories.  We have typically financed the increases in working capital needs during the first and second fiscal quarters with available cash balances, cash flows from operations and, if necessary, with cash provided from borrowings under our credit facilities.  We have made no borrowings under our Asset-Based Revolving Credit Facility during fiscal years 2009 or 2008.

We believe that operating cash flows, available vendor financing and amounts available pursuant to our senior secured Asset-Based Revolving Credit Facility as well as our option to elect PIK Interest under the Senior Notes through October 15, 2010, will be sufficient to fund our operations, anticipated capital expenditure requirements, debt service obligations, contractual obligations and commitments and Pension Plan funding requirements through the end of fiscal year 2010.

At August 1, 2009, cash and cash equivalents were $323.4 million compared to $239.2 million at August 2, 2008. Net cash provided by operating activities was $210.8 million for fiscal year 2009 compared to $285.3 million in fiscal year 2008. Cash flows provided by operating activities were $74.5 million lower in fiscal year 2009 than in the prior fiscal year primarily due to the lower levels of revenues and earnings generated in the current year.

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Net cash used for investing activities, representing capital expenditures, was $101.5 million in fiscal year 2009 and $183.5 million in fiscal year 2008.  We incurred significant capital expenditures in fiscal year 2009 related to the construction of new stores in Topanga (the greater Los Angeles area) and Bellevue (suburban Seattle). We incurred capital expenditures in fiscal year 2008 related to the construction of new stores in Natick and Topanga and the remodel of our Atlanta and Westchester stores. We opened our Natick store in September 2007, our Topanga store in September 2008 and our Bellevue store in September 2009. In light of current economic conditions and delays in certain real estate projects, we have reduced our current and near-term construction commitments and currently project gross capital expenditures for fiscal year 2010 to be approximately $70 to $80 million.  Net of developer contributions, capital expenditures for fiscal year 2010 are projected to be approximately $55 to $65 million.

Net cash used for financing activities was $25.0 million in fiscal year 2009 as compared to $3.9 million in fiscal year 2008.  In fiscal year 2009, we incurred $23.4 million of debt issuance costs as a result of amending and restating the terms of our asset-based revolving credit facility.

In response to current economic conditions, we have taken and will continue to take actions to maintain appropriate liquidity by:

·stimulating sales through additional promotional and other events;

·reducing inventory levels and purchases;

·implementing expense control initiatives; and

·reviewing future capital expenditures and eliminating or postponing certain projects.

Financing Structure at August 1, 2009

Our major sources of funds are comprised of vendor financing, a $600.0 million Asset-Based Revolving Credit Facility, $1,625.0 million Senior Secured Term Loan Facility (including $26.6 million of borrowings classified as current liabilities), $734.5 million Senior Notes, $500.0 million Senior Subordinated Notes, $125.0 million 2028 Debentures and operating leases.

Senior Secured Asset-Based Revolving Credit Facility.  On July 15, 2009, NMG amended and restated the terms of its existing asset-based revolving credit facility (which had been scheduled to mature on October 6, 2010).  The terms of the amended and restated Asset-Based Revolving Credit Facility include a scheduled maturity date of January 15, 2013 and a maximum committed borrowing capacity of $600.0 million (the same amount as in the prior facility).  The new facility also provides an uncommitted accordion feature that allows NMG to request the lenders to provide additional capacity in either the form of increased revolving commitments or incremental term loans, subject to a potential total maximum facility of $800 million.

The Asset-Based Revolving Credit Facility provides committed financing of up to $600.0 million, subject to a borrowing base.  The Asset-Based Revolving Credit Facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice.  The borrowing base for the Asset-Based Revolving Credit Facility is equal to at any time the sum of (a) the lesser of (i) 80% of eligible inventory (valued at the lower of cost or market value) and (ii) 85% of the net orderly liquidation value of eligible inventory, and (b) 85% of the amounts owed by credit card processors in respect of eligible credit card accounts constituting proceeds arising from the sale or disposition of inventory, less certain reserves.   Through April 30, 2011 NMG is required to maintain excess availability of at least the greater of (a) 10% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $50 million under the terms of the Asset-Based Revolving Credit Facility.  After April 30, 2011, if at any time, excess availability is less than the greater of (a) 15% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $60 million, NMG will be required to maintain a pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such terms are defined in the credit agreement) of at least 1.1 to 1.0.  On August 1, 2009, NMG had no borrowings outstanding under this facility, $32.8 million of outstanding letters of credit and $468.5 million of unused borrowing availability.

See Note 9 of our Notes to Consolidated Financial Statements in Item 15 for a further description of the terms of the Asset-Based Revolving Credit Facility.

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Senior Secured Term Loan Facility.  In October 2005, NMG entered into a credit agreement and related security and other agreements for a $1,975.0 million Senior Secured Term Loan Facility.  NMG voluntarily repaid $100.0 million principal amount of its loans under the Senior Secured Term Loan Facility in fiscal year 2006 and $250 million in fiscal year 2007.  At August 1, 2009, the outstanding balance under the Senior Secured Term Loan Facility was $1,625.0 million (including $26.6 million of borrowings classified as current liabilities).  The principal amount of the loans outstanding is due and payable in full on April 6, 2013.

At August 1, 2009, borrowings under the Senior Secured Term Loan Facility bore interest at a rate per annum equal to, at NMG’s option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Credit Suisse and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 2.50% at August 1, 2009.  The applicable margin is subject to adjustment based on contractually defined debt coverage ratios.  At August 1, 2009, the applicable margin with respect to base rate borrowings was 1.00% and the applicable margin with respect to LIBOR borrowings was 2.00%.

See Note 9 of our Notes to Consolidated Financial Statements in Item 15 for a further description of the terms of the Senior Secured Term Loan Facility.

2028 Debentures.  In May 1998, NMG issued $125.0 million aggregate principal amount of its 7.125% 2028 Debentures.  NMG’s 2028 Debentures mature on June 1, 2028.

See Note 9 of our Notes to Consolidated Financial Statements in Item 15 for a further description of the terms of the 2028 Debentures.

Senior Notes.NMG has $734.5 million aggregate principal amount of 9.0% / 9.75% Senior Notes under a senior indenture (Senior Indenture).  NMG’s Senior Notes mature on October 15, 2015.  We negotiated for the right to include the PIK feature in our Senior Notes because of our belief that this feature could be a useful tool to enhance liquidity under appropriate circumstances. In the second quarter of fiscal year 2009, given the dislocation in the financial markets and the uncertainty as to when reasonable conditions will return, we believed that it was appropriate to utilize this feature, even though we had unused borrowing capacity under our $600.0 million revolving credit facility. Accordingly, we elected to pay PIK Interest for the three quarterly interest periods ending on October 14, 2009 and to make such interest payments with the issuance of additional Senior Notes at the PIK Interest rate of 9.75% instead of paying interest in cash.  As a result, the original principal amount of Senior Notes of $700.0 million increased by $17.1 million on April 14, 2009 and by $17.4 million on July 14, 2009.

Prior to the beginning of each eligible interest period in the future, we will evaluate whether to continue utilizing this PIK feature, taking into account market conditions and other relevant factors at that time. After October 15, 2010, we are required to make all interest payments on the Senior Notes entirely in cash.

See Note 9 of our Notes to Consolidated Financial Statements in Item 15 for a further description of the terms of the Senior Notes.

Senior Subordinated Notes.NMG has $500.0 million aggregate principal amount of 10.375% Senior Subordinated Notes under a senior subordinated indenture (Senior Subordinated Indenture).  NMG’s Senior Subordinated Notes mature on October 15, 2015.

See Note 9 of our Notes to Consolidated Financial Statements in Item 15 for a further description of the terms of the Senior Subordinated Notes.

Interest Rate Swaps.  In connection with the Acquisition, we obtained $2,575.0 million of floating rate debt agreements, of which $2,125.0 million was outstanding at the Acquisition date and $1,625.0 million is outstanding at August 1, 2009 (including $26.6 million of borrowings classified as current liabilities).  Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness.  These swap agreements hedge a portion of our contractual floating rate interest commitments through the expiration of the agreements in December 2010.  As a result of the swap agreements, NMG’s effective fixed interest rates as to the $1,000.0 million in floating rate indebtedness will currently range from 6.831% to 6.983% per quarter through 2010 and result in an average fixed rate of 6.900%.

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Contractual Obligations and Commitments

The following table summarizes our estimated significant contractual cash obligations at August 1, 2009:

	Payments Due By Period
(in thousands)	Total		Fiscal Year2010		Fiscal Years2011-2012		Fiscal Years2013-2014		Fiscal Year2015 andBeyond
Contractual obligations:
Senior Secured Term Loan Facility (1)	$	1,625,000	$	26,617	$	—	$	1,598,383	$	—
Senior Notes	734,500		—		—		—		734,500
Senior Subordinated Notes	500,000		—		—		—		500,000
2028 Debentures	125,000		—		—		—		125,000
Interest requirements (2)	1,117,300		213,500		352,300		283,800		267,700
Lease obligations	900,900		55,600		103,100		91,500		650,700
Minimum pension funding obligation (3)	161,000		—		60,500		57,200		43,300
Other long-term liabilities (4)	69,100		5,000		11,400		13,200		39,500
Construction and purchase commitments (5)	887,900		799,500		40,600		47,800		—
	$	6,120,700	$	1,100,217	$	567,900	$	2,091,883	$	2,360,700

(1)Pursuant to the terms of our Senior Secured Term Loan Facility, we will be required to prepay $26.6 million of outstanding borrowings under that facility in the first quarter of fiscal year 2010 from excess cash flow, as defined in the credit agreement governing that facility, that we generated in fiscal year 2009.  The above table does not reflect future excess cash flow prepayments, if any, that may be required under the term loan facility.

(2)The cash obligations for interest requirements reflect 1) interest requirements on our fixed-rate debt obligations at their contractual rates, 2) interest requirements on floating rate debt obligations not subject to interest rate swaps at rates in effect at August 1, 2009 and 3) interest requirements on floating rate debt obligations subject to interest rate swaps at the fixed rates provided through the swap agreements.  A 1% increase in the floating rates related to floating rate debt outstanding at August 1, 2009 not subject to interest rate swaps would increase annual interest rate requirements by approximately $6.3 million.

(3)At July 31, 2009 (the most recent measurement date), our actuarially calculated projected benefit obligation for our Pension Plan was $428.0 million and the fair value of the assets was $272.0 million. Our policy is to fund the Pension Plan at or above the minimum amount required by law.  We made a $15.0 million voluntary contribution to the Pension Plan in both fiscal years 2009 and 2008.  Based upon currently available information, we will not be required to make contributions in fiscal year 2010 to the Pension Plan.

(4)Included in other long-term liabilities at August 1, 2009 are our liabilities for our Pension, SERP and Postretirement Plans aggregating $261.0 million.  Our scheduled obligations with respect to our SERP and Postretirement Plan liabilities consist of expected benefit payments through 2019, as currently estimated using information provided by our actuaries.  Also included in other long-term liabilities at August 1, 2009 are our liabilities related to 1) the unrealized loss on financial instruments of $57.8 million, 2) uncertain tax positions (including related accruals for interest and penalties) of $12.4 million and 3) other obligations aggregating $19.0 million, primarily for employee benefits.  Future cash obligations related to these liabilities are not currently estimable.

(5)Construction commitments relate primarily to obligations pursuant to contracts for the construction of new stores and the renovation of existing stores expected as of August 1, 2009.  These amounts represent the gross construction costs and exclude developer contributions of approximately $54 million which we expect to receive pursuant to the terms of the construction contracts.

In the normal course of our business, we issue purchase orders to vendors/suppliers for merchandise. Our purchase orders are not unconditional commitments but, rather represent executory contracts requiring performance by the vendors/suppliers, including the delivery of the merchandise prior to a specified cancellation date and the compliance with product specifications, quality standards and other requirements. In the event of the vendor’s failure to meet the agreed upon terms and conditions, we may cancel the order.

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The following table summarizes the expiration of our significant commercial commitments outstanding at August 1, 2009:

	Amount of Commitment by Expiration Period
(in thousands)	Total		Fiscal Year2010		Fiscal Years2011-2012		Fiscal Years2013-2014		Fiscal Year2015 andBeyond
Other commercial commitments:
Senior secured asset-based revolving credit facility (1)	$	600,000	$	—	$	—	$	600,000	$	—
Surety bonds	3,100		3,100		—		—		—
	$	603,100	$	3,100	$	—	$	600,000	$	—

(1)As of August 1, 2009, we had no borrowings outstanding under our Senior Secured Asset-Based Revolving Credit Facility, $32.8 million of outstanding letters of credit and $468.5 million of unused borrowing availability. Our working capital requirements are greatest in the first and second fiscal quarters as a result of higher seasonal requirements. See “Description of Other Indebtedness—Senior Secured Asset-Based Revolving Credit Facility” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Seasonality.”

In addition to the items presented above, our other principal commercial commitments are comprised of common area maintenance costs, tax and insurance obligations and contingent rent payments.

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,” “plan,” “predict,” “expect,” “estimate,” “intend,” “would,” “could,” “should,” “anticipate,” “believe,” “project” or “continue.” We make these forward-looking statements based on our expectations and beliefs concerning future events, as well as currently available data.  While we believe there is a reasonable basis for our forward-looking statements, they involve a number of risks and uncertainties. Therefore, these statements are not guarantees of future performance and you should not place undue reliance on them. 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

·prolonged weakness in domestic and global capital markets and other economic conditions and the impact of such conditions on our ability to obtain credit;

·current political and general economic conditions or changes in such conditions including relationships between the United States and the countries from which we source our merchandise;

·terrorist activities in the United States and elsewhere;

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

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Customer Considerations

·changes in consumer confidence resulting in a reduction of discretionary spending on goods;

·changes in the demographic or retail environment;

·changes in consumer preferences or fashion trends;

·changes in our relationships with customers due to, among other things, 1) our failure to provide quality service and competitive loyalty programs, 2) our inability to provide credit pursuant to our proprietary credit card arrangement or 3) our failure to protect customer data or comply with regulations surrounding information security and privacy;

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, cash flows or available sources of funds;

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

·changes in foreign currency exchange or inflation rates;

·significant increases in paper, printing and postage costs;

Industry and Competitive Factors

·competitive responses to our loyalty programs, marketing, merchandising and promotional efforts or inventory liquidations by vendors or other retailers;

·adverse changes in the financial viability of our competitors;

·seasonality of the retail business;

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

·delays in anticipated store openings and renovations;

·our success in enforcing our intellectual property rights;

Employee Considerations

·changes in key management personnel and our ability to retain key management personnel;

·changes in our relationships with certain of our key sales associates and our ability to retain 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;

Leverage Considerations

·the effects of incurring a substantial amount of indebtedness under our senior secured credit facilities and our senior notes and senior subordinated notes;

·the ability and the effects of refinancing our indebtedness under our senior secured credit facilities;

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·the effects upon us of complying with the covenants contained in our senior secured credit facilities and the indentures governing our senior notes and senior subordinated notes;

·restrictions the terms and conditions of the indebtedness under our senior secured credit facilities may place on our ability to respond to changes in our business or to take certain actions;

Other Factors

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

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

·other risks, uncertainties and factors set forth in this Annual Report on Form 10-K, including those set forth in Item 1A, “Risk Factors.”

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Except to the extent required by law, 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

Our accounting policies are more fully described in Note 1 of the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report. As disclosed in Note 1 of the notes to our audited consolidated financial statements, the preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions about future events. 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 our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

While we believe that our past estimates and assumptions have been materially accurate, the amounts currently estimated 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 audited consolidated financial statements.

We believe the following critical accounting policies encompass the more significant judgments and estimates used in the preparation of our audited consolidated financial statements.

Revenues.  Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise sold. Revenues from our Specialty Retail stores are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues from our Direct Marketing operation are recognized when the merchandise is delivered to the customer. Revenues associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our customers.

We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our retail and direct marketing customers. Our reserves for anticipated sales returns aggregated $29.7 million at August 1, 2009 and $45.0 million at August 2, 2008. As the vast majority of merchandise returns are made in less than 30 days after the sales transaction, we believe the risk that differences between our estimated and actual returns will have a material impact on our consolidated financial statements is minimal.

Merchandise Inventories and Cost of Goods Sold.We utilize the retail method of accounting. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of inventories.The cost of the inventory reflected on the consolidated balance sheets is decreased by charges to cost of goods sold at the time the retail value of the inventory is lowered through the use of markdowns. Earnings are negatively impacted when merchandise is marked down. As we adjust the retail value of our inventories through the use of markdowns to reflect market conditions, our merchandise inventories are stated at the lower of cost or market.

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The areas requiring significant management judgment related to the valuation of our inventories include 1) setting the original retail value for the merchandise held for sale, 2) recognizing merchandise for which the customer’s perception of value has declined and appropriately marking the retail value of the merchandise down to the perceived value and 3) estimating the shrinkage that has occurred between physical inventory counts. These judgments and estimates, coupled with the averaging processes within the retail method can, under certain circumstances, produce varying financial results. Factors that can lead to different financial results include 1) determination of original retail values for merchandise held for sale, 2) identification of declines in perceived value of inventories and processing the appropriate retail value markdowns and 3) overly optimistic or conservative estimation of shrinkage. In prior years, we have made no material changes to our estimates of shrinkage or markdown requirements on inventories held as of the end of our fiscal years.  We do not believe that the assumptions used in these estimates at August 1, 2009 will change significantly based upon our prior experience or that changes in these estimates, if any, will have a material effect on our future operating performance.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. The amounts of vendor allowances we received did not have a significant impact on the year-over-year change in gross margin during fiscal years 2009, 2008 or 2007. We received vendor allowances of $107.7 million, or 3.0% of revenues, in fiscal year 2009, $109.6 million, or 2.4% of revenues, in fiscal year 2008 and $96.1 million, or 2.2% of revenues, in fiscal year 2007.

Long-lived Assets.  Property and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, we compute depreciation principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over five to 30 years while fixtures and equipment are depreciated over three to 15 years. Leasehold improvements are amortized over the shorter of the asset life or the lease term (which may include renewal periods when exercise of the renewal option is at our discretion and considered reasonably assured at the inception of the lease). Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over three to ten years.

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

We assess the recoverability of the carrying values of our store assets, consisting of property and equipment, customer lists and favorable lease commitments, annually and upon the occurrence of certain events (e.g., opening a new store near an existing store or announcing plans for a store closing). The recoverability assessment requires judgment and estimates of future store generated cash flows. The underlying estimates of cash flows include estimates for future revenues, gross margin rates and store expenses. We base these estimates upon the stores’ past and expected future performance. New stores may require two to five years to develop a customer base necessary to generate the cash flows of our more mature stores. To the extent our estimates for revenue growth and gross margin improvement are not realized, future annual assessments could result in impairment charges.

Indefinite-Lived Intangible Assets and Goodwill.  Indefinite-lived intangible assets, such as tradenames, and goodwill, are not subject to amortization. Rather, we assess the recoverability of indefinite-lived intangible assets and goodwill in the fourth quarter of each fiscal year and upon the occurrence of certain events.

The recoverability assessment with respect to each of the tradenames used in our operations requires us to estimate the fair value of the tradename as of the assessment date.  Such determination is made using discounted cash flow techniques.  Inputs to the valuation model include:

·future revenue and profitability projections associated with the tradename;

·estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and

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·rate used to discount the estimated royalty cash flow projections to their present value (or estimated fair value).

If the recorded carrying value of the tradename exceeds its estimated fair value, an impairment charge is recorded to write the tradename down to its estimated fair value.  The tradename impairment testing process is subject to inherent uncertainties and subjectivity.  The use of different assumptions, estimates or judgments could materially increase or decrease any related impairment charge.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases.  We currently estimate that the fair value of our tradenames decreases by approximately $225 million for each 0.5% decrease in market royalty rates and by approximately $90 million for each 0.5% increase in the weighted average cost of capital.

The assessment of the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores and Direct Marketing reporting units involves a two-step process.  The first step requires the comparison of the estimated enterprise fair value of each of our reporting units to its recorded carrying value.  We estimate the enterprise fair value based on discounted cash flow techniques.  Inputs to the valuation model include:

·estimated future cash flows;

·growth assumptions for future revenues as well as future gross margin rates, expense rates and other estimates; and

·rate used to discount our estimated future cash flow projections to their present value (or estimated fair value).

The projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on our annual business plan or other forecasted results.  Discount rates reflect market-based estimates (based on the weighted average cost of capital) of the risks associated with the projected cash flows directly resulting from the use of those assets in operations.  The estimates of the enterprise fair values of our reporting units are based on the best information available as of the date of the assessment.

If the recorded carrying value of a reporting unit exceeds its estimated enterprise fair value in the first step, a second step is performed in which we allocate the enterprise fair value to the fair value of the reporting unit’s net assets.  The second step of the impairment testing process requires, among other things, the estimation of the fair values of substantially all of our tangible and intangible assets.  Any enterprise fair value in excess of amounts allocated to such net assets represents the implied fair value of goodwill for that reporting unit.  If the recorded goodwill balance for a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded to write goodwill down to its fair value.

The goodwill impairment testing process is subject to inherent uncertainties and subjectivity.  The use of different assumptions, estimates or judgments in either step of the process, including with estimation of the projected future cash flows of our reporting units, the discount rate used to reduce such projected future cash flows to their net present value, and the estimation of the fair value of the reporting units’ tangible and intangible assets and liabilities, could materially increase or decrease the fair value of the reporting unit’s net assets and, accordingly, could materially increase or decrease any related impairment charge.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue and profitability projections or the weighted average cost of capital increases.  We currently estimate that a 5% decrease in the estimated fair value of the net assets of each of our reporting units as compared to the values used in the preparation of these financial statements would increase the impairment charge related to goodwill by approximately $200 million.  In addition, we currently estimate that the fair value of our goodwill decreases by approximately $300 million for each 0.5% increase in the discount rate used to estimate fair value.

Advertising and Catalog Costs.  We incur costs to advertise and promote the merchandise assortment offered by both Specialty Retail stores and Direct Marketing. Advertising costs incurred by our Specialty Retail stores consist primarily of print media costs related to promotional materials mailed to our customers. These costs are expensed at the time of mailing to the customer. Advertising costs incurred by Direct Marketing relate to the production, printing and distribution of our print catalogs and the production of the photographic content on our websites. We amortize the costs of print catalogs during the periods we expect to generate revenues from such catalogs, generally three to six months. We expense the costs incurred to produce the photographic content on our websites at the time the images are first loaded onto the website. We expense website design and web advertising costs as incurred.

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Loyalty Programs.  We maintain customer loyalty programs in which customers accumulate points for qualifying purchases. Upon reaching certain levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed no later than 90 days subsequent to the end of the annual program period.

The estimates of the costs associated with the loyalty programs require us to make assumptions related to customer purchasing levels, redemption rates and costs of awards to be chosen by our customers. Our customers redeem a substantial portion of the points earned in connection with our loyalty programs 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 the estimate of the retail value of the gift cards to be issued upon conversion of the points to gift cards. We record the deferral of revenues related to gift card awards under our loyalty programs as a reduction of revenues. In addition, we charge the cost of all other awards under our loyalty programs to cost of goods sold.

Benefit Plans.  We sponsor a noncontributory defined benefit pension plan (Pension Plan), an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits and a postretirement plan providing eligible employees limited postretirement health care benefits (Postretirement Plan). In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants and allocating this cost to the periods in which services are expected to be rendered. We use the projected unit credit method in recognizing pension liabilities. The Pension and SERP Plans are valued annually as of the beginning of each fiscal year.

Significant assumptions related to the calculation of our obligations include the discount rate used to calculate the present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension Plan, the average rate of compensation increase by Pension Plan and SERP Plan participants and the health care cost trend rate for the Postretirement Plan. We review these assumptions annually based upon currently available information, including information provided by our actuaries.

Significant assumptions utilized in the calculation of our projected benefit obligations as of August 1, 2009 and future expense requirements for our Pension Plan, SERP Plan and Postretirement Plan, and sensitivity analysis related to changes in these assumptions, are as follows:

					Using Sensitivity Rate
	ActualRate		Sensitivity Rate Increase/(Decrease)		Increase inLiability(in millions)		Increase inExpense(in millions)
Pension Plan:
Discount rate	5.90	%	(0.25	)%	$	16.1	$	1.7
Expected long-term rate of return on plan assets	8.00	%	(1.00	)%	n/a		$	3.2
Rate of future compensation increase	4.50	%	0.25	%	$	0.5	$	0.1
SERP Plan:
Discount rate	5.90	%	(0.25	)%	$	2.7	Insignificant
Rate of future compensation increase	4.50	%	0.25	%	$	0.5	Insignificant
Postretirement Plan:
Discount rate	5.80	%	(0.25	)%	$	0.5	Insignificant
Ultimate health care cost trend rate	8.00	%	1.00	%	$	2.2	$	0.2

Self-insurance and Other Employee Benefit Reserves.  We use estimates in the determination of the required accruals for general liability, workers’ compensation and health insurance. We base these estimates upon an examination of historical trends, industry claims experience and independent actuarial estimates. Although we do not expect that we will ultimately pay claims significantly different from our estimates, self-insurance reserves could be affected if future claims experience differ significantly from our historical trends and assumptions. Self-insurance reserves including general liability, workers’ compensation and health insurance aggregated $35.5 million at August 1, 2009 and $44.1 million at August 2, 2008.

Income Taxes.  We use the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  We are routinely under audit by federal, state or local authorities in the area of income taxes. We regularly evaluate the likelihood of realization of tax benefits derived from positions we have taken in various federal and state filings after consideration of all relevant facts, circumstances and available information. For those tax benefits we believe more likely than not will be sustained, we recognize the benefit we believe is cumulatively greater than 50% likely to be realized. To the extent we were to prevail in

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matters for which accruals have been established or be required to pay amounts in excess of recorded reserves, our effective tax rate in a given financial statement period could be materially impacted.

Recent Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)), which addresses the recognition and accounting for identifiable assets acquired, liabilities assumed and non-controlling interests in business combinations.  In addition, SFAS 141(R) changes the accounting treatment for certain acquisition-related items, including requirements to expense acquisition-related costs as incurred, expense restructuring costs associated with an acquired business and recognize post-acquisition changes in tax uncertainties associated with a business combination as a component of tax expense.  SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after December 15, 2008, or our fiscal year ending July 31, 2010.  Generally, the effect of SFAS 141(R) will depend on future acquisitions.  However, the accounting for the resolution of any tax uncertainties remaining as of August 1, 2009 related to the Acquisition will be subject to the provisions of SFAS 141(R).

In February 2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2), which delays the effective date of fair value disclosures required by SFAS 157 for all nonfinancial assets, such as intangible assets and goodwill, and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  FSP 157-2 is effective for fiscal years beginning after November 15, 2008, or our fiscal year ending July 31, 2010.  We have not yet evaluated the impact of adopting FSP 157-2 on our consolidated financial statements.

In December 2008, the FASB issued FASB Staff Position 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP 132(R)-1), which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan.  FSP 132(R)-1 is effective for fiscal years ending after December 15, 2009, or our fiscal year ending July 31, 2010.  We have not yet evaluated the impact of adopting the disclosure requirements of FSP 132(R)-1.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (SFAS 165), which establishes general standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued, including the required disclosure of the date through which subsequent events have been evaluated and the basis for that date.  SFAS 165 is effective for interim or annual periods ending after June 15, 2009.  We adopted SFAS 165 during the fourth quarter of fiscal year 2009, as more fully described in Note 1 “Basis of Presentation.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company’s financial instruments represents the potential loss arising from adverse changes in interest rates. The Company does not enter into derivative financial instruments for trading purposes. The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities. The Company is exposed to interest rate risk through its borrowing activities, which are described in Note 9 to our consolidated financial statements.

In connection with the Acquisition, NMG obtained $2,575.0 million of floating rate debt agreements, of which $2,125.0 million was outstanding at the Acquisition date and $1,625.0 million is outstanding under its Senior Secured Term Loan Facility at August 1, 2009 (including $26.6 million of borrowings classified as current liabilities).  In addition, as of August 1, 2009, NMG had no borrowings outstanding under its Asset-Based Revolving Credit Facility.  Future borrowings under NMG’s Asset-Based Revolving Facility, to the extent of outstanding borrowings, would be affected by interest rate changes.

Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness.  These swap agreements hedge a portion of our contractual floating rate interest commitments through the expiration of the agreements in December 2010.  As a result of the swap agreements, NMG’s effective fixed interest rates as to the $1,000.0 million in floating rate indebtedness will currently range from 6.831% to 6.983% per quarter through 2010 and

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result in an average fixed rate of 6.900%.  A 1% increase in the rates relating to the portion of our floating rate date that is not hedged would increase annual interest expense by approximately $6.3 million.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of the Company and supplementary data are included as pages F-1 through F-46 at the end of this Annual Report on Form 10-K:

Index	Page Number
Management’s Report on Internal Control over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets	F-5
Consolidated Statements of Operations	F-6
Consolidated Statements of Cash Flows	F-7
Consolidated Statements of Shareholders’ Equity	F-8
Notes to Consolidated Financial Statements	F-9

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

a.Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation as of August 1, 2009, under the supervision and with the participation of our 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 defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, accumulated, processed, summarized, reported and communicated on a timely basis within the time periods specified in the Securities and Exchange Commission’s rules and forms.

b.Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of August 1, 2009. During its assessment, management did not identify any material weaknesses in our internal control over financial reporting. Our independent registered public accounting firm, Ernst & Young LLP, has audited our consolidated financial statements and has issued an attestation report on the effectiveness of our internal controls over financial reporting as of August 1, 2009.

c.Changes in Internal Control over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading our current systems or implementing new systems. No change occurred in our internal controls over financial reporting during the quarter

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ended August 1, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age, and position of individuals who currently serve as our directors and executive officers.

Name	Age	Position
David A. Barr	46	Director since 2005
Jonathan Coslet	44	Director since 2005
James Coulter	49	Director since 2005
John G. Danhakl	53	Director since 2005
Sidney Lapidus	71	Director since 2005
Kewsong Lee	44	Director since 2005
Carrie Wheeler	37	Director since 2005
Burton M. Tansky	71	Director since 2005, President and Chief Executive Officer
Karen W. Katz	52	Executive Vice President and President and Chief Executive Officer of Neiman Marcus Stores
James E. Skinner	56	Executive Vice President and Chief Financial Officer
James J. Gold	45	President and Chief Executive Officer of Bergdorf Goodman
Gerald A. Barnes	56	President and Chief Executive Officer of Neiman Marcus Direct
Nelson A. Bangs	56	Senior Vice President and General Counsel
Marita O’Dea	60	Senior Vice President and Chief Human Resource Officer
Phillip L. Maxwell	61	Senior Vice President and Chief Information Officer
Wayne A. Hussey	59	Senior Vice President, Properties and Store Development

The following biographies describe the business experience of our directors and executive officers.

David A. Barr has been a member and managing director of Warburg Pincus LLC and a general partner of Warburg Pincus & Co. since January 2001.  Prior to joining Warburg Pincus in 2000, Mr. Barr served as a managing director at Butler Capital where he focused on consumer and industrial leveraged buyout transactions for more than ten years.  Mr. Barr also serves on the board of directors of Builders First Source, Inc., Polypore Inc., and TransDigm Group Inc.

Jonathan Coslet has been a partner of TPG Capital, L.P. since 1993 and is currently a senior partner and member of the firm’s Executive, Management and Investment Committees.  Prior to joining TPG Capital, L.P., Mr. Coslet worked at Donaldson, Lufkin & Jenrette, specializing in leveraged acquisitions and high yield finance from 1991 to 1993.  Mr. Coslet also serves on the board of directors of Harrah’s Entertainment, Inc., Quintiles Transnational Corp., IASIS Healthcare Corp., Petco Animal Supplies, Inc., and Biomet, Inc.

James Coulter co-founded TPG Capital, L.P. in 1992.  From 1986 to 1992, Mr. Coulter was a Vice President of Keystone, Inc.  From 1986 to 1988, Mr. Coulter was also associated with SPO Partners, an investment firm that focuses on public market and private minority investments.  Mr. Coulter also serves on the board of directors of Lenovo Group Limited and J. Crew Group, Inc.

John G. Danhakl is a Managing Partner of Leonard Green & Partners, L.P. with whom he has been a partner since 1995.  Prior to joining Leonard Green & Partners, L.P., he served as a Managing Director in the Los Angeles office of Donaldson, Lufkin & Jenrette, which he joined in 1990.  From 1985 to 1990, Mr. Danhakl was a Vice President in corporate finance at Drexel Burnham Lambert.  He also serves on the board of directors of Arden Group, Inc., Horseshows In the Sun, Inc., Leslie’s Poolmart, Inc., Petco Animal Supplies, Inc., The Tire Rack, Inc., and Sagittarius Brands, Inc.

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Sidney Lapidus retired in December 2007 as Managing Director and Senior Advisor of Warburg Pincus LLC.  He had been employed at Warburg Pincus since 1967.  He presently serves as a director of Lennar Corporation and Knoll, Inc.  He serves on the boards of a number of non-profit organizations including New York University Langone Medical Center, the American Antiquarian Society, and the New York Historical Society, and is chairman of the American Jewish Historical Society.

Kewsong Lee has been a member and managing director of Warburg Pincus LLC and a general partner of Warburg Pincus & Co. since January 1997 and is currently a member of Warburg Pincus LLC’s Executive Management Group.  He has been employed at Warburg Pincus since 1992.  Prior to joining Warburg Pincus, Mr. Lee served as a consultant at McKinsey & Company, Inc. from 1990 to 1992.  Mr. Lee also serves on the board of directors of Arch Capital Group, Ltd., MBIA Inc., and several privately held companies.

Carrie Wheeler is a partner of TPG Capital, L.P.  Prior to joining TPG Capital, L.P. in 1996, she was with Goldman, Sachs & Co. from 1993 to 1996.  Ms. Wheeler also serves on the board of directors of Metro-Goldwyn-Mayer Inc. and Petco Animal Supplies, Inc.

Burton M. Tansky has served as a director and as President and Chief Executive Officer since October 6, 2005.  He also has served as a director and President and Chief Executive Officer of The Neiman Marcus Group, Inc. since May 2001 and as President and Chief Operating Officer from December 1998 until May 2001.  He served as Executive Vice President of The Neiman Marcus Group, Inc. from February 1998 until December 1998 and as Chairman and Chief Executive Officer of Neiman Marcus Stores from May 1994 until February 1998.  He served as Chairman and Chief Executive Officer of Bergdorf Goodman from 1990 until 1994.  Mr. Tansky also serves on the board of directors of International Flavors and Fragrances Inc.

Karen W. Katzwas elected Executive Vice President in October 2007 and appointed a member of the Office of the Chairman.  Since December 2002, she has also served as President and Chief Executive Officer of Neiman Marcus Stores.  Ms. Katz served as President and Chief Executive Officer of Neiman Marcus Direct from May 2000 to December 2002 and as Executive Vice President of Neiman Marcus Stores from February 1998 until May 2000.  Ms. Katz serves on the board of directors of Pier 1 Imports, Inc.

James E. Skinner was elected Executive Vice President and Chief Financial Officer and appointed a member of the Office of the Chairman in October 2007.  From October 2005 to October 2007, he served as Senior Vice President and Chief Financial Officer.  From October 2001 to October 2005, he served as Senior Vice President and Chief Financial Officer of The Neiman Marcus Group, Inc.  From August 2000 through December 2000, Mr. Skinner served as Senior Vice President and Chief Financial Officer of Caprock Communications Corp. and from 1994 until 2000, he served as Executive Vice President, Chief Financial Officer and Treasurer for CompUSA Inc.  Mr. Skinner serves on the board of directors of Fossil, Inc.

James J. Gold has been President and Chief Executive Officer of Bergdorf Goodman since May 2004.  Mr. Gold served as Senior Vice President, General Merchandise Manager of Neiman Marcus Stores from December 2002 to May 2004, as Division Merchandise Manager from June 2000 to December 2002, and as Vice President of the Neiman Marcus Last Call Clearance Division from March 1997 to June 2000.

Gerald A. Barnes  has been President and Chief Executive Officer of Neiman Marcus Direct since April 2009.  He served as Executive Vice President, Merchandising, Neiman Marcus Direct from April 2008 to April 2009 and as Senior Vice President, General Merchandise Manager, Fashion, Neiman Marcus Direct from 2001 until 2007.

Nelson A. Bangs has been Senior Vice President and General Counsel since October 6, 2005 and has served in that capacity for The Neiman Marcus Group, Inc. since April 2001.  From January 1999 to April 2001, Mr. Bangs engaged in a private consulting and law practice; and from April 1998 until January 1999, he served as Senior Vice President and General Counsel of Pillowtex Corporation.  Prior to April 1998, Mr. Bangs served as Senior Vice President, General Counsel and Secretary of Dr Pepper/Seven Up, Inc. and its predecessors.

Marita O’Dea has been Senior Vice President and Chief Human Resource Officer since October 6, 2005 and has also served in that capacity for The Neiman Marcus Group, Inc. since September 2002.  She served as Vice President - Human Resources of The Neiman Marcus Group, Inc. from June 2001 until September 2002.  Also, Ms. O’Dea has served as Senior Vice President of Human Resources of Neiman Marcus Stores since 1995.

Phillip L. Maxwell has been Senior Vice President and Chief Information Officer since October 6, 2005 and has also served in that capacity for The Neiman Marcus Group, Inc. since May 2000.  From 1993 until joining us in 2000, Mr.

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Maxwell advanced from Chief Information Officer, Director of Management Information Systems for Nissan Motor Acceptance Corporation to Vice President, Chief Information Officer, Information Systems and eBusiness Strategy for Nissan North America.

Wayne A. Hussey has been Senior Vice President, Properties and Store Development since October 22, 2007.  From May 1999 to October 2007 he served as Senior Vice President, Properties and Store Development of Neiman Marcus Stores.

Code of Ethics

The Board has adopted The Neiman Marcus Group, Inc. Code of Ethics and Conduct which is applicable to all our directors, officers and employees, as well as a separate Code of Ethics for Financial Professionals that applies to all financial employees including the Chief Executive Officer, the Chief Financial Officer and the Principal Accounting Officer.  Both the Code of Ethics and Conduct and the Code of Ethics for Financial Professionals may be accessed through our website at www.neimanmarcusgroup.com under the “Investor Information —Governance Documents” section.  Requests for printed copies may be made in writing to The Neiman Marcus Group, Inc., Attn. Investor Relations, One Marcus Square, 1618 Main Street, Dallas, Texas 75201.

We have established a means for employees, customers, suppliers, or other interested parties to submit confidential and anonymous reports of suspected or actual violations of the Company’s Code of Conduct relating, among other things, to:

·       accounting practices, internal accounting controls, or auditing matters and procedures;

·       theft or fraud of any amount;

·       performance and execution of contracts;

·       conflicts of interest;

·       violations of securities and antitrust laws; and

·       violations of the Foreign Corrupt Practices Act.

Any employee or other interested party can call the following toll-free number to submit a report.  This number is operational 24 hours a day, seven days a week:  1-866-384-4277

Board Committees

Our Board of Directors has established an audit committee, a compensation committee, and an executive committee.  The members of our audit committee for fiscal year 2009 were David A. Barr, Carrie Wheeler, and Sidney Lapidus.  The audit committee recommends the annual appointment of auditors with whom the audit committee reviews the scope of audit and non-audit assignments and related fees, accounting principles we use in financial reporting, internal auditing procedures and the adequacy of our internal control procedures.  The members of our executive committee are Jonathan Coslet, Kewsong Lee, and Burton M. Tansky.  The executive committee manages the affairs of the Company as necessary between meetings of our Board of Directors and acts on matters that must be dealt with prior to the next scheduled Board meeting.  The members of our compensation committee are Jonathan Coslet, Kewsong Lee, and John Danhakl.  The compensation committee reviews and approves the compensation and benefits of our employees, directors and consultants, administers our employee benefit plans, authorizes and ratifies stock option and/or restricted stock grants and other incentive arrangements, and authorizes employment and related agreements.

Each of the Sponsors has the right to have at least one of its directors sit on each committee of the Board of Directors, to the extent permitted by applicable laws and regulations.

Audit Committee Financial Expert

The Board of Directors has determined that David A. Barr, Chairman of the Audit Committee, meets the criteria set forth in the rules and regulations of the SEC for an “audit committee financial expert.”  Mr. Barr is an employee of one of our Sponsors so therefore would not be considered independent under the independence standards of the New York Stock Exchange.

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ITEM 11.EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis is designed to provide an understanding of our compensation philosophy, core principles and arrangements that are applicable to the executive officers identified in the Summary Compensation Table on page 60 (referred to as the named executive officers).

Compensation Philosophy and Objectives.  We are a premier luxury retailer that has been in business for over a century.  Our continued success depends on the skills of talented leaders who are dedicated to achieving solid financial performance, providing outstanding service to customers, and managing the Company’s assets wisely.  Our compensation program is designed to meet the following objectives:

—Recruit and retain executives who possess the exceptional ability, experience, and vision to sustain and promote our preeminence in the marketplace.

—Encourage and reward the achievement of our short- and long-term goals and operating plans.

—Increase customer satisfaction, improve customer service, provide our customers with the high-end luxury merchandise they have come to expect, and increase the amount of business our customers do with us.

—Align the interests of our executives with the financial and strategic objectives of our equity investors.

—Provide total compensation opportunities that meet the expectations of a highly skilled executive team, are aligned and consistent with our fundamental performance and are competitive with the compensation practices and levels offered by companies with whom we compete for talent.

Individual Compensation Components

Base Salary.  Base salary is intended to provide a base level of compensation commensurate with an executive’s job title, role, tenure, and experience.  We utilize base salary as a building block of our compensation program, establishing a salary range for particular positions based on survey data and job responsibilities.  Being competitive in base salary is a minimum requirement to recruit and retain skilled executives.  Specifically, base salary levels of the named executive officers are determined based on a combination of factors, including our compensation philosophy, market compensation data, competition for key executive talent, the named executive officer’s experience, leadership, achievement of specified business objectives, individual performance, our overall budget for merit increases, and attainment of our financial goals.  Salaries are reviewed before the end of each fiscal year as part of our performance and compensation review process as well as at other times to recognize a promotion or change in job responsibilities.  Merit increases are usually awarded to the named executive officers in the same percentage range as all employees and are based on overall performance and competitive market data except in those situations where individual performance and other factors justify awarding increases above or below this range.  Merit increases typically range between two and eight percent.  As a result of overall company performance in fiscal year 2009, the Company implemented a broad salary decrease program that also applied to the named executive officers.  See discussion on “Base Salary” on page 55 of this section.

In addition, Mr. Tansky and Ms. Katz have employment agreements, described in more detail below, that set a minimum salary upon execution of the agreement.

Annual Bonus.  Annual bonus incentives keyed to short-term objectives form the second building block of our compensation program and are designed to provide incentives to achieve certain financial goals of the Company and personal objectives.  These financial goals, which are used to determine annual bonus incentives for all employees, emphasize profitability and asset management.  The Compensation Committee believes that a significant portion of annual cash compensation for the named executive officers should be at risk and tied to our operational and financial results.  “Pay for performance” for the named executive officers has been significantly enhanced in recent years by putting a larger percentage of their potential compensation at risk in the annual bonus incentive program.

All named executive officers are eligible to be considered for annual bonus incentives.  Threshold, target, and maximum annual performance incentives, stated as a percentage of base salary, are established for each of the named executive officers at the beginning of each fiscal year.  The objectives set for Mr. Tansky and other senior officers with broad corporate responsibilities are based on financial results of the overall company as well as individual performance objectives. 

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When an employee has responsibility for a particular business unit or division, the performance goals are heavily weighted toward the operational performance of that unit.  Actual awards earned by the named executive officers are determined based on an assessment of our overall performance, a review of each named executive officer’s contribution to our overall achievement, and an assessment of each named executive officer’s performance.

The employment agreements of Mr. Tansky and Ms. Katz contain provisions regarding target levels and the payment of annual incentives and are described in more detail below.

Long-Term Incentive.  Long-term incentives in the form of stock options are intended to promote sustained high performance and to align our executives’ interests with those of our equity investors.  The stock options, which vest over five years (other than in the case of Mr. Tansky whose options vest over four years), will only create value for the executives if the value of the Company increases.  This creates a direct correlation to the interests of our equity investors.

An initial stock option grant was made in fiscal year 2006 under the Neiman Marcus, Inc. Management Equity Incentive Plan (referred to as the Management Incentive Plan) to each of the named executive officers.  The initial grant was made following the consummation of the Acquisition in order to retain the senior management team and enable them to share in the growth of the Company along with our equity investors.  All grants of stock options under the Management Incentive Plan have an exercise price at least equal to the fair market value of our common stock on the date of grant.  No grants of stock options have been made to the named executive officers since the initial grant in fiscal year 2006.

In addition, following the consummation of the Acquisition, the Neiman Marcus, Inc. Cash Incentive Plan (referred to as the Cash Incentive Plan) was adopted in fiscal year 2006 to aid in the retention of certain key executives, including our named executive officers.  Under the Cash Incentive Plan, a $14 million cash bonus pool was created to be shared by its participants.  In the event of a change in control or an initial public offering in which the internal rate of return to our investors is positive, each participant in the Cash Incentive Plan, subject generally to continued employment, will be entitled to a cash bonus based upon the number of options that were granted to the participant under the Management Incentive Plan relative to the other participants in the Cash Incentive Plan.  Mr. Tansky will be entitled to receive (subject, with certain exceptions, to continued employment) a cash bonus under the Cash Incentive Plan in the amount of $3,080,911 pursuant to the terms of his employment agreement.  If the internal rate of return to the Sponsors is not positive following a change in control or an initial public offering, no amounts will be paid to those participating in the Cash Incentive Plan.  No amounts have been paid to date under the Cash Incentive Plan and none are anticipated until a change of control or initial public offering occurs.

Executive Officer Compensation

Process for Evaluating Executive Officer Performance

Role of the Compensation Committee.  The Compensation Committee is responsible for determining the compensation of our named executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy.  The Compensation Committee charter authorizes the committee to retain and terminate compensation consultants to provide advice and evaluation relative to the named executive officers.  The Compensation Committee is further authorized to approve the fees and retention terms of any consultant it retains.

The Compensation Committee considers input from our CEO, our Senior Vice President and Chief Human Resource Officer, and the compensation consultants in making determinations regarding our executive compensation program and the individual contribution of each of our named executive officers.  The CEO does not play a role in his own compensation determinations other than discussing individual performance objectives.  The CEO’s performance assessment and compensation are reviewed and determined solely by the Compensation Committee.

In developing and reviewing the executive incentive programs, the Compensation Committee considers the business risks inherent in program designs to ensure they do not induce executives to take unacceptable levels of business risk for the purpose of increasing their incentive plan awards.  The Committee ensures that the plan designs are conservative in this respect and that together the compensation components work as a check and balance to ensure executive incentives are fully consistent with the interests of our equity investors.  The Compensation Committee believes that the mix of compensation components used in the determination of our named executive officers’ compensation does not encourage our named executive officers to take unreasonable risks relating to the business.

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Role of Management.  As part of our annual planning process, the CEO and the Senior Vice President and Chief Human Resource Officer, with the help of our consultants, develop and recommend a compensation program for all executive officers.  Based on performance assessments, the CEO and the Senior Vice President and Chief Human Resource Officer attend a meeting of the Compensation Committee held for the purpose of considering the executives’ annual compensation and recommend the base salary and any incentive bonus awards or long-term incentive awards, if applicable, for each of the other executive officers, including the named executive officers.  Neither the CEO nor the Senior Vice President and Chief Human Resource Officer participate in the portion of the Compensation Committee meeting during which their own compensation is discussed.

Role of the Compensation Consultants.  In fiscal year 2009, W. T. Haigh & Company, Inc. continued to provide the Compensation Committee and the Company comparative market data regarding executive compensation to assist in establishing reference points for the principal components of compensation.  They also provide information regarding compensation trends in the general marketplace, compensation practices of other retail companies, and regulatory and compliance developments.

Competitive Market Assessment.  The Compensation Committee requests information from the compensation consultants to determine if any element of compensation needs adjustment in order to comply with our strategy of targeting executive compensation that is between the 50th and 75th percentile levels of the compensation packages received by executives at a group of industry related companies.

In fiscal year 2009, the Compensation Committee, on the recommendation of the consultants, referred primarily to the 16 companies identified below for purposes of benchmarking the compensation of our named executive officers.  These companies are intended to represent our competitors for business and talent.  Their executive compensation programs are compared to ours, as well as the compensation of individual executives if the jobs are sufficiently similar to make the comparison meaningful.  The compensation assessment includes an evaluation of base salary, target annual incentive opportunities, long-term incentive grant values and benefits for each of the named executive officers relative to similar positions in the market.  The comparison data is used to ensure that the compensation for our named executive officers, both individually and as a whole, is appropriately competitive relative to our performance.

—Abercrombie & Fitch

—Ann Taylor

—Coach

—Macy’s

—The Gap

—Jones Apparel

—Kohl’s

—Limited Brands

—Liz Claiborne

—Nordstrom

—Polo Ralph Lauren

—Saks

—Talbots

—Tiffany & Co.

—Tommy Hilfiger

—Williams-Sonoma

In addition to the select companies above, we also review various third party compensation survey reports.

Assessment of Fiscal Year 2009 Performance.  In fiscal year 2009, we faced a challenging retail environment.  Deteriorating global economic conditions influenced customer spending behavior amidst concerns over declining asset values, the availability and cost of credit, rising unemployment, and the stability and solvency of financial institutions, financial markets, and businesses.  These concerns have slowed global economic growth.  As a result, we focused on areas of our operations that would provide profitable growth opportunities as well as cost savings.  The compensation actions taken for the named executive officers were based on these objectives but also took into consideration the outside influences on company performance mentioned above.

2009 Executive Officer Compensation

We target our direct compensation to be positioned between the 50th and 75th percentile levels of the compensation packages received by executives in our peer group of industry related companies.  Ultimately, our named executive officers’ total compensation is based on the level of achievement versus Company, business unit, and individual target performance levels.  The Compensation Committee uses its discretion in making decisions on the overall compensation packages of our executive officers based on current market conditions, business trends, and overall Company performance.

Base Salary. Due to the economic downtown and uncertainty of market conditions, a Company-wide salary reduction plan was implemented, effective March 8, 2009, for all salaried employees including the named executive officers.

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The base salaries of all salaried employees, including the named executive officers, earning $200,000 and above were reduced by four percent.  The following table reflects the original base salary increases approved by the Compensation Committee for the named executive officers on September 16, 2008, the percentage increase over the prior year, and the adjusted salaries following implementation of the Company-wide salary reduction plan.

Name	FY 2008 Base Salary ($)	Percentage Increase (%)	FY 2009 Base Salary ($)	Adjusted FY 2009 Base Salary ($)
Burton M. Tansky	1,500,000	4.0	1,560,000	1,497,600
Karen W. Katz	875,000	6.8	935,000	897,600
James E. Skinner	625,000	4.8	655,000	628,800
James J. Gold	490,000	6.1	520,000	499,200
Gerald A. Barnes (1)	360,500	3.0	371,500	356,600

Footnotes:

(1)In April 2009, Gerald Barnes was promoted to his current position and his annual base salary increased to $425,000.

For all named executive officers, the original base salary increases reflect merit increases and adjustments relative to competitive market benchmarks as discussed above.  Information on amounts actually earned by the named executive officers in fiscal years 2007, 2008, and 2009 can be found in the Summary Compensation Table on page 60 of this section.

Annual Incentive Bonus.  In determining annual incentive bonus amounts for the named executive officers, the Compensation Committee considers the performance relative to the pre-established goals that are set at the beginning of the year.  For fiscal year 2009, our annual financial goals were based on Adjusted EBITDA, return on invested capital (ROIC), or inventory turnover performance as described more fully on page 57.  The attainment of certain predetermined individual performance goals for each of the named executive officers is also a key component in the amount of incentive bonus each will receive.  The individual performance objectives are project oriented and change from year to year.  The Committee sets the threshold, target, and maximum performance targets at levels they believe are challenging based on historical company performance and industry and market conditions.  Goals are established at the division and business unit levels where appropriate for each of the named executive officers.  As it relates to our annual incentive compensation program in particular, this performance assessment is a key determinant in total compensation paid to our named executive officers.  Fiscal year 2009 target annual incentives and relative performance weightings for the named executive officers were as follows:

	Target Bonus
	As Percent of		Relative Performance Weighting
Name	Salary		Company		Division		Individual
Burton M. Tansky	100	%	75	%	—		25	%
Karen W. Katz	75	%	30	%	50	%	20	%
James E. Skinner	65	%	75	%	—		25	%
James J. Gold	60	%	30	%	50	%	20	%
Gerald A. Barnes (1)	60	%	30	%	50	%	20	%

Footnotes:

(1)The threshold, target, and maximum award levels were based on Mr. Barnes’ salary level subsequent to his promotion.

Mr. Tansky, the individual with the greatest overall responsibility for company performance, was granted a larger incentive opportunity in comparison to his base salary in order to weight his annual cash compensation mix more heavily towards performance-based compensation.  For each of the named executive officers, the Compensation Committee deemed their potential impact on company results as equally significant.

Corporate Performance Targets.  At the end of the fiscal year, the Compensation Committee evaluates Company performance against specific financial and strategic performance targets set at the beginning of the fiscal year.  For fiscal year 2009, the bonus metrics and weightings for Messrs. Tansky and Skinner were based on overall Adjusted EBITDA and ROIC; for Ms. Katz , overall Adjusted EBITDA and ROIC and Adjusted EBITDA and Inventory Turnover at Neiman Marcus Stores; for Mr. Gold, Adjusted EBITDA and Inventory Turnover at Bergdorf Goodman, and for Mr. Barnes, Adjusted EBITDA and Inventory Turnover at Neiman Marcus Direct.  The bonus metrics were based on the following financial goals:

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	Threshold			Target			Maximum
Neiman Marcus Group
Adjusted EBITDA (in millions)	$	685.9		$	702.2		$	746.9
ROIC	33.280		%	34.780		%	37.740		%
Neiman Marcus Stores
Adjusted EBITDA (in millions)	$	507.8		$	521.4		$	551.4
Inventory Turnover	2.352		x	2.368		x	2.389		x
Neiman Marcus Direct
Adjusted EBITDA (in millions)	$	134.0		$	137.2		$	146.1
Inventory Turnover	3.813		x	3.830		x	3.876		x
Bergdorf Goodman
Adjusted EBITDA (in millions)	$	108.9		$	111.2		$	120.7
Inventory Turnover	3.606		x	3.630		x	3.677		x

For fiscal year 2009, the Compensation Committee determined that, due to the overall market conditions as discussed above, performance levels were below minimum and no annual incentive bonuses were paid to any of the named executive officers.

In calculating Adjusted EBITDA for purposes of evaluating performance and annual incentive compensation, the Compensation Committee adjusts EBITDA upwards or downwards, as applicable, for events and circumstances that 1) were not anticipated at the time performance targets were set and 2) were not impacted by or under the control of the named executives.  This adjustment is performed by the Compensation Committee at the end of each fiscal year, based upon any such events and circumstances during such year.  The adjustments that were made to EBITDA in order to calculate Adjusted EBITDA for fiscal year 2009 are described under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measure-EBITDA and Adjusted EBITDA.”  In applying Adjusted EBITDA for fiscal year 2009 to performance targets, the Compensation Committee added $21 million to the Adjusted EBITDA to reflect the costs related to the Company’s restructuring and expense reduction initiatives in fiscal year 2009.  These initiatives were not anticipated at the time the performance targets were set.

For purposes of evaluating performance and annual incentive compensation, the ROIC metric is calculated by dividing earnings before interest and taxes by average invested capital excluding cash, accrued interest, deferred taxes and amounts related to financial derivatives and is used to assess our efficiency at turning capital into profitable investments.  The inventory turnover metric is calculated by dividing sales by average inventory and is used to assess our efficiency in managing inventories.

Other Compensation Components

Health and Welfare Benefits.  Executive officers are eligible to participate under the same plans as all other eligible employees for medical, dental, vision, disability, and life insurance.  These benefits are intended to be competitive with benefits offered in the retail industry.

Retirement Plan.  Prior to 2008, most non-union employees over age 21 who had completed one year of service with 1,000 or more hours participated in The Neiman Marcus Group, Inc. Retirement Plan (referred to as the Retirement Plan), which paid benefits upon retirement or termination of employment.  Effective as of December 31, 2007, eligibility and benefit accruals under the Retirement Plan were frozen for all participants except for those “Rule of 65” employees who elected to continue participation in the Retirement Plan.  “Rule of 65” employees included only those active employees who had completed at least 10 years of service and whose combined years of service and age equaled at least 65 as of December 31, 2007.  The Retirement Plan is a “career-accumulation” plan, under which a participant earns each year a retirement annuity equal to one percent of his or her compensation for the year up to the Social Security wage base and 1.5 percent of his or her compensation for the year in excess of such wage base.  A participant becomes fully vested after five years of service with us.  Mr. Tansky, Ms. Katz, and Mr. Barnes were “Rule of 65” employees as of December 31, 2007, and elected to continue participation in the Retirement Plan.  For Messrs. Skinner and Gold, benefits and accruals under the Retirement Plan were frozen effective as of December 31, 2007.

Savings Plan (401(k) Plan).  Effective January 1, 2008, a new enhanced 401(k) plan, The Neiman Marcus Group,

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Inc. Retirement Savings Plan (referred to as the RSP), was offered to all employees, including the named executive officers, as the primary retirement plan.  Benefits and accruals under The Neiman Marcus Group, Inc. Employee Savings Plan (referred to as the ESP) were frozen as well as benefits and accruals under the Retirement Plan and all future and current employees who were not already enrolled in the ESP and the Retirement Plan were automatically enrolled in the RSP.  “Rule of 65” employees, as described above, were given a choice to either continue participation in the Retirement Plan and the ESP or freeze what was earned under those plans through December 31, 2007 and participate in the RSP.  Mr. Tansky, Ms. Katz, and Mr. Barnes were “Rule of 65” employees as of December 31, 2007, and elected to remain in the Retirement Plan and the ESP.  Messrs. Skinner and Gold were not eligible to continue participating in the ESP and amounts in their Retirement Plan were frozen and the balances in their ESP were transferred to the RSP.  The RSP is a tax-qualified defined contribution 401(k) plan that allows participants to contribute up to the limit prescribed by the Internal Revenue Service on a pre-tax basis.  The Company will match 100% of the first 3% and 50% of the next 3% of pay that is contributed to the RSP after the first year of employment.  All employee contributions to the RSP are fully vested upon contribution.  Company matching contributions vest after two years of service.

For those who remain eligible, the ESP is a retirement savings plan that allows participants to contribute up to the limit prescribed by the Internal Revenue Service on a pre-tax basis (provided, however, that highly compensated employees are limited to 6% of eligible compensation).  The Company will match 100% of the first 2% and 25% of the next 4% of pay that is contributed to the ESP after the first year of employment.  All employee contributions to the ESP are fully vested upon contribution.  Company matching contributions vest after three years of service.

Supplemental Retirement Plan and Key Employee Deferred Compensation Plan.  U.S. tax laws limit the amount of benefits that we can provide under our tax-qualified plans.  We maintain The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan (referred to as the SERP) and the Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan (referred to as the KEDC Plan), which are unfunded, nonqualified arrangements intended to provide named executive officers and certain other key employees with additional benefits, including the benefits that they would have received under the Retirement Plan, 401(k) plan, the ESP and the RSP if the tax law limitations did not apply and if certain other items of compensation could be included in calculation of benefits under our tax-qualified plans.  Prior to 2008, executive, administrative and professional employees (other than those employed as salespersons) with an annual base salary at least equal to a minimum established by the Company were eligible to participate in the SERP.  Similar to the Retirement Plan, effective December 31, 2007, eligibility and benefit accruals under the SERP were frozen for all participants except for those “Rule of 65” employees who elected to continue participating in the Retirement Plan.  Each SERP participant accrues a benefit for amounts in excess of those provided under the Retirement Plan.  SERP related benefits are more fully described under “Pension Benefits” on page 63.

Participation in the KEDC Plan is limited to employees whose base salary is in excess of $300,000 and meet other stated criteria.  Amounts in excess of those benefits provided under the 401(K) plans are credited to the account balances of each KEDC Plan participant.  KEDC Plan benefits are more fully described under “Nonqualified Deferred Compensation” on page 64.

Matching Gift Program.  All employees, including the named executive officers, may participate in our matching gift program.  Under the program, we will match charitable contributions by employees up to a maximum of $2,000 per qualifying organization on a two-for-one basis in each calendar year.  For any contribution made to a qualifying organization in which the employee has an active involvement (as evidenced by service on the organization’s governing body or in one of its working committees), the basis of our matching contribution may, upon application by the employee, be increased to a level greater than two-for-one.

Perquisites.  We provide perquisites and other personal benefits that we believe are reasonable and consistent with the nature of individual responsibilities in order to provide a competitive level of total compensation to our executives.  We believe the level of perquisites is within an acceptable range of what is offered by a group of industry related companies.  The Compensation Committee believes that these benefits are aligned with the Company’s desire to attract and retain superior management talent for the benefit of all stockholders.  The value of these benefits to the named executive officers is set forth in the Summary Compensation Table under the column “All Other Compensation” and detail about each benefit is set forth in a table following the Summary Compensation Table.

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Compensation Following Employment Termination or Change in Control

·  Employment Agreements

Except for Mr. Tansky and Ms. Katz, none of our executives has an employment agreement.  The Company and the Compensation Committee believe that the employment agreements with Mr. Tansky and Ms. Katz are an important component in retaining these key executives.  The employment agreements were entered into in conjunction with the consummation of the Acquisition and amended effective January 1, 2009 to comply with Section 409A of the Internal Revenue Code.  The Compensation Committee considered the importance of the continuity of senior leadership following the consummation of the Acquisition to be a compelling reason to enter into the employment agreements.  The employment agreements provide, among other things, for payments to the executive following a termination of employment by the executive for “good reason” or a termination of the executive’s employment by the Company without “cause.”  The triggering events constituting “good reason” and “cause” were negotiated to provide protection to the Company and to the executive for unwarranted terminations of employment that could cause harm to the Company.  The employment agreements also provide for certain payments to the executives upon death or disability.  For a detailed description of the terms of these employment agreements, see “Employment and Other Compensation Agreements” on page 65 of this section.

·  Confidentiality, Non-Competition and Termination Benefits Agreements

Each of the named executive officers (and certain other officers except for Mr. Tansky) is a party to a confidentiality, non-competition and termination benefits agreement with the Company.  The confidentiality, non-competition and termination benefits agreements provide for severance benefits if the employment of the affected individual is terminated other than for death, disability, or for cause.  These agreements provide for a severance payment equal to one and one-half annual base salary of the named executive officer, payable over an eighteen month period, and reimbursement for COBRA premiums for the same period.

·  Other

The Company has change in control provisions in its Management Incentive Plan and its retirement plans that may provide for accelerated vesting and/or distributions in certain circumstances and these provisions apply equally to all participants in the plans, including the named executive officers, except to the extent an executive is party to an individual agreement that provides otherwise.

Consideration of Tax and Accounting Treatment of Compensation

·  Internal Revenue Code §409A

The American Jobs Creation Act of 2004 added a new Section 409A to the Internal Revenue Code which applies to compensation deferred under a nonqualified deferred compensation plan after December 31, 2004.  Compliance with the new Section 409A became fully effective on January 1, 2009.  Section 409A imposes restrictions on funding, distributions, and election to participate in the affected plans.  We believe our executive compensation plans and arrangements comply with Section 409A.

·  Accounting for Stock-Based Compensation

We began accounting for stock-based payments in accordance with the requirements of FASB Statement 123(R) on July 31, 2005.  When setting equity compensation, the Compensation Committee considers the estimated cost for financial reporting purposes of any equity compensation it is considering.  However, the accounting impact does not have a material impact on the design of our equity compensation plan.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

THE COMPENSATION COMMITTEE

Jonathan J. Coslet, Chairman

Kewsong Lee

John G. Danhakl

Compensation Committee Interlocks and Insider Participation

In fiscal year 2009, Jonathan Coslet, Kewsong Lee, and John Danhakl served as members of our Compensation Committee.  No officer or employee served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on our Compensation Committee or Board.

Summary Compensation Table

The following table sets forth the annual compensation for the Principal Executive Officer, the Principal Financial Officer, and the three other most highly compensated executive officers (referred to as the named executive officers) serving at the end of fiscal year 2009.

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)(1)	Option Awards ($)(2)	Non-Equity Incentive Plan Compensation ($)(3)	Change in Pension Value and Non- qualified Deferred Compensation Earnings ($)(4)	All Other Compensation ($)(5)	Total ($)
Burton M. Tansky
President and Chief Executive Officer	2009 2008 2007	1,497,600 1,500,000 1,420,000	— — 108,027	1,458,134 1,458,134 1,458,134	— — 2,160,530	786,000 205,000 754,000	108,287 145,992 138,657	3,850,021 3,309,126 6,039,348
Karen W. Katz
Executive Vice President and President and Chief Executive Officer Neiman Marcus Stores	2009 2008 2007	897,600 875,000 800,000	— — 45,448	791,488 791,488 791,488	— — 908,960	721,000 145,369 284,145	45,394 113,324 93,187	2,455,482 1,925,181 2,923,228
James E. Skinner
Executive Vice President and Chief Financial Officer	2009 2008 2007	628,800 625,000 575,000	— — 25,228	395,744 395,744 395,744	— — 504,563	102,000 54,653 100,983	35,980 52,381 36,038	1,162,524 1,127,778 1,637,556
James J. Gold
President and Chief Executive Officer Bergdorf Goodman	2009 2008 2007	499,200 490,000 460,000	— — 21,793	395,744 395,744 395,744	— 253,546 435,850	116,000 — 158,000	202,189 196,001 476,144	1,213,133 1,335,291 1,947,531
Gerald A. Barnes
President and Chief Executive Officer Neiman Marcus Direct	2009 2008 2007	425,000 371,500 360,500	— — —	79,151 79,151 79,151	— 19,937 96,064	282,000 350,000 248,000	25,041 30,345 21,524	811,192 850,933 805,239

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Footnotes:

(1)For fiscal year 2007, the amount shown represents discretionary bonuses awarded by the Compensation Committee. For fiscal years 2008 and 2009, no such discretionary bonuses were made.

(2)Shown is the expense recognized in our financial statements for fiscal year 2009 under SFAS 123(R) for all outstanding option awards held by each of the named executive officers. This amount is comprised of the portions of the fair values of options awarded in fiscal year 2005, which were allocated to services provided by the named executive officers in fiscal year 2009. The assumptions we used in calculating these amounts are incorporated herein by reference to Note 12 to Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.

(3)The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the actual amounts earned under the bonus plan described in the “Compensation Discussion and Analysis” section beginning on page 53.

(4)The amounts in this column represent the change in the actuarial value of the named executive officers’ benefits under our retirement and supplemental executive retirement plans from August 2, 2008 to August 1, 2009. This “change in the actuarial value” is the difference between the fiscal year 2008 and fiscal year 2009 present value of the pension benefits accumulated as of year-end by the named executive officers, assuming that benefit is not paid until age 65. These amounts were computed using the same assumptions used for financial statement reporting purposes under FAS 87, Employers’ Accounting for Pensions as described in Note 14 to the audited consolidated financial statements on page F-31 of this Annual Report on Form 10-K.

For fiscal year 2009, no earnings of each of the named executive officers in the KEDC plan exceeded 120 percent of the applicable federal long-term rate.

(5)Includes all items listed in the following table entitled “All Other Compensation.” In the interest of transparency, the value of perquisites and other personal benefits is provided in this column and in the footnotes below even if the amount is less than the reporting threshold established by the SEC.

The table below sets forth all other compensation for each of the named executive officers.

All Other Compensation	Burton M. Tansky ($)		Karen W. Katz ($)		James E. Skinner ($)		James J. Gold ($)		Gerald A. Barnes ($)
401(k) plans contributions paid by us	$	7,350	$	7,350	$	11,025	$	11,025	$	7,890
Deferred compensation plan match	—		17,982		11,358		—		3,214
Group term life insurance	17,758		2,572		3,333		1,308		3,719
Financial counseling/tax preparation	27,090		1,800		3,154		—		—
Long-term disability	3,180		3,180		2,935		2,935		3,138
Car allowance	12,000		—		—		—		—
Cost of living adjustment(1)	—		—		—		186,921		—
Gross ups:	—		—		—		—		—
New York non-resident taxes (2)	40,909		12,510		4,175		—		7,080
TOTALS	$	108,287	$	45,394	$	35,980	$	202,189	$	25,041

Footnotes:

(1)The amount listed for Mr. Gold represents an annualized cost of living adjustment following his relocation from Texas to New York.

(2)The amounts shown represent gross up payments made in connection with New York non-resident taxes.

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FISCAL YEAR 2009 GRANTS OF PLAN BASED AWARDS

The following table provides information regarding the grant of planned-based awards to the named executive officers during the year ended August 1, 2009.

		Estimated Possible Future Payouts Under
		Non-Equity Incentive Plan Awards(1)
		Threshold	Target	Maximum
Name	Grant Date	($)	($)	($)
Tansky, Burton M.	9-16-2008	780,000	1,560,000	3,120,000
Katz, Karen W.	9-16-2008	175,313	701,250	1,402,500
Skinner, James E.	9-16-2008	106,438	425,750	851,500
Gold, James J.	9-16-2008	78,000	312,000	624,000
Barnes, Gerald A. (2)	9-16-2008	27,863	111,450	222,900

Footnotes:

(1)Non-equity incentive awards granted each of the named executive officers at the beginning of fiscal year 2009. The grant of these plan-based awards was based on the salaries of each of the named executive officers before the Company-wide salary reduction plan. For a detailed discussion of the annual incentive awards for fiscal year 2009, see “Compensation Discussion and Analysis” beginning on page 53.

(2)The threshold, target, and maximum award levels were based on Mr. Barnes’ salary level before his promotion.

The following table sets forth certain information regarding the total number and aggregate value of stock options held by each of our named executive officers at August 1, 2009.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

	Option Awards						Stock Awards
Name	Number ofSecuritiesUnderlyingUnexercisedOptions(#) Exercisable	Number ofSecuritiesUnderlyingUnexercisedOptions(#) Unexercisable		OptionExercisePrice($)		OptionExpirationDate	Number of Shares or Units of Stock that have not Vested(#)	Market Value of Shares or Units of Stock that have not Vested($)	Equity IncentivePlan Awards:Number of UnearnedShares, Units or Other Rights that have not Vested(#)	Equity Incentive Plan Awards: Market or Payout Value Of Unearned Shares, Units or Other Rights that have not Vested($)
Burton M. Tansky	3,742	—		361.25		9-23-2010	—	—	—	—
	1,465	—		361.25		5-15-2011	—	—	—	—
	2,076	—		354.03		9-22-2011	—	—	—	—
	4,999	2,270	(1)	1,445.00		10-06-2015	—	—	—	—
	6,232	2,270	(2)	1,923.30	(2)	10-06-2015	—	—	—	—
Karen W. Katz	4,005	1,335	(3)	1,445.00		10-06-2015	—	—	—	—
	4,005	1,335	(4)	1,923.30	(4)	10-06-2015	—	—	—	—
James E. Skinner	2,002	667	(3)	1,445.00		10-06-2015	—	—	—	—
	2,002	667	(4)	1,923.30	(4)	10-06-2015	—	—	—	—
James J. Gold	2,002	667	(3)	1,445.00		10-06-2015	—	—	—	—
	2,002	667	(4)	1,923.30	(4)	10-06-2015	—	—	—	—
Gerald A. Barnes	400	133	(3)	1,445.00		10-06-2015	—	—	—	—
	400	133	(4)	1,923.30	(4)	10-06-2015	—	—	—	—

Footnotes:

(1)Nonqualified stock options granted November 29, 2005 vested with respect to 460 shares on the first anniversary date of October 6, 2005 and thereafter on the subsequent three anniversary dates of October 6, 2005 with respect to 2,270 shares.  As of August 1, 2009, the exercise price was above the fair market value.

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(2)Nonqualified stock options granted on November 29, 2005 vest in four equal annual installments on October 6, 2006, October 6, 2007, October 6, 2008, and October 6, 2009, subject to earlier vesting. The options were granted at the initial exercise price of $1,445.00 per share which will increase at a 10.00% compound rate on each anniversary of October 6, 2005 until the earlier to occur of (i) the exercise of the option, (ii) October 6, 2010, or (iii) the occurrence of a change of control.  On October 6, 2009, the option price will increase to $2,115.62 per share.  As of August 1, 2009, the exercise price was above the fair market value.

(3)Nonqualified stock options granted on November 29, 2005 at the exercise price of $1,445.00 per share which vests 20% on the first anniversary of October 6, 2005 and thereafter in forty-eight equal monthly installments over the forty-eight months following the first anniversary of October 6, 2005, beginning on the one-month anniversary of such first anniversary and becoming fully vested on October 6, 2010, subject to earlier vesting in certain circumstances following a change in control.  As of August 1, 2009, the exercise price was above the fair market value.

(4)Nonqualified stock options granted on November 29, 2005 which vests 20% on the first anniversary of October 6, 2005 and thereafter in forty-eight equal monthly installments over the forty-eight months following the first anniversary of October 6, 2005, beginning on the one-month anniversary of such first anniversary and becoming fully vested on October 6, 2010.  The options were granted at the initial exercise price of $1,445.00 per share which will increase at a 10.00% compound rate on each anniversary of October 6, 2005 until the earlier to occur of (i) the exercise of the option, (ii) October 6, 2010, or (iii) the occurrence of a change of control, or in the event the equity investors sell a portion of their investment, with respect to a portion of the options bearing the same ratio as the portion of the equity investor’s equity sold.  On October 6, 2009, the option price will increase to $2,115.62 per share. As of August 1, 2009, the exercise price was above the fair market value.

PENSION BENEFITS

The following table sets forth certain information with respect to retirement payments and benefits under the Retirement Plan and the SERP for each of our named executive officers.

Name	Plan Name	Number of Years Credited Service (#)(1)		Present Value of Accumulated Benefit ($)(2)	Payments During Last Fiscal Year ($)
Burton M. Tansky	Retirement Plan	19		428,000	—
	SERP	31	(3)	7,898,000	—
Karen W. Katz	Retirement Plan	24		258,000	—
	SERP	24	(4)	1,962,000	—
James E. Skinner	Retirement Plan	7	(5)	111,000	—
	SERP	7	(5)	351,000	—
James J. Gold	Retirement Plan	17	(5)	105,000	—
	SERP	17	(5)	288,000	—
Gerald A. Barnes	Retirement Plan	26		323,000	—
	SERP	25		696,000	—

Footnotes:

(1)Computed as of August 1, 2009, which is the same pension measurement date used for financial statement reporting purposes with respect to our audited consolidated financial statements and notes thereto.

(2)For purposes of calculating the amounts in this column, retirement age was assumed to be the normal retirement age of  the later of age 65 or the fifth anniversary of the individual’s date of hire, as defined in the Retirement Plan.  A description of the valuation method and all material assumptions applied in quantifying the present value of accumulated benefit is set forth in Note 14 to the audited consolidated financial statements on page F-31 of this Annual Report on Form 10-K.

(3)The difference in years of service is a result of the provision in Mr. Tansky’s employment agreement relating to the calculation of his years of service under the SERP.  Following his termination of employment with us, his years of service for purposes of calculating his benefit under the SERP will be determined by multiplying his actual service for purposes of the SERP by 2, subject to the 25-year maximum set forth in the SERP, and by then providing him with an additional credit for each year of service to the Company following his attainment of age sixty-five (65) (disregarding the 25-year maximum set forth in the SERP).  The value of Mr. Tansky’s actual years of service under the SERP is $4,493,000, so the value of the additional years of service in excess of his actual service is $3,405,000.  See the discussion of his employment agreement under “Employment and Other Compensation Agreements” on page 65 of this section.

(4)Pursuant to the terms of Karen Katz’s employment agreement, after she has reached the 25-year maximum set forth in the SERP, she will be entitled to an additional one year of credit for each full year of service thereafter.  In addition, if her

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employment is terminated by us for any reason other than death, disability, cause, or for non-renewal of her employment term, or if she terminates her employment with us for good reason, and she has not yet reached 65, her SERP benefit will not be reduced solely by reason of her failure to reach 65 as of the termination date.

(5)Effective December 31, 2007, benefit accruals for Messrs. Skinner and Gold under the Retirement Plan and the SERP were frozen, as further described below.

The Retirement Plan is a funded, tax-qualified pension plan.  Prior to 2008, most non-union employees over age 21 who had completed one year of service with 1,000 or more hours were eligible to participate in the Retirement Plan, which paid benefits upon retirement or termination of employment.  Effective as of December 31, 2007, eligibility and benefit accruals under the Retirement Plan were frozen for all participants except for those “Rule of 65” employees who elected to continue participating in the Retirement Plan.  “Rule of 65” employees included only those active employees who had completed at least 10 years of service and whose combined years of service and age equaled at least 65 as of December 2007.  The Retirement Plan is a “career-accumulation” plan, under which a participant earns each year a retirement annuity equal to one percent of his or her compensation for the year up to the Social Security wage base and 1.5 percent of his or her compensation for the year in excess of such wage base.  “Compensation” for this purpose generally includes salary, bonuses, commissions and overtime but not in excess of the limits imposed upon annual compensation under Internal Revenue Code Section 401(a)(17).  Such limit for 2008 was $230,000 and for 2009 is $245,000, and is adjusted annually for cost-of-living increases.  Benefits under the Retirement Plan become fully vested after five years of service with us.

The SERP is an unfunded, nonqualified plan under which benefits are paid from our general assets to supplement Retirement Plan benefits and Social Security.  Prior to 2008, executive, administrative and professional employees (other than those employed as salespersons) with an annual base salary at least equal to a minimum established by the Company were eligible to participate.  Similar to the Retirement Plan, effective December 31, 2007, eligibility and benefit accruals under the SERP were frozen for all participants except for those “Rule of 65” employees who elected to continue participating in the Retirement Plan.  At normal retirement age (the later of age 65 and the fifth anniversary of the participant’s date of hire), an eligible participant with 25 or more years of service is entitled to full benefits in the form of monthly payments under the SERP computed as a straight life annuity, equal to 50 percent of the participant’s average monthly compensation for the highest consecutive 60 months preceding retirement less 60 percent of his or her estimated annual primary Social Security benefit, offset by the benefit accrued by the participant under the Retirement Plan.  The amount is then adjusted actuarially to determine the actual monthly payments based on the time and form of payment.  For this purpose, “compensation” includes salary but does not include bonuses.  If the participant has fewer than 25 years of service, the combined benefit is proportionately reduced.  Benefits under the SERP become fully vested after five years of service with us.  The SERP is designed to comply with the requirements of Section 409A of the Internal Revenue Code.

NONQUALIFIED DEFERRED COMPENSATION

Name	Executive Contributions in Last Fiscal Year ($)(1)	Registrant Contributions in Last Fiscal Year ($)	Aggregate Earnings in Last Fiscal Year ($)	Aggregate Withdrawals / Distributions ($)	Aggregate Balance at Last Fiscal Year- End ($)(2)
Burton M. Tansky	—	—	—	—	—
Karen W. Katz	126,660	17,982	32,367	—	912,585
James E. Skinner	38,668	67,281	11,714	—	357,529
James J. Gold	—	101,512	3,451	—	131,826
Gerald A. Barnes	4,285	3,214	1,320	—	35,942

Footnotes:

(1)The amounts reported as Executive Contributions in Last Fiscal Year are also included as Salary in the Summary Compensation Table on page 60 of this Section.

(2)Amounts included in this column for Ms. Katz and Messrs. Tansky, Skinner, and Gold were included as salary in the Summary Compensation Table for previous years.

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The amounts reported in the Nonqualified Deferred Compensation Table represent deferrals and Company matching contributions credited pursuant to the KEDC Plan and Company contributions credited pursuant to The Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan (referred to herein as the DC SERP).

The KEDC Plan allows eligible employees to elect to defer up to 15% of base pay and up to 15% of annual performance bonus each year.  Eligible employees generally are those employees who have completed one year of service with the Company, have annual base pay of at least $300,000 and are otherwise designated as eligible by the Company’s employee benefits committee; provided, however, that effective January 1, 2008, only those persons who were eligible for the KEDC as of January 1, 2007 are permitted to continue participating in the KEDC.  No new participants will be added.  The Company also credits a matching contribution each pay period equal to (A) the sum of (i) 100% of the sum of the employee’s KEDC Plan deferrals and the maximum ESP or RSP, as applicable, deferral that the employee could have made under such plan for such pay period, to the extent that such sum does not exceed 2% of the employee’s compensation for such pay period, and (ii) 25% of the sum of the employee’s KEDC Plan deferrals and the maximum ESP or RSP, as applicable, deferral that the employee could have made under such plan for such pay period, to the extent that such sum does not exceed the next 4% of the employee’s compensation for such pay period, minus (B) the maximum possible match the employee could have received under the ESP or RSP, as applicable, for such pay period.  Such amounts are credited to a bookkeeping account for the employee and are fully vested with respect to matching contributions made for calendar years prior to 2008.  Amounts attributable to matching contributions, plus interest thereon, for calendar years on and after 2008 are subject to forfeiture in the event the employee is terminated for cause.  Accounts are credited monthly with interest at an annual rate equal to the prime interest rate published in The Wall Street Journal on the last business day of the preceding calendar quarter.  Amounts credited to an employee’s account become payable to the employee upon separation from service, death, unforeseeable emergency, or change of control of the Company.  In the event of separation of service, payment is made in a lump sum in the calendar quarter following the calendar quarter in which the separation occurs although if the employee is eligible for retirement upon such separation, payment may be deferred until the following year or the nine subsequent years, and may be made in a lump sum or in installments over a period of up to ten years, depending upon the distribution form elected by the employee.  There is no separate funding for the amounts payable under the KEDC Plan, rather the Company makes payment from its general assets.  The KEDC Plan is designed to comply with the requirements of Section 409A of the Internal Revenue Code.

The DC SERP is an unfunded, nonqualified deferred compensation plan under which benefits are paid from our general assets to provide eligible employees with the opportunity to receive employer contributions on the portion of their eligible compensation that exceeds the compensation limit imposed by Internal Revenue Code Section 401(a)(17) (the “IRS Limit”).  The IRS Limit for 2008 was $230,000 and for 2009 is $245,000.  Eligible employees generally are those employees who have completed one year of service with the Company, who have annual base pay of at least 80% of the IRS Limit (or were eligible to participate in the SERP as of December 31, 2007 and ceased to be eligible to participate in the SERP as of January 1, 2008), and who are otherwise designated as eligible by the Company’s employee benefits committee.  The Company will make transitional and non-transitional credits to the accounts of eligible participants each pay period.  Transitional credits apply only to participants who were eligible to participate in the SERP as of December 31, 2007 but ceased participating in the SERP as of that date and became a participant in the DC SERP on January 1, 2008.  The amount of a transitional credit is the product of a participant’s eligible compensation in excess of the IRS Limit and an applicable percentage ranging from 0% to 6% depending upon the age of the participant.  Non-transitional credits apply to all eligible participants.  The amount of a non-transitional credit is the product of a participant’s eligible compensation in excess of the IRS Limit and 10.5%.  All transitional and non-transitional credits are credited to a bookkeeping account and vest upon the earlier of (i) an eligible employee’s attainment of five years of service, (ii) an eligible employee’s attainment of age 65, (iii) an eligible employee’s death, (iv) an eligible employee’s disability, or (v) a change of control (as defined in the DC SERP) while in the employ of the Company.  Notwithstanding the preceding, amounts credited to an account are subject to forfeiture in the event the employee is terminated for cause.  Accounts are credited monthly with interest at an annual rate equal to the prime interest rate published in The Wall Street Journal on the last business day of the preceding calendar quarter. Vested amounts credited to an employee’s account become payable in the form of five annual installments beginning upon the later of the employee’s separation from service and age 55, or such later age as the employee may elect. Upon the employee’s death or disability or upon a change of control of the Company, vested amounts credited to an employee’s account will be paid in a single lump sum.  The DC SERP is designed to comply with the requirements of Section 409A of the Internal Revenue Code.

Employment and Other Compensation Agreements

As discussed in “Compensation Discussion & Analysis,” The Neiman Marcus Group, Inc. has entered into employment agreements with Burton M. Tansky and Karen W. Katz.  In addition, each of the named executive officers, except for Mr. Tansky, is a party to a confidentiality, non-competition and termination benefits agreement, discussed below.

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Employment Agreement with Mr. Tansky

The employment agreement with Mr. Tansky, as amended, has an employment term of five years until October 2010, subject to automatic one-year renewals of the term if neither party submits a notice of termination at least six months prior to the end of the then-current term, and provides for a base salary of not less than $1,300,000 per year.  Mr. Tansky’s agreement also provides that he will participate in the Company’s annual bonus plan.  Mr. Tansky’s agreement provides that if bonus levels for a fiscal year are met, the minimum bonus amount he will receive will be at least 50% of his base salary, if the target bonus goal for the fiscal year is met, he will receive at least 85% of his base salary, and if the maximum target goal is met, he will receive at least 170% of his base salary.  The actual amounts will be determined according to the terms of the annual bonus program and will be payable at the discretion of the Compensation Committee.

In addition to the foregoing, the agreement provides that upon the occurrence of the earlier of a change of control or an initial public offering, Mr. Tansky will be entitled to a cash bonus equal to $3,080,911, which represents his portion of the cash incentive pool pursuant to the Cash Incentive Plan (more fully described on page 68 of this section).  The agreement also provides that at the time of Mr. Tansky’s termination of employment with the Company, his years of service for purposes of calculating his benefit under the SERP shall be determined by multiplying his actual service for purposes of the SERP by 2, subject to the 25-year maximum set forth in the SERP, and by then providing him with additional credit for each year of service by him to the Company following his attainment of age sixty-five (65) (disregarding the 25-year maximum set forth in the SERP).

If (1) we terminate Mr. Tansky’s employment without cause or if he resigns for good reason, or (2) Mr. Tansky resigns without good reason during the 30 day period following the six month anniversary of a future change of control (referred to herein as a change of control resignation), he will receive, subject to his execution of a mutual release and waiver of claims, a lump sum equal to (A) 85% of base salary multiplied by a fraction, the numerator of which is the number of days during the fiscal year up to the termination date and the denominator of which is 365, plus (B) 36 times the monthly COBRA premium applicable to Mr. Tansky plus (C) if such termination is not a change of control resignation, an amount equal to three times the sum of (i) base salary and (ii) 85% of base salary in effect on the termination date, or if such termination is a change of control resignation, an amount equal to two times the sum of (i) base salary and (ii) 85% of base salary in effect on the termination date; provided, however, that Mr. Tansky shall be required to repay this payment if he violates certain of the restrictive covenants or if he is found to have engaged in certain acts of wrongdoing, all as further described in the agreement.  In certain circumstances, Mr. Tansky will also be entitled to some or all of the benefits under the Cash Incentive Plan.

If Mr. Tansky’s employment terminates before the end of the term due to death or inability to perform (as defined in the employment agreement), we will pay him or his estate, as applicable, 85% of base salary multiplied by a fraction, the numerator of which is the number of days during the fiscal year up to the termination date and the denominator of which is 365.

Pursuant to the agreement and depending on the circumstances of the termination of Mr. Tansky’s employment, he may also be entitled to receive an amount equal to the monthly COBRA premium applicable at his termination date based upon the coverage in effect under the group medical plan immediately prior to his termination date multiplied by thirty-six (36).

Also pursuant to the agreement, depending on the circumstances of the termination of Mr. Tansky’s employment, he may be entitled to up to three years of continuing coverage under our life insurance plan at the same benefit level as provided to him immediately prior to his termination date and at the same cost as is generally provided to similarly situated active employees of the Company.

Mr. Tansky’s agreement provides that he is entitled to participate in any extraordinary dividend on certain of his options, if then outstanding, that were granted prior to the acquisition and assumed by Parent.

Mr. Tansky’s agreement also contains a tax gross-up provision whereby if, in the event of a change in control following the existence of a public market for the Company’s stock, he incurs any excise tax by reason of his receipt of any payment that constitutes an excess parachute payment as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), he will receive a gross-up payment in an amount that would place him in the same after-tax position that he would have been in if no excise tax had applied.  However, under certain conditions, rather than receive a gross-up payment, the payments payable to him will be reduced so that no excise tax is imposed.

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Pursuant to the agreement, Mr. Tansky received a grant of options to purchase 16,349.1797 shares of the Company’s common stock, which vest in accordance with the terms of the agreement over the first four anniversaries of the date of grant.  The agreement provides for the accelerated vesting of these options upon (i) a change of control or (ii) the termination of Mr. Tansky’s employment before the end of the term due to death or inability to perform.  In addition, in the event that we terminate Mr. Tansky’s employment without cause or if he resigns for good reason, the agreement provides that the options will vest as to (i) the number of shares that would have become vested on the next anniversary of the grant date, plus (ii) if the termination date occurs prior to the third anniversary of the grant date, the number of shares that would have vested on the next anniversary of the grant date, multiplied by a fraction, the numerator of which is the number of days from the preceding anniversary of the grant date and the denominator of which is 365.

Mr. Tansky’s agreement also contains obligations on his part regarding non-competition and non-solicitation of employees during employment following the termination of his employment for any reason, confidential information and non-disparagement of the Company and its business.  The non-competition agreement generally prohibits Mr. Tansky during his employment and for a period of three years from termination from becoming a director, officer, employee or consultant for any competing business that owns or operates a luxury specialty retail store located in the geographic areas of the Company’s operations.  The agreement also requires that he disclose and assign to the Company any trademarks or inventions developed by him which relate to his employment by the Company or to the Company’s business.

Employment Agreement with Ms. Katz

The employment agreement with Ms. Katz provides that she will act as Chief Executive Officer and President of Neiman Marcus Stores, a division of The Neiman Marcus Group, Inc., until October 2010, subject to automatic one-year renewals of the term if neither party submits a notice of termination at least three months prior to the end of the then-current term.  Pursuant to the agreement, her base salary shall not be less than $760,000.  Ms. Katz’s agreement also provides that she will participate in the Company’s annual bonus plan.  The actual amounts will be determined according to the terms of the annual bonus program and will be payable at the discretion of the Compensation Committee.  However, Ms. Katz’s agreement provides that her target bonus may not be reduced below 65% of her base salary.  In addition, the agreement provides that during the term, Ms. Katz shall continue to accrue benefits under the SERP, provided that (i) the SERP shall not be amended or terminated in any way that adversely affects her, and (ii) after she has reached the 25-year maximum set forth in the SERP, she shall be entitled to an additional one year of credit for each full year of service thereafter.  In addition, if (i) during the term, her employment is terminated by the Company for any reason other than death, disability, or cause (as defined in the employment agreement), (ii) during the term, she terminates her employment for good reason (as defined in the employment agreement), or (iii) her employment terminates upon expiration of the term following the provision by the Company of a notice of non-renewal, and, in any such case, on the date of such termination she has not yet reached age 65, her SERP benefit shall not be reduced according to the terms of the SERP solely by reason of her failure to reach age 65 as of the termination date.

This agreement may be terminated by either party on three months’ notice, subject to severance obligations in the event of termination under certain circumstances (as described below).

If we terminate Ms. Katz’s employment without cause or if she resigns for good reason or following her receipt of a notice of non-renewal from the Company relating to the employment term, she will receive (i) an amount of annual incentive pay equal to a prorated portion of her target bonus amount for the year in which the employment termination date occurs, and (ii) a lump sum equal to (A) 6 times the monthly COBRA premium applicable to Ms. Katz plus (B) two times the sum of her base salary and target bonus, at the level in effect as of the employment termination date; provided, however, that Ms. Katz shall be required to repay this payment if she violates certain restrictive covenants in her agreement or if she is found to have engaged in certain acts of wrongdoing, all as further described in the agreement.  Ms. Katz is also entitled to continuation of certain benefits for a two-year period following a termination of her employment for any reason as set forth more fully in her employment agreement.

If Ms. Katz’s employment terminates before the end of the term due to her death or disability, we will pay her or her estate, as applicable, (i) any unpaid salary through the date of termination and any bonus payable for the preceding fiscal year that has otherwise not already been paid, (ii) any accrued but unused vacation days, (iii) any reimbursement for business travel and other expenses to which she is entitled, and (iv) an amount of annual incentive pay equal to a prorated portion of her target bonus amount for the year in which the employment termination date occurs.

Ms. Katz’s agreement also contains a tax gross-up provision whereby if, in the event of a change in control following the existence of a public market for the Company’s stock, she incurs any excise tax by reason of her receipt of any payment that constitutes an excess parachute payment as defined in Section 280G of the Code, she will receive a gross-up

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payment in an amount that would place her in the same after-tax position that she would have been in if no excise tax had applied.  However, under certain conditions, rather than receive a gross-up payment, the payments payable to her will be reduced so that no excise tax is imposed.

Ms. Katz’s agreement also contains obligations on her part regarding non-competition and non-solicitation of employees following the termination of her employment for any reason, confidential information and non-disparagement of the Company and its business.  The non-competition agreement generally prohibits Ms. Katz during employment and for a period of one year from termination from becoming a director, officer, employee or consultant for any competing business that owns or operates a luxury specialty retail store located in the geographic areas of the Company’s operations.  The agreement also requires that she disclose and assign to the Company any trademarks or inventions developed by her which relate to her employment by the Company or to the Company’s business.

Confidentiality, Non-Competition and Termination Benefits Agreements

Each of the named executive officers and certain other officers, except for Mr. Tansky, are party to a confidentiality, non-competition and termination benefits agreement that will provide for severance benefits if the employment of the affected individual is terminated by the Company other than in the event of death, disability or termination for cause.  These agreements provide for a severance payment equal to one and one-half annual base salary payable over an eighteen month period, and reimbursement for COBRA premiums for the same period.  Each confidentiality, non-competition and termination benefits agreement contains restrictive covenants as a condition to receipt of any payments payable thereunder.

Cash Incentive Plan

Following the consummation of the Acquisition, the Neiman Marcus, Inc. Cash Incentive Plan (referred to as the Cash Incentive Plan) was adopted to aid in the retention of certain key executives, including the named executive officers.  The Cash Incentive Plan provides for the creation of a $14 million cash bonus pool to be shared by the participants based on the number of stock options that were granted to each such participant pursuant to the Management Incentive Plan.  Each participant in the Cash Incentive Plan will be entitled to a cash bonus upon the earlier to occur of a change of control or an initial public offering, provided that the internal rate of return to certain of our investors is positive.  If the internal rate of return to certain of our investors is not positive, no amounts will be paid under the Cash Incentive pool.  The Cash Incentive Plan was adopted in connection with the acquisition of NMG by the Sponsors, and was intended to align the interests of certain key executives with those of the Sponsors.  Furthermore, it has been our experience that it often takes a long period of time to consummate a change in control transaction with a large retail company.  As a result, it was our view and the view of the Sponsors that a “single trigger” payment upon an initial public offering or change in control of the Company correctly aligns the interests of management, on the one hand, and the Company and its shareholders, on the other hand, and also provides the Company with an effective and durable retention mechanism that incentivizes each named executive officer to remain with us prior to the consummation of such an event.

Based on the foregoing, each of the named executive officers would be entitled to receive the following percentages of the remaining cash bonus pool on August 1, 2009, assuming there was a change in control or an initial public offering on that date, and the rate of return to the Sponsors was positive:

Name	Percentage
Burton M. Tansky	22.00	%
Karen W. Katz	15.65	%
James E. Skinner	7.83	%
James J. Gold	7.83	%
Gerald A. Barnes	1.57	%

All required federal, state, or local government tax will be withheld from all payments made to participants under the Cash Incentive Plan.  No payments have been made or are currently anticipated under the Cash Incentive Plan.

Potential Payments Upon Termination or Change-in-Control

The tables below show certain potential payments that would have been made to a named executive officer if the named executive officer’s employment had terminated on August 1, 2009 under various scenarios, including a change in control.  Because the payments to be made to a named executive officer depend on several factors, the actual amounts to be

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paid out upon a named executive officer’s termination of employment can only be determined at the time of an executive’s separation from the Company.

Burton M. Tansky

Executive Benefits and Payments Upon Separation	Retirement ($)(1)(7)		Termination due to death ($)(2)(7)		Termination due to disability ($)(3)(7)		Termination without cause or for good reason ($)(4)(7)		Change in Control ($)(5)(7)		Termination without good reason 6 months following a change in control ($)(6)(7)
Compensation:
Severance	$	—	$	—	$	—	$	5,765,760	$	—	$	4,268,160
Bonus	—		1,272,960		1,272,960		3,818,880		—		2,545,920
Stock Options	—		—		—		—		—		—
Benefits & Perquisites:
Retirement Plans	3,405,000		—		—		—		—		—
Cash Incentive Plan Payment	—		—		—		—		3,080,911		—
Long-Term Disability	—		—		240,000		—		—		—
Health and Welfare Benefits	—		—		—		55,384		55,384		55,384
Life Insurance Benefits	—		1,000,000		—		60,123		60,123		60,123
Total	$	3,405,000	$	2,272,960	$	1,512,960	$	9,700,147	$	3,196,418	$	6,929,587

Footnotes:

(1)	Represents the SERP enhancement provided in Mr. Tansky’s employment agreement.
(2)	Represents the estimated present value of amounts payable to Mr. Tansky’s beneficiaries upon his death: A lump sum payment of 85% of Mr. Tansky’s base salary provided pursuant to his employment contract (see “Employment and Other Compensation Agreements” on page 65 of this section); a lump sum basic life insurance benefits payment of $1,000,000 payable by the Company’s life insurance provider, and a lump sum amount payable under the Cash Incentive Plan, more fully described on page 68 of this Section.
(3)	Represents a lump sum payment of 85% of Mr. Tansky’s base salary provided pursuant to his employment contract (see “Employment and Other Compensation Agreements” on page 65 of this section) and $20,000 per month payable for 12 months pursuant to the terms and conditions of the Company’s long-term disability plan provider.
(4)	Represents a lump sum payment of three times base salary in effect at the time of termination, 85% percent of base salary in effect at the time of termination, and three times 85% of base salary provided pursuant to his employment contract (see “Employment and Other Compensation Agreements” on page 65 of this section). The amount included for health and welfare benefits represents a continuation of COBRA benefits for a period of three years. Calculations were based on COBRA rates currently in effect. The amount included for life insurance represents coverage for a period of three years at the same benefit level in effect at the time of termination. See “Employment and Other Compensation Agreements” on page 65 of this section.
(5)	Represents a lump sum amount payable under the Cash Incentive Plan, more fully described on page 68 of this section and life insurance coverage for a period of three years at the same benefit level in effect at the time of termination.
(6)	Represents a lump sum payment of 85% of base salary in effect at the time of termination, two times base salary, and two times 85% of base salary provided pursuant to his employment contract (see “Employment and Other Compensation Agreements” on page 65 of this section). The amount included for life insurance represents coverage for a period of three years at the same benefit level in effect at the time of termination. The amount included for health and welfare benefits represents a continuation of COBRA benefits for a period of three years. Calculations were based on COBRA rates currently in effect.
(7)	In addition, Mr. Tansky may become entitled to receive a portion (ranging from, as of August 1, 2009, 75% to 100%, depending on the reason for the separation from service) of the Cash Incentive Plan Payment indicated under the column entitled “Change in Control” if his employment is terminated for any reason other than Cause, and, subsequent to such termination, a change in control or an initial public offering meeting certain conditions occurs.

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Mr. Tansky would be entitled to the intrinsic value of all unvested equity incentive awards, which would become vested upon his death, disability, or change in control.  The value of the common stock at the end of the fiscal year 2009 is lower than the exercise price of his unvested awards.

Karen W. Katz

Executive Benefits and Payments Upon Separation	Termination due to death ($)(1)		Termination due to disability ($)(2)		Termination without cause or for good reason ($)(3)		Change in Control ($)(4)
Compensation:
Severance	$	—	$	—	$	2,468,400	$	—
Bonus	673,200		673,200		1,346,400		—
Stock Options	—		—		—		—
Benefits & Perquisites:
Retirement Plans	—		—		—		—
Deferred Compensation Plan	912,585		912,585		912,585		912,585
Cash Incentive Plan Payment	—		—		—		2,191,263
Long-Term Disability	—		240,000		—		—
Health and Welfare Benefits	—		—		34,568		34,568
Life Insurance Benefits	1,000,000		—		5,659		5,659
Total	$	2,585,785	$	1,825,785	$	4,767,612	$	3,144,075

Footnotes:

(1)	Represents Ms. Katz’ target bonus, a lump sum payout under the deferred compensation plan, and a lump sum basic life insurance benefit payment of $1,000,000 payable by the Company’s life insurance provider to Ms. Katz’ beneficiaries upon her death.
(2)	Represents Ms. Katz’ target bonus, lump sum payout under the deferred compensation plan, and long-term disability payments of $20,000 per month for twelve months payable from the Company’s long-term disability insurance provider.
(3)	Represents a lump sum payment of the target bonus and two times base salary, two times target bonus and a lump sum payout under the deferred compensation plan. The amount included for health and welfare benefits represents a continuation of COBRA benefits for a period of two years. Calculations were based on COBRA rates currently in effect. The amount included for life insurance represents coverage for a period of two years at the same benefit level in effect at the time of termination. See “Employment and Other Compensation Agreements” on page 65 of this section.
(4)	Represents a lump sum payout under the deferred compensation plan and a lump sum amount payable under the Cash Incentive Plan, more fully described on page 68 of this section. The amount included for life insurance represents coverage for a period of two years at the same benefit level in effect at the time of termination.

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Executive Benefits and Payments Upon Separation	Termination due to death ($)(1)(5)		Termination due to disability ($)(1)(2)		Termination without cause or for good reason ($)(3)		Change in Control ($)(1)(4)
JAMES E. SKINNER
Compensation:
Severance	$	—	$	—	$	943,200	$	—
Benefits & Perquisites:
Retirement Plans	78,354		78,354		78,354		78,354
Deferred Compensation Plan	279,175		279,175		279,175		279,175
Cash Incentive Plan Payment	—		—		—		1,095,631
Long-Term Disability	—		240,000		—		—
Health and Welfare Benefits	—		—		26,394		—
Life Insurance Benefits	—		—		—		—
Total James E. Skinner	$	357,529	$	597,529	$	1,327,123	$	1,453,160
JAMES J. GOLD
Compensation:
Severance	$	—	$	—	$	748,800	$	—
Benefits & Perquisites:
Retirement Plans	131,826		131,826		131,826		131,826
Cash Incentive Plan Payment	—		—		—		1,095,631
Long-Term Disability	—		240,000		—		—
Health and Welfare Benefits	—		—		34,422		—
Life Insurance Benefits	—		—		—		—
Total James J. Gold	$	131,826	$	371,826	$	915,048	$	1,227,457
GERALD A. BARNES
Compensation:
Severance	$	—	$	—	$	637,500	$	—
Benefits & Perquisites:
Retirement Plans	—		—		—		—
Deferred Compensation Plan	35,942		35,942		35,942		35,942
Cash Incentive Plan Payment	—		—		—		219,133
Long-Term Disability	—		240,000		—		—
Health and Welfare Benefits	—		—		34,422		—
Life Insurance Benefits	—		—		—		—
Total Gerald A. Barnes	$	35,942	$	275,942	$	707,864	$	255,075

Footnotes:

(1)	Represents a lump sum payout under the deferred compensation plans. See “Nonqualified Deferred Compensation” on page 64 of this section.
(2)	Represents long-term disability payments of $20,000 per month for twelve months payable from the Company’s long-term disability insurance provider.
(3)	Represents a lump sum payment of one and one-half times base salary for each of Messrs. Skinner, Gold, and Barnes. The amount included for health and welfare benefits represents a continuation of COBRA benefits for a period of eighteen months. Calculations were based on COBRA rates currently in effect. See “Employment and Other Compensation Agreements” on page 65 of this section.
(4)	Represents a lump sum payments payable under the Cash Incentive Plan more fully described on page 68 of this section.

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DIRECTOR COMPENSATION

None of our directors receive compensation for their service as a member of our board.  They are reimbursed for any expenses incurred as a result of their service.  As an employee director, Mr. Tansky receives no compensation for his service as a board member.  We offer to each of our directors a discount at our stores at the same rate that is available to our employees.

In connection with the Acquisition, affiliates of the Sponsors receive an annual management fee equal to the lesser of (i) 0.25% of consolidated annual revenue, and (ii) $10 million for consulting and management advisory services they provide to us.  See discussion on “Management Services Agreement” on page 76 of this section.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information regarding equity compensation plans approved by shareholders and equity compensation plans not approved by shareholders as of August 1, 2009.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders	79,399	(1)	$	1,585	7,160
Equity compensation plans not approved by security holders	—		—		—
Total	79,399		$	1,585	7,160

(1) This number represents options issuable under the Management Incentive Plan that was approved by a majority of the shares of common stock of Neiman Marcus, Inc. on November 29, 2005. The Plan became effective on November 29, 2005 and will expire on November 29, 2015.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of October 1, 2009, the beneficial ownership of each person known to us to own more than 5% of our common stock, each of our directors, each named executive officer listed in the Summary Compensation Table, and all our directors and executive officers as a group.

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership (Common Stock)	Options Currently Exercisable or Exercisable within 60 days	Total Stock and Stock Based Holdings	Percent of Class (1)
Newton Holding, LLC	1,000,000	—	1,000,000	98.71	%
301 Commerce Street
Suite 3300
Fort Worth, Texas76102
Affiliates of TPG Capital, L.P.(2)	1,000,000	—	1,000,000	98.71	%
301 Commerce Street
Suite 3300
Fort Worth, Texas76102
Affiliates of Warburg Pincus,	1,000,000	—	1,000,000	98.71	%
LLC(3)
466 Lexington Avenue
New York, NY10017
David A. Barr(4)	1,000,000	—	1,000,000	98.71	%
466 Lexington Avenue
New York, NY10017
James Coulter(2)	1,000,000	—	1,000,000	98.71	%
345 California Street, Suite 3300
San Francisco, CA94104
Sidney Lapidus(4)	1,000,000	—	1,000,000	98.71	%
466 Lexington Avenue
New York, NY10017
Kewsong Lee(4)	1,000,000	—	1,000,000	98.71	%
466 Lexington Avenue
New York, NY10017
Burton M. Tansky (5)	1,506	23,054	24,560	2.37	%
1618 Main Street
Dallas, TX75201
Karen W. Katz (6)	4,027	8,724	12,751	1.25	%
1618 Main Street
Dallas, TX75201
James E. Skinner	2,107	4,362	6,469	*
1618 Main Street
Dallas, TX75201

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Name of Beneficial Owner	Amount and Nature of Beneficial Ownership (Common Stock)	Options Currently Exercisable or Exercisable within 60 days	Total Stock and Stock Based Holdings	Percent of Class (1)
Gerald A. Barnes	50	872	922	*
1618 Main Street
Dallas, TX75201
James J. Gold	902	4,362	5,264	*
754 Fifth Avenue
New York, NY10019
Jonathan Coslet(2)	—	—	—	*
345 California Street
Suite 3300
San Francisco, CA94104
John G. Danhakl	—	—	—	*
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, CA90025
Carrie Wheeler(2)	—	—	—	*
345 California Street
Suite 3300
San Francisco, CA94104
All current executive officers and	1,009,038	47,437	1,056,475	99.60	%
directors as a group
(16 persons)

*  Represents less than 1% of the class.

Footnotes:

(1)	Percentage of class beneficially owned is based on 1,013,082 common shares outstanding as of September 18, 2009, together with the applicable options to purchase common shares for each shareholder exercisable on September 18, 2009 or within 60 days thereafter. Shares issuable upon the exercise of options currently exercisable or exercisable 60 days after September 18, 2009 are deemed outstanding for computing the percentage ownership of the person holding the options, but are not deemed outstanding for computing the percentage of any other person. The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of such securities as to which such person has voting or investment power.
(2)	Includes the 1,000,000 shares owned by Newton Holding, LLC over which TPG Partners IV, L.P., TPG Newton III, LLC and TPG Newton Co-Invest I, LLC (the “TPG Entities”) may be deemed, as a result of their ownership of 41.52% of Newton Holding, LLC’s total outstanding shares and certain provisions under the Newton Holding, LLC operating agreement, to have shared voting or dispositive power. David Bonderman and James G. Coulter are directors, officers and sole shareholders of each of i) TPG Advisors III, Inc., which is the general partner of TPG GenPar III, L.P., which is general partner of TPG Partners III, L.P. which in turn is the managing member of TPG Newton III, LLC; and ii) TPG Advisors IV, Inc., which is the general partner of TPG GenPar IV, L.P., which in turn is a) the general partner of TPG Partners IV, L.P. and b) the managing member of TPG Newton Co-Invest I, LLC. By virtue of their position in relation to the TPG Entities, Mr. Bonderman and Mr. Coulter may be deemed to have investment powers and beneficial ownership with respect to the securities described herein. Neither Mr. Coslet nor Ms. Wheeler has voting or dispositive power over any of the shares of common stock that may be deemed to be beneficially owned by TPG Capital, L.P.
(3)	Includes the 1,000,000 shares owned by Newton Holding, LLC over which Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII, C.V. I, Warburg Pincus Germany Private Equity VIII K. G.

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	(collectively, “WP VIII”) and Warburg Pincus Private Equity IX, L.P. (“WP IX”) may be deemed, as a result of their ownership of 43.25% of Newton Holding, LLC’s total outstanding shares and certain provisions under the Newton Holding, LLC operating agreement, to have shared voting or dispositive power. Warburg Pincus Partners, LLC, a direct subsidiary of Warburg Pincus & Co. (“WP”), is the general partner of WP VIII. Warburg Pincus IX, LLC, an indirect subsidiary of WP, is the general partner of WP IX. Warburg Pincus LLC (“WP LLC”) is the manager of each of WP VIII and WP IX. WP and WP LLC may be deemed to beneficially own all of the shares of common stock owned by WP VIII and WP IX. Messrs. Barr, Lapidus, and Lee disclaim beneficial ownership of all of the shares of common stock owned by the Warburg Pincus entities.
(4)	Messrs. Barr and Lee, as partners of WP and managing directors and members of WP LLC, may be deemed to beneficially own all of the shares of common stock beneficially owned by the Warburg Pincus entities. Messrs. Barr and Lee disclaim any beneficial ownership of these shares of common stock.
(5)	Includes 1,506 shares held for the benefit of a family trust of which Mr. Tansky disclaims beneficial ownership.
(6)	Includes 944 shares held for the benefit of a family trust of which Ms. Katz disclaims beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Our board of directors has adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-person transactions.”  For purposes of our policy only, a “related-person transaction “ is any transaction, including any financial transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships), in which we and any “related person” are, were or will be participants involving an amount that exceeds $120,000.  Certain transactions, including transactions involving compensation for services provided to us as an employee, director or consultant by a related person and transactions in which rates or charges are determined by competitive bid, are not covered by this policy.  A related person is any executive officer, director or nominee for director, or more than 5% stockholder of our company, including any of their immediate family members, and any entity owned or controlled by such persons.

The Board has determined that the Company’s Audit Committee is best suited to review and approve any related-person transaction and any material amendments thereto, although the Board may instead determine that a particular transaction (or amendment thereto) should be reviewed and approved by a majority of directors disinterested from the transaction. In the event a member of the Audit Committee has an interest in the proposed transaction, the relevant member must recuse himself or herself from the deliberations and approval.  The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the Audit Committee satisfy itself that it has been fully informed as to the related person’s relationship and interest in the transaction (or amendment thereto) and the material facts thereof, and must determine must look at, in light of known circumstances, whether the transaction is, or is not, consistent with the best interests of our company and our Sponsors, as the Audit Committee determines in the good faith exercise of its discretion.

Typically, in considering related-person transactions, the Audit Committee takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs and benefits to us, (b) the terms of the transaction, (c) the availability of other sources for comparable services or products and (d) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.

Related Person Transactions

Newton Holding, LLC Limited Liability Company Operating Agreement

The investment funds associated with or designated by a Sponsor (Sponsor Funds) and certain investors who agreed to co-invest with the Sponsor Funds or through a vehicle jointly controlled by the Sponsors to provide equity financing for the Acquisition (Co-Investors), entered into a limited liability company operating agreement in respect of our parent company, Newton Holding, LLC (the “LLC Agreement”).  The LLC Agreement contains agreements among the parties with respect to the election of our directors and the directors of our parent companies, restrictions on the issuance or transfer of interests in us, including tag-along rights and drag-along rights, and other corporate governance provisions (including the right to approve various corporate actions).

Pursuant to the LLC Agreement, each of TPG Capital, L.P. and Warburg Pincus has the right, which is freely assignable to other members or indirect members, to nominate four directors, and TPG Capital, L.P. and Warburg Pincus are

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entitled to jointly nominate additional directors.  The rights of TPG Capital, L.P. and Warburg Pincus to nominate directors are subject to their ownership percentages in Newton Holding, LLC remaining above a specified percentage of their initial ownership percentage.  Each of the Sponsors has the right to have at least one of its directors sit on each committee of the Board of Directors, to the extent permitted by applicable laws and regulations.

The Sponsors have assigned the right to appoint one of our directors to investment funds that are affiliates of Credit Suisse Securities (USA) LLC and the right to appoint one of our directors to investment funds associated with Leonard Green Partners.

For purposes of any board action, each director nominated by TPG Capital, L.P. or Warburg Pincus has three votes and each of the other directors (including any jointly nominated directors and the directors nominated by investment funds that are affiliates of Credit Suisse Securities (USA) LLC and Leonard Green Partners) has one vote.  Certain major decisions of the board of directors of Newton Holding, LLC require the approval of each of TPG Capital, L.P. and Warburg Pincus and certain other decisions of the board of directors of Newton Holding, LLC require the approval of a specified number of directors designated by each of TPG Capital, L.P. and Warburg Pincus, in each case subject to the requirement that their respective ownership percentage in Newton Holding, LLC remains above a specified percentage of their initial ownership percentage.

Registration Rights Agreement

The Sponsor Funds and the Co-Investors entered into a registration rights agreement with us upon completion of the Acquisition.  Pursuant to this agreement, the Sponsor Funds can cause us to register their interests in NMG under the Securities Act and to maintain a shelf registration statement effective with respect to such interests.  The Sponsor Funds and the Co-Investors are also entitled to participate on a pro rata basis in any registration of our equity interests under the Securities Act that we may undertake.

Management Services Agreement

In connection with the Acquisition, we entered into a management services agreement with affiliates of the Sponsors pursuant to which affiliates of one of the Sponsors received on the closing date of the Acquisition a transaction fee of $25 million in cash in connection with the Acquisition.  Affiliates of the other Sponsor waived any cash transaction fee in connection with the Acquisition.  In addition, pursuant to such agreement, and in exchange for consulting and management advisory services that will be provided to us by the Sponsors and their affiliates, affiliates of the Sponsors will receive an aggregate annual management fee equal to the lesser of (i) 0.25% of consolidated annual revenue and (ii) $10 million.  Also, affiliates of the Sponsors are entitled to receive reimbursement for out-of-pocket expenses incurred by them or their affiliates in connection with the provision of services pursuant to the agreement.  The management services agreement also provides that affiliates of the Sponsors may receive fees in connection with certain subsequent financing and acquisition or disposition transactions.  The management services agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates.

Certain Charter and Bylaws Provisions

Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions limiting directors’ obligations in respect of corporate opportunities.  In addition, our amended and restated certificate of incorporation provides that Section 203 of the Delaware General Corporation Law will not apply to the Company.  Section 203 restricts “business combinations” between a corporation and “interested stockholders,” generally defined as stockholders owning 15% or more of the voting stock of a corporation.

Management Stockholders’ Agreement

Subject to the Management Stockholders’ Agreement, certain members of management, including Burton M. Tansky, Karen W. Katz, James E. Skinner, James J. Gold, and Gerald A. Barnes along with 22 other members of management, elected to invest in the Company by contributing cash or equity interests in NMG, or a combination of both, to the Company prior to the merger and receiving equity interests in the Company in exchange therefor immediately after completion of the merger pursuant to rollover agreements with NMG and the Company entered into prior to the effectiveness of the merger.  The aggregate amount of this investment was approximately $25.6 million.  The Management Stockholders’ Agreement creates certain rights and restrictions on these equity interests, including transfer restrictions and tag-along, drag-along, put, call, and registration rights in certain circumstances.

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Director Independence

Because all of our directors, except Mr. Tansky, who is an employee of the Company, are employees of our Sponsors, none of our directors can be considered independent under the independence standards of the New York Stock Exchange.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The Audit Committee has adopted policies and procedures for pre-approving all audit and permissible non-audit services performed by our independent registered public accounting firm. Under these policies, the Audit Committee pre-approves the use of audit and audit-related services following approval of the independent registered public accounting firm’s audit plan. All services detailed in the audit plan are considered pre-approved. If, during the course of the audit, the independent registered public accounting firm expects fees to exceed the approved fee estimate between 10 percent and 15 percent, those fees must be pre-approved in advance by the Audit Committee Chairman. If fees are expected to exceed the approved estimate by more than 15 percent, those fees must be approved in advance by the Audit Committee.

Other non-audit services of less than $50,000 that are not restricted services may be pre-approved by both the chief financial officer and the controller, provided those services will not impair the independence of the independent auditor. These services will be considered approved by the Audit Committee, provided those projects are discussed with the Audit Committee at its next scheduled meeting. Services between $50,000 and $100,000 in estimated fees must be pre-approved by the Chairman of the Audit Committee, acting on behalf of the entire Audit Committee. Services of greater than $100,000 in estimated fees must be pre-approved by the Audit Committee. All fee overruns will be discussed with the Audit Committee at the next scheduled meeting.

Principal Accounting Fees and Services

Audit Fees.  The aggregate fees billed for the audits of the Company’s annual financial statements for the fiscal years ended August 1, 2009 and August 2, 2008 and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q were $1,766,000 and $1,446,000, respectively.

Audit-Related Fees.  The aggregate fees billed for audit-related services for the fiscal years ended August 1, 2009 and August 2, 2008 were $100,000 and $171,000, respectively. These fees related to accounting research and consultation and attestation services for certain subsidiary companies for the fiscal years ended August 1, 2009 and August 2, 2008.

Tax Fees.  The aggregate fees billed for tax services for the fiscal years ended August 1, 2009 and August 2, 2008 were $84,000 and $192,000, respectively. These fees are related to tax compliance and planning.

The Audit Committee has considered and concluded that the provision of permissible non-audit services is compatible with maintaining our independent registered public accounting firm’s independence.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report.

1.Financial Statements

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

2.Index to Financial Statement Schedules

	Page Number
Report of Independent Registered Public Accounting Firm	F-3
Schedule II—Valuation and Qualifying Accounts and Reserves	85

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

3.Exhibits

Exhibit No.	Exhibit
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 Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated May 4, 2005.
2.2	Purchase, Sale and Servicing Transfer Agreement dated as of June 8, 2005, among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A. and HSBC Finance Corporation, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated June 8, 2005.
3.1	Amended and Restated Certificate of Incorporation of Neiman Marcus, Inc., incorporated herein by reference to The Neiman Marcus Group, Inc.’s Registration Statement on Form S-1 (Registration No. 333-133184) dated April 10, 2006.
3.2	Amended and Restated Bylaws of Neiman Marcus, Inc., incorporated herein by reference to The Neiman Marcus Group, Inc.’s Registration Statement on Form S-1 (Registration No. 333-133184) dated April 10, 2006.
4.1	Indenture, dated as of May 27, 1998, between The Neiman Marcus Group, Inc. and The Bank of New York, as trustee. (1)
4.2	Form of 7.125% Senior Notes Due 2028, dated May 27, 1998. (1)
4.3	Senior Indenture dated as of October 6, 2005, among Newton Acquisition, Inc., Newton Acquisition Merger Sub, Inc., the Subsidiary Guarantors, and Wells Fargo Bank, National Association, trustee, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
4.4	Senior Subordinated Indenture dated as of October 6, 2005, among Newton Acquisition, Inc., Newton Acquisition Merger Sub, Inc., the Subsidiary Guarantors, and Wells Fargo Bank, National Association, trustee, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
4.5	Form of 9%/9 3/4% Senior Notes due 2015, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.

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4.6	Form of 10 3/8% Senior Subordinated Notes due 2015, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
4.7	Registration Rights Agreement dated October 6, 2005, among Newton Acquisition, Inc., Newton Acquisition Merger Sub, Inc., the Subsidiary Guarantors, The Neiman Marcus Group, Inc., and the Initial Purchasers, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
4.8	First Supplemental Indenture, dated as of July 11, 2006, to the Indenture, dated as of May 27, 1998, among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., and The Bank of New York Trust Company, N.A., as successor trustee, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated July 11, 2006.
4.9	Second Supplemental Indenture, dated as of August 14, 2006, to the Indenture, dated as of May 27, 1998, among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., and The Bank of New York Trust Company, N.A., as successor trustee, incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 15, 2006.
10.1*	Employment Agreement dated as of October 6, 2005 by and among The Neiman Marcus Group, Inc., Newton Acquisition Merger Sub, Inc., Newton Acquisition, Inc., and Burton M. Tansky. (1)
10.2*	First Amendment to Employment Agreement by and between The Neiman Marcus Group, Inc., a Delaware corporation, Neiman Marcus, Inc., a Delaware corporation, and Burton M. Tansky effective December 21, 2007 incorporated herein by reference to the Neiman Marcus, Inc.’s Current Report on Form 8-K dated December 21, 2007.
10.3*	Second Amendment to Employment Agreement by and between The Neiman Marcus Group, Inc., a Delaware corporation, Neiman Marcus, Inc., a Delaware corporation, and Burton M. Tansky effective January 1, 2009 incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.4*	Rollover Agreement dated as of October 4, 2005 by and among The Neiman Marcus Group, Inc., Newton Acquisition, Inc., and Burton M. Tansky. (1)
10.5*	Amendment to Letter Agreement effective as of January 1, 2009 by and between Neiman Marcus, Inc., a Delaware corporation, and Burton M. Tansky incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.6*	Form of Rollover Agreement by and among The Neiman Marcus Group, Inc., Newton Acquisition, Inc., and certain members of management. (1)
10.7	Amended and Restated Credit Agreement dated as of July 15, 2009, among The Neiman Marcus Group, Inc., the Company, the other borrowers and guarantors named therein, Bank of America, N.A., as administrative agent and co-collateral agent, Wells Fargo Retail Finance, LLC as co-collateral agent, Banc of America Securities LLC, Wells Fargo Retail Finance, LLC, J.P. Morgan Securities Inc. and Regions Business Capital Corporation as joint lead arrangers and joint bookrunners, Wells Fargo Retail Finance, LLC as syndication agent, JPMorgan Chase Bank, N.A. and Regions Bank as co-documentation agents and the lenders thereunder, incorporated herein by reference to Neiman Marcus, Inc.’s Current Report on Form 8-K dated July 16, 2009.
10.8	Credit Agreement dated as of October 6, 2005, among Newton Acquisition, Inc., Newton Acquisition Merger Sub, Inc., The Neiman Marcus Group, Inc., the Subsidiary Guarantors, Credit Suisse, as administrative agent and collateral agent, Credit Suisse and Deutsche Bank Securities Inc. as joint lead arrangers, Banc of America Securities LLC and Goldman Sachs Credit Partners L.P. as co-arrangers, Credit Suisse, Deutsche Bank Securities Inc., Banc of America Securities LLC and Goldman Sachs Credit Partners L.P. as joint bookrunners, Deutsche Bank Securities Inc., Banc of America Securities LLC and Goldman Sachs Credit Partners L.P. as co-syndication agents and the lenders thereunder. (1) (2)

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10.9	Amended and Restated Pledge and Security Agreement dated as of July 15, 2009 by and among The Neiman Marcus Group, Inc., the Company, subsidiaries named therein and Bank of America, N.A., as administrative agent and co-collateral agent, incorporated herein by reference to Neiman Marcus, Inc.’s Current Report on Form 8-K dated July 16, 2009.
10.10	Substitution of Agent and Joinder Agreement, dated as of July 15, 2009, among Deutsche Bank Trust Company Americas, Credit Suisse and Bank of America, N.A., incorporated herein by reference to Neiman Marcus, Inc.’s Current Report on Form 8-K dated July 16, 2009.
10.11	Pledge and Security and Intercreditor Agreement dated as of October 6, 2005, among Newton Acquisition Merger Sub, Inc., The Neiman Marcus Group, Inc., Newton Acquisition, Inc., the Subsidiary Guarantors and Credit Suisse, as administrative agent and collateral agent. (1)
10.12	Lien Subordination and Intercreditor Agreement dated as of October 6, 2005, among Newton Acquisition, Inc., Newton Acquisition Merger Sub, Inc., the Subsidiary Guarantors, Deutsche Bank Trust Company Americas, as revolving facility agent, and Credit Suisse, as term loan agent, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
10.13	Form of First Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement from The Neiman Marcus Group, Inc. to Credit Suisse, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
10.14	Form of First Priority Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement from The Neiman Marcus Group, Inc. to Credit Suisse, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
10.15	Form of Second Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement from The Neiman Marcus Group, Inc. to Deutsche Bank Trust Company Americas, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
10.16	Form of Second Priority Leasehold Mortgage, Assignment of Lease and Rents, Security Agreement and Financing Statement from The Neiman Marcus Group, Inc. to Deutsche Bank Trust Company Americas, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
10.17	Amendment No. 1 dated as of October 6, 2005 to the Credit Agreement dated as of October 6, 2005 among The Neiman Marcus Group, Inc., Newton Acquisition, Inc., each subsidiary of The Neiman Marcus Group, Inc. from time to time party thereto, the Lenders thereunder, and Credit Suisse, as administrative agent and as collateral agent for the Lenders, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated October 12, 2005.
10.18*	Newton Acquisition, Inc. Management Equity Incentive Plan, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated December 5, 2005.
10.19*	Amendment to the Newton Acquisition, Inc. Management Equity Incentive Plan effective as of January 1, 2009 incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.20*	Stock Option Grant Agreement made as of November 29, 2005 between Newton Acquisition, Inc. and Burton M. Tansky, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated December 5, 2005.
10.21*	Amendment to the Stock Option Grant Agreement effective as of January 1, 2009 by and between Neiman Marcus, Inc., a Delaware corporation, and Burton M. Tansky incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.22*	Form of Stock Option Grant Agreement made as of November 29, 2005 between Newton Acquisition, Inc. and certain eligible key employees, incorporated herein by reference to The Neiman Marcus Group, Inc.’s

80

	Current Report on Form 8-K dated December 5, 2005.
10.23*	Amendment to the Form of Stock Option Grant Agreement effective as of January 1, 2009 by and between Neiman Marcus, Inc., a Delaware corporation, and certain eligible key employees incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.24	Amendment No. 2 dated as of January 26, 2006 to the Credit Agreement dated as of October 6, 2005, as amended, among The Neiman Marcus Group, Inc., Newton Acquisition, Inc., each subsidiary of The Neiman Marcus Group, Inc. from time to time party thereto, the Lenders thereunder and Credit Suisse, as administrative agent and collateral agent for the Lenders, incorporated by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated January 30, 2006.
10.25*	Employment Agreement between The Neiman Marcus Group, Inc. and Karen Katz, dated February 1, 2006, effective as of October 6, 2005, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated February 1, 2006.
10.26*	Amendment to Employment Agreement effective as of January 1, 2009 by and between The Neiman Marcus Group, Inc., a Delaware corporation, and Karen Katz incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.27	Management Services Agreement, dated as of October 6, 2005 among Newton Acquisition Merger Sub, Inc., Newton Acquisition, Inc., TPG GenPar IV, L.P., TPG GenPar III, L.P. and Warburg Pincus LLC incorporated herein by reference to The Neiman Marcus Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 28, 2006.
10.28	Registration Rights Agreement, dated as of October 6, 2005, among Newton Acquisition Merger Sub, Inc., Newton Acquisition, Inc., Newton Holding, LLC and the “Holders” identified therein as parties thereto incorporated herein by reference to The Neiman Marcus Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 28, 2006.
10.29	Amendment No. 1, dated as of March 28, 2006, to the Pledge and Security Intercreditor Agreement dated as of October 6, 2005, among Neiman Marcus, Inc., The Neiman Marcus Group, Inc., the Subsidiaries party thereto and Credit Suisse, as administrative agent and collateral agent, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated March 29, 2006.
10.30	Credit Card Program Agreement, dated as of June 8, 2005, by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A. and Household Corporation. (1) (2)
10.31	Servicing Agreement by and between The Neiman Marcus Group, Inc. and HSBC Bank Nevada, N.A. (1) (2)
10.32*	Confidentiality, Non-Competition and Termination Benefits Agreement by and between Bergdorf Goodman, Inc., a New York corporation and a wholly owned subsidiary of The Neiman Marcus Group, Inc., and James J. Gold dated May 3, 2004, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.
10.33*	Amendment to the Confidentiality, Non-Competition and Termination Benefits Agreement effective as of January 1, 2009 by and between Bergdorf Goodman, Inc., a New York corporation and wholly owned subsidiary of The Neiman Marcus Group, Inc. and James J. Gold incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.34*	Form of Amendment to the Confidentiality, Non-Competition and Termination Benefits Agreement effective as of January 1, 2009 by and between The Neiman Marcus Group, Inc., a Delaware corporation, and certain eligible key employees incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.35	Stockholder Agreement, dated as of May 1, 2005, among Newton Acquisition, Inc., Newton Acquisition Merger Sub, Inc. and the other parties signatory thereto, incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated May 4, 2005.

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10.36*	Neiman Marcus, Inc. Cash Incentive Plan amended as of January 21, 2008, incorporated herein by reference to the Neiman Marcus, Inc. Quarterly Report on Form 10-Q for the quarter ended April 26, 2008.
10.37	Management Stockholders’ Agreement dated as of October 6, 2005 between Newton Acquisition, Inc., Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII C.V. I, Warburg Pincus Germany Private Equity VIII K.G , Warburg Pincus Private Equity IX, L.P., and the other parties signatory thereto, incorporated herein by reference to the Neiman Marcus, Inc. Annual Report on Form 10-K for the fiscal year ended July 29, 2006.
10.38	Amendment to the Management Stockholders’ Agreement effective as of January 1, 2009 by and between Neiman Marcus, Inc., a Delaware corporation, Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII C.V. I, Warburg Pincus Germany Private Equity VIII K.G., Warburg Pincus Private Equity IX, L.P., and the other parties signatory thereto incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.39*	The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan amended and restated effective January 1, 2008, incorporated herein by reference to the Neiman Marcus, Inc. Quarterly Report on Form 10-Q for the quarter ended April 26, 2008.
10.40*	Amendment No. 1 effective as of January 1, 2009 to The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.41	Amendment No. 3 dated as of October 12, 2006 to the Credit Agreement dated as of October 6, 2005 among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., each subsidiary of The Neiman Marcus Group, Inc. from time to time party thereto, the Lenders thereunder and Credit Suisse, as administrative agent and collateral agent for the Lenders, incorporated by reference to Neiman Marcus, Inc.’s Current Report on Form 8-K dated October 17, 2006.
10.42	Amendment No. 4 dated as of February 8, 2007 to the Credit Agreement dated as of October 6, 2005, among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., each subsidiary of The Neiman Marcus Group, Inc. from time to time party thereto, the lenders thereunder, and Credit Suisse, as administrative agent and collateral agent for the lenders incorporated herein by reference to The Neiman Marcus Group, Inc.’s Current Report on Form 8-K dated February 14, 2007.
10.43	The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan as amended and restated effective January 1, 2009 incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.44	The Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan, as amended and restated effective as of January 1, 2008, incorporated herein by reference to the Neiman Marcus, Inc. Annual Report on Form 10-K for the fiscal year ended August 2, 2008.
10.45	Amendment No. 1 effective January 1, 2009 to the Amended and Restated Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan incorporated herein by reference to Neiman Marcus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.46	First Amendment to Credit Card Program Agreement dated as of April 30, 2006 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and Household Corporation. (1) (2)
10.47	Second Amendment to Credit Card Program Agreement dated as of June 28, 2006 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A. and Household Corporation. (1) (2)

82

10.48	Third Amendment to Credit Card Program Agreement dated as of August 1, 2006 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and Household Corporation. (1) (2)
10.49	Fourth Amendment to Credit Card Program Agreement dated as of April 3, 2007 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and HSBC Private Label Corporation. (1) (2)
10.50	Fifth Amendment to Credit Card Program Agreement dated as of March 13, 2007 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and HSBC Private Label Corporation. (1)
10.51	Sixth Amendment to Credit Card Program Agreement dated as of July 17, 2007 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and HSBC Private Label Corporation. (1) (2)
10.52	Seventh Amendment to Credit Card Program Agreement dated April 21, 2008 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, HSBC Private Label Corporation, and HSBC Bank Nevada, N.A. (1) (2)
10.53	Eighth Amendment to Credit Card Program Agreement dated as of October 17, 2008 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and HSBC Private Label Corporation. (1) (2)
10.54	Ninth Amendment to Credit Card Program Agreement dated as of December 3, 2008 by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A., and HSBC Private Label Corporation. (1) (2)
10.55	Form of First Amendment to Second Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement from The Neiman Marcus Group, Inc. to Bank of America, N.A. (1)
12.1	Computation of Ratio of Earnings to Fixed Charges. (1)
14.1	The Neiman Marcus Group, Inc. Code of Ethics and Conduct. (1)
14.2	The Neiman Marcus Group, Inc. Code of Ethics for Financial Professionals. (1)
21.1	Subsidiaries of the Company. (1)
23.1	Consent of Ernst & Young LLP. (1)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

(1)	Filed herewith.
(2)	Portions of these exhibits have been omitted pursuant to a request for confidential treatment.
*	Current management contract or compensatory plan or arrangement.

83

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Management’s Report on Internal Control over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets	F-5
Consolidated Statements of Operations	F-6
Consolidated Statements of Cash Flows	F-7
Consolidated Statements of Shareholders’ Equity	F-8
Notes to Consolidated Financial Statements	F-9

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We are responsible for the integrity and objectivity of the financial and operating information contained in this Annual Report, including the consolidated financial statements covered by the Report of Independent Registered Public Accounting Firm. These statements were prepared in conformity with generally accepted accounting principles and include amounts that are based on our best estimates and judgment.

We maintain a system of internal controls which provides management with reasonable assurance that transactions are recorded and executed in accordance with its authorizations, assets are properly safeguarded and accounted for, and records are maintained so as to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, an organizational structure that segregates duties, financial reviews and a comprehensive program of periodic audits by the internal auditors. We have also instituted policies and guidelines which require employees to maintain a high level of ethical standards.

In addition, the Audit Committee of the Board of Directors meets periodically with management, the internal auditors and the independent registered public accounting firm to review internal accounting controls, audit results and accounting principles and practices and annually recommends to the Board of Directors the selection of the independent registered public accounting firm.

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Under our supervision and with the participation of other key members of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 1, 2009. During its assessment, management did not identify any material weaknesses in our internal control over financial reporting.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an unqualified attestation report on the effectiveness of our internal controls over financial reporting as of August 1, 2009.

BURTON M. TANSKY

President and Chief Executive Officer

JAMES E. SKINNER

Executive Vice President and Chief Financial Officer

T. DALE STAPLETON

Vice President and Controller

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Neiman Marcus, Inc.

We have audited the accompanying consolidated balance sheets of Neiman Marcus, Inc. and subsidiaries as of August 1, 2009 and August 2, 2008, and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the three years in the period ended August 1, 2009.  Our audits also included the financial statement schedule listed in the Index at Item 15.  These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Neiman Marcus, Inc. and subsidiaries at August 1, 2009 and August 2, 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 1, 2009, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 13 to the consolidated financial statements, in fiscal year 2008 the Company changed its method of accounting for income taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Neiman Marcus, Inc.'s internal control over financial reporting as of August 1, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 20, 2009 expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Dallas, Texas

October 20, 2009

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Neiman Marcus, Inc.

We have audited Neiman Marcus, Inc.’s internal control over financial reporting as of August 1, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Neiman Marcus, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Neiman Marcus, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 1, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Neiman Marcus, Inc. and subsidiaries as of August 1, 2009 and August 2, 2008, and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the three years in the period ended August 1, 2009 of Neiman Marcus, Inc. and our report dated October 20, 2009 expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Dallas, Texas

October 20, 2009

F-4

NEIMAN MARCUS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)	August 1, 2009			August 2, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	323,425		$	239,180
Merchandise inventories	755,034			978,044
Deferred income taxes	19,136			32,659
Other current assets	123,932			113,776
Total current assets	1,221,527			1,363,659
Property and equipment, net	992,715			1,075,294
Customer lists, net	368,660			422,931
Favorable lease commitments, net	411,564			429,441
Tradenames	1,235,290			1,579,054
Goodwill	1,263,433			1,611,191
Other assets	87,837			75,249
Total assets	$	5,581,026		$	6,556,819
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	233,990		$	345,640
Accrued liabilities	302,886			361,094
Current maturities of long-term liabilities	26,617			—
Total current liabilities	563,493			706,734
Long-term liabilities:
Long-term debt	2,954,221			2,946,102
Deferred real estate credits	96,420			84,019
Deferred income taxes	697,810			929,970
Other long-term liabilities	350,247			213,475
Total long-term liabilities	4,098,698			4,173,566
Common stock (par value $0.01 per share, 5,000,000 shares authorized and 1,013,082 shares issued and outstanding at August 1, 2009 and 1,012,919 shares issued and outstanding at August 2, 2008)	10			10
Additional paid-in capital	1,424,258			1,418,473
Accumulated other comprehensive loss	(104,587		)	(9,164		)
Retained (deficit) earnings	(400,846		)	267,200
Total shareholders' equity	918,835			1,676,519
Total liabilities and shareholders' equity	$	5,581,026		$	6,556,819

See Notes to Consolidated Financial Statements.

F-5

NEIMAN MARCUS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal year ended
(in thousands)	August 1, 2009			August 2, 2008			July 28, 2007
Revenues	$	3,643,346		$	4,600,536		$	4,390,076
Cost of goods sold including buying and occupancy costs (excluding depreciation)	2,536,764			2,934,968			2,753,814
Selling, general and administrative expenses (excluding depreciation)	882,737			1,045,447			1,015,140
Income from credit card program, net	(49,966		)	(65,727		)	(65,723		)
Depreciation expense	150,759			148,411			136,468
Amortization of intangible assets	54,826			54,314			54,387
Amortization of favorable lease commitments	17,877			17,878			17,878
Impairment charges	703,266			31,261			11,473
Other income	—			(32,450		)	(10,164		)
Operating (loss) earnings	(652,917		)	466,434			476,803
Interest expense, net	235,574			239,805			259,805
(Loss) earnings from continuing operations before income taxes	(888,491		)	226,629			216,998
Income tax (benefit) expense	(220,445		)	83,816			82,295
(Loss) earnings from continuing operations	(668,046		)	142,813			134,703
Loss from discontinued operation, net of taxes	—			—			(22,771		)
Net (loss) earnings	$	(668,046	)	$	142,813		$	111,932

See Notes to Consolidated Financial Statements.

F-6

NEIMAN MARCUS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal year ended
(in thousands)	August 1, 2009			August 2, 2008			July 28, 2007
CASH FLOWS—OPERATING ACTIVITIES
Net (loss) earnings	$	(668,046	)	$	142,813		$	111,932
Loss from discontinued operation	—			—			22,771
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization expense	240,645			234,820			222,874
Impairment charges	703,266			31,261			11,473
Paid-in-kind interest	38,082			—			—
Deferred income taxes	(153,888		)	(44,627		)	(60,522		)
Gain on curtailment of defined benefit retirement obligations	—			(32,450		)	—
Other—primarily costs related to defined benefit pension and other long-term benefit plans	10,185			21,997			20,531
	170,244			353,814			329,059
Changes in operating assets and liabilities:
Merchandise inventories	223,010			(59,775		)	(124,648		)
Other current assets	(10,156		)	(20,239		)	(12,597		)
Other assets	(7,684		)	3,118			(3,333		)
Accounts payable and accrued liabilities	(167,269		)	(10,287		)	53,461
Deferred real estate credits	17,668			33,694			27,885
Funding of defined benefit pension plan	(15,000		)	(15,000		)	—
Net cash provided by operating activities — continuing operations	210,813			285,325			269,827
Net cash used for operating activities — discontinued operation	—			—			(10,918		)
Net cash provided by operating activities	210,813			285,325			258,909
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	(101,525		)	(183,452		)	(147,877		)
Purchases of short-term investments	—			(10,000		)	—
Sales of short-term investments	—			10,000			—
Payment to minority interest holder in Kate Spade LLC	—			—			(59,400		)
Net proceeds from sale of Kate Spade LLC	—			—			121,469
Net cash used for investing activities — continuing operations	(101,525		)	(183,452		)	(85,808		)
Net cash used for investing activities — discontinued operation	—			—			(128		)
Net cash used for investing activities	(101,525		)	(183,452		)	(85,936		)
CASH FLOWS—FINANCING ACTIVITIES
Repayment of borrowings	(1,611		)	(3,900		)	(4,918		)
Debt issuance costs paid	(23,432		)	—			(1,449		)
Repayment of borrowings under senior term loan facility	—			—			(250,000		)
Proceeds from purchase of common stock, exercises of stock options and restricted stock grants	—			—			1,148
Net cash used for financing activities — continuing operations	(25,043		)	(3,900		)	(255,219		)
Net cash used for financing activities — discontinued operation	—			—			(1,675		)
Net cash used for financing activities	(25,043		)	(3,900		)	(256,894		)
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year	84,245			97,973			(83,921		)
Beginning balance	239,180			141,207			225,128
Ending balance	$	323,425		$	239,180		$	141,207
Supplemental Schedule of Cash Flow Information:
Cash paid (received) during the year for:
Interest	$	188,587		$	233,055		$	259,709
Income taxes	$	(29,639	)	$	145,811		$	155,568
Noncash activities:
Additions to property and equipment	$	—		$	—		$	1,733
Adjustments to goodwill related to pre-acquisition tax contingencies	$	(18,049	)	$	6,051		$	—

See Notes to Consolidated Financial Statements.

F-7

NEIMAN MARCUS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

			Additional		Accumulated other						Total
(in thousands)	Common stock		paid-in capital		comprehensive income (loss)			Retained earnings			shareholders’ equity
BALANCE AT JULY 29, 2006	$	10	$	1,405,373	$	9,829		$	12,455		$	1,427,667
Stock based compensation expense	—		5,859		—			—			5,859
Other equity transactions	—		1,154		—			—			1,154
Adjustment for unfunded benefit obligations (upon initial adoption of new accounting principle), net of income tax effect of $11,289	—		—		17,365			—			17,365
Comprehensive income:
Net earnings	—		—		—			111,932			111,932
Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($1,758)	—		—		(2,678		)	—			(2,678		)
Reclassification to earnings, net of tax of ($2,327)	—		—		(3,579		)	—			(3,579		)
Other	—		—		292			—			292
Total comprehensive income											105,967
BALANCE AT JULY 28, 2007	10		1,412,386		21,229			124,387			1,558,012
Stock based compensation expense	—		6,087		—			—			6,087
Comprehensive income:
Net earnings	—		—		—			142,813			142,813
Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($16,355)	—		—		(25,159		)	—			(25,159		)
Reclassification to earnings, net of tax of ($214)	—		—		(329		)	—			(329		)
Change in unfunded benefit obligations, net of tax of ($3,239)	—		—		(5,063		)	—			(5,063		)
Other	—		—		158			—			158
Total comprehensive income											112,420
BALANCE AT AUGUST 2, 2008	10		1,418,473		(9,164		)	267,200			1,676,519
Stock based compensation expense	—		5,785		—			—			5,785
Comprehensive loss:
Net loss	—		—		—			(668,046		)	(668,046		)
Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($19,229)	—		—		(29,575		)	—			(29,575		)
Reclassification to earnings, net of tax of $10,287	—		—		15,822			—			15,822
Change in unfunded benefit obligations, net of tax of ($52,865)	—		—		(81,313		)	—			(81,313		)
Other	—		—		(357		)	—			(357		)
Total comprehensive loss											(763,469		)
BALANCE AT AUGUST 1, 2009	$	10	$	1,424,258	$	(104,587	)	$	(400,846	)	$	918,835

See Notes to Consolidated Financial Statements.

F-8

NEIMAN MARCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

On April 22, 2005, Neiman Marcus, Inc. (the Company), formerly Newton Acquisition, Inc., and its wholly-owned subsidiary, Newton Acquisition Merger Sub, Inc. (Merger Sub), were formed and incorporated in the state of Delaware. The Company is a subsidiary of Newton Holding, LLC (Holding).  Holding, the Company and Merger Sub were formed by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors) for the purpose of acquiring The Neiman Marcus Group, Inc. (NMG).

The acquisition of NMG was completed on October 6, 2005 through the merger of Merger Sub with and into NMG, with NMG being the surviving entity (the Acquisition). Subsequent to the Acquisition, NMG is a subsidiary of the Company, which is controlled by Holding.

Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar which resulted in an extra week in fiscal year 2008 (the 53rd week). All references to fiscal year 2009 relate to the fifty two weeks ended August 1, 2009; all references to fiscal year 2008 relate to the fifty three weeks ended August 2, 2008 and all references to fiscal year 2007 relate to the fifty two weeks ended July 28, 2007.

We adopted Statement of Financial Accounting Standards No. 165, “Subsequent Events” (SFAS 165) during the fourth quarter of fiscal year 2009, and have evaluated all material events occurring subsequent to the date of the financial statements up to the date and time this Annual Report on Form 10-K was filed.

The accompanying consolidated financial statements include the amounts of the Company and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

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

ESTIMATES AND CRITICAL ACCOUNTING POLICIES

We make estimates and assumptions about future events in preparing our 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 consolidated financial statements.

While we believe that our past estimates and assumptions have been materially accurate, the amounts currently estimated are subject to change if we make different assumptions as to the outcome of future events. 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 consolidated financial statements.

Cash and Cash Equivalents.  Cash and cash equivalents primarily consist of cash on hand in our stores, deposits with banks and overnight investments with banks and financial institutions. Cash equivalents are stated at cost, which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable includes $30.0 million of outstanding checks not yet presented for payment at August 1, 2009 and $55.3 million at August 2, 2008.

Merchandise Inventories and Cost Of Goods Sold.We utilize the retail method of accounting. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of inventories.The cost of the inventory reflected on the consolidated balance sheets is decreased by charges to cost of goods sold at the time the retail value of the inventory is lowered through the use of markdowns. Earnings are negatively impacted when merchandise is marked down. As we adjust the retail value of our inventories through the use of markdowns to reflect market conditions, our merchandise inventories are stated at the lower of cost or market.

F-9

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. The amounts of vendor allowances we received did not have a significant impact on the year-over-year change in gross margin during fiscal years 2009, 2008 or 2007. We received vendor allowances of $107.7 million, or 3.0% of revenues, in fiscal year 2009, $109.6 million, or 2.4% of revenues, in fiscal year 2008 and $96.1 million, or 2.2% of revenues, in fiscal year 2007.

We obtain certain merchandise, primarily precious jewelry, on a consignment basis in order to expand our product assortment. Consignment merchandise held by us with a cost basis of $283.0 million at August 1, 2009 and $388.8 million at August 2, 2008 is not reflected in our consolidated balance sheets.

Long-lived Assets.  Property and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, we compute depreciation principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over five to 30 years while fixtures and equipment are depreciated over three to 15 years. Leasehold improvements are amortized over the shorter of the asset life or the lease term (which may include renewal periods when exercise of the renewal option is at our discretion and considered reasonably assured at the inception of the lease). Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over three to ten years.

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

We assess the recoverability of the carrying values of our store assets, consisting of property and equipment, customer lists and favorable lease commitments, annually and upon the occurrence of certain events (e.g., opening a new store near an existing store or announcing plans for a store closing). The recoverability assessment requires judgment and estimates of future store generated cash flows. The underlying estimates of cash flows include estimates for future revenues, gross margin rates and store expenses. We base these estimates upon the stores’ past and expected future performance. New stores may require two to five years to develop a customer base necessary to generate the cash flows of our more mature stores. To the extent our estimates for revenue growth and gross margin improvement are not realized, future annual assessments could result in additional impairment charges.

Intangible Assets Subject to Amortization.  Customer lists and amortizable tradenames are amortized using the straight-line method over their estimated useful lives, ranging from 5 to 24 years (weighted average life of 13 years).  Favorable lease commitments are amortized straight-line over the remaining lives of the leases, ranging from 6 to 49 years (weighted average life of 33 years).  Total estimated amortization of all acquisition-related intangible assets for the next five fiscal years is currently estimated as follows (in thousands):

2010	$	73,259
2011	62,548
2012	50,123
2013	47,436
2014	46,881

Indefinite-Lived Intangible Assets and Goodwill.  Indefinite-lived intangible assets, such as tradenames, and goodwill, and are not subject to amortization. Rather, we assess the recoverability of indefinite-lived intangible assets and goodwill in the fourth quarter of each fiscal year and upon the occurrence of certain events.

The recoverability assessment with respect to each of the tradenames used in our operations requires us to estimate the fair value of the tradename as of the assessment date.  Such determination is made using discounted cash flow techniques.  Inputs to the valuation model include:

·future revenue and profitability projections associated with the tradename;

F-10

·estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and

·rate used to discount the estimated royalty cash flow projections to their present value (or estimated fair value).

If the recorded carrying value of the tradename exceeds its estimated fair value, an impairment charge is recorded to write the tradename down to its estimated fair value.  The tradename impairment testing process is subject to inherent uncertainties and subjectivity.  The use of different assumptions, estimates or judgments could materially increase or decrease any related impairment charge.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases.  We currently estimate that the fair value of our tradenames decreases by approximately $225 million for each 0.5% decrease in market royalty rates and by approximately $90 million for each 0.5% increase in the weighted average cost of capital.

The assessment of the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores and Direct Marketing reporting units involves a two-step process.  The first step requires the comparison of the estimated enterprise fair value of each of our reporting units to its recorded carrying value.  We estimate the enterprise fair value based on discounted cash flow techniques.  Inputs to the valuation model include:

·estimated future cash flows;

·growth assumptions for future revenues as well as future gross margin rates, expense rates and other estimates; and

·rate used to discount our estimated future cash flow projections to their present value (or estimated fair value).

The projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on our annual business plan or other forecasted results.  Discount rates reflect market-based estimates (based on the weighted average cost of capital) of the risks associated with the projected cash flows directly resulting from the use of those assets in operations.  The estimates of the enterprise fair values of our reporting units are based on the best information available as of the date of the assessment.

If the recorded carrying value of a reporting unit exceeds its estimated enterprise fair value in the first step, a second step is performed in which we allocate the enterprise fair value to the fair value of the reporting unit’s net assets.  The second step of the impairment testing process requires, among other things, the estimation of the fair values of substantially all of our tangible and intangible assets.  Any enterprise fair value in excess of amounts allocated to such net assets represents the implied fair value of goodwill for that reporting unit.  If the recorded goodwill balance for a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded to write goodwill down to its fair value.

The goodwill impairment testing process is subject to inherent uncertainties and subjectivity.  The use of different assumptions, estimates or judgments in either step of the process, including with estimation of the projected future cash flows of our reporting units, the discount rate used to reduce such projected future cash flows to their net present value, and the estimation of the fair value of the reporting units’ tangible and intangible assets and liabilities, could materially increase or decrease the fair value of the reporting unit’s net assets and, accordingly, could materially increase or decrease any related impairment charge.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue and profitability projections or the weighted average cost of capital increases.  We currently estimate that a 5% decrease in the estimated fair value of the net assets of each of our reporting units as compared to the values used in the preparation of these financial statements would increase the impairment charge related to goodwill by approximately $200 million.  In addition, we currently estimate that the fair value of our goodwill decreases by approximately $300 million for each 0.5% increase in the discount rate used to estimate fair value.

As more fully described in Note 7, we recorded significant impairment charges in fiscal year 2009 to writedown our tradenames and goodwill to estimated fair value.

Leases.  We lease certain retail stores and office facilities. Stores we own are often subject to ground leases. The terms of our real estate leases, including renewal options, range from 1 to 101 years. Most leases provide for monthly fixed minimum rentals or contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes,

F-11

insurance, common area maintenance costs and other occupancy costs. For leases that contain predetermined, fixed calculations of minimum rentals, we recognize rent expense on a straight-line basis over the lease term. We recognize contingent rent expenses when it is probable that the sales thresholds will be reached during the year.

We receive allowances from developers related to the construction of our stores. We record these allowances as deferred real estate credits which we recognize as a reduction of rent expense on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased asset. We received construction allowances aggregating $10.0 million in fiscal year 2009, $36.8 million in fiscal year 2008 and $24.6 million in fiscal year 2007.

Financial Instruments.  In connection with the Acquisition, we obtained $2,575.0 million of floating rate debt agreements, of which $2,125.0 million was outstanding at the Acquisition date and $1,625.0 million is outstanding at August 1, 2009 (including $26.6 million of borrowings classified as current liabilities).  Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness.  These swap agreements hedge a portion of our contractual floating rate interest commitments through the expiration of the agreements in December 2010.  As a result of the swap agreements, NMG’s effective fixed interest rates as to the $1,000.0 million in floating rate indebtedness will currently range from 6.831% to 6.983% per quarter through 2010 and result in an average fixed rate of 6.900%.

Benefit Plans.  We sponsor a noncontributory defined benefit pension plan (Pension Plan), an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits and a post retirement plan providing eligible employees limited postretirement health care benefits (Postretirement Plan). In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants and allocating this cost to the periods in which services are expected to be rendered. We use the projected unit credit method in recognizing pension liabilities. The Pension and SERP Plans are valued annually as of the end of each fiscal year.

Significant assumptions related to the calculation of our obligations include the discount rate used to calculate the present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension Plan, the average rate of compensation increase by Pension Plan and SERP Plan participants and the health care cost trend rate for the Postretirement Plan. We review these assumptions annually based upon currently available information, including information provided by our actuaries.

Self-insurance and Other Employee Benefit Reserves.  We use estimates in the determination of the required accruals for general liability, workers’ compensation and health insurance. We base these estimates upon an examination of historical trends, industry claims experience and independent actuarial estimates. Although we do not expect that we will ultimately pay claims significantly different from our estimates, self-insurance reserves could be affected if future claims experience differ significantly from our historical trends and assumptions.

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

Revenues.  Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise sold. Revenues from our Specialty Retail stores are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues from our Direct Marketing operation are recognized when the merchandise is delivered to the customer. Revenues associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our customers.

We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our retail and direct marketing customers. Our reserves for anticipated sales returns aggregated $29.7 million at August 1, 2009 and $45.0 million at August 2, 2008. As the vast majority of merchandise returns are made in less than 30 days after the sales transaction, we believe the risk that differences between our estimated and actual returns will have a material impact on our consolidated financial statements is minimal.

Buying and Occupancy Costs.  Our buying costs consist primarily of salaries and expenses incurred by our merchandising and buying operations. Occupancy costs primarily include rent, property taxes and operating costs of our retail, distribution and support facilities and exclude depreciation expense.

F-12

Selling, General and Administrative Expenses (excluding depreciation).  Selling, general and administrative expenses are comprised principally of the costs related to employee compensation and benefits in the selling and administrative support areas, preopening expenses, advertising and catalog costs and insurance expense.

We receive allowances from certain merchandise vendors in conjunction with compensation programs for employees who sell the vendors’ merchandise. These allowances are netted against the related compensation expense that we incur. Amounts received from vendors related to compensation programs were $65.8 million in fiscal year 2009, $71.6 million in fiscal year 2008 and $65.4 million in fiscal year 2007.

We incur costs to advertise and promote the merchandise assortment offered by both Specialty Retail stores and Direct Marketing. Advertising costs incurred by our Specialty Retail stores consist primarily of print media costs related to promotional materials mailed to our customers. These costs are expensed at the time of mailing to the customer. Advertising costs incurred by Direct Marketing relate to the production, printing and distribution of our print catalogs and the production of the photographic content on our websites. We amortize the costs of print catalogs during the periods we expect to generate revenues from such catalogs, generally three to six months. We expense the costs incurred to produce the photographic content on our websites at the time the images are first loaded onto the website. We expense website design and web marketing costs as incurred.

Deferred catalog costs included in other current assets in the consolidated balance sheets were $4.0 million as of August 1, 2009 and $7.5 million as of August 2, 2008.  Net advertising expenses were $81.1 million in fiscal year 2009, $102.8 million in fiscal year 2008 and $100.2 million in fiscal year 2007.

Consistent with industry practice, we receive advertising allowances from certain of our merchandise vendors. Substantially all the advertising allowances we receive represent reimbursements of direct, specific and incremental costs that we incur to promote the vendor’s merchandise in connection with our various advertising programs, primarily catalogs and other print media. As a result, advertising allowances are recorded as a reduction of our advertising costs when earned. Advertising allowances aggregated approximately $65.7 million in fiscal year 2009, $75.7 million in fiscal year 2008 and $63.4 million in fiscal year 2007.

Preopening expenses primarily consist of payroll and related media costs incurred in connection with store openings and major renovations and are expensed when incurred.  We incurred preopening expenses of $5.1 million in fiscal year 2009, $7.7 million in fiscal year 2008 and $8.8 million in fiscal year 2007.

Income from credit card program, net.  Pursuant to a long-term marketing and servicing alliance with HSBC Bank Nevada, N.A. and HSBC Private Label Corporation (formerly known as Household Corporation) (collectively referred to as HSBC), HSBC offers credit card and non-card payment plans bearing our brands and we receive 1) ongoing payments from HSBC based on net credit card sales, 2) compensation for marketing and servicing activities, 3) our allocable share of certain income generated from the credit card program and 4) our allocable share of certain credit card losses generated from the credit card portfolio (HSBC Program Income). We recognize HSBC Program Income when earned.  In the future, the HSBC Program Income may be:

·increased or decreased based upon the level of utilization of our proprietary credit cards by our customers;

·increased or decreased based upon future changes to our historical credit card program related to, among other things, the interest rates applied to unpaid balances, the assessment of late fees and the level of usage of promotional no-interest credit programs;

·decreased based upon the level of future services we provide to HSBC;

·increased for our allocable share of certain income, if any, generated from the credit card program as provided pursuant to our contractual agreement with HSBC, or any subsequent amendment thereto; and

·decreased for our allocable share of certain credit card losses generated from the credit card portfolio as provided pursuant to our contractual agreement with HSBC, or any subsequent amendment thereto.

Gift Cards.  We sell gift cards at our Specialty Retail stores and through our Direct Marketing operation. Unredeemed gift cards aggregated $30.4 million at August 1, 2009 and $34.1 million at August 2, 2008. The gift cards sold to our customers have no stated expiration dates and are subject to actual and/or potential escheatment rights in various of the jurisdictions in which we operate.

F-13

In the fourth quarter of fiscal year 2007, we recorded $6.0 million of other income for the breakage on gift cards we previously sold and issued.  The income was recognized based upon our analysis of the aging of these gift cards, our determination that the likelihood of future redemption is remote and our determination that such balances are not subject to escheatment laws applicable to our operations.  Prior to the fourth quarter of fiscal year 2007, we had not recognized breakage on gift cards pending, among other things, our final determination of the applicable escheatment laws applicable to our operations.

Gift card breakage recognized during fiscal years 2009 and 2008 was not significant. We do not believe gift card breakage will have a material impact on our future operations.

Loyalty Programs.  We maintain customer loyalty programs in which customers accumulate points for qualifying purchases. Upon reaching certain levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed no later than 90 days subsequent to the end of the annual program period.

The estimates of the costs associated with the loyalty programs require us to make assumptions related to customer purchasing levels, redemption rates and costs of awards to be chosen by our customers. Our customers redeem a substantial portion of the points earned in connection with our loyalty programs 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 the estimated retail value of the gift cards to be issued upon conversion of the points to gift cards. We record the deferral of revenues related to gift card awards under our loyalty programs as a reduction of revenues. In addition, we charge the cost of all other awards under our loyalty programs to cost of goods sold.

Income Taxes.  We use the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  We are routinely under audit by federal, state or local authorities in the area of income taxes. We regularly evaluate the likelihood of realization of tax benefits derived from positions we have taken in various federal and state filings after consideration of all relevant facts, circumstances and available information. For those tax benefits we believe more likely than not will be sustained, we recognize the benefit we believe is cumulatively greater than 50% likely to be realized. To the extent we were to prevail in matters for which accruals have been established or be required to pay amounts in excess of recorded reserves, our effective tax rate in a given financial statement period could be materially impacted.

Recent Accounting Pronouncements.  In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)), which addresses the recognition and accounting for identifiable assets acquired, liabilities assumed and non-controlling interests in business combinations.  In addition, SFAS 141(R) changes the accounting treatment for certain acquisition-related items, including requirements to expense acquisition-related costs as incurred, expense restructuring costs associated with an acquired business and recognize post-acquisition changes in tax uncertainties associated with a business combination as a component of tax expense.  SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after December 15, 2008, or our fiscal year ending July 31, 2010.  Generally, the effect of SFAS 141(R) will depend on future acquisitions.  However, the accounting for the resolution of any tax uncertainties remaining as of August 1, 2009 related to the Acquisition will be subject to the provisions of SFAS 141(R).

In February 2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2), which delays the effective date of fair value disclosures required by SFAS 157 for all nonfinancial assets, such as intangible assets and goodwill, and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  FSP 157-2 is effective for fiscal years beginning after November 15, 2008, or our fiscal year ending July 31, 2010.  We have not yet evaluated the impact of adopting FSP 157-2 on our consolidated financial statements.

In December 2008, the FASB issued FASB Staff Position 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP 132(R)-1), which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan.  FSP 132(R)-1 is effective for fiscal years ending after December 15, 2009, or our fiscal year ending July 31, 2010.  We have not yet evaluated the impact of adopting the disclosure requirements of FSP 132(R)-1.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (SFAS 165), which establishes general standards of accounting and disclosure for events that occur after the balance sheet date but

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before financial statements are issued, including the required disclosure of the date through which subsequent events have been evaluated and the basis for that date.  SFAS 165 is effective for interim or annual periods ending after June 15, 2009.  We adopted SFAS 165 during the fourth quarter of fiscal year 2009, as more fully described in Note 1 “Basis of Presentation.”

NOTE 2.  DISCONTINUED OPERATION

In February 1999, NMG acquired a 56% controlling interest in Kate Spade LLC, a designer and marketer of high-end accessories.  In April 2005, the minority investor in Kate Spade LLC exercised the put option with respect to the sale of the full amount of its 44% stake in such company to NMG. In October 2006, we entered into an agreement to settle the put option whereby we purchased the interest held by the minority investor for approximately $59.4 million.

In November 2006, we entered into a definitive agreement to sell 100% of the ownership interests in Kate Spade LLC to Liz Claiborne, Inc. (consisting of both our original 56% interest and the 44% minority interest subsequently purchased by NMG) for pretax net cash proceeds of approximately $121.5 million. Both the purchase of the minority interest in Kate Spade LLC and the sale of Kate Spade LLC to Liz Claiborne, Inc. were consummated in December 2006.

Our consolidated financial statements, accompanying notes and other information provided in this Annual Report on Form 10-K reflect Kate Spade LLC as a discontinued operation for all periods presented.

Summarized financial information with respect to the results of operations of Kate Spade LLC is as follows:

(in thousands)	Fiscal year ended July 28, 2007
Revenues	$	29,612
Earnings from discontinued operation before income taxes	$	3,494
Income taxes	1,967
Net earnings from discontinued operation	1,527
Loss on disposition before income taxes	(13,398		)
Income taxes	(10,900		)
Net loss on disposition	(24,298		)
Loss from discontinued operation, net of taxes	$	(22,771	)

In the first quarter of fiscal year 2007, we impaired the intangible assets of Kate Spade LLC by $12.5 million in order to state the net assets of Kate Spade LLC at their estimated net realizable value to NMG.

NOTE 3.  TRANSACTIONS WITH SPONSORS

Pursuant to a management services agreement with affiliates of the Sponsors, and in exchange for on-going consulting and management advisory services that are provided to us by the Sponsors and their affiliates, affiliates of the Sponsors receive an aggregate annual management fee equal to the lesser of (i) 0.25% of our consolidated annual revenues or (ii) $10 million. Affiliates of the Sponsors also receive reimbursement for out-of-pocket expenses incurred by them or their affiliates in connection with services provided pursuant to the agreement. These management fees are payable quarterly in arrears.  We recorded management fees of $9.1 million during fiscal year 2009 and $10.0 million during fiscal years 2008 and 2007, which are included in selling, general and administrative expenses in the consolidated statements of operations.

The management services agreement also provides that affiliates of the Sponsors may receive future fees in connection with certain future financing and acquisition or disposition transactions. The management services agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates.

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NOTE 4.  INCOME FROM CREDIT CARD PROGRAM, NET

In June 2005, we entered into a marketing and servicing alliance with HSBC.  Pursuant to the agreement with HSBC (Program Agreement), HSBC offers credit cards and non-card payment plans and bears substantially all credit risk with respect to sales transacted on the cards bearing our brands. We receive ongoing payments from HSBC related to credit card sales and compensation for marketing and servicing activities (HSBC Program Income).  The Program Agreement expires in June 2010.  We recognize HSBC Program Income when earned.

The Program Agreement, as amended, provides for 1) the allocation between HSBC and NMG of additional income, if any, to be generated from the credit card program as a result of certain changes made to the terms of credit extended to our customers since the inception of the Program Agreement and 2) the allocation of certain credit card losses between HSBC and NMG.  In light of current economic conditions that have led to higher delinquencies and losses on consumer indebtednesses, net losses are currently allocable to NMG.  As of August 1, 2009, our reserve for credit card net losses aggregated $3.5 million, which is included in accrued liabilities in the consolidated balance sheets.

NOTE 5.  PROPERTY AND EQUIPMENT, NET

The significant components of our property and equipment, net are as follows:

(in thousands)	August 1, 2009		August 2, 2008
Land, buildings and improvements	$	868,026	$	829,647
Fixtures and equipment	617,303		560,537
Construction in progress	48,632		77,320
	1,533,961		1,467,504
Less accumulated depreciation and amortization	541,246		392,210
Property and equipment, net	$	992,715	$	1,075,294

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NOTE 6.  GOODWILL AND INTANGIBLE ASSETS, NET

The significant components of our intangible assets and goodwill, by our reportable operating segments, are as follows:

(in thousands)	Customer lists			Favorable lease commitments			Tradenames			Goodwill
Specialty Retail
Balance at July 28, 2007	$	418,058		$	447,319		$	1,406,030		$	1,300,253
Amortization	(39,542		)	(17,878		)
Adjustments related to pre-acquisition tax contingencies	—			—			—			4,805
Balance at August 2, 2008	$	378,516		$	429,441		$	1,406,030		$	1,305,058
Amortization	(39,499		)	(17,877		)
Adjustments related to pre-acquisition tax contingencies										(15,687		)
Writedown of tradenames							(311,835		)
Writedown of goodwill										(329,709		)
Balance at August 1, 2009	$	339,017		$	411,564		$	1,094,195		$	959,662
Direct Marketing
Balance at July 28, 2007	$	59,187		$	—		$	204,285		$	304,887
Amortization	(14,772		)	—
Adjustments related to pre-acquisition tax contingencies										1,246
Writedown of Horchow tradename							(31,261		)	—
Balance at August 2, 2008	$	44,415		$	—		$	173,024		$	306,133
Amortization	(14,772		)	—			(555		)
Adjustments related to pre-acquisition tax contingencies										(2,362		)
Writedown of tradenames							(31,374		)
Balance at August 1, 2009	$	29,643		$	—		$	141,095		$	303,771
Total at August 1, 2009	$	368,660		$	411,564		$	1,235,290		$	1,263,433
Total accumulated amortization at August 1, 2009	$	207,830		$	68,416		$	555

During the third quarter of fiscal year 2009, we closed the Internal Revenue Service (IRS) examination of fiscal years 2005 and 2006 and received net refunds of approximately $2.8 million.  In addition, as a result of the completion of the audit and IRS determination regarding certain deductions taken in connection with the Acquisition, we recorded a decrease in the gross amount of unrecognized tax benefits of $13.7 million and a decrease in accrued interest and penalties of $2.2 million.  This $15.9 million reduction in our liability for unrecognized tax benefits resulted in a decrease to goodwill of $17.3 million and a tax benefit of $1.3 million, offset by a decrease to deferred tax liabilities of $2.7 million during fiscal year 2009.  Finally, in the fourth quarter of fiscal year 2009, we recorded a decrease to our recorded liability for unrecognized tax benefits and a corresponding reduction to goodwill of $0.7 million as a result of the expiration of statutes of limitation in various taxing jurisdictions.

In the first quarter of fiscal year 2008, the cumulative effect of adopting FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) resulted in a net increase to our accruals for uncertain tax positions of $9.1 million for the derecognition of certain tax benefits.  This increase to our accruals was offset by a corresponding increase to goodwill as these uncertainties existed at the time of the Acquisition.  During the fourth quarter of fiscal year 2008, we entered into a negotiated settlement with a state tax authority regarding a state non-filing position which resulted in a decrease in our accruals for uncertain tax positions and a reduction to goodwill of $3.0 million related to the resolution of tax uncertainties that existed at the time of the Acquisition.

In the fourth quarters of fiscal years 2008 and 2007, we recorded $31.3 million and $11.5 million pretax impairment charges related to the writedown to fair value of the Horchow tradename based upon lower revenues and royalty rate

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expectations with respect to the Horchow brand in light of current operating performance and future operating expectations.  Additionally, in the second quarter of fiscal year 2009, we recorded a $12.1 million pretax impairment charge related to the writedown to fair value of the Horchow tradename.  At August 1, 2009, the recorded amount of the Horchow tradename was $3.9 million.

As more fully described in Note 7, we recorded significant impairment charges in the fiscal year 2009 to writedown our tradenames and goodwill to estimated fair value.

NOTE 7.  IMPAIRMENT OF LONG-LIVED ASSETS

We assess the recoverability of indefinite-lived assets and goodwill in the fourth quarter of each year and upon the occurrence of certain events.  In connection with the preparation of our consolidated financial statements for the second quarter of fiscal year 2009, we concluded that it was appropriate to test our long-lived assets for recoverability in light of 1) the significant declines in the domestic and global financial markets during the first and second quarters of fiscal year 2009 and 2) the determination that these macroeconomic conditions are significantly impacting our business operations.

Based upon our assessment of economic conditions as of the end of our second quarter, our expectations of future business conditions and trends, and our projected revenues, earnings and cash flows, we determined certain of our property and equipment, tradenames and goodwill to be impaired and recorded impairment charges in the second quarter of fiscal year 2009 aggregating $560.1 million.

In the fourth quarter of fiscal year 2009, we updated our short-term and long-term operating forecasts in connection with our annual planning process in light of current business conditions and our updated expectations of future business conditions and trends.  Utilizing these updated operating forecasts to estimate the fair values of our reporting units, we determined further impairment with respect to certain of our property and equipment, tradenames and goodwill and recorded additional impairment charges in the fourth quarter of fiscal year 2009 aggregating $143.1 million.

Total impairment charges recorded in fiscal year 2009 are as follows:

(in thousands)	SpecialtyRetail stores		DirectMarketing		Total
Property and equipment	$	30,348	$	—	$	30,348
Tradenames	311,835		31,374		343,209
Goodwill	329,709		—		329,709
	$	671,892	$	31,374	$	703,266

Long-lived assets.  The recoverability assessment with respect to our long-lived assets (consisting of property and equipment, customer lists and favorable lease commitments) is performed at the store level.  This assessment is based upon the comparison of the undiscounted cash flows anticipated to be generated from the store to the net carrying value of the store assets.  To the extent the undiscounted store-level cash flows are not sufficient to recover the net carrying value of the store assets, the assets are impaired and written down to their estimated fair value based upon discounted future cash flows.  Based upon the review of our store-level assets conducted in fiscal year 2009, we identified certain property and equipment to be impaired by $30.3 million.

The recoverability assessment related to store-level assets requires judgments and estimates of future revenues, gross margin rates and store expenses.  We base these estimates upon our past and expected future performance.  We believe our estimates are appropriate in light of current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections.

Tradenames.  The recoverability assessment with respect to each of the tradenames used in our operations requires us to estimate the fair value of the tradename as of the assessment date.  Such determination is made using discounted cash flow techniques.  Inputs to the valuation model include:

·future revenue and profitability projections associated with the tradename;

·estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and

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·rate used to discount the estimated royalty cash flow projections to their present value (or estimated fair value).

Based upon the review of our tradenames in fiscal year 2009, we determined certain of these tradenames were impaired and recorded impairment charges aggregating $343.2 million.  These impairment charges reflect 1) lower revenues and profitability projections associated with our tradenames in the near term, 2) lower estimated market royalty rate expectations in light of current general economic conditions as well as our lower near-term profitability projections and 3) a higher rate (based upon the weighted average cost of capital) required to discount our cash flow projections in light of current economic conditions and financial market considerations.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases.

Goodwill.  We assess the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores and Direct Marketing reporting units. Such determination is made using discounted cash flow techniques.  Inputs to the valuation model include:

·estimated future cash flows;

·growth assumptions for future revenues as well as future gross margin rates, expense rates and other estimates; and

·rate used to discount our estimated future cash flow projections to their present value (or estimated fair value).

Based upon the review of our recorded goodwill balances in fiscal year 2009, we determined the goodwill balances associated with our Specialty Retail stores were impaired and recorded impairment charges aggregating $329.7 million.  These impairment charges reflect 1) lower cash flow, revenue and profitability projections associated with these operations and 2) a higher rate (based upon the weighted average cost of capital) required to discount our cash flow projections in light of current economic conditions and financial market considerations.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date. However, future impairment charges could be required if we do not achieve our current cash flow, revenue and profitability projections or the weighted average cost of capital increases.

NOTE 8.  ACCRUED LIABILITIES

The significant components of accrued liabilities are as follows:

(in thousands)	August 1, 2009		August 2, 2008
Accrued salaries and related liabilities	$	42,213	$	51,857
Amounts due customers	62,254		60,602
Self-insurance reserves	35,510		44,132
Sales returns reserves	29,749		45,042
Interest payable	28,933		34,756
Sales taxes	18,323		24,047
Loyalty program liability	16,927		22,974
Other	68,977		77,684
Total	$	302,886	$	361,094

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NOTE 9.  LONG-TERM DEBT

The significant components of our long-term debt are as follows:

(in thousands)	Interest Rate	August 1,2009			August 2,2008
Senior Secured Term Loan Facility	variable	$	1,625,000		$	1,625,000
2028 Debentures	7.125%	121,297			121,102
Senior Notes	9.0%/9.75%	734,541			700,000
Senior Subordinated Notes	10.375%	500,000			500,000
Total debt		2,980,838			2,946,102
Less: current portion of Senior Secured Term Loan Facility		(26,617		)	—
Long-term debt		$	2,954,221		$	2,946,102

Senior Secured Asset-Based Revolving Credit Facility.  On July 15, 2009, NMG amended and restated the terms of its prior asset-based revolving credit facility (which had been scheduled to mature on October 6, 2010).  The terms of the amended and restated Asset-Based Revolving Credit Facility include a scheduled maturity date of January 15, 2013 and a maximum committed borrowing capacity of $600.0 million (the same amount as the prior facility).  The new facility also provides an uncommitted accordion feature that allows NMG to request the lenders to provide additional capacity in either the form of increased revolving commitments or incremental term loans, subject to a potential total maximum facility of $800 million.

The Asset-Based Revolving Credit Facility provides committed financing of up to $600.0 million, subject to a borrowing base.  The Asset-Based Revolving Credit Facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice.  The borrowing base for the Asset-Based Revolving Credit Facility is equal to at any time the sum of (a) the lesser of (i) 80% of eligible inventory (valued at the lower of cost or market value) and (ii) 85% of the net orderly liquidation value of eligible inventory, and (b) 85% of the amounts owed by credit card processors in respect of eligible credit card accounts constituting proceeds arising from the sale or disposition of inventory, less certain reserves.  Through April 30, 2011, NMG is required to maintain excess availability of at least the greater of (a) 10% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $50 million under the terms of the Asset-Based Revolving Credit Facility.  After April 30, 2011, if at any time, excess availability is less than the greater of (a) 15% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $60 million, NMG will be required to maintain a pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such terms are defined in the credit agreement) of at least 1.1 to 1.0.  On August 1, 2009, NMG had no borrowings outstanding under this facility, $32.8 million of outstanding letters of credit and $468.5 million of unused borrowing availability.

The Asset-Based Revolving Credit Facility provides that NMG has the right at any time to request up to $300 million of additional revolving facility commitments and/or incremental term loans; provided that the aggregate amount of loan commitments under the Asset-Based Revolving Credit Facility may not exceed $800 million. However, the lenders are under no obligation to provide any such additional commitments or loans, and any increase in commitments or incremental term loans will be subject to customary conditions precedent.  If NMG were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the Asset-Based Revolving Credit Facility size could be increased to up to $800 million, but NMG’s ability to borrow would still be limited by the amount of the borrowing base. Incremental term loans may be exchanged by NMG for any of NMG’s existing senior notes and senior subordinated notes, or the cash proceeds of any incremental term loans may be used to repurchase any of such notes, but neither the incremental term loans nor the proceeds thereof may be used for any other purpose.

Borrowings under the Asset-Based Revolving Credit Facility bear interest at a rate per annum equal to, at NMG’s option, either (a) a base rate determined by reference to the highest of (i) a defined prime rate, (ii) the federal funds effective rate plus 1/2 of 1% or (iii) a one-month LIBOR rate plus 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin.  The applicable margin is up to 3.50% with respect to base rate borrowings and up to 4.50% with respect to LIBOR borrowings, provided that until October 1, 2010, the applicable margin will be 3.25% with respect to base rate borrowings and 4.25% with respect to LIBOR borrowings. The applicable margin is subject to adjustment based on the historical availability under the Asset-Based Revolving Credit Facility. In addition, NMG is required to pay a commitment fee in respect of unused commitments of (a) 0.750% per annum during any applicable period in which the average revolving loan utilization is 50% or more or (b) 1% per annum during any applicable period in which the average revolving loan utilization is less than 50%.  NMG must also pay customary letter of credit fees and agency fees.

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If at any time the aggregate amount of outstanding revolving loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-Based Revolving Credit Facility exceeds the lesser of (a) the commitment amount and (b) the borrowing base (including as a result of reductions to the borrowing base that would result from certain non-ordinary course sales of inventory with a value in excess of $25 million, if applicable), NMG will be required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.  In addition, if at any time the aggregate amount of outstanding revolving loans and incremental term loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-Based Revolving Credit Facility exceeds the reported value of inventory owned by the borrowers and guarantors, NMG will be required to eliminate such excess within the earlier of 30 days from such occurrence or 5 business days from the first date on or after such occurrence at which excess availability is less than $75 million.  If (a) the amount available under the Asset-Based Revolving Credit Facility is less than the greater of (i) 20% of the lesser of (A) the aggregate revolving commitments and (B) the borrowing base and (ii) $75 million or (b) an event of default has occurred, NMG will be required to repay outstanding loans and cash collateralize letters of credit with the cash NMG would then be required to deposit daily in a collection account maintained with the agent under the Asset-Based Revolving Credit Facility.

NMG may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.  There is no scheduled amortization under the Asset-Based Revolving Credit Facility; the principal amount of the revolving loans outstanding thereunder will be due and payable in full on January 15, 2013.

All obligations under the Asset-Based Revolving Credit Facility are guaranteed by the Company and certain of NMG’s existing and future domestic subsidiaries.  As of August 1, 2009, the assets of NMG’s non-guarantor subsidiaries aggregated approximately $0.3 million.  All obligations under NMG’s Asset-Based Revolving Credit Facility, and the guarantees of those obligations, are secured, subject to certain significant exceptions, by substantially all of the assets of the Company, NMG and the subsidiaries that have guaranteed the Asset-Based Revolving Credit Facility (subsidiary guarantors), including:

·a first-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by NMG or the subsidiary guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges for sales of inventory by NMG and the subsidiary guarantors, certain related assets and proceeds of the foregoing;

·a second-priority pledge of 100% of NMG’s capital stock and certain of the capital stock held by NMG, the Company or any subsidiary guarantor (which pledge, in the case of any foreign subsidiary is limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary); and

·a second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of NMG, the Company and each subsidiary guarantor, including a significant portion of NMG’s owned and leased real property (which currently consists of approximately half of NMG’s full-line retail stores) and equipment.

Capital stock and other securities of a subsidiary of NMG that are owned by NMG or any subsidiary guarantor will not constitute collateral under NMG’s Asset-Based Revolving Credit Facility to the extent that such securities cannot secure NMG’s 2028 Debentures or other secured public debt obligations without requiring the preparation and filing of separate financial statements of such subsidiary in accordance with applicable Securities and Exchange Commission’s rules.  As a result, the collateral under NMG’s Asset-Based Revolving Credit Facility will include shares of capital stock or other securities of subsidiaries of NMG or any subsidiary guarantor only to the extent that the applicable value of such securities (on a subsidiary-by-subsidiary basis) is less than 20% of the aggregate principal amount of the 2028 Debentures or other secured public debt obligations of NMG. The Asset-Based Revolving Credit Facility contains a number of covenants that, among other things and subject to certain significant exceptions, restrict its ability and the ability of its subsidiaries to:

·incur additional indebtedness;

·pay dividends on NMG’s capital stock or redeem, repurchase or retire NMG’s capital stock or indebtedness;

·make investments, loans, advances and acquisitions;

·create restrictions on the payment of dividends or other amounts to NMG from its subsidiaries that are not guarantors;

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·engage in transactions with NMG’s affiliates;

·sell assets, including capital stock of NMG’s subsidiaries;

·consolidate or merge;

·create liens; and

·enter into sale and lease back transactions.

The covenants limiting dividends and other restricted payments; investments, loans, advances and acquisitions; and prepayments or redemptions of other indebtedness, each permit the restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that NMG must have pro forma excess availability under the Asset-Based Revolving Credit Facility equal to at least 25% of the lesser of (a) the revolving commitments under the facility and (b) the borrowing base, NMG delivering projections demonstrating that projected excess availability for the next twelve months will be equal to such thresholds and that NMG have a pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such terms are defined in the credit agreement) of at least 1.2 to 1.0 (or 1.1 to 1.0 for prepayments or redemptions of other indebtedness).  The Asset-Based Revolving Credit Facility also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50 million.

Senior Secured Term Loan Facility.  In October 2005, NMG entered into a credit agreement and related security and other agreements for a $1,975.0 million Senior Secured Term Loan Facility.  NMG voluntarily repaid $100.0 million principal amount of the loans under its Senior Secured Term Loan Facility in fiscal year 2006 and $250 million in fiscal year 2007.  At August 1, 2009, the outstanding balance under the Senior Secured Term Loan Facility was $1,625.0 million (including $26.6 million of borrowings classified as current liabilities).  The principal amount of the loans outstanding is due and payable in full on April 6, 2013.

At August 1, 2009, borrowings under the Senior Secured Term Loan Facility bore interest at a rate per annum equal to, at NMG’s option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Credit Suisse and (2) the federal funds effective rate plus ½ of 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 2.50% at August 1, 2009.  The applicable margin is subject to adjustment based on contractually defined debt coverage ratios.  At August 1, 2009, the applicable margin with respect to base rate borrowings was 1.00% and the applicable margin with respect to LIBOR borrowings was 2.00%.

The credit agreement governing the Senior Secured Term Loan Facility requires NMG to prepay outstanding term loans with 50% (which percentage will be reduced to 25% if NMG’s total leverage ratio is less than a specified ratio and will be reduced to 0% if NMG’s total leverage ratio is less than a specified ratio) of its annual excess cash flow (as defined in the credit agreement). For fiscal year 2009, NMG will be required to prepay $26.6 million of outstanding term loans in the first quarter of fiscal year 2010 pursuant to the annual excess cash flow requirements.  For fiscal years 2008 and 2007, NMG was not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements.  If a change of control (as defined in the credit agreement) occurs, NMG will be required to offer to prepay all outstanding term loans, at a prepayment price equal to 101% of the principal amount to be prepaid, plus accrued and unpaid interest to the date of prepayment. NMG also must offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales under certain circumstances.

NMG may voluntarily prepay outstanding loans under the Senior Secured Term Loan Facility at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans. There is no scheduled amortization under the Senior Secured Term Loan Facility.

All obligations under the Senior Secured Term Loan Facility are unconditionally guaranteed by the Company and each direct and indirect domestic subsidiary of NMG that guarantees the obligations of NMG under its Asset-Based Revolving Credit Facility. All obligations under the Senior Secured Term Loan Facility, and the guarantees of those obligations, are secured, subject to certain significant exceptions, by substantially all of the assets of the Company, NMG and the subsidiary guarantors, including:

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·a first-priority pledge of 100% of NMG’s capital stock and certain of the capital stock held by NMG, the Company or any subsidiary guarantor (which pledge, in the case of any foreign subsidiary is limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary); and

·a first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of NMG, the Company and each subsidiary guarantor, including a significant portion of NMG’s owned and leased real property (which currently consists of approximately half of NMG’s full-line retail stores) and equipment, but excluding, among other things, the collateral described in the following bullet point; and

·a second-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by NMG or the subsidiary guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges for sales of inventory by NMG and the subsidiary guarantors, certain related assets and proceeds of the foregoing.

Capital stock and other securities of a subsidiary of NMG that are owned by NMG or any subsidiary guarantor will not constitute collateral under NMG’s Senior Secured Term Loan Facility to the extent that such securities cannot secure the 2028 Debentures or other secured public debt obligations without requiring the preparation and filing of separate financial statements of such subsidiary in accordance with applicable SEC rules. As a result, the collateral under NMG’s Senior Secured Term Loan Facility will include shares of capital stock or other securities of subsidiaries of NMG or any subsidiary guarantor only to the extent that the applicable value of such securities (on a subsidiary-by-subsidiary basis) is less than 20% of the aggregate principal amount of the 2028 Debentures or other secured public debt obligations of NMG.

The credit agreement governing the Senior Secured Term Loan Facility contains a number of negative covenants that are substantially similar to those governing the Senior Notes and additional covenants related to the security arrangements for the Senior Secured Term Loan Facility. The credit agreement also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50 million.

2028 Debentures.  In May 1998, NMG issued $125.0 million aggregate principal amount of its 7.125% 2028 Debentures. NMG equally and ratably secures its 2028 Debentures by a first lien security interest on certain collateral subject to liens granted under NMG’s Senior Secured Credit Facilities constituting (a) (i) 100% of the capital stock of certain of NMG’s existing and future domestic subsidiaries, and (ii) 100% of the non-voting stock and 65% of the voting stock of certain of NMG’s existing and future foreign subsidiaries and (b) certain of NMG’s principal properties that include approximately half of NMG’s full-line stores, in each case, to the extent required by the terms of the indenture governing the 2028 Debentures. The 2028 Debentures contain covenants that restrict NMG’s ability to create liens and enter into sale and lease back transactions. The collateral securing the 2028 Debentures will be released upon the release of liens on such collateral under NMG’s Senior Secured Credit Facilities and any other debt (other than the 2028 Debentures) secured by such collateral. Capital stock and other securities of a subsidiary of NMG that are owned by NMG or any subsidiary will not constitute collateral under the 2028 Debentures to the extent such property does not constitute collateral under NMG’s Senior Secured Credit Facilities as described above. The 2028 Debentures are guaranteed on an unsecured, senior basis by the Company.  NMG’s 2028 Debentures mature on June 1, 2028.

The fair value of 2028 Debentures at August 1, 2009 was approximately $95.6 million.

Senior Notes.In October 2005, Newton Acquisition Merger Sub, Inc. issued $700.0 million aggregate original principal amount of 9.0% / 9.75% Senior Notes under a senior indenture (Senior Indenture) with Wells Fargo Bank, National Association, as trustee. At the closing of the Acquisition, as the surviving corporation in the Acquisition, NMG assumed all the obligations of Newton Acquisition Merger Sub, Inc. under the Senior Indenture. At August 1, 2009, NMG has $734.5 million aggregate principal amount of 9.0% / 9.75% Senior Notes under a senior indenture (Senior Indenture).  NMG’s Senior Notes mature on October 15, 2015.

Interest on the Senior Notes is payable quarterly in arrears on each January 15, April 15, July 15 and October 15.  For any interest payment period through October 15, 2010, NMG may, at its option, elect to pay interest on the Senior Notes entirely in cash (Cash Interest) or entirely by increasing the principal amount of the outstanding Senior Notes by issuing additional Senior Notes (PIK Interest). Cash Interest on the Senior Notes accrues at the rate of 9% per annum. PIK Interest on the Senior Notes accrues at the rate of 9.75% per annum. We negotiated for the right to include the PIK feature in our Senior Notes because of our belief that this feature could be a useful tool to enhance liquidity under appropriate circumstances. In the second quarter of fiscal year 2009, given the dislocation in the financial markets and the uncertainty as to when reasonable conditions will return, we believed that it was appropriate to utilize this feature, even though we had available borrowing

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capacity under our $600.0 million revolving credit facility. Accordingly, we have elected to pay PIK Interest for the three quarterly interest periods ending October 14, 2009 and to make such interest payments with the issuance of additional Senior Notes at the PIK Interest rate of 9.75% instead of paying interest in cash.  As a result, the original principal amount of Senior Notes of $700.0 million increased by $17.1 million on April 14, 2009 and $17.4 million on July 14, 2009.

Prior to the beginning of each eligible interest period in the future, we will evaluate whether to continue utilizing this PIK feature, taking into account market conditions and other relevant factors at that time. After October 15, 2010, we are required to make all interest payments on the Senior Notes entirely in cash.

The Senior Notes are fully and unconditionally guaranteed, on a joint and several unsecured, senior basis, by each of NMG’s wholly-owned domestic subsidiaries that guarantee NMG’s obligations under its Senior Secured Credit Facilities and by the Company. The Senior Notes and the guarantees thereof are NMG’s and the guarantors’ unsecured, senior obligations and rank (i) equal in the right of payment with all of NMG’s and the guarantors’ existing and future senior indebtedness, including any borrowings under NMG’s Senior Secured Credit Facilities and the guarantees thereof and NMG’s 2028 Debentures; and (ii) senior to all of NMG’s and its guarantors’ existing and future subordinated indebtedness, including the Senior Subordinated Notes due 2015 and the guarantees thereof. The Senior Notes also are effectively junior in priority to NMG’s and its guarantors’ obligations under all secured indebtedness, including NMG’s Senior Secured Credit Facilities, the 2028 Debentures, and any other secured obligations of NMG, in each case, to the extent of the value of the assets securing such obligations. In addition, the Senior Notes are structurally subordinated to all existing and future liabilities, including trade payables, of NMG’s subsidiaries that are not providing guarantees.

NMG is not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes, but under certain circumstances, NMG may be required to offer to purchase Senior Notes as described below. NMG may from time to time acquire Senior Notes by means other than a redemption, whether by tender offer, in open market purchases, through negotiated transactions or otherwise, in accordance with applicable securities laws.

Except as described below, the Senior Notes are not redeemable at NMG’s option prior to October 15, 2010. From and after October 15, 2010, NMG may redeem the Senior Notes, in whole or in part, at a redemption price equal to 104.5% of principal amount, declining annually to 100% of the principal amount on October 15, 2013, plus accrued and unpaid interest, and Additional Interest (as defined in the Senior Indenture), if any, thereon to the applicable redemption date.

At any time prior to October 15, 2010, NMG may redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount of Senior Notes redeemed plus an applicable premium, as provided in the Senior Indenture, and accrued and unpaid interest and Additional Interest, if any, to the redemption date.

Upon the occurrence of a change of control (as defined in the Senior Indenture), each holder of the Senior Notes has the right to require NMG to repurchase some or all of such holder’s Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, and Additional Interest, if any, to the date of purchase.

The indenture governing the Senior Notes contains covenants that limit NMG’s ability and certain of its subsidiaries’ ability to:

·incur additional indebtedness;

·pay dividends on NMG’s capital stock or redeem, repurchase or retire NMG’s capital stock or subordinated indebtedness;

·make investments;

·create restrictions on the payment of dividends or other amounts to NMG from its restricted subsidiaries that are not guarantors of the notes;

·engage in transactions with NMG’s affiliates;

·sell assets, including capital stock of NMG’s subsidiaries;

·consolidate or merge;

·create liens; and

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·enter into sale and lease back transactions.

The Senior Indenture also provides for events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50 million, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all outstanding Senior Notes to be due and payable immediately.

The fair value of NMG’s Senior Notes at August 1, 2009 was approximately $539.9 million.

Senior Subordinated Notes.In October 2005, Newton Acquisition Merger Sub, Inc. issued $500.0 million aggregate principal amount of 10.375% Senior Subordinated Notes under a senior subordinated indenture (Senior Subordinated Indenture) with Wells Fargo Bank, National Association, as trustee. At the closing of the Acquisition, as the surviving corporation in the Acquisition, NMG assumed all the obligations of Newton Acquisition Merger Sub, Inc. under the Senior Subordinated Indenture. The Senior Subordinated Notes mature on October 15, 2015. Interest on the Senior Subordinated Notes is payable in cash semi-annually in arrears on each April 15 and October 15, commencing April 15, 2006.

The Senior Subordinated Notes are fully and unconditionally guaranteed, on a joint and several unsecured, senior subordinated basis, by each of NMG’s wholly-owned domestic subsidiaries that guarantee NMG’s obligations under its Senior Secured Credit Facilities and by the Company. The Senior Subordinated Notes and the guarantees thereof are NMG’s and the guarantors’ unsecured, senior subordinated obligations and rank (i) junior to all of NMG’s and the guarantors’ existing and future senior indebtedness, including the Senior Notes and any borrowings under NMG’s Senior Secured Credit Facilities, and the guarantees thereof and NMG’s 2028 Debentures; (ii) equally with any of NMG’s and the guarantors’ future senior subordinated indebtedness; and (iii) senior to any of NMG’s and the guarantors’ future subordinated indebtedness. In addition, the Senior Subordinated Notes are structurally subordinated to all existing and future liabilities, including trade payables, of NMG’s subsidiaries that are not providing guarantees.

NMG is not required to make any mandatory redemption or sinking fund payments with respect to the Senior Subordinated Notes, but, under certain circumstances, NMG may be required to offer to purchase Senior Subordinated Notes as described below. The Company may from time to time acquire Senior Subordinated Notes by means other than a redemption, whether by tender offer, in open market purchases, through negotiated transactions or otherwise, in accordance with applicable securities laws.

Except as described below, the Senior Subordinated Notes are not redeemable at NMG’s option prior to October 15, 2010. From and after October 15, 2010, NMG may redeem the Senior Subordinated Notes, in whole or in part, at a redemption price equal to 105.188% of principal amount, declining annually to 100% of principal amount on October 15, 2013, plus accrued and unpaid interest, and Additional Interest (as defined in the Senior Subordinated Indenture), if any, thereon to the applicable redemption date.

At any time prior to October 15, 2010, NMG also may redeem all or a part of the Senior Subordinated Notes at a redemption price equal to 100% of the principal amount of Senior Subordinated Notes redeemed plus an applicable premium, as provided in the Senior Subordinated Indenture, and accrued and unpaid interest and Additional Interest, if any, to the redemption date.

Upon the occurrence of a change of control (as defined in the Senior Subordinated Indenture), NMG will make an offer to purchase all of the Senior Subordinated Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, and Additional Interest, if any, to the date of purchase.

The indenture governing the Senior Subordinated Notes contains covenants substantially similar to those applicable to NMG’s Senior Notes described above. The Senior Subordinated Indenture also provides for events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50 million, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all outstanding Senior Subordinated Notes to be due and payable immediately, subject to certain exceptions.

The fair value of NMG’s Senior Subordinated Notes at August 1, 2009 was approximately $355.0 million.

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Maturities of Long-Term Debt.  At August 1, 2009, annual maturities of long-term debt during the next five fiscal years and thereafter are as follows (in millions):

2010	$	26.6
2011	—
2012	—
2013	1,598.4
2014	—
Thereafter	1,355.8

The above table does not reflect either future excess cash flow prepayments, if any, that may be required under the Senior Secured Term Loan Facility or additional principal amounts under the Senior Notes that will be outstanding as a result of our current PIK Interest election for the quarterly interest period ending October 14, 2009, or any future PIK Interest election that we may make through October 15, 2010.

Interest expense.  The significant components of interest expense are as follows:

	Fiscal year ended
(in thousands)	August 1,2009		August 2,2008		July 28,2007
Senior Secured Term Loan Facility	$	90,952	$	106,504	$	128,380
2028 Debentures	8,906		8,903		8,915
Senior Notes	66,356		63,000		63,000
Senior Subordinated Notes	52,028		51,875		51,875
Amortization of debt issue costs	17,185		14,217		14,141
Other	3,709		3,275		3,689
Total interest expense	239,136		247,774		270,000
Less:
Interest income	2,569		4,933		7,370
Capitalized interest	993		3,036		2,825
Interest expense, net	$	235,574	$	239,805	$	259,805

NOTE 10.  FAIR VALUE MEASUREMENTS

In the first quarter of fiscal year 2009, we adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which provides guidance for using fair value to measure certain assets and liabilities.  SFAS 157 applies whenever another standard requires or permits assets or liabilities to be measured at fair value.  The standard does not expand the use of fair value to any new circumstances.

SFAS 157 defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities includes consideration of non-performance risk, including our own credit risk.

In addition to defining fair value, SFAS 157 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the following three levels:

·Level 1 — valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

·Level 2 — valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all

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significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3 — valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

In the third quarter of fiscal year 2009, we adopted the disclosure requirements of Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161).  SFAS 161 enhances current disclosures related to derivative instruments and hedging activities to provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance and cash flows.

In connection with the Acquisition, we obtained $2,575.0 million of floating rate debt agreements, of which $2,125.0 million was outstanding at the Acquisition date and $1,625.0 million is outstanding at August 1, 2009 (including $26.6 million of borrowings classified as current liabilities).  Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness.  These swap agreements hedge a portion of our contractual floating rate interest commitments through the expiration of the agreements in December 2010.  As a result of the swap agreements, NMG’s effective fixed interest rates as to the $1,000.0 million in floating rate indebtedness will currently range from 6.831% to 6.983% per quarter through 2010 and result in an average fixed rate of 6.900%.

As of the effective date, NMG designated the interest rate swaps as cash flow hedges. As cash flow hedges, unrealized gains on our outstanding interest rate swaps are recognized as assets while unrealized losses are recognized as liabilities.  Our interest rate swap agreements are highly, but not perfectly, correlated to the changes in interest rates to which we are exposed.  As a result, unrealized gains and losses on our interest rate swap agreements are designated as effective or ineffective.  The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive loss while the ineffective portion of such gains or losses is recorded as a component of interest expense.

In addition, we realize a gain or loss on our interest rate swap agreements in connection with each required interest payment on our floating rate indebtedness.  These realized gains or losses are reclassified from accumulated other comprehensive loss to interest expense.  The realized gains and losses effectively adjust the contractual interest requirements pursuant to the terms of our floating rate indebtedness to the interest requirements at the fixed rates established in the interest rate swaps agreements.  The cash flows from our interest rate swaps are recorded in operating activities in the condensed consolidated statements of cash flows.

The fair values of the interest rate swaps are estimated using industry standard valuation models using market-based observable inputs including interest rate curves (Level 2).  A summary of the recorded balances with respect to our interest rate swaps included in our consolidated balance sheets is as follows:

(in thousands)	August 1, 2009		August 2, 2008
Unrecognized losses — included in other long-term liabilities	$	57,750	$	34,386
Accumulated other comprehensive loss, net of taxes	$	35,508	$	21,755

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A summary of the recorded amounts related to our interest rate swaps reflected in our consolidated statements of operations are as follows:

	Fiscal year ended
(in thousands)	August 1, 2009		August 2, 2008		July 28, 2007
Realized hedging losses (gains) — included in interest expense, net	$	29,212	$	3,841	$	(6,040	)
Ineffective hedging losses — included in interest expense, net	$	669	$	479	$	696

The amount of losses recorded in other comprehensive loss at August 1, 2009 that is expected to be reclassified into interest expense in the next twelve months, if interest rates remain unchanged, is approximately $41.4 million.

NOTE 11.  OTHER INCOME

In the first quarter of fiscal year 2008, we recorded a pension curtailment gain of $32.5 million, or 0.7% of revenues, as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.

In the first quarter of fiscal year 2007, we received consideration aggregating $4.2 million, or 0.1% of revenues, in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot. We accounted for our investment in Wedding Channel.com under the cost method. In prior years, we had previously reduced our carrying value of this investment to zero.

In the fourth quarter of fiscal year 2007, we recorded $6.0 million of other income for the breakage on gift cards we previously sold and issued.  The income was recognized based upon our analysis of the aging of these gift cards, our determination that the likelihood of future redemption was remote and our determination that such balances were not subject to escheatment laws applicable to our operations.  Prior to the fourth quarter of fiscal year 2007, we had not recognized breakage on gift cards pending, among other things, our final determination of the applicable escheatment laws applicable to our operations.

NOTE 12.  STOCK-BASED COMPENSATION

The Company has approved equity-based management arrangements which authorize equity awards to be granted to certain management employees for up to 87,992.0 shares of the common stock of the Company.  Options generally vest over four to five years and expire 10 years from the date of grant.

A summary of the status of our stock option plan is as follows:

	Fiscal year ended
	August 1, 2009				August 2, 2008				July 28, 2007
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of fiscal year	83,146.6		$	1,507	83,634.3		$	1,430	81,716.3		$	1,416
Granted	—		—		260.0		2,684		2,496.0		1,942
Exercised	(854.5	)	1,684		—		—		(578.0	)	1,590
Forfeited	(2,893.1	)	1,617		(747.7	)	1,597		—		—
Outstanding at end of fiscal year	79,399.0		$	1,585	83,146.6		$	1,507	83,634.3		$	1,430
Options exercisable at end of fiscal year	60,856.7		$	1,542	46,684.4		$	1,415	29,764.1		$	1,233

The exercise price of approximately 50% of our options escalate at a 10% compound rate per year until the earlier to occur of (i) exercise, (ii) the fifth anniversary of the date of grant or (iii) the occurrence of a change in control. However, in the

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event the Sponsors cause the sale of shares of the Company to an unaffiliated entity, the exercise price will cease to accrete at the time of the sale with respect to a pro rata portion of the accreting options.

All grants of stock options have an exercise price equal to the fair market value of our common stock on the date of grant.  Because we are privately held and there is no public market for our common stock, the fair market value of our common stock is determined by our Compensation Committee at the time option grants are awarded.  In determining the fair value of our common stock, the Compensation Committee considers such factors as the Company’s actual and projected financial results, the principal amount of the Company’s indebtedness, valuations of the Company performed by third parties and other factors it believes are material to the valuation process.

We use the Black-Scholes option-pricing model to determine the fair value of our options as of the date of grant in accordance with the provisions of SFAS 123(R).  A summary of fiscal years 2008 and 2007 grants and fair value assumptions is as follows:

	Fiscal Year 2008 Grants						Fiscal Year 2007 Grants
	Fair Value Options			Accreting Exercise Price Options			Fair Value Options			Accreting Exercise Price Options
Options Granted	130.0			130.0			1,248.0			1,248.0
Exercise Price at August 1, 2009	$	2,684		$	2,952		$	1,942		$	2,350
Term	5			5			5			5
Volatility	30.0		%	30.0		%	30.0		%	30.0		%
Risk-Free Rate	3.5		%	3.5		%	4.5		%	4.5		%
Dividend Yield	—			—			—			—
Fair Value	$	882		$	433		$	676		$	341

Expected volatility is based on a combination of NMG’s historical volatility adjusted for our leverage and estimates of implied volatility of our peer group.

We recognize compensation expense for stock options straight-line over the vesting period.  We recognized non-cash stock compensation expense of $5.8 million in fiscal year 2009, $6.1 million in fiscal year 2008 and $5.9 million in fiscal year 2007, which is included in selling, general and administrative expenses. At August 1, 2009, unearned non-cash stock-based compensation that we expect to recognize as expense through fiscal year 2014 aggregates approximately $6.1 million.

NOTE 13.  INCOME TAXES

The significant components of income tax (benefit) expense are as follows:

	Fiscal year ended
(in thousands)	August 1,2009			August 2,2008			July 28,2007
Current:
Federal	$	(66,168	)	$	108,467		$	127,754
State	(389		)	19,976			15,063
	(66,557		)	128,443			142,817
Deferred:
Federal	(132,442		)	(37,693		)	(53,763		)
State	(21,446		)	(6,934		)	(6,759		)
	(153,888		)	(44,627		)	(60,522		)
Income tax (benefit) expense	$	(220,445	)	$	83,816		$	82,295

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

	Fiscal year ended
(in thousands)	August 1,2009			August 2,2008			July 28,2007
Income tax (benefit) expense at statutory rate	$	(310,972	)	$	79,319		$	75,954
State income taxes, net of federal income tax benefit	(23,311		)	5,821			6,989
Impairment of nondeductible goodwill	115,398			—			—
Tax (benefit) expense related to tax settlements and other changes in tax liabilities	(378		)	159			1,925
Impact of non-taxable income	(897		)	(1,709		)	(2,422		)
Impact of non-deductible expenses	82			226			326
Other	(367		)	—			(477		)
Total	$	(220,445	)	$	83,816		$	82,295
Effective tax rate	24.8		%	37.0		%	37.9		%

Our effective income tax rate for fiscal year 2009 was 24.8% compared to 37.0% for fiscal year 2008 and 37.9% for fiscal year 2007.  No income tax benefit exists related to the $329.7 million of goodwill impairment charges recorded in fiscal year 2009.  Excluding the impact of the goodwill impairment charges, our effective income tax rate was 39.5% for fiscal year 2009.  Our effective tax rate for fiscal year 2007 was favorably impacted by non-taxable income, partially offset by increases in tax liabilities for settlements with taxing authorities.

Significant components of our net deferred income tax asset (liability) are as follows:

(in thousands)	August 1, 2009			August 2, 2008
Deferred income tax assets:
Accruals and reserves	$	39,997		$	28,445
Employee benefits	124,987			89,113
Other	43,348			28,021
Total deferred tax assets	$	208,332		$	145,579
Deferred income tax liabilities:
Inventory	$	(12,208	)	$	(4,685	)
Depreciation and amortization	(76,818		)	(71,890		)
Intangible assets	(787,987		)	(950,141		)
Other	(9,993		)	(16,174		)
Total deferred tax liabilities	(887,006		)	(1,042,890		)
Net deferred income tax asset (liability)	$	(678,674	)	$	(897,311	)
Net deferred income tax asset (liability):
Current	$	19,136		$	32,659
Non-current	(697,810		)	(929,970		)
Total	$	(678,674	)	$	(897,311	)

The net deferred tax liability of $678.7 million at August 1, 2009 decreased from a $897.3 million net deferred liability at August 2, 2008.  This decrease was comprised primarily of 1) a $133.5 million decrease in deferred tax liabilities related to the impairment of certain intangible assets, 2) a $28.7 million decrease in deferred tax liabilities related to amortization of certain intangible assets, and 3) a $49.6 million increase in deferred tax assets related to an increase in minimum pension liability. We believe it is more likely than not that we will realize the benefits of our recorded deferred tax assets.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) in the first quarter of fiscal year 2008.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The cumulative effect of adopting FIN 48 resulted in a net increase to our accruals for uncertain tax positions of $9.1 million for the derecognition of certain tax benefits previously recorded. This increase to our accruals was offset by a corresponding increase to goodwill as these uncertainties existed at the time of the Acquisition.  At August 1, 2009, the gross amount of unrecognized tax

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benefits was $6.6 million, all of which would impact our effective tax rate, if recognized.  We classify interest and penalties as a component of income tax (benefit) expense and our liability for accrued interest and penalties was $5.8 million as of August 1, 2009.  A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in millions):

(in thousands)	August 1, 2009			August 2, 2008
Balance at beginning of fiscal year	$	21,244		$	26,624
Gross amount of increases for current year tax positions	591			1,779
Gross amount of decreases for settlements with tax authorities	(14,263		)	(7,159		)
Gross amount of decreases for expiration of statutes of limitation	(967		)	—
Balance at ending of fiscal year	$	6,605		$	21,244

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions.  During the third quarter of fiscal year 2009, we closed the IRS examination of fiscal years 2005 and 2006 and received net refunds of approximately $2.8 million.  In addition, as a result of the completion of the audit and IRS determination regarding certain deductions taken in connection with the Acquisition, we recorded a decrease in the gross amount of unrecognized tax benefits of $13.7 million and a decrease in accrued interest and penalties of $2.2 million. This $15.9 million reduction in our liability for unrecognized tax benefits resulted in a decrease to goodwill of $17.3 million and a tax benefit of $1.3 million, offset by a decrease to deferred tax liabilities of $2.7 million during fiscal year 2009.  Finally, in the fourth quarter of fiscal year 2009, we recorded a decrease to our recorded liability for unrecognized tax benefits and a corresponding reduction to goodwill of $0.7 million as a result of the expiration of statutes of limitation in various taxing jurisdictions.

During the fourth quarter of fiscal year 2008, we entered into a negotiated settlement with a state tax authority regarding a state non-filing position which resulted in a decrease in our accruals for uncertain tax positions and a reduction to our gross unrecognized tax benefits of $7.2 million and a corresponding decrease to goodwill of $3.0 million related to the resolution of uncertainties that existed at the time of the Acquisition.

The IRS is now examining our federal tax returns for fiscal year 2007.  We believe our recorded tax liabilities as of August 1, 2009 are sufficient to cover any potential assessments to be made by the IRS upon the completion of their examinations. We will continue to monitor the progress of the IRS examinations and review our recorded tax liabilities for potential audit assessments.  With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal years before 2005.  We believe it is reasonably possible that additional adjustments in the amounts of our unrecognized tax benefits could occur within the next 12 months as a result of settlements with tax authorities or expiration of statutes of limitation.  At this time, we do not believe such adjustments will have a material impact on our consolidated financial statements.

NOTE 14.  EMPLOYEE BENEFIT PLANS

Description of Benefit Plans.  We sponsor a defined benefit pension plan (Pension Plan) and an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits. Benefits under both plans are based on the employees’ years of service and compensation over defined periods of employment. As more fully described below, we froze benefits offered under our Pension and SERP Plans effective December 31, 2007.  Retirees and active employees hired prior to March 1, 1989 are eligible for certain limited postretirement health care benefits (Postretirement Plan) if they meet certain service and minimum age requirements.

We also maintain defined contribution plans consisting of a 401(k) Plan and, in connection with the redesign of our long-term benefits effective January 1, 2008 as more fully described below, a retirement savings plan (RSP) and defined contribution supplemental executive retirement plan (Defined Contribution SERP Plan).  Employees make contributions to the 401(k) Plan and RSP and we match an employee’s contribution up to a maximum of 6% of the employee’s compensation subject to statutory limitations for a potential maximum match of 50% of employee contributions to the 401(k) Plan and 75% of employee contributions to the RSP. We also sponsor an unfunded key employee deferred compensation plan, which provides certain employees with additional benefits.  Our aggregate expense related to these plans was approximately $20.0 million in fiscal year 2009, $19.2 million in fiscal year 2008 and $11.0 million in fiscal year 2007.

Plan Redesign. On September 7, 2007, our Board of Directors approved certain changes to our long-term benefits program.  Effective January 1, 2008, we offered a new, enhanced retirement savings plan subject to participants’ elections to participate (as more fully described below).  For associates participating in the RSP:

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·Participants’ balances in our 401(k) Plan were automatically transferred to the RSP.

·Our matching contributions to the RSP increased to a potential maximum 75% of the employee contributions (up to a 6% deferral) from the potential maximum 50% to the 401(k) Plan (subject to IRS limit of $16,500 in 2009 for employee contributions).

·Our matching contributions vest to employees in two years as compared to the three year vesting under the 401(k) Plan.

·All current employees, who did not participate in the former 401(k) Plan, and future employees are automatically enrolled in the RSP at a salary deferral rate of 3% once eligibility requirements have been met.

Concurrent with the implementation of the RSP and the Defined Contribution SERP Plan, we froze benefits offered under our Pension and SERP Plans for most employees.  Employees with a minimum of ten years of service and whose age plus years of service equaled at least 65 (Rule of 65) as of December 31, 2007 were allowed either 1) to continue participation in our 401(k) Plan and Pension Plan (and SERP Plan, if eligible) or 2) to freeze the benefits earned under the Pension Plan (and SERP Plan, if eligible) and participate in the RSP. No employee who met vesting requirements forfeited benefits earned prior to December 31, 2007.

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

	Fiscal year ended
(in thousands)	August 1, 2009			August 2, 2008			July 28, 2007
Pension Plan:
Service cost	$	6,057		$	10,815		$	14,886
Interest cost	24,361			22,866			22,214
Expected return on plan assets	(26,048		)	(24,626		)	(23,458		)
Pension Plan expense	$	4,370		$	9,055		$	13,642
Curtailment gain	$	—		$	26,113		$	—
SERP Plan:
Service cost	$	689		$	1,254		$	1,719
Interest cost	5,312			4,960			4,928
SERP Plan expense	$	6,001		$	6,214		$	6,647
Curtailment gain	$	—		$	6,337		$	—
Postretirement Plan:
Service cost	$	92		$	124		$	57
Interest cost	1,343			1,356			786
Net amortization of losses (gains)	282			547			(64		)
Postretirement Plan expense	$	1,717		$	2,027		$	779

For purposes of determining pension expense, the expected return on plan assets is calculated using the market related value of plan assets.  At August 1, 2009, the market related value of plan assets exceeded fair value by $57.8 million.

Benefit Obligations.  Our obligations for the Pension Plan, SERP Plan and Postretirement Plan are valued annually as of the beginning of each fiscal year. With respect to the Pension Plan and the SERP Plan, our obligations consist of both a projected benefit obligation (PBO) and an accumulated benefit obligation (ABO). The PBO represents the present value of benefits ultimately payable to plan participants for both past and future services expected to be provided by the plan participants. The ABO represents the present value of benefits payable to plan participants for only services rendered at the valuation date.

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Our obligations pursuant to our Pension Plan, SERP Plan and Postretirement Plan are as follows:

	Pension Plan						SERP Plan						Postretirement Plan
	Fiscal years						Fiscal years						Fiscal years
(in thousands)	2009			2008			2009			2008			2009			2008
Projected benefit obligations:
Beginning of year	$	354,229		$	380,235		$	77,566		$	86,146		$	20,336		$	22,091
Service cost	6,057			10,815			689			1,254			92			124
Interest cost	24,361			22,866			5,312			4,960			1,343			1,356
Actuarial (gain) loss	55,554			(22,825		)	11,001			(5,409		)	665			(2,167		)
Curtailment	—			(26,113		)	—			(7,091		)	—			—
Benefits paid, net	(12,206		)	(10,749		)	(2,416		)	(2,294		)	(1,525		)	(1,068		)
Plan amendments	—			—			—			—			(2,991		)	—
End of year	$	427,995		$	354,229		$	92,152		$	77,566		$	17,920		$	20,336
Accumulated benefit obligations:
Beginning of year	$	336,016		$	337,047		$	68,253		$	68,105
End of year	$	407,297		$	336,016		$	84,254		$	68,253

A summary of expected benefit payments related to our Pension Plan, SERP Plan and Postretirement Plan is as follows:

(in thousands)	Pension Plan		SERP Plan		Postretirement Plan
Fiscal year 2010	$	13,421	$	4,142	$	927
Fiscal year 2011	14,903		4,482		1,015
Fiscal year 2012	16,634		4,799		1,072
Fiscal year 2013	18,523		5,210		1,124
Fiscal year 2014	20,413		5,690		1,141
Fiscal years 2015-2019	$	130,562	$	33,310	$	6,159

Funding Policy and Plan Assets.  Our policy is to fund the Pension Plan at or above the minimum required by law. We were not required to make contributions to the Pension Plan during fiscal years 2009 and 2008; however, we made a voluntary $15.0 million contribution to our Pension Plan in both fiscal years 2009 and 2008.  In fiscal year 2007, we made no contributions to our Pension Plan.  Based upon currently available information, we will not be required to make contributions to the Pension Plan during fiscal year 2010.  However, we will continue to evaluate voluntary contributions to our Pension Plan based upon the unfunded position of the Pension Plan, our available liquidity and other factors.

Assets held by the Pension Plan are invested in accordance with the provisions of our approved investment policy. The Pension Plan’s strategic asset allocation was structured to reduce volatility through diversification and enhance return to approximate the amounts and timing of the expected benefit payments.  The asset allocation for our Pension Plan at the end of fiscal years 2009 and 2008 and the target allocation for fiscal year 2010, by asset category, are as follows:

	Pension Plan
	Allocation at July 31, 2009		Allocation at July 31, 2008		2010 Target Allocation
Equity securities	68	%	76	%	75	%
Fixed income securities	32	%	24	%	25	%
Total	100	%	100	%	100	%

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Changes in the assets held by the Pension Plan in fiscal years 2009 and 2008 are as follows:

	Fiscal years
(in thousands)	2009			2008
Fair value of assets at beginning of year	$	313,427		$	324,632
Actual return on assets	(44,227		)	(15,456		)
Contribution	15,000			15,000
Benefits paid	(12,206		)	(10,749		)
Fair value of assets at end of year	$	271,994		$	313,427

Funded Status.  The funded status of our Pension Plan, SERP Plan and Postretirement Plan is as follows:

	Pension Plan						SERP Plan						Postretirement Plan
	Fiscal years						Fiscal years						Fiscal years
(in thousands)	2009			2008			2009			2008			2009			2008
Projected benefit obligation	$	427,995		$	354,229		$	92,152		$	77,566		$	17,920		$	20,336
Fair value of plan assets	271,994			313,427			—			—			—			—
Accrued obligation	$	(156,001	)	$	(40,802	)	$	(92,152	)	$	(77,566	)	$	(17,920	)	$	(20,336	)

Obligations for our employee benefit plans, included in other long-term liabilities, are as follows:

(in thousands)	August 1,2009			August 2,2008
Pension Plan	$	156,001		$	40,802
SERP Plan	92,152			77,566
Postretirement Plan	17,920			20,336
	266,073			138,704
Less: current portion	(5,069		)	(4,165		)
Long-term portion of benefit obligations	$	261,004		$	134,539

The $127.4 million increase in our employee benefit obligations was primarily driven by 1) a decrease in the actual return of our pension plan assets of approximately $70.3 million and 2) a decrease in our discount rate from 6.75% at August 2, 2008 to 5.90% for the Pension and SERP Plans at August 1, 2009 and 5.8% for the Postretirement Plan at August 1, 2009, which resulted in increases in the obligations related to our employee benefit plans aggregating approximately $57.9 million.  As of August 1, 2009, we have $69.0 million (net of taxes of $44.8 million) of adjustments to such obligations recorded as increases to accumulated other comprehensive loss.

In the first quarter of fiscal year 2008, we reduced our recorded liability for projected benefit obligations payable by the Pension Plan by $26.1 million and by the SERP Plan by $6.3 million to reflect the impact of freezing benefits provided under these plans as of December 31, 2007, as more fully described below.  The total pension curtailment gain of $32.5 million was recorded as other income in our consolidated statements of operations.

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

	July 31,2009		July 31,2008		July 31,2007
Pension Plan:
Discount rate	5.90	%	6.75	%	6.25	%
Expected long-term rate of return on plan assets	8.00	%	8.00	%	8.00	%
Rate of future compensation increase	4.50	%	4.50	%	4.50	%
SERP Plan:
Discount rate	5.90	%	6.75	%	6.25	%
Rate of future compensation increase	4.50	%	4.50	%	4.50	%
Postretirement Plan:
Discount rate	5.80	%	6.75	%	6.25	%
Initial health care cost trend rate	8.00	%	8.00	%	8.00	%
Ultimate health care cost trend rate	8.00	%	8.00	%	8.00	%

Discount rate.  The assumed discount rate utilized is based on a broad sample of Moody’s high quality corporate bond yields as of the measurement date. The projected benefit payments are matched with the yields on these bonds to determine an appropriate discount rate for the plan. The discount rate is utilized principally in calculating the present values of our benefit obligations and related expenses.

Expected long-term rate of return on plan assets.  The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested by the Pension Plan to provide for the plan’s obligations. During fiscal year 2009, we utilized 8.0% as the expected long-term rate of return on plan assets. We periodically evaluate the allocation between investment categories of the assets held by the Pension Plan. We estimate the expected average long-term rate of return on assets based on our future asset performance expectations using currently available market and other data and the counsel of our outside actuaries and advisors. This rate is utilized primarily in calculating the expected return on plan assets component of the annual pension expense. To the extent the actual rate of return on assets realized over the course of a year is greater than the assumed rate, that year’s annual pension expense is not affected. Rather this gain reduces future pension expense over a period of approximately 10 to 16 years. To the extent the actual rate of return on assets is less than the assumed rate, that year’s annual pension expense is likewise not affected. Rather this loss increases pension expense over approximately 10 to 16 years.

Rate of future compensation increase.  The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees. We utilized a rate of 4.5% for fiscal year 2009. This rate is utilized principally in calculating the obligation and annual expense for the Pension and SERP Plans.

Health care cost trend rate.  The assumed health care cost trend rate represents our estimate of the annual rates of change in the costs of the health care benefits currently provided by the Postretirement Plan. The health care cost trend rate implicitly considers estimates of health care inflation, changes in health care utilization and delivery patterns, technological advances and changes in the health status of the plan participants.

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Significant assumptions utilized in the calculation of our projected benefit obligations as of August 1, 2009 and future expense requirements for our Pension Plan, SERP Plan and Postretirement Plan, and sensitivity analysis related to changes in these assumptions, are as follows:

					Using Sensitivity Rate
	ActualRate		Sensitivity Rate Increase/(Decrease)		Increase inLiability(in millions)		Increase inExpense(in millions)
Pension Plan:
Discount rate	5.90	%	(0.25	)%	$	16.1	$	1.7
Expected long-term rate of return on plan assets	8.00	%	(1.00	)%	n/a		$	3.2
Rate of future compensation increase	4.50	%	0.25	%	$	0.5	$	0.1
SERP Plan:
Discount rate	5.90	%	(0.25	)%	$	2.7	Insignificant
Rate of future compensation increase	4.50	%	0.25	%	$	0.5	Insignificant
Postretirement Plan:
Discount rate	5.80	%	(0.25	)%	$	0.5	Insignificant
Ultimate health care cost trend rate	8.00	%	1.00	%	$	2.2	$	0.2

NOTE 15.  COMMITMENTS AND CONTINGENCIES

Leases.  We lease certain property and equipment under various operating leases. The leases provide for monthly fixed rentals and/or contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs. Generally, the leases have primary terms ranging from one to 99 years and include renewal options ranging from two to 80 years.

Rent expense and related occupancy costs under operating leases is as follows:

	Fiscal year ended
(in thousands)	August 1, 2009			August 2, 2008			July 28, 2007
Minimum rent	$	55,400		$	53,000		$	46,900
Contingent rent	19,600			29,700			28,600
Other occupancy costs	15,700			13,600			13,700
Amortization of deferred real estate credits	(5,300		)	(3,700		)	(1,700		)
Total rent expense	$	85,400		$	92,600		$	87,500

Future minimum rental commitments, excluding renewal options, under non-cancelable leases are as follows: fiscal year 2010—$55.6 million; fiscal year 2011—$53.2 million; fiscal year 2012—$49.9 million; fiscal year 2013—$48.1 million; fiscal year 2014—$43.4 million; all fiscal years thereafter—$650.7 million.

Long-term Incentive Plan.  The Company has a long-term incentive plan (Long-term Incentive Plan) that provides for a cash incentive payable to certain employees upon a change of control, as defined, subject to the attainment of certain performance objectives.  Performance objectives and targets are based on cumulative EBITDA percentages for three year periods beginning in fiscal year 2006.  Earned awards for each completed performance period will be credited to a book account and will earn interest at a contractually defined annual rate until the award is paid.  Awards will be paid within 30 days of a change of control or the first day there is a public market of at least 20% of our total outstanding common stock.  As of August 1, 2009, the vested participant balance in the Long-Term Incentive Plan aggregated $5.1 million.

Cash Incentive Plan.  The Company also has a cash incentive plan (Cash Incentive Plan) to aid in the retention of certain key executives.  The Cash Incentive Plan provides for the creation of a $14 million cash bonus pool. Each participant in the Cash Incentive Plan will be entitled to a cash bonus upon the earlier to occur of a change of control or an initial public offering, as defined in the Cash Incentive Plan, provided that the internal rate of return to the Sponsors is positive.

Litigation.  We are currently involved in various legal actions and proceedings that arose in the ordinary course of business. We believe that any liability arising as a result of these actions and proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

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Other.  We had approximately $32.8 million of outstanding irrevocable letters of credit relating to purchase commitments and insurance and other liabilities at August 1, 2009. We had approximately $3.1 million in surety bonds at August 1, 2009 relating primarily to merchandise imports and state sales tax and utility requirements.

NOTE 16.  ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table shows the components of accumulated other comprehensive loss (amounts are recorded net of related income taxes):

(in thousands)	August 1, 2009			August 2, 2008
Unrealized loss on financial instruments	$	(35,508	)	$	(21,755	)
Change in unfunded benefit obligations	(69,011		)	12,302
Other	(68		)	289
Total accumulated other comprehensive loss	$	(104,587	)	$	(9,164	)

NOTE 17.  SEGMENT REPORTING

We have identified two reportable segments: Specialty Retail stores and Direct Marketing. The Specialty Retail stores segment aggregates the activities of our Neiman Marcus and Bergdorf Goodman retail stores, including Neiman Marcus clearance stores. The Direct Marketing segment conducts both online and print catalog operations under the Neiman Marcus, Bergdorf Goodman and Horchow brand names.  Both the Specialty Retail stores and Direct Marketing segments 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.

Operating earnings for the segments include 1) revenues, 2) cost of sales, 3) direct selling, general, and administrative expenses, 4) other direct operating expenses, 5) income from credit card program and 6) depreciation expense for the respective segment.  Items not allocated to our operating segments include those items not considered by management in measuring the assets and profitability of our segments. These amounts include 1) corporate expenses including, but not limited to, treasury, investor relations, legal and finance support services, and general corporate management, 2) charges related to the application of purchase accounting adjustments made in connection with the Acquisition including amortization of intangible assets and favorable lease commitments and other non-cash items and 3) interest expense.  These items, while often times related to the operations of a segment, are not considered by segment operating management, corporate operating management and the chief operating decision maker in assessing segment operating performance.  The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (except with respect to purchase accounting adjustments not allocated to the operating segments).

The following table presents our revenues by merchandise category as a percentage of net sales:

	Years Ended
	August 1, 2009		August 2, 2008		July 28, 2007
Women’s Apparel	36	%	36	%	37	%
Women’s Shoes, Handbags and Accessories	21	%	20	%	20	%
Cosmetics and Fragrances	11	%	11	%	11	%
Men’s Apparel and Shoes	12	%	12	%	12	%
Designer and Precious Jewelry	11	%	12	%	11	%
Home Furnishings and Décor	7	%	8	%	9	%
Other	2	%	1	%	0	%
	100	%	100	%	100	%

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The following tables set forth the information for our reportable segments:

	Fiscal year ended
(in thousands)	August 1, 2009			August 2, 2008			July 28,2007
REVENUES
Specialty Retail stores	$	2,991,318		$	3,853,074		$	3,674,600
Direct Marketing	652,028			747,462			715,476
Total	$	3,643,346		$	4,600,536		$	4,390,076
OPERATING (LOSS) EARNINGS
Specialty Retail stores	$	112,350		$	476,724		$	490,564
Direct Marketing	70,652			117,657			116,042
Corporate expenses	(59,950		)	(56,944		)	(56,229		)
Amortization of intangible assets and favorable lease commitments	(72,703		)	(72,192		)	(72,265		)
Impairment charges (1)	(703,266		)	(31,261		)	(11,473		)
Other income (2)	—			32,450			10,164
Total	$	(652,917	)	$	466,434		$	476,803
CAPITAL EXPENDITURES
Specialty Retail stores	$	91,128		$	164,640		$	124,402
Direct Marketing	10,397			18,812			23,475
Total	$	101,525		$	183,452		$	147,877
DEPRECIATION EXPENSE
Specialty Retail stores	$	128,018		$	127,186		$	118,126
Direct Marketing	16,727			16,801			13,671
Other	6,014			4,424			4,671
Total	$	150,759		$	148,411		$	136,468
	August 1, 2009			August 2, 2008
ASSETS
Tangible assets of Specialty Retail stores	$	1,703,435		$	1,994,456
Tangible assets of Direct Marketing	142,123			173,265
Corporate assets:
Intangible assets related to Specialty Retail stores	2,804,438			3,519,045
Intangible assets related to Direct Marketing	474,509			523,572
Other	456,521			346,481
Total	$	5,581,026		$	6,556,819

(1)     Impairment charges recorded in fiscal year 2009 consist of pretax charges of 1) $329.7 million for the writedown to fair value of goodwill, 2) $343.2 million for the writedown to fair value of the net carrying value of tradenames and 3) $30.3 million for the writedown to fair value of the net carrying value of certain long-lived assets.

For fiscal years 2008 and 2007, we recorded $31.3 million and $11.5 million pretax impairment charges related to the writedown to fair value of the Horchow tradename.

(2)     For fiscal year 2008, other income represents a pension curtailment gain of $32.5 million as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.

For fiscal year 2007, other income includes 1) $4.2 million of other income we received in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot and 2) $6.0M of other income related to aged, non-escheatable gift cards.

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NOTE 18.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

2028 Debentures.  All of NMG’s obligations under the 2028 Debentures are guaranteed by the Company. The guarantee by the Company is full and unconditional and joint and several. Currently, the Company’s non-guarantor subsidiaries consist principally of Bergdorf Goodman, Inc. through which NMG conducts the operations of its Bergdorf Goodman stores and NM Nevada Trust which holds legal title to certain real property and intangible assets used by NMG in conducting its operations. Previously, our non-guarantor subsidiaries also included Kate Spade LLC (prior to its sale in December 2006), which is reflected in the tables below as a discontinued operation, and an operating subsidiary domiciled in Canada providing support services to our Direct Marketing operation through January 2009.

The following condensed consolidating financial information represents the financial information of Neiman Marcus, Inc. and its non-guarantor subsidiaries, prepared on the equity basis of accounting. The information is presented in accordance with the requirements of Rule 3-10 under the Securities and Exchange Commission’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the non-guarantor subsidiaries operated as independent entities.

	August 1, 2009
(in thousands)	Company		NMG		Non-GuarantorSubsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	322,766	$	659	$	—		$	323,425
Merchandise inventories	—		676,973		78,061		—			755,034
Other current assets	—		133,438		9,630		—			143,068
Total current assets	—		1,133,177		88,350		—			1,221,527
Property and equipment, net	—		870,300		122,415		—			992,715
Goodwill and intangible assets, net	—		1,535,834		1,743,113		—			3,278,947
Other assets	—		85,983		1,854		—			87,837
Investments in subsidiaries	918,835		1,868,405		—		(2,787,240		)	—
Total assets	$	918,835	$	5,493,699	$	1,955,732	$	(2,787,240	)	$	5,581,026
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	210,219	$	23,771	$	—		$	233,990
Accrued liabilities	—		240,750		62,136		—			302,886
Current maturities of long-term liabilities	—		26,617		—		—			26,617
Total current liabilities	—		477,586		85,907		—			563,493
Long-term liabilities:
Long-term debt	—		2,954,221		—		—			2,954,221
Deferred income taxes	—		697,810		—		—			697,810
Other long-term liabilities	—		445,247		1,420		—			446,667
Total long-term liabilities	—		4,097,278		1,420		—			4,098,698
Total shareholders’ equity	918,835		918,835		1,868,405		(2,787,240		)	918,835
Total liabilities and shareholders’ equity	$	918,835	$	5,493,699	$	1,955,732	$	(2,787,240	)	$	5,581,026

F-39

	August 2, 2008
(in thousands)	Company		NMG		Non-GuarantorSubsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	238,204	$	976		$	—		$	239,180
Merchandise inventories	—		884,808		93,236			—			978,044
Other current assets	—		137,738		8,697			—			146,435
Total current assets	—		1,260,750		102,909			—			1,363,659
Property and equipment, net	—		939,522		135,772			—			1,075,294
Goodwill and intangible assets, net	—		1,889,445		2,153,172			—			4,042,617
Other assets	—		75,249		—			—			75,249
Investments in subsidiaries	1,676,519		2,288,802		—			(3,965,321		)	—
Total assets	$	1,676,519	$	6,453,768	$	2,391,853		$	(3,965,321	)	$	6,556,819
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	311,994	$	33,646		$	—		$	345,640
Accrued liabilities	—		291,047		70,047			—			361,094
Total current liabilities	—		603,041		103,693			—			706,734
Long-term liabilities:
Long-term debt	—		2,946,102		—			—			2,946,102
Deferred income taxes	—		929,970		—			—			929,970
Other long-term liabilities	—		298,136		(642		)	—			297,494
Total long-term liabilities	—		4,174,208		(642		)	—			4,173,566
Total shareholders’ equity	1,676,519		1,676,519		2,288,802			(3,965,321		)	1,676,519
Total liabilities and shareholders’ equity	$	1,676,519	$	6,453,768	$	2,391,853		$	(3,965,321	)	$	6,556,819

F-40

	Fiscal year ended August 1, 2009
(in thousands)	Company			NMG			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,067,882		$	575,464		$	—		$	3,643,346
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,132,190			404,574			—			2,536,764
Selling, general and administrative expenses (excluding depreciation)	—			772,882			109,855			—			882,737
Income from credit card program, net	—			(45,272		)	(4,694		)	—			(49,966		)
Depreciation expense	—			133,604			17,155			—			150,759
Amortization of intangible assets and favorable lease commitments	—			60,359			12,344			—			72,703
Impairment charges	—			307,989			395,277			—			703,266
Operating loss	—			(293,870		)	(359,047		)	—			(652,917		)
Interest expense, net	—			235,567			7			—			235,574
Intercompany royalty charges (income)	—			195,079			(195,079		)	—			—
Equity in loss (earnings) of subsidiaries	668,046			163,975			—			(832,021		)	—
(Loss) earnings before income taxes	(668,046		)	(888,491		)	(163,975		)	832,021			(888,491		)
Income tax benefit	—			(220,445		)	—			—			(220,445		)
Net (loss) earnings	$	(668,046	)	$	(668,046	)	$	(163,975	)	$	832,021		$	(668,046	)

	Fiscal year ended August 2, 2008
(in thousands)	Company			NMG			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,854,429		$	746,107		$	—		$	4,600,536
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,460,441			474,527			—			2,934,968
Selling, general and administrative expenses (excluding depreciation)	—			906,014			139,433			—			1,045,447
Income from credit card program, net	—			(59,131		)	(6,596		)	—			(65,727		)
Depreciation expense	—			129,812			18,599			—			148,411
Amortization of intangible assets and favorable lease commitments	—			60,360			11,832			—			72,192
Impairment charges	—			—			31,261			—			31,261
Other income	—			(32,450		)	—			—			(32,450		)
Operating earnings	—			389,383			77,051			—			466,434
Interest expense, net	—			239,795			10			—			239,805
Intercompany royalty charges (income)	—			273,584			(273,584		)	—			—
Equity in (earnings) loss of subsidiaries	(142,813		)	(350,625		)	—			493,438			—
Earnings (loss) before income taxes	142,813			226,629			350,625			(493,438		)	226,629
Income tax expense	—			83,816			—			—			83,816
Net earnings (loss)	$	142,813		$	142,813		$	350,625		$	(493,438	)	$	142,813

F-41

	Fiscal year ended July 28, 2007
(in thousands)	Company			NMG			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,700,513		$	689,563		$	—		$	4,390,076
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,316,301			437,513			—			2,753,814
Selling, general and administrative expenses (excluding depreciation)	—			880,136			135,004			—			1,015,140
Income from credit card program, net	—			(59,090		)	(6,633		)	—			(65,723		)
Depreciation expense	—			116,984			19,484			—			136,468
Amortization of intangible assets and favorable lease commitments	—			60,500			11,765			—			72,265
Impairment charges	—			—			11,473			—			11,473
Other income	—			(9,816		)	(348		)	—			(10,164		)
Operating earnings	—			395,498			81,305			—			476,803
Interest expense, net	—			259,801			4			—			259,805
Intercompany royalty charges (income)	—			276,095			(276,095		)	—			—
Equity in (earnings) loss of subsidiaries	(111,932		)	(334,625		)	—			446,557			—
Earnings (loss) before income taxes	111,932			194,227			357,396			(446,557		)	216,998
Income tax expense	—			82,295			—			—			82,295
Earnings (loss) from continuing operations	111,932			111,932			357,396			(446,557		)	134,703
Loss from discontinued operation, net of taxes	—			—			(21,282		)	(1,489		)	(22,771		)
Net earnings (loss)	$	111,932		$	111,932		$	336,114		$	(448,046	)	$	111,932

F-42

	Fiscal year ended August 1, 2009
(in thousands)	Company			NMG			Non-GuarantorSubsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net (loss) earnings	$	(668,046	)	$	(668,046	)	$	(163,975	)	$	832,021		$	(668,046	)
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization expense	—			211,146			29,499			—			240,645
Deferred income taxes	—			(153,888		)	—			—			(153,888		)
Impairment charges	—			307,989			395,277			—			703,266
Paid-in-kind interest	—			38,082			—			—			38,082
Other, primarily costs related to defined benefit pension and other long-term benefit plans	—			10,208			(23		)	—			10,185
Intercompany royalty income payable (receivable)	—			195,079			(195,079		)	—			—
Equity in loss (earnings) of subsidiaries	668,046			163,975			—			(832,021		)	—
Changes in operating assets and liabilities, net	—			102,055			(61,486		)	—			40,569
Net cash provided by operating activities	—			206,600			4,213			—			210,813
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(96,995		)	(4,530		)	—			(101,525		)
Net cash used for investing activities	—			(96,995		)	(4,530		)	—			(101,525		)
CASH FLOWS—FINANCING ACTIVITIES
Repayment of borrowings	—			(1,611		)	—			—			(1,611		)
Debt issuance costs paid	—			(23,432		)	—			—			(23,432		)
Net cash used for financing activities	—			(25,043		)	—			—			(25,043		)
CASH AND CASH EQUIVALENTS
(Decrease) increase during the period	—			84,562			(317		)	—			84,245
Beginning balance	—			238,204			976			—			239,180
Ending balance	$	—		$	322,766		$	659		$	—		$	323,425

	Fiscal year ended August 2, 2008
(in thousands)	Company			NMG			Non-GuarantorSubsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net earnings (loss)	$	142,813		$	142,813		$	350,625		$	(493,438	)	$	142,813
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization expense	—			204,389			30,431			—			234,820
Deferred income taxes	—			(44,627		)	—			—			(44,627		)
Impairment of Horchow tradename	—			—			31,261			—			31,261
Gain on curtailment of defined benefit retirement obligations	—			(32,450		)	—			—			(32,450		)
Other, primarily costs related to defined benefit pension and other long-term benefit plans	—			21,677			320			—			21,997
Intercompany royalty income payable (receivable)	—			273,584			(273,584		)	—			—
Equity in (earnings) loss of subsidiaries	(142,813		)	(350,625		)	—			493,438			—
Changes in operating assets and liabilities, net	—			60,247			(128,736		)	—			(68,489		)
Net cash provided by operating activities	—			275,008			10,317			—			285,325
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(172,237		)	(11,215		)	—			(183,452		)
Purchases of short-term investments	—			(10,000		)	—			—			(10,000		)
Sales of short-term investments	—			10,000			—			—			10,000
Net cash used for investing activities	—			(172,237		)	(11,215		)	—			(183,452		)
CASH FLOWS—FINANCING ACTIVITIES
Repayment of borrowings	—			(3,900		)	—			—			(3,900		)
Net cash used for financing activities	—			(3,900		)	—			—			(3,900		)
CASH AND CASH EQUIVALENTS
Increase (decrease) during the period	—			98,871			(898		)	—			97,973
Beginning balance	—			139,333			1,874			—			141,207
Ending balance	$	—		$	238,204		$	976		$	—		$	239,180

F-43

	Fiscal year ended July 28, 2007
(in thousands)	Company			NMG			Non-GuarantorSubsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net earnings (loss)	$	111,932		$	111,932		$	336,114		$	(448,046	)	$	111,932
Loss from discontinued operation	—			—			21,282			1,489			22,771
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization expense	—			191,625			31,249			—			222,874
Deferred income taxes	—			(60,522		)	—			—			(60,522		)
Impairment of Horchow tradename	—			—			11,473			—			11,473
Other, primarily costs related to defined benefit pension and other long-term benefit plans	—			27,701			(7,170		)	—			20,531
Intercompany royalty income payable (receivable)	—			276,095			(276,095		)	—			—
Equity in (earnings) loss of subsidiaries	(111,932		)	(334,625		)	—			446,557			—
Changes in operating assets and liabilities, net	—			37,744			(96,976		)	—			(59,232		)
Net cash provided by continuing operating activities	—			249,950			19,877			—			269,827
Net cash used for discontinued operation	—			—			(10,918		)	—			(10,918		)
Net cash provided by operating activities	—			249,950			8,959			—			258,909
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(139,775		)	(8,102		)	—			(147,877		)
Payment to minority interest holder in Kate Spade	—			(59,400		)	—			—			(59,400		)
Net proceeds from sale of Kate Spade	—			121,469			—			—			121,469
Net cash used for continuing investing activities	—			(77,706		)	(8,102		)	—			(85,808		)
Net cash used for discontinued operation	—			—			(128		)	—			(128		)
Net cash used for investing activities	—			(77,706		)	(8,230		)	—			(85,936		)
CASH FLOWS—FINANCING ACTIVITIES
Repayment of borrowings	—			(254,918		)	—			—			(254,918		)
Debt issuance costs paid	—			(1,449		)	—			—			(1,449		)
Proceeds from purchase of common stock	—			1,148			—			—			1,148
Net cash used for continuing financing activities	—			(255,219		)	—			—			(255,219		)
Net cash used for discontinued operation	—			—			(1,675		)	—			(1,675		)
Net cash used for financing activities	—			(255,219		)	(1,675		)	—			(256,894		)
CASH AND CASH EQUIVALENTS
Decrease during the period	—			(82,975		)	(946		)	—			(83,921		)
Beginning balance	—			222,308			2,820			—			225,128
Ending balance	$	—		$	139,333		$	1,874		$	—		$	141,207

F-44

Senior Notes and Senior Subordinated Notes.  All of NMG’s obligations under the Senior Notes and the Senior Subordinated Notes, as well as its obligations under the Asset-Based Revolving Credit Facility and the Senior Secured Term Loan Facility, are guaranteed by the Company and certain of NMG’s existing and future domestic subsidiaries (principally, Bergdorf Goodman, Inc. through which NMG conducts the operations of its Bergdorf Goodman stores and NM Nevada Trust which holds legal title to certain real property and intangible assets used by the Company in conducting its operations). The guarantees by the Company and each subsidiary guarantor are full and unconditional and joint and several.  Currently, NMG conducts no operations through subsidiaries that do not guarantee the Senior Notes or the Senior Subordinated Notes. Previously, the non-guarantor subsidiaries of NMG included Kate Spade LLC (prior to its sale in December 2006), and an operating subsidiary domiciled in Canada providing support services to our Direct Marketing operation through January 2009.

Information with respect to non-guarantor subsidiaries with respect to the Senior Notes and Senior Subordinated Notes is as follows:

(in thousands)	August 1, 2009		August 2, 2008
Total assets	$	332	$	1,207
Net assets	$	332	$	1,037

	Fiscal year ended
(in thousands)	August 1,2009			August 2,2008			July 28,2007
Revenues	$	—		$	—		$	—
Net earnings (loss)	282			(1,066		)	987
Net cash (used for) provided by operating activities	(341		)	(875		)	462

The net earnings of non-guarantor subsidiaries for fiscal year ended 2007 excludes a $24.3 million loss related to discontinued operations.

F-45

NOTE 19.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

	Fiscal year 2009
(in millions)	First Quarter		Second Quarter			Third Quarter			Fourth Quarter			Total
Revenues	$	985.8	$	1,079.4		$	810.1		$	768.0		$	3,643.3
Gross profit (1)	$	368.0	$	258.0		$	295.3		$	185.3		$	1,106.6
Net earnings (loss) (2)	$	12.9	$	(509.2	)	$	(3.1	)	$	(168.6	)	$	(668.0	)
	Fiscal year 2008
Revenues	$	1,132.2	$	1,373.8		$	1,062.2		$	1,032.3		$	4,600.5
Gross profit (1)	$	465.1	$	460.6		$	425.2		$	314.7		$	1,665.6
Net earnings (loss) (3)	$	78.8	$	44.3		$	55.4		$	(35.7	)	$	142.8

(1)Gross profit includes revenues less cost of goods sold including buying and occupancy costs (excluding depreciation).

(2)For fiscal year 2009, net earnings (loss) include pretax impairment charges related to 1) $291.1 million for the writedown to fair value of goodwill, 2) $242.2 million for the writedown to fair value of the net carrying value of tradenames and 3) $26.8 million for the writedown to fair value of the net carrying value of certain long-lived assets recorded in the second quarter.  In addition, pretax impairment charges of 1) $38.6 million for the writedown to fair value of goodwill, 2) $101.0 million for the writedown to fair value of the net carrying value of tradenames and 3) $3.5 million for the writedown to fair value of the net carrying value of certain long-lived assets were recorded in the fourth quarter.

(3)For fiscal year 2008, net earnings (loss) include 1) $32.5 million of other income related to a pension curtailment gain in the first quarter as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007, offset by 2) $31.3 million pretax impairment charge related to the writedown to fair value of the Horchow tradename in the fourth quarter.

F-46

SIGNATURES

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

NEIMAN MARCUS, INC.
By:	/S/ NELSON A. BANGS
	Nelson A. Bangs Senior Vice President and General Counsel

Dated: October 20, 2009

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

Signature	Title	Date
/s/ BURTON M. TANSKY	President and Chief Executive	October 20, 2009
Burton M. Tansky	Officer, Director
/s/ JAMES E. SKINNER	Executive Vice President and Chief Financial Officer	October 20, 2009
James E. Skinner	(principal financial officer)
/s/ T. DALE STAPLETON	Vice President and Controller	October 20, 2009
T. Dale Stapleton	(principal accounting officer)
/s/ DAVID A. BARR	Director	October 20, 2009
David A. Barr
/s/ JONATHAN COSLET	Director	October 20, 2009
Jonathan Coslet
/s/ JAMES G. COULTER	Director	October 20, 2009
James G. Coulter
/s/ JOHN G. DANHAKL	Director	October 20, 2009
John G. Danhakl
/s/ SIDNEY LAPIDUS	Director	October 20, 2009
Sidney Lapidus
/s/ KEWSONG LEE	Director	October 20, 2009
Kewsong Lee
/s/ CARRIE WHEELER	Director	October 20, 2009
Carrie Wheeler

84

SCHEDULE II

Neiman Marcus, Inc.

Valuation and Qualifying Accounts and Reserves

(in thousands)

Three years ended August 1, 2009

Column A	Column B		Column C				Column D			Column E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions			Balance at End of Period
Reserve for estimated sales returns
Year ended August 1, 2009	$	45,042	$	471,615	$	—	$	(486,908	)(A)	$	29,749
Year ended August 2, 2008	$	48,819	$	645,095	$	—	$	(648,872	)(A)	$	45,042
Year ended July 28, 2007 (B)	$	43,742	$	606,263	$	—	$	(601,186	)(A)	$	48,819
Reserves for self-insurance
Year ended August 1, 2009	$	44,132	$	61,597	$	—	$	(70,219	)(C)	$	35,510
Year ended August 2, 2008	$	44,544	$	57,655	$	—	$	(58,067	)(C)	$	44,132
Year ended July 28, 2007 (B)	$	45,505	$	54,155	$	—	$	(55,116	)(C)	$	44,544

(A)Gross margin on actual sales returns, net of commissions.

(B)Fiscal year 2007 has been adjusted to exclude the operations of Kate Spade LLC.

(C)Claims and expenses paid net of employee contributions.

85

EX-4.1

EXHIBIT 4.1

The Neiman Marcus Group, Inc.

and

The Bank of New York

Trustee

INDENTURE

Dated as of May 27, 1998

Providing for issuance of Securities in Series

TABLE OF CONTENTS

Recitals of the Company
Agreements of the Parties
ARTICLE 1.			Definitions and Other Provisions of General Application
		Section 101.		Definitions
		Section 102.		Compliance Certificates and Opinions
		Section 103.		Form of Documents Delivered to Trustee
		Section 104.		Acts of Securityholders
		Section 105.		Notices, etc., to Trustee and Company
		Section 106.		Notices to Securityholders; Waiver
		Section 107.		Conflict with Trust Indenture Act
		Section 108.		Effect of Headings and Table of Contents
		Section 109.		Successors and Assigns
		Section 110.		Separability Clause
		Section 111.		Benefits of Indenture
		Section 112.		Governing Law
		Section 113.		Counterparts
ARTICLE 2.			Security Forms
	Section 201.			Forms Generally
	Section 202.			Forms of Securities
	Section 203.			Form of Trustee’s Certificate of Authentication
	Section 204.			Securities Issuable in the Form of a Global Security
ARTICLE 3.			The Securities
	Section 301.			General Title; General Limitations; Issuable in Series; Terms of Particular Series
	Section 302.			Denominations
	Section 303.			Execution, Authentication and Delivery and Dating
	Section 304.			Temporary Securities
	Section 305.			Registration, Transfer and Exchange
	Section 306.			Mutilated, Destroyed, Lost and Stolen Securities
	Section 307.			Payment of Interest; Interest Rights Preserved
	Section 308.			Persons Deemed Owners
	Section 309.			Cancellation
	Section 310.			Computation of Interest
	Section 311.			Medium-Term
	Section 312.			CUSIP Numbers
ARTICLE 4.			Satisfaction and Discharge
	Section 401.			Satisfaction and Discharge of Indenture
	Section 402.			Application of Trust Money
	Section 403.			Defeasance Upon Deposit of Funds or Government Obligations

i

ARTICLE 5.		Remedies
	Section 501.		Events of Default
	Section 502.		Acceleration of Maturity; Rescission and Annulment
	Section 503.		Collection of Indebtedness and Suits for Enforcement by Trustee
	Section 504.		Trustee May File Proofs of Claim
	Section 505.		Trustee May Enforce Claims Without Possession of Securities
	Section 506.		Application of Money Collected
	Section 507.		Limitation on Suits
	Section 508.		Unconditional Right of Securityholders To Receive Principal, Premium and Interest
	Section 509.		Restoration of Rights and Remedies
	Section 510.		Rights and Remedies Cumulative
	Section 511.		Delay or Omission Not Waiver
	Section 512.		Control by Securityholders
	Section 513.		Waiver of Past Defaults
	Section 514.		Undertaking for Costs
ARTICLE 6.		The Trustee
	Section 601.		Certain Duties and Responsibilities
	Section 602.		Notice of Defaults
	Section 603.		Certain Rights of Trustee
	Section 604.		Not Responsible for Recitals or Issuance of Securities
	Section 605.		May Hold Securities
	Section 606.		Money Held in Trust
	Section 607.		Compensation and Reimbursement
	Section 608.		Disqualification; Conflicting Interests
	Section 609.		Corporate Trustee Required; Eligibility
	Section 610.		Resignation of Successor
	Section 611.		Acceptance of Appointment by Successor
	Section 612.		Merger, Conversion, Consolidation or Succession to Business
	Section 613.		Preferential Collection of Claims Against Company
	Section 614.		Appointment of Authentication Agent
ARTICLE 7.		Securityholders’ Lists and Reports by Trustee and Company
	Section 701.		Company To Furnish Trustee Names and Addresses of Securityholders
	Section 702.		Preservation of Information; Communications to Securityholders
	Section 703.		Reports by Trustee
	Section 704.		Reports by Company
ARTICLE 8.		Consolidation, Merger, Conveyance or Transfer
	Section 801.		When Company May Merge or Transfer Assets

ii

ARTICLE 9.		Supplemental Indentures
	Section 901.		Supplemental Indentures Without Consent of Securityholders
	Section 902.		Supplemental Indentures with Consent of Securityholders
	Section 903.		Execution of Supplemental Indentures
	Section 904.		Effect of Supplemental Indentures
	Section 905.		Conformity with Trust Indenture Act
	Section 906.		Reference in Securities to Supplemental Indentures
ARTICLE 10.		Covenants
	Section 1001.		Payment of Principal, Premium and Interest
	Section 1002.		Maintenance of Office or Agency
	Section 1003.		Money for Security Payments To Be Held in Trust
	Section 1004.		Statement as to Compliance
	Section 1005.		Legal Existence
	Section 1006.		Limitation on Liens
	Section 1007.		Limitation on Sale and Leasebacks
	Section 1008.		Waiver of Certain Covenants
	Section 1009.		Calculation of Original Issue Discount
ARTICLE 11.		Redemption of Securities
	Section 1101.		Applicability of Article
	Section 1102.		Election To Redeem; Notice to Trustee
	Section 1103.		Selection by Trustee of Securities To Be Redeemed
	Section 1104.		Notice of Redemption
	Section 1105.		Deposit of Redemption Price
	Section 1106.		Securities Payable on Redemption Date
	Section 1107.		Securities Redeemed in Part
	Section 1108.		Provisions with Respect to any Sinking Funds

Table Showing Reflection in Indenture of Certain Provisions of Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990.

		Reflected In Indenture
TIA		Section
Section 310(a)(1)		609
	(a)(2)	609
	(a)(3)	Not Applicable
	(a)(4)	Not Applicable
	(a)(5)	609
	(b)	608; 610
	(c)	Not Applicable
Section 311(a)		613
	(b)	613
	(b)(2)	703
Section 312(a)		701; 702
	(b)	702
	(c)	702
Section 313(a)		703
	(b)	703
	(c)	703
	(d)	703
Section 314(a)(1)		704
	(a)(2)	704
	(a)(3)	704
	(a)(4)	1004
	(b)	Not Applicable
	(c)(1)	102
	(c)(2)	102
	(c)(3)	Not Applicable
	(d)	Not Applicable
	(e)	102
Section 315(a)		601
	(b)	602; 703
	(c)	601
	(d)	601
	(d)(1)	601
	(d)(2)	601
	(d)(3)	601
	(e)	514
Section 316(a)		101
	(a)(1)(A)	502; 512
	(a)(1)(B)	513
	(a)(2)	Not Applicable
	(b)	508
	(c)	104
Section 317(a)(1)		503
	(a)(2)	504
	(b)	1003
Section 318(a)		107

THIS INDENTURE between THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (hereinafter called the “Company”), having its principal office at 27 Boylston Street, Box 1000, Chestnut Hill, MA 02167, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (hereinafter called the “Trustee”), is made and entered into as of the 27th day of May, 1998.

Recitals of the Company

The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its unsecured and unsubordinated debentures, notes, bonds or other evidences of indebtedness, to be issued in

one or more fully registered series.

All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.

Agreements of the Parties

To set forth or to provide for the establishment of the terms and conditions upon which the Securities are and are to be authenticated, issued and delivered, and in consideration of the premises and the purchase of Securities by the Holders thereof, it is mutually covenanted and agreed as follows, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as the case may be:

ARTICLE 1.  Definitions and Other Provisions of General Application

Section 1.11.  Definitions.  For all purposes of this Indenture and of any indenture supplemental hereto, except as otherwise expressly provided or unless the context otherwise requires:

(a)the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;

(b)all other terms used herein which are defined in the Trust Indenture Act or by Commission rule under the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

(c)all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date of such computation; and

(d)all references in this instrument to designated “Articles”, “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed.  The words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

Certain terms, used principally in Article Six, are defined in that Article.

“Act”, when used with respect to any Securityholder, has the meaning specified in Section 104.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person.  For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Authenticating Agent” means any Person authorized by the Trustee to authenticate Securities under Section 614.

“Board of Directors” means either the board of directors of the Company or any duly authorized committee of that board or any officers of the Company acting pursuant to authority granted by the board of directors of the Company or any committee of such board.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

“Business Day” means, with respect to any series of Securities, each day which is neither a Saturday, Sunday or other day on which banking institutions in the pertinent Place or Places of Payment are authorized or required by law or executive order to be closed.

“Capital Stock” means, with respect to any corporation, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation.

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“Company” means the Person named as the “Company” in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor.

2

“Company Request”, “Company Order” and “Company Consent” mean a written request, order or consent, respectively, signed in the name of the Company by its Chairman of the Board, a Vice Chairman, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

“Consolidated Net Assets” means the total amount of all assets appearing on the consolidated balance sheet of the Company and its Restricted Subsidiaries (at their net book values, after deducting related depreciation, amortization and all other valuation reserves which have been set aside in connection with the business conducted and which are reflected on the aforementioned consolidated balance sheet), less total current liabilities other than long-term liabilities due within one year.

“Corporate Trust Office” means the office of the Trustee in New York, New York at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 101 Barclay Street, Floor 21 West, New York, New York 10286.

“Defaulted Interest” has the meaning specified in Section 307.

“Depositary” means, unless otherwise specified by the Company pursuant to either Section 204 or 301, with respect to securities of any series issuable or issued as a Global Security, The Depository Trust Company, New York, New York, or any successor thereto registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation.

“Event of Default” has the meaning specified in Article Five.

“Funded Debt” means indebtedness of the Company or a Restricted Subsidiary that matures by its terms one year or more after its creation or that is extendable or renewable at the option of the obligor to a date one year or more after the date of the incurrence or assumption of such indebtedness, and indebtedness classified as long-term debt under generally accepted accounting principles, in each case ranking in right of payment at least pari passu with the Securities.

“Global Security”, when used with respect to any series of Securities issued hereunder, means a Security which is executed by the Company and authenticated and delivered by the Trustee to the Depositary or pursuant to the Depositary’s instruction, all in accordance with this Indenture and an indenture supplemental hereto, if any, or Board Resolution and pursuant to a Company Request, which shall be registered in the name of the Depositary or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Securities of such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest.

“Holder”, when used with respect to any Security, means a Securityholder.

3

“Indenture” or “this Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 301.

“Independent”, when used with respect to any specified Person, means such a Person who (1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor upon the Securities or in any Affiliate of the Company or of such other obligor, and (3) is not connected with the Company or such other obligor or any Affiliate of the Company or of such other obligor, as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions.  Whenever it is herein provided that any Independent Person’s opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by a Company Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read this definition and that the signer is independent within the meaning hereof.

“Interest”, when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.

“Interest Payment Date”, when used with respect to any series of Securities, means the Stated Maturity of any installment of interest on those Securities.

“Lien” means any mortgage, pledge, lien, encumbrance, charge or security interest.

“Maturity”, when used with respect to any Securities, means the date on which the principal of any such Security becomes due and payable as therein or herein provided, whether on a Repayment Date, at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.

“Officers’ Certificate” means a certificate signed by the Chairman of the Board, a Vice Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.  Wherever this Indenture requires that an Officers’ Certificate be signed also by an accountant or other expert, such accountant or other expert (except as otherwise expressly provided in this Indenture) may be in the employ of the Company, and shall be acceptable to the Trustee, which acceptance shall not be unreasonably withheld. 

“Opinion of Counsel” means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be an employee of or of counsel to the Company (who shall be at least at the level of senior attorney).  Such counsel shall be acceptable to the Trustee, whose acceptance shall not be unreasonably withheld.

4

“Original Issue Discount Security” means (i) any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof, and (ii) any other Security deemed an Original Issue Discount Security for United States Federal income tax purposes.

“Outstanding”, when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except:

(i)such Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(ii)such Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own paying agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

(iii)such Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, or which shall have been paid pursuant to the terms of Section 306 (except with respect to any such Security as to which proof satisfactory to the Trustee is presented that such Security is held by a person in whose hands such Security is a legal, valid and binding obligation of the Company).

In determining whether the Holders of the requisite principal amount of such Securities outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of any Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of the taking of such action upon a declaration of acceleration of the Maturity thereof and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding.  In determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer assigned to the corporate trust department of the Trustee actually knows to be owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be so disregarded.  Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right to act as owner with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor.

5

“Paying Agent” means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.  The Company initially authorizes the Trustee to act as Paying Agent for the Securities on its behalf.  The Company may at any time and from time to time authorize one or more Persons, including the Company, to act as Paying Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Place of Payment” means with respect to any series of Securities issued hereunder the city or political subdivision so designated with respect to the series of Securities in question in accordance with the provisions of Section 301.

“Predecessor Securities” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security.

“Preferred Stock” means, as to any Person, capital stock of such Person that has a preference as to dividends or upon liquidation over the common stock of such Person.

“Principal Property” of a Person means all land, buildings, machinery and equipment, and leasehold interests and improvements in respect of the foregoing, that are located in the United States of America and that would be reflected on a consolidated balance sheet of such Person provided that the term “Principal Property” shall not include any land, building, machinery, equipment, leasehold interest or improvements which the Board of Directors of the Company by resolution determines not to be of material importance to the total business conducted by the Company and its Subsidiaries as an entirety.  Redemption Date”, when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.

“Redemption Price”, when used with respect to any Security to be redeemed, means the price specified in the Security at which it is to be redeemed pursuant to this Indenture.

“Regular Record Date” for the interest payable on any Security on any Interest Payment Date means the date specified in such Security as the Regular Record Date.

“Repayment Date”, when used with respect to any Security to be repaid, means the date fixed for such repayment pursuant to such Security.

6

“Repayment Price”, when used with respect to any Security to be repaid, means the price at which it is to be repaid pursuant to such Security.

“Responsible Officer”, when used with respect to the Trustee, means any vice president, any assistant secretary, any assistant treasurer, any senior trust officer or trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Restricted Subsidiary” means any Subsidiary of the Company (other than a Subsidiary that is principally engaged in the business of owning or investing in real estate (a ‘Real Estate Subsidiary’), finance, credit, leasing, financial services or other similar operations, or any combination thereof), which itself, or with one or more other Restricted Subsidiaries, owns or leases a Principal Property; PROVIDED, HOWEVER, that in the event that any Restricted Subsidiary, in a single transaction or through a series of related transactions, shall (i) be consolidated with or merge with or into a Real Estate Subsidiary or any of its subsidiaries or (ii) transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets to a Real Estate Subsidiary, then the term ‘Restricted Subsidiary’ shall include such Real Estate Subsidiary.

“Sale and Leaseback Transaction” means any arrangement with any Person pursuant to which the Company or any Restricted Subsidiary leases any Principal Property that has been or is to be sold or transferred by the Company or the Restricted Subsidiary to such Person, other than (1) temporary leases for a term, including renewals at the option of the lessee, of not more than three years, (2) leases between the Company and a Restricted Subsidiary or between Restricted Subsidiaries and (3) arrangements pursuant to any provision of law with an effect similar to the former Section 168(f)(8) of the Internal Revenue Code of 1954.

“Security” or “Securities” means any note or notes, bond or bonds, debenture or debentures, or any other evidences of indebtedness, as the case may be, of any series authenticated and delivered from time to time under this Indenture.

“Security Register” shall have the meaning specified in Section 305.

“Security Registrar” means the Person who keeps the Security Register specified in Section 305.  The Company initially appoints the Trustee to act as Security Registrar for the Securities on its behalf.  The Company may at any time and from time to time authorize any Person, including the Company, to act as Security Registrar in place of the Trustee with respect to any series of Securities issued under this Indenture.

“Securityholder” means a Person in whose name a Security is registered in the Security Register.

7

“Special Record Date” for the payment of any Defaulted Interest (as defined in Section 307) means a date fixed by the Trustee pursuant to Section 307.

“Stated Maturity” when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.

“Subsidiary” of any corporation means a corporation, a majority of whose Capital Stock with voting power (other than Capital Stock having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation is, at the date of determination, directly or indirectly owned by such corporation, by one or more Subsidiaries of such corporation or by such corporation and one or more Subsidiaries of such corporation.

“Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and as in force at the date as of which this instrument was executed except as provided in Section 905.

“Trustee” means the Person named as the Trustee in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean and include each Person who is then a Trustee hereunder.  If at any time there is more than one such Person, “Trustee” as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.

“U.S. Government Obligations” shall have the meaning specified in Section 403.

“Value” means, with respect to a Sale and Leaseback Transaction, as of any particular time, an amount equal to the greater of (i) the net proceeds of the sale or transfer of the property leased pursuant to such Sale and Leaseback Transaction or (ii) the fair value, as determined by the Company, of such property at the time of entering into such Sale and Leaseback Transaction, in either case divided by the number of full years of the term of the lease and then multiplied by the number of full years of such term remaining at the time of determination, without regard to any renewal or extension options contained in the lease.

“Vice President” when used with respect to the Company or the Trustee means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president”, including, without limitation, an assistant vice president.

Section 1.12.  Compliance Certificates and Opinions.  Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), provided for in this Indenture relating to the proposed action have been complied with and an opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

8

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than annual statements of compliance provided pursuant to Section 1004) shall include:

(1)a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(2)a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3)a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4)a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

Section 1.13.  Form of Documents Delivered to Trustee.  In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons may certify or give an opinion as to the other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous.  Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

9

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Section 1.14.  Acts of Securityholders.

(a)Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Securityholders or Securityholders of any series may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company.  Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Securityholders signing such instrument or instruments.  Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

(b)The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness to such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof.  Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

(c)The ownership of Securities shall be proved by the Security Register.

(d)If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, by Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so.  Such record date shall be not more than 30 days prior to the date of its determination.  If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Holders of record at the close of business on the record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Securities Outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Securities Outstanding shall be computed as of the record date; provided that no such authorization, agreement or consent by the Holders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date, and that no such authorization, agreement or consent may be amended, withdrawn or revoked once given by a Holder, unless the Company shall provide for such amendment, withdrawal or revocation in conjunction with such solicitation of authorizations, agreements or consents or unless and to the extent required by applicable law.

10

(e)Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon whether or not notation of such action is made upon such Security.

Section 1.15.  Notices, etc., to Trustee and Company.  Any request, demand, authorization, direction, notice, consent, waiver or Act of Securityholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

(1)the Trustee by any Securityholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Trustee Administration, or

(2)the Company by the Trustee or by any Securityholder shall be sufficient for every purpose hereunder (except as provided in Section 501(4) or, in the case of a request for repayment, as specified in the Security carrying the right to repayment) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention: General Counsel, or at any other address previously furnished in writing to the Trustee by the Company.

Section 1.16.  Notices to Securityholders; Waiver.  Where this Indenture or any Security provides for notice to Securityholders of any event, such notice shall be sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Securityholder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice.  In any case where notice to Securityholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Securityholder shall affect the sufficiency of such notice with respect to other Securityholders.  Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice.  Waivers of notice by Securityholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

11

In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or otherwise, it shall be impractical to mail notice of any event to any Securityholder when such notice is required to be given pursuant to any provision of this Indenture, then any method of notification as shall be satisfactory to the Trustee and the Company shall be deemed to be a sufficient giving of such notice.

Section 1.17.  Conflict with Trust Indenture Act.  If any provision hereof limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control.

Section 1.18.  Effect of Headings and Table of Contents.  The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 1.19.  Successors and Assigns.  All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

Section 1.110.  Separability Clause.  In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 1.111.  Benefits of Indenture.  Nothing in this Indenture or in any Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Authenticating Agent or Paying Agent, the Security Registrar and the Holders of Securities (or such of them as may be affected thereby), any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 1.112.  Governing Law.  This Indenture and the Securities shall be construed in accordance with and governed by the laws of the State of New York, without regard to conflicts of laws principles thereof.

Section 1.113.  Counterparts.  This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

ARTICLE 2.  Security Forms.

Section 2.11.  Forms Generally.  The Securities shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officer executing such Securities, as evidenced by such officer’s execution of the Securities.  Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security.

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The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officer executing such Securities, as evidenced by such officer’s execution of such Securities, subject, with respect to the Securities of any series, to the rules of any securities exchange on which such Securities are listed.

Section 2.12.  Forms of Securities.  Each Security shall be in one of the forms approved from time to time by or pursuant to a Board Resolution, or established in one or more indentures supplemental hereto.  Prior to the delivery of a Security to the Trustee for authentication in any form approved by or pursuant to a Board Resolution, the Company shall deliver to the Trustee the Board Resolution by or pursuant to which such form of Security has been approved, which Board Resolution shall have attached thereto a true and correct copy of the form of Security which has been approved thereby or, if a Board Resolution authorizes a specific officer or officers to approve a form of Security, a certificate of such officer or officers approving the form of Security attached thereto.  Any form of Security approved by or pursuant to a Board Resolution must be acceptable as to form to the Trustee, such acceptance to be evidenced by the Trustee’s authentication of Securities in that form.

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Section 2.13.  Form of Trustee’s Certificate of Authentication.  The form of Trustee’s Certificate of Authentication for any Security issued pursuant to this Indenture shall be substantially as follows:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK,

as Trustee,

By:

Authorized Signatory

Section 2.14.  Securities Issuable in the Form of a Global Security.

(a)If the Company shall establish pursuant to Sections 202 and 301 that the Securities of a particular series are to be issued in whole or in part in the form of one or more Global Securities, then the Company shall execute and the Trustee or its agent shall, in accordance with Section 303 and the Company Order delivered to the Trustee or its agent thereunder, authenticate and make available for delivery, such Global Security or Securities, which (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, the Outstanding Securities of such series to be represented by such Global Security or Securities, or such portion thereof as the Company shall specify in a Company Order, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or its nominee, (iii) shall be delivered by the Trustee or its agent to the Depositary or pursuant to the Depositary’s instruction and (iv) shall bear a legend substantially to the following effect: “Unless this certificate is presented by an authorized representative of the Depositary to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of the nominee of the Depositary or in such other name as is requested by an authorized representative of the Depositary (and any payment is made to the nominee of the Depositary or to such other entity as is requested by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, the nominee of the Depositary, has an interest herein.”

(b)Notwithstanding any other provision of this Section 204 or of Section 305, and subject to the provisions of paragraph (c) below, unless the terms of a Global Security expressly permit such Global Security to be exchanged in whole or in part for individual Securities, a Global Security may be transferred, in whole but not in part and in the manner provided in Section 305, only to a nominee of the Depositary for such Global Security, or to the Depositary, or a successor Depositary for such Global Security selected or approved by the Company, or to a nominee of such successor Depositary.

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(c)

(i)If at any time the Depositary for a Global Security notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time the Depositary for the Securities for such series shall no longer be eligible or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depositary with respect to such Global Security.  If a successor Depositary for such Global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee or its agent, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange for such Global Security, will authenticate and make available for delivery individual Securities of such series of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security.

(ii)The Company may at any time and in its sole discretion determine that the Securities of any series or portion thereof issued or issuable in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities.  In such event the Company will execute, and the Trustee, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange in whole or in part for such Global Security, will authenticate and make available for delivery individual Securities of such series of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities representing such series or portion thereof in exchange for such Global Security or Securities.

(iii)If specified by the Company pursuant to Sections 202 and 301 with respect to Securities issued or issuable in the form of a Global Security, the Depositary for such Global Security may surrender such Global Security in exchange in whole or in part for individual Securities of such series of like tenor and terms in definitive form on such terms as are acceptable to the Company and such Depositary.  Thereupon the Company shall execute, and the Trustee or its agent shall authenticate and make available for delivery, without service charge, (1) to each Person specified by such Depositary a new Security or Securities of the same series of like tenor and terms and of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person’s beneficial interest as specified by such Depositary in the Global Security; and (2) to such Depositary a new Global Security of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities delivered to Holders thereof.

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(iv)In any exchange provided for in any of the preceding three paragraphs, the Company will execute and the Trustee or its agent will authenticate and make available for delivery individual Securities in definitive registered form in authorized denominations.  Upon the exchange of the entire principal amount of a Global Security for individual Securities, such Global Security shall be canceled by the Trustee or its agent.  Except as provided in the preceding paragraph, Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or the Security Registrar.  The Trustee shall deliver at its Corporate Trust Office such Securities to the Persons in whose names such Securities are so registered.

ARTICLE 3.  The Securities.

Section 3.11.  General Title; General Limitations; Issuable in Series; Terms of Particular Series.  The aggregate principal amount of Securities which may be authenticated and delivered and Outstanding under this Indenture is not limited.

The Securities may be issued in one or more series up to an aggregate principal amount of Securities as from time to time may be authorized by the Board of Directors.  All Securities of each series under this Indenture shall in all respects be equally and ratably entitled to the benefits hereof with respect to such series without preference, priority or distinction on account of the actual time of the authentication and delivery or Stated Maturity of the Securities of such series.

Each series of Securities shall be created either by or pursuant to a Board Resolution or by an indenture supplemental hereto.  The Securities of each such series may bear such date or dates, be payable at such place or places, have such Stated Maturity or Maturities, be issuable at such premium over or discount from their face value, bear interest at such rate or rates, from such date or dates, payable in such installments and on such dates and at such place or places to the Holders of Securities registered as such on such Regular Record Dates, or may bear no interest, and may be redeemable or repayable at such Redemption Price or Prices or Repayment Price or Prices, as the case may be, whether at the option of the Holder or otherwise, and upon such terms, all as shall be provided for in or pursuant to the Board Resolution or in the supplemental indenture creating that series.  There may also be established in or pursuant to a Board Resolution or in a supplemental indenture prior to the issuance of Securities of each such series, provision for:

(1)the exchange or conversion of the Securities of that series, at the option of the Holders thereof, for or into new Securities of a different series or other securities except shares of capital stock of the Company or any subsidiary of the Company or securities directly or indirectly convertible into or exchangeable for any such shares;

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(2)a sinking or purchase fund or other analogous obligation;

(3)a limitation on the aggregate principal amount of the Securities of that series;

(4)the exchange or conversion of Securities of that series, at the option of the Holders thereof, for or into other Securities of a different series or other securities;

(5)the appointment by the Trustee of an Authenticating Agent in one or more places other than the location of the office of the Trustee with power to act on behalf of the Trustee and subject to its direction in the authentication and delivery of the Securities of any one or more series in connection with such transactions as shall be specified in the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series;

(6)the portion of the principal amount of Securities of the series, if other than the principal amount thereof, which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or provable in bankruptcy pursuant to Section 504;

(7)any Event of Default with respect to the Securities of such series, if not set forth herein, and any additions, deletions or other changes to the Events of Default set forth herein that shall be applicable to the Securities of such series;

(8)any covenant solely for the benefit of the Securities of such series and any additions, deletions or other changes to the provisions of Sections 1006 and 1007 that shall be applicable to the Securities of that series;

(9)the inapplicability of Section 403 of this Indenture to the Securities of such series and any covenant with respect to Section 403(b) established in or pursuant to a Board Resolution or in a supplemental indenture as described above that has not already been established herein;

(10)if the Securities of the series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions, if any, upon which such Global Security or Securities may be exchanged in whole or in part for other individual Securities; and the Depositary for such Global Security or Securities; and

(11)any other terms of the series, all upon such terms as may be determined in or pursuant to a Board Resolution or in a supplemental indenture with respect to such series.  All Securities of the same series shall be substantially identical in tenor and effect except as to denomination and except if issued pursuant to Section 311.

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The form of the Securities of each series shall be established pursuant to the provisions of this Indenture in or pursuant to the Board Resolution or in the supplemental indenture creating such series.  The Securities of each series shall be distinguished from the Securities of each other series in such manner, reasonably satisfactory to the Trustee, as the Board of Directors may determine.

Unless otherwise provided with respect to Securities of a particular series, the Securities of any series may only be issuable in registered form, without coupons.

Any terms or provisions in respect of the Securities of any series issued under this Indenture may be determined pursuant to this Section by providing for the method by which such terms or provisions shall be determined.

Section 3.12.  Denominations.  The Securities of each series shall be issuable in such denominations as shall be provided in the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series.  In the absence of any such provisions with respect to the Securities of any series, the Securities of that series shall be issuable only in fully registered form in denominations of $1,000 and any integral multiple thereof.

Section 3.13.  Execution, Authentication and Delivery and Dating.  The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman, its President or one of its Vice Presidents.  The signature of any of these officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication; and the Trustee shall, upon Company Order, authenticate and make available for delivery such Securities as in this Indenture provided and not otherwise.

Prior to any such authentication and delivery, the Trustee shall be entitled to receive, in addition to any Officers’ Certificate and Opinion of Counsel required to be furnished to the Trustee pursuant to Section 102, and the Board Resolution and any certificate relating to the issuance of the series of Securities required to be furnished pursuant to Section 202, an Opinion of Counsel stating that:

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(1)all instruments furnished to the Trustee conform to the requirements of the Indenture and constitute sufficient authority hereunder for the Trustee to authenticate and deliver such Securities;

(2)the form and terms of such Securities have been established in conformity with the provisions of this Indenture;

(3)such Securities, when completed by appropriate insertions and executed by the Company and delivered to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors’ rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity); and

(4)the Indenture is qualified under the Trust Indenture Act; and, if the authentication and delivery relates to a new series of Securities created by an indenture supplemental hereto, also stating that the Company has corporate power to execute and deliver any such supplemental indenture and has taken all necessary corporate action for those purposes and any such supplemental indenture has been executed and delivered and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors’ rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and, if the authentication and delivery relates to Securities of a series issued pursuant to Section 311, paragraphs (2) and (3) of the foregoing opinion shall read as follows:

“(2)  the form of such Securities and the procedures for determining the terms of such Securities as set forth in the procedures relating thereto referred to in Section 311 have been established in conformity with the provisions of this Indenture; and

(3)  such Securities, when completed by appropriate insertions and executed by the Company and delivered to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued, delivered and paid for in accordance with the applicable selling agency or distribution agreement, will have been duly issued under the Indenture and will constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors’ rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity).”

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The Trustee shall not be required to authenticate such Securities if the issue thereof will adversely affect the Trustee’s own rights, duties or immunities under the Securities and this Indenture.

Unless otherwise provided in the form of Security for any series, all Securities shall be dated the date of their authentication.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.

Section 3.14.  Temporary Securities.  Pending the preparation of definitive Securities of any series, the Company may execute, and, upon receipt of the documents required by Section 303, together with a Company Order, the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay.  After the preparation of definitive Securities, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment, without charge to the Holder; and upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of such series of authorized denominations and of like tenor and terms.  Until so exchanged the temporary Securities of such series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.

Section 3.15.  Registration, Transfer and Exchange.  The Company shall keep or cause to be kept a register or registers (herein sometimes referred to as the “Security Register”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities, or of Securities of a particular series, and for transfers of Securities or of Securities of such series.  Any such register shall be in written form or in any other form capable of being converted into written form within a reasonable time.  At all reasonable times the information contained in such register or registers shall be available for inspection by the Trustee at the office or agency to be maintained by the Company as provided in Section 1002.  There shall be only one Security Register per series of Securities.

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Subject to Section 204, upon surrender for transfer of any Security of any series at the office or agency of the Company in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms.

Subject to Section 204, at the option of the Holder, Securities of any series may be exchanged for other Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms, upon surrender of the Securities to be exchanged at such office or agency.  Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Securityholder making the exchange is entitled to receive.

All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange.

Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.

Unless otherwise provided in the Security to be transferred or exchanged, no service charge shall be made on any Securityholder for any transfer or exchange of Securities, but the Company may (unless otherwise provided in such Security) require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities, other than exchanges pursuant to Section 304 or 906 not involving any transfer.

The Company shall not be required (i) to issue, transfer or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of such series selected for redemption under Section 1103 and ending at the close of business on the date of such mailing, or (ii) to transfer or exchange any Security so selected for redemption in whole or in part.

None of the Company, the Trustee, any agent of the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

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Section 3.16.  Mutilated, Destroyed, Lost and Stolen Securities. If (i) any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of like tenor, series, stated maturity and principal amount, bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen securities.

Section 3.17.  Payment of Interest;  Interest Rights Preserved.  Unless otherwise provided with respect to such Security pursuant to Section 301, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.  Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of his having been such Holder; and, except as hereinafter provided, such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1)

or Clause (2) below:

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(1)The Company may elect to make payment of any Defaulted Interest to the Persons in whose names any such Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner.  The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfac- tory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided.  Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment.  The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to the Holder of each such Security at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date.  Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).

(2)The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

Section 3.18.  Persons Deemed Owners.  The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 307) interest on, such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

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Section 3.19.  Cancellation.  All Securities surrendered for payment, redemption, transfer, or exchange or credit against a sinking fund shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it.  The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee.  No Security shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture.  The Trustee shall deliver all canceled Securities to the Company.

Section 3.110.  Computation of Interest.  Unless otherwise provided as contemplated in Section 301, interest on the Securities shall be calculated on the basis of a 360-day year of twelve 30-day months.

Section 3.111.  Medium-Term.  Notwithstanding any contrary provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary for the Company to deliver to the Trustee an Officers’ Certificate, Board Resolution, supplemental indenture, Opinion of Counsel or Company Order otherwise required pursuant to Sections 102, 202, 301 and 303 at or prior to the time of authentication of each Security of such series if such documents are delivered to the Trustee or its agent at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such request, the statements made in the Officers’ Certificate or other certificates delivered pursuant to Sections 102 and 202 shall be true and correct as if made on such date.

A Company Order, Officers’  Certificate or Board Resolution or supplemental indenture delivered by the Company to the Trustee in the circumstances set forth in the preceding paragraph may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee or its agent on original issue from time to time in the aggregate principal amount established for such series pursuant to such procedures acceptable to the Trustee as may be specified from time to time by Company Order upon the telephonic, electronic or written order of persons designated in such Company Order, Officers’ Certificate, supplemental indenture or Board Resolution (any such telephonic or electronic instructions to be promptly confirmed in writing by such persons) and that such persons are authorized to determine, consistent with such Company Order, Officers’ Certificate, supplemental indenture or Board Resolution, such terms and conditions of said Securities as are specified in such Company Order, Officers’ Certificate, supplemental indenture or Board Resolution.

Section 3.112.  CUSIP Numbers.  The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.  The Company will promptly notify the Trustee of any change in the “CUSIP” numbers.

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ARTICLE 4.  Satisfaction and Discharge.

Section 4.11.  Satisfaction and Discharge of Indenture.  This Indenture shall cease to be of further effect with respect to any series of Securities (except as to any surviving rights of conversion or transfer or exchange of Securities of such series expressly provided for herein or in the form of Security for such series), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series when

(1)either

(A)all Securities of that series theretofore authenticated and delivered (other than (i) Securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, and (ii) Securities of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee canceled or for cancellation; or

(B)all such Securities of that series not theretofore canceled or delivered to the Trustee for cancellation

(i)have become due and payable, or

(ii)will become due and payable at their Stated Maturity within one year, or

(iii)are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,

and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount, which shall be immediately due and payable, sufficient to pay and discharge the entire indebtedness on such Securities not therefore canceled or delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be;

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(2)the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Securities of such series; and

(3)the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee with respect to that series under Section 607 shall survive and the obliga- tions of the Trustee under Sections 402 and 1003 shall survive.

Section 4.12.  Application of Trust Money.  All money and U.S. Government Obligations (as defined below) deposited with the Trustee pursuant to Section 401 or Section 403 shall be held in trust and the deposited money and the money from the U.S. Government Obligations shall be applied by it, in accordance with the provisions of the series of Securities in respect of which it was deposited and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money or U.S. Government Obligations has been deposited with the Trustee; but such money and U.S. Government Obligations need not be segregated from other funds except to the extent required by law.  Any money received from principal or interest payments on any U.S. Government Obligations in excess of the amount needed or to be needed to pay the Securities with respect to which such U.S. Government Obligations were deposited as provided in Section 4.01 or 4.03 shall be paid over to the Company upon receipt of a Company Request together with the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee to the effect that such money is in excess of the amount needed or to be needed to pay such Securities.

Section 4.13.  Defeasance Upon Deposit of Funds or Government Obligations.  Unless pursuant to Section 301 provision is made that this Section shall not be applicable to the Securities of any series, at the Company’s option, either (a) the Company shall be deemed to have been Discharged (as defined below) from its obligations with respect to any series of Securities after the applicable conditions set forth below have been satisfied or (b) the Company shall cease to be under any obligation to comply with any term, provision or condition set forth in, at the election of the Company, any or all of Sections 1006, 1007 and subsection (5) of Section 501 (and any other Sections applicable to such Securities that are determined pursuant to Section 301 to be subject to this provision) with respect to any series of Securities at any time after the applicable conditions set forth below have been satisfied:

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(1)the Company shall have deposited or caused to be deposited irrevocably with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of such series (i) money in an amount, or (ii) the equivalent in direct obligations of, or obligations the principal of and interest on which are fully guaranteed by, the United States of America (“U.S. Government Obligations”) which through the payment of interest and principal in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (iii) a combination of (i) and (ii), sufficient, in the opinion (with respect to (ii) and (iii)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal (including mandatory sinking fund payments) and any premium of, interest on and any repurchase obligations with respect to the outstanding Securities of such series on the dates such installments of interest or principal or repurchase obligations are due;

(2)no Event of Default or event (including such deposit) which with notice or lapse of time would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit; and

(3)the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that Holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of the Company’s exercise of its option under this Section 403 and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised, and, in the case of Securities being Discharged, such opinion shall be based upon at least one of the following authorities (issued, enacted or promulgated after the date of this Indenture), substantially on point and to the foregoing effect: (i) a public ruling of the Internal Revenue service, (ii) a private ruling of the Internal Revenue Service issued to the Company with respect to the securities, (iii) a provision of the Internal Revenue Code, or (iv) a final regulation promulgated by the Department of the Treasury.

“Discharged” means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of Holders of Securities to receive, from the trust fund described in clause (1) above, payment of the principal and any premium of and any interest on such Securities when such payments are due; (B) the Company’s obligations with respect to such Securities under Sections 305, 306, 402, 1002 and 1003; and (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder.

The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S.  Government Obligations deposited pursuant to this Article or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities.

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ARTICLE 5.  Remedies.

Section 5.11.  Events of Default.  “Event of Default”, wherever used herein, means with respect to any series of Securities any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is either inapplicable to a particular series or it is specifically deleted or modified in or pursuant to the supplemental indenture or Board Resolution creating such series of Securities or in the form of Security for such series:

(1)default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or

(2)default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or

(3)default in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of such series; or

(4)default in the performance, or breach, of any covenant, warranty or agreement of the Company in this Indenture in respect of the Securities of such series (other than a covenant, warranty or agreement in respect of the Securities of such series a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), all of such covenants, warranties and agreements in the Indenture which are not expressly stated to be for the benefit of a particular series of Securities being deemed in respect of the Securities of all series for this purpose, and continuance of such default or breach for a period of 90 days after receipt by the Company from the Trustee or by the Company and the Trustee from the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice, by registered or certified mail, specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

(5)a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or any Restricted Subsidiary (other than the Securities), or under any mortgage, indenture or instrument under which there may be secured or evidenced any indebtedness for money borrowed by the Company or any Restricted Subsidiary (other than the Securities), whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness in excess of $15,000,000 becoming due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged or such acceleration having been rescinded, annulled or stayed within 30 days after the date on which written notice thereof is given to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in principal amount of the Securities then outstanding hereunder; or

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(6)the entry of an order for relief against the Company under the Federal Bankruptcy Act by a court having jurisdiction in the premises or a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent under any other applicable Federal or State law, or the entry of a decree or order approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Federal Bankruptcy Code or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or

(7)the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other applicable Federal or State law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors or the admission by it in writing of its inability to pay its debts generally as they become due; or

(8)any other Event of Default provided in or pursuant to the supplemental indenture or Board Resolution under which such series of Securities is issued or in the form of Security for such series.

Section 5.12.  Acceleration of Maturity; Rescission and Annulment.  If an Event of Default described in paragraph (1), (2), (3), (4) or (8) (if the Event of Default under paragraph (4) or (8) is with respect to less than all series of Securities then outstanding) of Section 501 occurs and is continuing with respect to any series, then and in each and every such case, unless the principal of all the Securities of such series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding hereunder (each such series acting as a separate class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of such series and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities of such series contained to the contrary notwithstanding.  If an Event of Default described in paragraph (4) or (8) (if the Event of Default under paragraph (4) or (8) is with respect to all series of Securities then Outstanding), (5), (6) or (7) of Section 501 occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities contained to the contrary notwithstanding.

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At any time after such a declaration of acceleration has been made with respect to the Securities of any or all series, as the case may be, and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of such series, by written notice to the Company and the Trustee, shall rescind and annul such declaration and its consequences if

(1)           the Company has paid or deposited with the Trustee a sum sufficient to pay

(A)          all overdue installments of interest on the Securities of such series,

(B)           the principal of (and premium, if any, on) any Securities of such series which have become due otherwise than by such declaration of acceleration, and interest thereon at the rate or rates prescribed therefor by the terms of the Securities of such series, to the extent that payment of such interest is lawful,

(C)           interest upon overdue installments of interest at the rate or rates prescribed therefor by the terms of the Securities of such series to the extent that payment of such interest is lawful, and

(D)          all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 607;

and

(2)           all Events of Default with respect to such series of Securities, other than the nonpayment of the principal of the Securities of such series which have become due solely by such acceleration, have been cured or waived as provided in Section 513.

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No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 5.13.  Collection of Indebtedness and Suits for Enforcement by Trustee.  The Company covenants that if

(1)           default is made in the payment of any installment of interest on any Security of any series when such interest becomes due and payable, or

(2)           default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, or

(3)           default is made in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of any series,

and any such default continues for any period of grace provided with respect to the Securities of such series, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of any such Security (or the Holders of any such series in the case of Clause (3) above), the whole amount then due and payable on any such Security (or on the Securities of any such series in the case of Clause (3) above) for principal (and premium, if any) and interest, with interest, to the extent that payment of such interest shall be legally enforceable, upon the overdue principal (and premium, if any) and upon overdue install- ments of interest, at such rate or rates as may be prescribed therefor by the terms of any such Security (or of Securities of any such series in the case of Clause (3) above); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 607.

If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities of such series and collect the money adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.

If an Event of Default with respect to any series of Securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

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Section 5.14.  Trustee May File Proofs of Claim.  In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irre- spective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceedings or otherwise,

(i)            to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary and advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 607) and of the Securityholders allowed in such judicial proceeding, and

(ii)           to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;

and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Securityholder to make such payment to the Trustee and in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding.

Section 5.15.  Trustee May Enforce Claims Without Possession of Securities.  All rights of action and claims under this Indenture or the Securities of any series may be prosecuted and enforced by the Trustee without the possession of any of the Securities of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel and any other amounts due the Trustee under Section 607, be for the ratable benefit of the Holders of the Securities of the series in respect of which such judgment has been recovered.

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Section 5.16.  Application of Money Collected.  Any money collected by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities of such series and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

FIRST:       To the payment of all amounts due the Trustee under Section 607.

SECOND:  To the payment of the amounts then due and unpaid upon the Securities of that series for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.

THIRD:     If any, to the Company.

Section 5.17.  Limitation on Suits.  No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

(1)           such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to Securities of such series;

(2)           the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(3)           such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

(4)           the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

(5)           no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Securities of such series;

it being understood and intended that no one or more Holders of Securities of such series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of such series, or to obtain or to seek to obtain priority or preference over any other such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and proportionate benefit of all the Holders of all Securities of such series.

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Section 5.18.  Unconditional Right of Securityholders To Receive Principal, Premium and Interest.  Notwithstanding any other provisions in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on the Redemption Date or Repayment Date, as the case may be) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder.

Section 5.19.  Restoration of Rights and Remedies.  If the Trustee or any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, then and in every such case the Company, the Trustee and the Securityholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Securityholders shall continue as though no such proceeding had been instituted.

Section 5.110.  Rights and Remedies Cumulative.  No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise (except as provided in the last sentence of Section 306).  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 5.111.  Delay or Omission Not Waiver.  No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.  Every right and remedy given by this Article or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Securityholders, as the case may be.

Section 5.112.  Control by Securityholders.  The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that

(1)           the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or would conflict with this Indenture or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would involve it in personal liability or be unjustly prejudicial to the Holders not taking part in such direction, and

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(2)           the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

Section 5.113.  Waiver of Past Defaults.  The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default not theretofore cured

(1)           in the payment of the principal of (or premium, if any) or interest on any Security of such series, or in the payment of any sinking or purchase fund or analogous obligation with respect to the Securities of such series, or

(2)           in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series.

Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Section 5.114.  Undertaking for Costs.  All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be).

ARTICLE 6.  The Trustee.

Section 6.11.  Certain Duties and Responsibilities.

(a)           Except during the continuance of an Event of Default with respect to any series of Securities,

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(1)           the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to the Securities of such series, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(2)           in the absence of bad faith on its part, the Trustee may, with respect to Securities of such series conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

(b)           In case an Event of Default with respect to any series of Securities has occurred and is continuing, the Trustee shall exercise with respect to the Securities of such series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.

(c)           No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that

(1)           this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;

(2)           the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

(3)           the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and

(4)           no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

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(d)           Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

Section 6.12.  Notice of Defaults.  Within 90 days after the occurrence of any default hereunder with respect to Securities of any series, the Trustee shall transmit by mail to all Securityholders of such series, as their names and addresses appear in the Security Register, notice of such default hereunder actually known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking or purchase fund installment or analogous obligation with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Securityholders of such series; and provided, further, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series no such notice to Securityholders of such series shall be given until at least 90 days after the occurrence thereof.  For the purpose of this Section, the term "default", with respect to Securities of any series, means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.

Section 6.13.  Certain Rights of Trustee.  Except as otherwise provided in Section 601:

(a)           the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b)           any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

(c)           whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;

(d)           the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

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(e)           the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders pursuant to this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(f)            the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney (which shall be at the sole cost of the Company in the event that such inquiry or investigation was undertaken by the Trustee in the exercise of its reasonable discretion on behalf of the Holders) and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation;

(g)           the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(h)           the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and

(i)            the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture.

Section 6.14.  Not Responsible for Recitals or Issuance of Securities.  The recitals contained herein and in the Securities, except the certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness.  The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities.  The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

Section 6.15.  May Hold Securities.  The Trustee, any Paying Agent, the Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent.

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Section 6.16.  Money Held in Trust.  Subject to the provisions of Section 1003 hereof, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law.  The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company.

Section 6.17.  Compensation and Reimbursement.  The Company agrees

(1)           to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(2)           except as otherwise expressly provided herein to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and

(3)           to indemnify each of the Trustee or any predecessor Trustee for, and to hold it harmless against, any and all losses, damages, claims, liabilities or expenses, including taxes (other than taxes based upon, measured by, or determined by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.

As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities.

When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(6) or Section 501(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law.

The provisions of this Section shall survive the termination of this Indenture.

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Section 6.18.  Disqualification; Conflicting Interests.  The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act during the period of time provided for therein.  In determining whether the Trustee has a conflicting interest as defined in Section 310(b) of the Trust Indenture Act with respect to the Securities of any series, there shall be excluded this Indenture with respect to Securities of any particular series of Securities other than that series.  Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act.

Section 6.19.  Corporate Trustee Required; Eligibility.  There shall at all times be a Trustee hereunder with respect to each series of Securities, which shall be either

(i)            a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal or State authority, or

(ii)           a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees,

in either case having a combined capital and surplus of at least $50,000,000.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither the Company nor any person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as trustee for the Securities of any series issued hereunder.  If at any time the Trustee with respect to any series of Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 610.

Section 6.110.  Resignation of Successor.

(a)           No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611.

(b)           The Trustee may resign with respect to any series of Securities at any time by giving written notice thereof to the Company.  If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee.

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(c)           The Trustee may be removed with respect to any series of Securities at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities of that series, delivered to the Trustee and to the Company.  If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee subject to removal may petition any court of competent jurisdiction for the appointment of a successor Trustee.

(d)           If at any time:

(1)           the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act pursuant to Section 608 with respect to any series of Securities after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of a Security of that series for at least 6 months, or

(2)           the Trustee shall cease to be eligible under Section 609 with respect to any series of Securities and shall fail to resign after written request therefor by the Company or by any such Securityholder, or

(3)           the Trustee shall become incapable of acting with respect to any series of Securities, or

(4)           the Trustee shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, with respect to the series, or in the case of Clause (4), with respect to all series, or (ii) subject to Section 514, any Securityholder who has been a bona fide Holder of a Security of such series for at least 6 months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to the series, or, in the case of Clause (4), with respect to all series.

(e)           If the Trustee shall resign, be removed or become incapable of acting with respect to any series of Securities, or if a vacancy shall occur in the office of the Trustee with respect to any series of Securities for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee for that series of Securities.  If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to such series of Securities shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to such series and supersede the successor Trustee appointed by the Company with respect to such series.  If no successor Trustee with respect to such series shall have been so appointed by the Company or the Securityholders of such series and accepted appointment in the manner hereinafter provided, subject to Section 514, any Securityholder who has been a bona fide Holder of a Security of that series for at least 6 months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series.

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(f)            The Company shall give notice of each resignation and each removal of the Trustee with respect to any series and each appointment of a successor Trustee with respect to any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of that series as their names and addresses appear in the Security Register.  Each notice shall include the name of the successor Trustee and the address of its principal Corporate Trust office.

Section 6.111.  Acceptance of Appointment by Successor.   Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective with respect to any series as to which it is resigning or being removed as Trustee, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to any such series; but, on request of the Company or the successor Trustee, such predecessor Trustee shall, upon payment of its reasonable charges, if any, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor Trustee hereunder with respect to all or any such series, subject nevertheless to its lien, if any, provided for in Section 607.  Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.

In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of any series as to which the predecessor Trustee is not being succeeded shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the adminis- tration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee.

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No successor Trustee with respect to any series of Securities shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible with respect to that series under this Article.

Section 6.112.  Merger, Conversion, Consolidation or Succession to Business.  Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto.  In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

Section 6.113.  Preferential Collection of Claims Against Company.

(a)           Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within 3 months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities (as defined in Subsection (c) of this Section):

(1)           an amount equal to any and all reduction in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such 3-month period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and

(2)           all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such 3-month period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.

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Nothing herein contained, however, shall affect the right of the Trustee

(A)to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law;

(B)to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such 3-month period;

(C)to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such 3-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default as defined in Subsection (c) of this Section would occur within 3 months; or

(D)to receive payment on any claim referred to in paragraph (B) or against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.

For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such 3-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.

If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the Securityholders and the holders of other indenture securities in such manner that the Trustee, the Securityholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special Account and before crediting to the respective claims of the Trustee and the Securityholders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account.  As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim.  The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee and the Securityholders and the holders of other indenture securities, in accordance with the provisions-of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Securityholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.

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Any Trustee which has resigned or been removed after the beginning of such 3-month period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred.  If any Trustee has resigned or been removed prior to the beginning of such 3-month period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist:

(i)            the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such 3-month period; and

(ii)           such receipt of property or reduction of claim occurred within 3 months after such resignation or removal.

(b)           There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from

(1)           the ownership or acquisition of securities issued under any indenture or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;

(2)           advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Securityholders at the time and in the manner provided in this Indenture;

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(3)           disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depository, or other similar capacity;

(4)           an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Subsection (c) of this Section;

(5)           the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or

(6)           the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Subsection (c) of this Section.

(c)           For the purposes of this Section only:

(1)           The term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable.

(2)           The term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account.

(3)           The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within 7 days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand.

(4)           The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.

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(5)           The term "Company" means any obligor upon the Securities.

Section 6.114.  Appointment of Authentication Agent.  At any time when any of the Securities remain Outstanding the Trustee, with the approval of the Company, may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder.  Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent.  Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as an Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and, if other than the Company itself, subject to supervision or examination by Federal or State authority.  If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.   If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and, if other than the Company, to the Company.  The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and, if other than the Company, to the Company.  Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee, with the approval of the Company, may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register.  Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent.  No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

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The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.

If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:

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This is one of the Securities referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK

as Trustee,

By:

As Authenticating Agent

By:

Authorized Officer

ARTICLE 7. Securityholders' Lists and Reports by Trustee and Company.

Section 7.11.  Company To Furnish Trustee Names and Addresses of Securityholders.  The Company will furnish or cause to be furnished to the Trustee

(1)           semi-annually not later than December 1 and June 1 in each year in such form as the Trustee may reasonably require, a list of the names and addresses of the Holders of Securities of each series as of a date not more than 15 days prior to the date such list is furnished, and

(2)           at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the date such list is furnished, except that no such list need be furnished so long as the Trustee is acting as Security Registrar.

Section 7.12.  Preservation of Information; Communications to Securityholders.

(a)           The Trustee shall preserve in as current a form as is reasonably practicable, the names and addresses of Holders of Securities contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders of Securities received by the Trustee in its capacity as Security Registrar.  The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.

(b)           If 3 or more Holders of Securities of any series (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least 6 months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of such series or with the Holders of all Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within 5 Business Days after the receipt of such application, at its election, either

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(i)            afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(a), or

(ii)           inform such applicants as to the approximate number of Holders of Securities of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702(a), and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.

If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of a Security of such series or to all Securityholders, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless, within 5 days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Securities of such series or all Securityholders, as the case may be, or would be in violation of applicable law.  Such written statement shall specify the basis of such opinion.  If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all Securityholders of such series or all Securityholders, as the case may be, with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.

(c)           Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b).

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Section 7.13.  Reports by Trustee.

(a)           The term "reporting date" as used in this Section means April 1.  Within 60 days after the reporting date in each year, beginning in 1999, the Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report dated as of such reporting date with respect to any of the following events which may have occurred during the twelve months preceding the date of such report (but if no such event has occurred within such period, no report need be transmitted):

(1)           any change to its eligibility under Section 609 and its qualifications under Section 608;

(2)           the creation of or any material change to a relationship specified in Section 310(b)(1) through Section 310(b)(10) of the Trust Indenture Act;

(3)           the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of Securities of any series, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities of such series outstanding on the date of such report;

(4)           any change to the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 613(b)(2), (3), (4), or (6);

(5)           any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;

(6)           any additional issue of Securities which the Trustee has not previously reported; and

(7)           any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 602.

(b)           The Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities of any series, on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities outstanding of such series at such time, such report to be transmitted within 90 days after such time.

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(c)           A copy of each such report shall, at the time of such transmission to Securityholders, be furnished to the Company and be filed by the Trustee with each stock exchange upon which the Securities are listed, and also with the Commission.  The Company will promptly notify the Trustee when the Securities are listed on any stock exchange, or any delisting thereof.

Section 7.14.   Reports by Company.  The Company will

(1)           file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;

(2)           file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenant of this Indenture as may be required from time to time by such rules and regulations; and

(3)           transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.

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Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).

ARTICLE 8.  Consolidation, Merger, Conveyance or Transfer.

Section 8.11.   When Company May Merge or Transfer Assets.  The Company, in a single transaction or through a series of related transactions, shall not consolidate with or merge with or into any other Person or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets to another Person or group of affiliated Persons, unless:

(a)           either (1) the Company shall be the continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company are trans- ferred (i) shall be a corporation, partnership or trust organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;

(b)           immediately after giving effect to such transaction, and the assumption contemplated by clause (a) above, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and

(c)           the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article 8 and that all conditions precedent herein provided for relating to such transaction have been satisfied.

For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the properties and assets of one or more Restricted Subsidiaries (other than to the Company or another direct or indirect wholly owned Subsidiary) in a single transaction or through a series of related transactions, which, if such assets were owned by the Company, would constitute all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.

The successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein, and thereafter, except in the case of a lease of its properties and assets substantially as an entirety, the Company shall be discharged and released from all obligations and covenants under this Indenture and the Securities.  The Trustee shall enter into a supplemental indenture to evidence the succession and substitution of such successor Person and such discharge and release of the Company.

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ARTICLE 9.  Supplemental Indentures.

Section 9.11.   Supplemental Indentures Without Consent of Securityholders.  Without the consent of the Holders of any Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

(1)           to evidence the succession of another corporation to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or

(2)           to add to the covenants of the Company, or to surrender any right or power herein conferred upon the Company, for the benefit of the Holders of the Securities of any or all series (and if such covenants or the surrender of such right or power are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included or such surrenders are expressly being made solely for the benefit of one or more specified series); or

(3)           to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; or

(4)           to add to this Indenture such provisions as may be expressly permitted by the TIA, excluding, however, the provisions referred to in Section 316(a)(2) of the TIA as in effect at the date as of which this instrument was executed or any corresponding provision in any similar Federal statute hereafter enacted; or

(5)           to establish any form of Security, as provided in Article Two, and to provide for the issuance of any series of Securities as provided in Article Three and to set forth the terms thereof, and/or to add to the rights of the Holders of the Securities of any series; or

(6)           to evidence and provide for the acceptance of appointment by another corporation as a successor Trustee hereunder with respect to one or more series of Securities and to add to or change any of the provi- sions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to Section 611; or

(7)           to add any additional Events of Default in respect of the Securities of any or all series (and if such additional Events of Default are to be in respect of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of one or more specified series); or

(8)           to provide for the issuance of Securities in coupon as well as fully registered form.

No supplemental indenture for the purposes identified in Clauses (2), (3) or (7) above may be entered into if to do so would adversely affect the interest of the Holders of Securities of any series.

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Section 9.12.   Supplemental Indentures with Consent of Securityholders.  With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture or indentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities of each such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

(1)           change the Maturity of the principal of, or the Stated Maturity of any premium on, or any installment of interest on, any Security, or reduce the principal amount thereof or the interest or any premium thereon, or change the method of computing the amount of principal thereof or interest thereon on any date or change any Place of Payment where any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Maturity or the Stated Maturity, as the case may be, thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date as the case may be); or

(2)           reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences, provided for in this Indenture; or

(3)           modify any of the provisions of this Section, Section 513 or Section 1008, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby.

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A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.

It shall not be necessary for any Act of Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto.  If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is six months after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect.

Section 9.13.   Execution of Supplemental Indentures.  In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture.  The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.

Section 9.14.   Effect of Supplemental Indentures.  Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby to the extent provided therein.

Section 9.15.   Conformity with Trust Indenture Act.   Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the TIA as then in effect.

Section 9.16.   Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture.  If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.

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ARTICLE 10. Covenants.

Section 10.11.  Payment of Principal, Premium and Interest.  With respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series.

Section 10.12.  Maintenance of Office or Agency.  The Company will maintain an office or agency in each Place of Payment where Securities may be presented or surrendered for payment, where Securities may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served.  The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency.  If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the principal Corporate Trust Office of the Trustee, Attention: Corporate Trust Trustee Administration, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands.

Section 10.13.  Money for Security Payments To Be Held in Trust.  If the Company shall at any time act as its own Paying Agent for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on, any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure to act.

Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on, any Securities of such series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal (and premium, if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

The Company will cause each Paying Agent other than the Trustee for any series of Securities to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provi- sions of this Section, that such Paying Agent will

(1)           hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

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(2)           give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any such payment of principal (and premium, if any) or interest on the Securities of such series; and

(3)           at any time during the continuance of any such default upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture with respect to any series of Securities or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent in respect of each and every series of Securities as to which it seeks to discharge this Indenture or, if for any other purpose, all sums so held in trust by the Company in respect of all Securities, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease.  The Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company mail to the Holders of the Securities as to which the money to be repaid was held in trust, as their names and addresses appear in the Security Register, a notice that such moneys remain unclaimed and that, after a date specified in the notice, which shall not be less than 30 days from the date on which the notice was first mailed to the Holders of the Securities as to which the money to be repaid was held in trust, any unclaimed balance of such moneys then remaining will be paid to the Company free of the trust formerly impressed upon it.

Section 10.14.  Statement as to Compliance.  The Company will deliver to the Trustee, within 120 days of the end of each fiscal year, a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company stating that

(1)           in the course of the performance of his duties as an officer of the Company he would normally have knowledge of the Company's performance under this Indenture and under the terms of the Securities; and

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(2)           to the best of his knowledge, the Company has fulfilled all its obligations under this Indenture and has complied with all conditions and covenants on its part contained in this Indenture through such year, or, if there has been a default in the fulfillment of any such obligation, covenant or condition, specifying each such default known to him and the nature and status thereof.

For the purpose of this Section 1004, default and compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.

Section 10.15.  Legal Existence.  Subject to Article Eight the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.

Section 10.16.  Limitation on Liens.  The Company shall not create, assume or suffer to exist any Lien upon any Principal Property of the Company or any Restricted Subsidiary or shares of Capital Stock or indebtedness of any Subsidiary to secure any debt of any Person, or permit any Restricted Subsidiary so to do, without making effective provision whereby the Securities then outstanding and having the benefit of this Section shall be secured by the Lien equally and ratably with such debt for so long as such debt shall be so secured, except that the foregoing shall not prevent the Company or any Restricted Subsidiary from creating, assuming or suffering to exist Liens of the following character:

(1)         with respect to any series of Securities, any Lien existing on the date of issuance of the series;

(2)         any Lien existing on property owned or leased by, or shares of capital stock or indebtedness of, a Person at the time it becomes a Restricted Subsidiary;

(3)         any Lien existing on property at the time of the acquisition or lease thereof by the Company or a Restricted Subsidiary;

(4)         any Lien on property of a corporation existing at the time such corporation is merged or consolidated with the Company or a Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation as an entirety or substantially as an entirety to the Company or a Restricted Subsidiary;

(5)         any Lien to secure any debt on capital stock, property or assets incurred prior to, at the time of, or within 180 days after, or pursuant to financing arrangements for which a firm commitment is made by a bank, insurance company or other lender or investor (not including the Company or any Restricted Subsidiary) within 180 days after, the acquisition of capital stock, property or assets for the purpose of financing all or any part of the purchase price thereof;

(6)         any Lien to secure any debt incurred prior to, at the time of, or within 180 days after, or pursuant to financing arrangements for which a firm commitment is made by a bank, insurance company or other lender or investor (not including the Company or any Restricted Subsidiary) within 180 days after, the completion of the construction and commencement of commercial operation, alteration, repair or improvement of property or assets for the purpose of financing all or any part of the cost thereof;

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(7)           any Lien securing debt of a Restricted Subsidiary owing to the Company or to another Restricted Subsidiary;

(8)           any Lien in favor of any customer arising in respect of performance deposits and partial, progress, advance or other payments made by or on behalf of such customer for goods produced or to be produced for or services rendered or to be rendered to such customer in the ordinary course of business, which Lien shall not exceed the amount of such deposits or payments;

(9)           mechanics', workmen's, repairmen's, materialmen's, carriers' and other similar Liens arising in the ordinary course of business;

(10)         any Lien created by or resulting from any litigation or proceedings which are being contested in good faith by appropriate proceedings; any Lien arising out of a judgment or award against the Company and/or one or more Restricted Subsidiaries with respect to which the Company and/or such Restricted Subsidiary or Subsidiaries are in good faith prosecuting an appeal or proceedings for review; or any Lien incurred by the Company and/or Restricted Subsidiaries for the purpose of attaining a stay or discharge in the course of any legal proceedings to which the Company and/or Restricted Subsidiary or Subsidiaries are a party; or

(11)         any Lien for taxes or assessments or governmental charges or levies not yet due or delinquent, or which can thereafter be paid without penalty or which are being contested in good faith by appropriate proceedings; any landlord's Lien on property held under lease and tenants' rights under leases; easements and any other liens of a nature similar to those hereinabove described in this clause (11) which do not, in the opinion of the Company, materially impair the use of such property in the operation of the business of the Company or any Restricted Subsidiary or the value of such property for the purposes of such business;

(12)         any Lien which may be deemed to result from an agreement or commitment to exchange securities of a Subsidiary for other securities of the Company, whether or not such securities of a Subsidiary are placed in escrow for such purpose;

(13)         any Lien in favor of the United States of America or any State thereof or any other country, or any agency, instrumentality or political subdivision or any of the foregoing, to secure partial, progress, advance or other payments or performance pursuant to the provisions of any contract or statute, or any Liens securing industrial development, pollution control, or similar revenue bonds;

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(14)         any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in clauses (1) through (13) above, so long as the principal amount of the debt secured thereby does not exceed the principal amount of debt so secured at the time of the extension, renewal or replacement (except that, where an additional principal amount of debt is incurred to provide funds for the completion of a specific project, the additional principal amount, and any related financing costs, may be secured by the Lien as well) and the Lien is limited to all or part of the same property subject to the Lien so extended, renewed or replaced (plus improvements on the property); and

(15)         any Lien not permitted by clauses (1) through (14) above securing debt which, together with the aggregate outstanding principal amount of all other debt of the Company and its Restricted Subsidiaries which would otherwise be subject to the foregoing restrictions and the aggregate Value of existing Sale and Leaseback Transactions which would be subject to the restrictions of Section 1007 but for this clause (15), does not at any time exceed 15% of Consolidated Net Assets.

Section 10.17.  Limitation on Sale and Leasebacks.  The Company shall not enter into any Sale and Leaseback Transaction involving a Principal Property of the Company or any Restricted Subsidiary, nor permit any Restricted Subsidiary so to do, unless either:

(1)           the Company or such Restricted Subsidiary would be entitled to incur debt, in a principal amount at least equal to the Value of such Sale and Leaseback Transaction, which is secured by Liens on the property to be leased (without equally and ratably securing the outstanding Securities) because such Liens would be of such character that no violation of any of the provisions of Section 1006 would result, or

(2)           the Company during the 180 days immediately following the effective date of such Sale and Leaseback Transaction causes to be applied to either (i) the voluntary retirement of Funded Debt (whether by redemption, defeasance, repurchase, or otherwise) an amount equal to the Value of such Sale and Leaseback Transaction, or (ii) the purchase of other property which will constitute "Principal Property" having a fair value, as determined by the Company, at least equal to the Value of such Sale and Leaseback Transaction; or

(3)           the Company or a Restricted Subsidiary shall deliver to the Trustee or other applicable trustee for cancellation Securities or Funded Debt in an aggregate principal amount at least equal to the Value of such Sale and Leaseback Transaction.

Section 10.18.  Waiver of Certain Covenants. The Company may omit in respect of any series of Securities, in any particular instance, to comply with any covenant or condition set forth in Sections 1006 and 1007, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Securities at the time Outstanding of such series shall, by Act of such Securityholders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.

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Section 10.19.  Calculation of Original Issue Discount.  The Company shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time.

ARTICLE 11. Redemption of Securities.

Section 11.11.  Applicability of Article. The Company may reserve the right to redeem and pay before Stated Maturity all or any part of the Securities of any series, either by optional redemption, sinking or purchase fund or analogous obligation or otherwise, by provision therefor in the form of Security for such series established and approved pursuant to Section 202 and on such terms as are specified in such form or in the indenture supplemental hereto with respect to Securities of such series as provided in Section 301.  Redemption of Securities of any series shall be made in accordance with the terms of such Securities and, to the extent that this Article does not conflict with such terms, the succeeding Sections of this Article.

Section 11.12.  Election To Redeem; Notice to Trustee.  The election of the Company to redeem any Securities redeemable at the election of the Company shall be evidenced by, or pursuant to authority granted by, a Board Resolution.  In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series and the Tranche (as defined in Section 1103) to be redeemed.

In the case of any redemption of Securities (i) prior to the expiration of any restriction on such redemption provided in the terms of such securities or elsewhere in this Indenture, or (ii) pursuant to an election of the Company which is subject to a condition specified in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition.

Section 11.13.  Selection by Trustee of Securities To Be Redeemed.  If less than all the Securities of like tenor and terms of any series (a "Tranche") are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such Tranche not previously called for redemption, by such method as the Trustee shall deem fair and appropriate (other than pro rata selection) and which may include provision for the election for redemption of portions of the principal of Securities of such Tranche of a denomination larger than the minimum authorized denomination for Securities of that series.  Unless otherwise provided in the terms of a particular series of Securities, the portions of the principal of Securities so selected for partial redemption shall be equal to the minimum authorized denomination of the Securities of such series, or an integral multiple thereof, and the principal amount which remains outstanding shall not be less than the minimum authorized denomination for Securities of such series.  If less than all the Securities of unlike tenor and terms of a series are to be redeemed, the particular Tranche of Securities to be redeemed shall be selected by the Company.

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The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal of such Security which has been or is to be redeemed.

Section 11.14.  Notice of Redemption.  Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each holder of Securities to be redeemed, at his address appearing in the Security Register.

All notices of redemption shall state:

(1)           the Redemption Date;

(2)           the Redemption Price;

(3)           the CUSIP number;

(4)           if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Securities to be redeemed, from the Holder to whom the notice is given;

(5)           that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest, if any, thereon shall cease to accrue from and after said date;

(6)           the place where such Securities are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in the Place of Payment;

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(7)           that the redemption is on account of a sinking or purchase fund, or other analogous obligation, if that be the case; and

(8)           that, if less than the entire principal amount of any security is being redeemed, a replacement security for the remaining principal balance shall be issued to the Holder.

Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.

Section 11.15.  Deposit of Redemption Price.  On or prior to 10:00 a.m., New York City time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of all the Securities which are to be redeemed on that date; provided that such amount shall be so deposited with the Trustee or Paying Agent in time for the Trustee or Paying Agent, as the case may be, to pay such Redemption Price in accordance with its normal procedures.

Section 11.16.  Securities Payable on Redemption Date.  Notice of Redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price) such Securities shall cease to bear interest.  Upon surrender of such Securities for redemption in accordance with the notice, such Securities shall be paid by the Company at the Redemption Price.  Unless otherwise provided with respect to such Securities pursuant to Section 301, installments of interest the Stated Maturity of which is on or prior to the Redemption Date shall be payable to the Holders of such securities registered as such on the relevant Regular Record Dates according to their terms and the provisions of Section 307.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Security, or as otherwise provided in such Security.

Section 11.17.  Securities Redeemed in Part.  Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company in the Place of Payment with respect to that series (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity and of like tenor and terms, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.

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Section 11.18.  Provisions with Respect to any Sinking Funds.  Unless the form or terms of any series of Securities shall provide otherwise, in lieu of making all or any part of any mandatory sinking fund payment with respect to such series of Securities in cash, the Company may at its option (1) deliver to the Trustee for cancellation any Securities of such series theretofore acquired by the Company, or (2) receive credit for any Securities of such series (not previously so credited) acquired by the Company (including by way of optional redemption (pursuant to the sinking fund or otherwise) but not by way of mandatory sinking fund redemption) and theretofore delivered to the Trustee for cancellation, and if it does so then (i) Securities so delivered or credited shall be credited at the applicable sinking fund Redemption Price with respect to Securities of such series, and (ii) on or before the 60th day next preceding each sinking fund Redemption Date with respect to such series of Securities, the Company will deliver to the Trustee (A) an Officers' Certificate specifying the portions of such sinking fund payment to be satisfied by payment of cash and by delivery or credit of Securities of such series acquired by the Company, and (B) such Securities, to the extent not previously surrendered.  Such Officers' Certificate shall also state the basis for such credit and that the Securities for which the Company elects to receive credit have not been previously so credited and were not acquired by the Company through operation of the mandatory sinking fund, if any, provided with respect to such Securities and shall also state that no Event of Default with respect to Securities of such series has occurred and is continuing.  All Securities so delivered to the Trustee shall be canceled by the Trustee and no Securities shall be authenticated in lieu thereof.

If the sinking fund payment or payments (mandatory or optional) with respect to any series of Securities made in cash plus any unused balance of any preceding sinking fund payments with respect to Securities of such series made in cash shall exceed $50,000 (or a lesser sum if the Company shall so request), unless otherwise provided by the terms of such series of Securities, that cash shall be applied by the Trustee on the sinking fund Redemption Date with respect to Securities of such series next following the date of such payment to the redemption of Securities of such series at the applicable sinking fund Redemption Price with respect to Securities of such series, together with accrued interest, if any, to the date fixed for redemption, with the effect provided in Section 1106.  The Trustee shall select, in the manner provided in Section 1103, for redemption on such sinking fund Redemption Date a sufficient principal amount of Securities of such series to utilize that cash and shall thereupon cause notice of redemption of the Securities of such series for the sinking fund to be given in the manner provided in section 1104 (and with the effect provided in Section 1106) for the redemption of Securities in part at the option of the Company.  Any sinking fund moneys not so applied or allocated by the Trustee to the redemption of Securities of such series shall be added to the next cash sinking fund payment with respect to Securities of such series received by the Trustee and, together with such payment, shall be applied in accordance with the provisions of this Section 1108.  Any and all sinking fund moneys with respect to Securities of any series held by the Trustee at the Maturity of Securities of such series, and not held for the payment or redemption of particular Securities of such series, shall be applied by the Trustee, together with other moneys, if necessary, to be deposited sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity.

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Prior to each sinking fund Redemption Date provided with respect to Securities of any series, the Company shall deposit with the Trustee cash in a sum equal to all accrued interest, if any, to the date fixed for redemption on Securities to be redeemed on such sinking fund Redemption Date pursuant to this Section 1108; provided that such cash shall be so deposited with the Trustee in time for the Trustee to make the payment of such accrued interest in accordance with its normal procedures.

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

THE NEIMAN MARCUS GROUP, INC.
By:	s/ Richard A. Smith
Name:	Richard A. Smith
Title:	Chairman and Chief Executive Officer
	THE BANK OF NEW YORK
	as Trustee,
	By:	s/ Mary Jane Schmalzel
	Name:	Mary Jane Schmalzel
	Title:	Vice President

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EX-4.2

EXHIBIT 4.2

FORM OF 7.125% SENIOR NOTE DUE 2008

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to Issuer or its agent for registration of transfer, exchange or payment and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

THE NEIMAN MARCUS GROUP, INC.

7.125% Senior Debenture Due 2028

REGISTERED CUSIP 640204 AB 9

No. R-1

THE NEIMAN MARCUS GROUP, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the “Company,” which term includes any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to

Cede & Co.

or registered assigns, the principal sum of $125,000,000 at the office or agency of the Company in the Borough of Manhattan, The City of New York, on June 1, 2028 in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on said principal sum semiannually on June 1 and December 1 of each year (each an “Interest Payment Date”), commencing December 1, 1998 at said office or agency, in like coin or currency, at the rate per annum specified in the title hereof, from the most recent Interest Payment Date to which interest on the Debentures has been paid, or, if no interest has been paid on the Debentures since May 27, 1998, from May 27, 1998, until payment of said principal sum has been made or duly provided for. The interest so payable, and punctually paid or duly provided for, on any June 1 or December 1 will, except as provided in the Indenture dated as of May 27, 1998 (the “Indenture”), duly executed and delivered by the Company to The Bank of New York, Trustee (herein called the “Trustee”), be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on the 15th day of the next preceding May or November (herein called the “Regular Record Date”) whether or not a Business Day, and may, at the option of the Company, be paid by check mailed to the registered address of such Person. Any such interest which is payable, but is not so punctually paid or duly provided for, shall forthwith cease to be payable to the registered Holder on such Regular Record Date and may be paid either to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Debentures not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed and upon such notice as may be required by such exchange, if such manner of payment shall be deemed practical by the Trustee, all as more fully provided in the Indenture.

The Bank of New York will be the Paying Agent and the Security Registrar with respect to this Debenture. The Company reserves the right at any time to vary or terminate the appointment of any Paying Agent or Security Registrar, to appoint additional or other Paying Agents and other Security Registrars, which may include the Company, and to approve any change in the office through which any Paying Agent or Security Registrar acts; provided, that there will at all times be a Paying Agent in the City of New York.

This Debenture is one of the duly authorized issue of debentures, notes, bonds or other evidences of indebtedness (hereinafter called the “Securities”) of the Company, of the series hereinafter specified, all issued or to be issued under and pursuant to the Indenture, to which Indenture and all other indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee and any agent of the Trustee, any Paying Agent, the Company and the Holders of the Securities and the terms upon which the Securities are issued and are to be authenticated and delivered.

The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as provided or permitted in the Indenture. This Debenture is one of the series of Securities of the Company issued pursuant to the Indenture and designated as the 7.125% Senior Debentures Due 2028 (herein called the “Debentures”), limited in aggregate principal amount to $125,000,000.

The Debentures of this series are not redeemable prior to the Stated Maturity of the principal hereof except as provided herein and will not be subject to any sinking fund.

This Debenture is redeemable, as a whole or in part, at the option of the Company at any time, at a redemption price equal to the greater of (a) 100% of the principal amount of this Debenture to be redeemed and (b) the sum of the present values of the Remaining Scheduled Payments thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points, plus accrued interest on the principal amount being redeemed to the date of redemption.

“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.

“Comparable Treasury Issue” means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Debentures that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Company.

“Comparable Treasury Price” means, with respect to any redemption date, (a) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities” or (b) if such release (or any successor release) is not published or does not contain such prices on such business day, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York time on the third business day preceding such redemption date.

“Reference Treasury Dealer” means each of Salomon Brothers Inc, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated and their respective successors and any such other Primary Treasury Dealer as the Company designates; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), the Company shall substitute therefor another Primary Treasury Dealer.

“Remaining Scheduled Payments” means the remaining scheduled payments of the principal of the Debentures to be redeemed and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an Interest Payment Date, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such redemption date.

Unless the Company defaults in payment of the redemption price, on and after the applicable redemption date, interest will cease to accrue on the Securities or portions thereof called for redemption.

If an Event of Default with respect to the Debentures shall occur and be continuing, the principal of all of the Debentures may be declared due and payable in the manner, with the effect and subject to the conditions provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee to enter into supplemental indentures to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights or the Holders of the Securities of each series under the Indenture with the consent of the Holders of not less than a majority in principal amount of the Securities at the time Outstanding of each series to be affected thereby on behalf of the Holders of all Securities of such series. The Indenture also permits the Holders of a majority in principal amount of the Securities at the time Outstanding of each series on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults and their consequences with respect to such series under the Indenture.  Any such consent or waiver by the Holder of this Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debenture issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture or such other Debentures.

No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and any premium of and any interest on this Debenture at the place, rate and respective times and in the coin or currency herein and in the Indenture prescribed.

As provided in the Indenture and subject to the satisfaction of certain conditions therein set forth, including the deposit of certain trust funds in trust, at the Company’s option, either the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and the obligations under, the Securities of any series and to have satisfied all the obligations (with certain exceptions) under the Indenture relating to the Securities of such series or the Company shall cease to be under any obligation to comply with any term, provision or condition of certain restrictive covenants or provisions with respect to the Securities of such series.

The Debentures are issuable in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. Debentures may be exchanged for a like aggregate principal amount and Stated Maturity of Debentures of other authorized denominations at the office or agency of the Company in the Borough of Manhattan, The City of New York, designated for such purpose and in the manner and subject to the limitations provided in the Indenture.

Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company in the Borough of Manhattan, The City of New York designated for such purpose, a new Debenture or Debentures of authorized denominations for a like aggregate principal amount and Stated maturity will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture.

No charge shall be made for any such transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith.

Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for all purposes, whether or not this Debenture is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

Unless otherwise defined herein, all terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

This Debenture shall be construed in accordance with and governed by the laws of the State of New York.

Unless the certificate of authentication hereon has been manually executed by or on behalf of the Trustee under the Indenture, this Debenture shall not be entitled to any benefits under the Indenture, or be valid or obligatory for any purpose

IN WITNESS WHEREOF, THE NEIMAN MARCUS GROUP, INC. has caused this Debenture to be duly executed.

Dated: May 27, 1998			THE NEIMAN MARCUS GROUP, INC.
By:		s/ Richard A. Smith
		Signature
	Richard A. Smith, Chairman and Chief Executive Officer
	(Print name and title)

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities referred to in the within-mentioned Indenture.

		The Bank of New York,
		as Trustee,
By:			s/ Mary Jane Schmalzel
			Authorized Signatory
Dated:	May 27, 1998

EX-10.1

Exhibit 10.1

Execution Copy

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”), effective as of the Effective Date, is by and among The Neiman Marcus Group, Inc., a Delaware corporation (“NMG”), Newton Acquisition Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Newton Acquisition, Inc., a Delaware corporation (“Parent”) and Burton M. Tansky (the “Executive”).

1.Definitions.  As used in this Agreement, the following terms have the following meanings:

(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 NMG.

(c)“Cause” shall have the meaning set forth in the Change of Control Agreement.

(d)“Change of Control” shall have the meaning set forth in the Stockholders’ Plan.  For purposes of clarification, the closing of the transactions contemplated by the Merger Agreement will not constitute a “Change of Control” for any purpose under this Agreement.

(e)“Change of Control Agreement” means the Change of Control Termination Protection Agreement by and between NMG and Executive, dated as of April 1, 2005.

(f)“Change of Control Resignation” means a resignation by the Executive for any reason (other than Good Reason) during the thirty-day period following the six-month anniversary of a Change of Control.

(g)“Competitor” means (i) any person or entity (other than NMG or an Affiliate of NMG) that owns or operates a luxury specialty retail store; (ii) Saks Incorporated, Nordstrom, Inc., Barneys New York, Inc., or, if those corporate names are not correct, the businesses commonly referred to as “Saks,” “Nordstrom’s,” and “Barneys”; and (iii) the successors to and assigns of the persons or entities described in (ii).

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

(i)“Effective Date” means the Closing Date, as such term is defined in the Merger Agreement.

(j)“Employment Termination Date” means the effective date of termination of the Executive’s employment as established under Paragraph 6(g).

(k)“Good Reason” means any of the following actions if taken without the Executive’s prior consent: (i) any material failure by NMG to comply with its obligations under Paragraph 5 (Compensation and Related Matters); (ii) any material failure by NMG to comply with its obligations under Paragraph 20 (Assumption by Successor); (iii) a substantial reduction in the Executive’s responsibilities or duties except in accordance with the terms of this Agreement; (iv) 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; (v) during the Subsequent Term, the assignment by NMG of duties that are inconsistent with the Executive’s role as Chairman under Paragraph 4(b); (vi) the reduction in title of the Executive as Chief Executive Officer or his reporting relationships, except in accordance with the terms of this Agreement; or (vii) a material breach of this Agreement by NMG; provided that (iii) and (vi) shall not apply after the end of the CEO Term. 

(l)“Inability to Perform” means and shall be deemed to have occurred if the Executive has been determined under NMG’s long-term disability plan to be eligible for long-term disability benefits.  In the absence of the Executive’s participation in such plan, “Inability to Perform” means that, in the Board’s sole judgment, the Executive is unable to perform any of the material duties of his regular position because of an illness or injury for (i) 80% or more of the normal working days during six consecutive calendar months or (ii) 50% or more of the normal working days during twelve consecutive calendar months.

(m)“Initial Public Offering” shall be deemed to occur on the effective date of the first registration statement (other than a registration on Form S-4 or S-8, or any successor form) filed to register at least 20% of the total then-outstanding equity interests in Parent or any other entity substantially all of whose assets directly or indirectly consist of NMG common stock under the U.S. Securities Act of 1933, as amended.

(n)“Management Equity Incentive Plan” means the NMG Management Equity Incentive Plan to be adopted by NMG as soon as practicable after the Effective Date in a form mutually acceptable to the parties.

(o)“Merger” means the merger of Newton Acquisition Merger Sub, Inc. with and into NMG, as contemplated by the Merger Agreement.

(p)“Merger Agreement” means the Agreement and Plan of Merger, by and among Parent, MergerSub Inc., a Delaware corporation, and NMG, dated as of May 1, 2005.

(q)“Stockholders’ Agreement” means the Management Stockholders’ Agreement, dated as of October 6, 2005, by and among Newton Acquisition, the Majority Stockholder (as defined therein) and the Management Stockholders (as defined therein), including the Executive.

(r)“Target Bonus” means 85% of Base Salary, payable if targeted level of performance is achieved as established under NMG’s annual incentive programs.

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(s)“Work Product” means all ideas, works of authorship, inventions and other creations, whether or not patentable, copyrightable, or subject to other intellectual-property protection, that are made, conceived, developed or worked on in whole or in part by the Executive while employed by NMG and/or any of its Affiliates, that relate in any manner whatsoever to the business, existing or proposed, of NMG and/or any of its Affiliates, or any other business or research or development effort in which NMG and/or any of its Affiliates engages during the Executive’s employment.  Work Product includes any material previously conceived, made, developed or worked on during the Executive’s employment with NMG prior to the Effective Date.

2.Employment; Prior Agreements.  NMG agrees to continue to employ the Executive, and the Executive agrees to continue to be employed, for the period set forth in Paragraph 3, in the position and with the duties and responsibilities set forth in Paragraph 4, and upon the other terms and conditions set out in this Agreement.  The employment agreement entered into between the Executive and NMG, dated August 3, 2003, is hereby terminated and replaced in its entirety by this Agreement without further right or obligation thereunder on the part of either party thereto (other than to pay or provide the Executive any unpaid compensation thereunder).  The Change of Control Agreement is expressly assumed hereby as contemplated in Paragraph 10 and the “Good Reason” definition in Schedule A thereof, and shall remain in effect until the second anniversary of the Effective Date, provided, however, that Executive and NMG hereby agree that the Change of Control Agreement is hereby amended to (a) delete Paragraph 3(g) thereof in its entirety, (b) provide that Paragraph 16 of this Agreement replaces Paragraph 5 of the Change of Control Agreement in its entirety with respect to any Payments (as defined in Paragraph 16) made in connection with a Change of Control that occurs after the Effective Date and (c) the release attached hereto as Exhibit B shall replace the release required under the Change of Control Agreement and such release shall be governed by Paragraph 7(j) herein. 

The Executive hereby acknowledges and agrees that the foregoing assumption by NMG of the Change of Control Agreement, and the entrance by NMG into this Agreement, is in full satisfaction of NMG’s obligations under Paragraph 10 of the Change of Control agreement to expressly, absolutely and unconditionally assume and agree to perform the Change of Control Agreement and any other employment agreements to which the Executive and NMG are parties, and that the Executive will not have the right to terminate his employment for “Good Reason” as defined in the Change of Control Agreement under item 5 of such definition.

3.Term.  The term of the Agreement shall commence on the Effective Date and extend until the end of the day immediately preceding the fifth anniversary thereof (the “Employment Term”), unless sooner terminated as provided in this Agreement.  The Employment Term is divided into two periods, the “CEO Term” and the “Subsequent Term,” as defined in Paragraph 4.  The Executive’s employment will end upon the expiration of the Employment Term, but the end of the Executive’s employment in that circumstance shall not constitute a termination of employment by either party under this Agreement or give rise to any of the obligations of NMG that arise under this Agreement as a result of a termination of employment.

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4.Position and Duties.

(a)From the Effective Date and until the third anniversary thereof (the “CEO Term”), the Executive shall serve as the Chief Executive Officer of NMG and Parent.  In such capacity, the Executive, subject to the ultimate control and direction of the Board and the Board of Directors of Parent (“Parent Board”), shall have and exercise direct charge of and general supervision over the business and affairs of NMG.  In addition, the Executive shall have such other duties, functions, responsibilities, and authority as are from time to time delegated to the Executive by the Board; provided, however, that such duties, functions, responsibilities, and authority are reasonable and customary for a person serving in the same or similar capacity of an enterprise comparable to NMG.  The Executive shall report and be accountable to the Board and the Parent Board.  The Executive and NMG acknowledge that one purpose of this Agreement is to provide for a smooth and orderly transition to a new chief executive officer in the future.  Accordingly, during the CEO Term the Executive agrees to work with reasonable diligence to identify a successor to the position of Chief Executive Officer of NMG and Parent.  Nothing in this Agreement, however, prohibits the Board from undertaking its own search for a successor to the positions.  During the Employment Term, the Executive shall serve as a member of the Board and shall be appointed to the Parent Board and any other entity substantially all of whose assets consist of NMG capital stock.

(b)From the third anniversary of the Effective Date until the end of the Employment Term (the “Subsequent Term”), the Executive shall serve as the Chairman of the Board and shall have such duties as are assigned by the Board and customary for such position.  During the Subsequent Term, the Executive shall be treated as an “executive officer” of NMG solely for purposes of the Executive’s participation in employee benefit plans, programs or arrangements of NMG and not in connection with his duties as Chairman.

(c)During the CEO Term, the Executive shall devote his full time (and, during the Subsequent Term, the time necessary), skill, and attention and his best efforts to the business and affairs of NMG to the extent necessary to discharge fully, faithfully, and efficiently the duties and responsibilities delegated and assigned to the Executive in or pursuant to this Agreement, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability.  Notwithstanding the foregoing, the Executive may (i) subject to the approval of the Board, serve as a director or as a member of an advisory board of a noncompeting company, (ii) serve as an officer or director or otherwise participate in non-profit educational, welfare, social, religious and civil organizations, including, without limitation, all such positions and participation in effect as of the Effective Date, and (iii) manage personal and family investments; provided, however, that any such activities as described in (i), (ii) or (iii) of the preceding provisions of this paragraph do not significantly interfere with the performance and fulfillment of the Executive’s duties and responsibilities as an executive, or, if applicable, Chairman of the Board, of NMG in accordance with this Agreement.

(d)In connection with the Executive’s employment by NMG under this Agreement, the Executive shall be based at the principal executive offices of NMG in Dallas, Texas, except for such reasonable travel as the performance of the Executive’s duties in the business of NMG may require.

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(e)All services that the Executive may render to NMG or any of its Affiliates in any capacity during the Employment Term shall be deemed to be services required by this Agreement and the consideration for such services is that provided for in this Agreement.

5.Compensation and Related Matters.

(a)Base Salary.  During the Employment Term, NMG shall pay to the Executive for his services under this Agreement an annual base salary (“Base Salary”). 

(i)At the commencement of the CEO Term, the Base Salary shall be $1,300,000.00.  During the CEO Term, the Base Salary will be reviewed annually and is subject to adjustment at the discretion of the Board, but in no event shall NMG pay the Executive a Base Salary less than that set forth above during the CEO Term.  The Base Salary shall be payable in installments in accordance with the general payroll practices of NMG, or as otherwise mutually agreed upon.

(ii)At the commencement of the Subsequent Term, the Base Salary shall be equal to 75% of the Base Salary payable to the Executive immediately preceding the commencement of the Subsequent Term.  During the Subsequent Term, the Base Salary will be reviewed annually and is subject to adjustment at the discretion of the Board, but in no event shall NMG pay the Executive a Base Salary less than that established at the commencement of the Subsequent Term.  The Base Salary shall be payable in installments in accordance with the general payroll practices of NMG, or as otherwise mutually agreed upon.

(b)Annual Incentives.  The Executive will participate in NMG’s annual incentive bonus program(s) applicable to the Executive’s position, in accordance with the terms of such program(s), and shall have the opportunity to earn an annual bonus thereunder based on the achievement of performance objectives determined by the Board after consultation with the Executive.  Notwithstanding the foregoing, the performance objectives applicable to the Executive’s annual bonus opportunity and the corresponding bonus percentages (including the level of achievement required for the Executive to earn the Target Bonus) for the fiscal year in which the Effective Date occurs and for the first fiscal year commencing after the Effective Date occurs will be mutually agreed by the Board and the Executive.  During each fiscal year, the minimum bonus payable to the Executive if the bonus targets for such year are achieved will be 50% of the Executive’s Base Salary for such fiscal year, the Target Bonus will be 85% of Base Salary and the maximum bonus payable to the Executive will be 170% of Base Salary.  The actual amount of any annual incentive bonus paid to the Executive will be determined according to the terms of the annual incentive bonus program(s), including any such terms that place the amount of any annual incentive bonus within the discretion of the Board.  In determining whether the bonus targets for any fiscal year of NMG have been achieved, the Board will disregard any fees paid to the Sponsors (as defined in the Management Equity Incentive Plan) other than director fees paid to the Sponsors’ representatives for their service on the Board.

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(c)Long-term Incentives and SERP.

(i)As soon as practicable after the Effective Date, Parent shall grant the Executive an option to purchase 16,349.1797 shares of common stock of Parent (the “Shares”).  As to 7,269.3852 Shares, the option will have a fixed exercise price per Share equal to $1,445.00, and will vest and become exercisable as to 459.5392 Shares on the first anniversary of the Effective Date, and as to 2269.9487 Shares on each of the second, third and fourth anniversaries of the Effective Date.  As to 9,079.7946 Shares, the option (the “Performance Option”) will have an exercise price per Share that is initially equal to $1,445.00 increasing at a 10.00% compound rate on each anniversary of the Effective Date until the earlier to occur of (i) exercise of such Option, (ii) the fifth anniversary of the Effective Date, or (iii) the occurrence of a Change of Control, and will vest and become exercisable as to 2269.9487 Shares on each of the first through fourth anniversaries of the Effective Date.  In the event the Majority Stockholder (as defined in the Stockholders’ Agreement) redeems or disposes of a portion of its direct or indirect equity interests in Parent prior to the fifth anniversary of the Effective Date in a transaction that does not constitute a Change of Control, the compounding interest rate shall cease as to a proportionate share of the Performance Option that bears the same ratio as the equity interests redeemed or disposed of by the Majority Stockholder bears to the total equity interest held by the Majority Stockholder.  Vesting of the entire option will accelerate immediately prior to a Change of Control or upon termination of the Executive’s employment pursuant to Paragraph 6(a) or 6(b).  In addition, upon a termination of employment by NMG pursuant to Paragraph 6(e) or by the Executive pursuant to Paragraph 6(d), the option will vest as to (i) the number of Shares that would have become vested on the next anniversary of the Effective Date, plus (ii) if the Employment Termination Date occurs prior to the third anniversary of the Effective Date, the number of Shares that would have become vested on the next anniversary of the Effective Date, multiplied by a fraction, the numerator of which is the number of days from the preceding anniversary of the Effective Date (or the Effective date if such termination occurs prior to the first anniversary thereof) and the denominator of which is 365.   The Executive shall be permitted to exercise the vested portion of the option through net-physical settlement (i.e., by delivery of Shares net of the number of Shares having a value equal to the applicable exercise price and applicable withholding taxes at the minimum statutory rate) if such exercise occurs after termination of the Executive’s employment pursuant to Paragraph 6(a) or 6(b), by NMG pursuant to Paragraph 6(e), by the Executive pursuant to Paragraph 6(d), or by the Executive pursuant to Paragraph 6(e) on or after the fifth anniversary of the Effective Date.  The option shall be granted pursuant to and subject to the terms of the Management Equity Incentive Plan, which shall contain rights to dividend equivalents in a manner intended to comply with Section 409A of the Code.  The numbers of Shares and exercise price per Share set forth above are based on the capitalization table attached as Exhibit A hereto.

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(ii)Upon the occurrence of the earlier of a Change in Control or an Initial Public Offering, the Executive will be entitled to a cash bonus equal to $3,080,911, provided that no such bonus will be paid unless (A) the Executive remains employed with NMG through the earlier of (x) the date of the Change in Control, (y) the Initial Public Offering or (z) the fourth anniversary of the Effective Date, and (B) the internal rate of return to the Majority Stockholder (as defined in the Stockholders’ Agreement) in respect of their direct and indirect investment in Parent is positive.  The Majority Stockholder’s internal rate of return shall be calculated in the case of an Initial Public Offering as if the Majority Stockholder sold all of its direct and indirect equity interests in Parent at a per share price equal to the Initial Public Offering price or, in the case of a Change in Control, based on the value of its equity interests implied by the transaction giving rise to the Change of Control, and in each case, taking into account all investments made directly or indirectly in Parent, all management and transaction fees paid by Parent or its subsidiaries to the Majority Stockholder and all expenses incurred by the Majority Stockholder in connection with the investment.  If the Executive’s employment hereunder terminates for other than Cause prior to the bonus payment becoming due as described above and, subsequent to such termination, a Change in Control or Initial Public Offering occurs in which the Majority Stockholder recognizes a positive internal rate of return determined in accordance with the foregoing provisions, the Executive will be entitled to a payment equal to the product of $3,080,911 and the percentage determined as follows: (1) if the termination of employment is pursuant to Paragraph 6(a) or 6(b), 100%; (2) if the termination of employment is by the Executive pursuant to Paragraph 6(e), 25% multiplied by the number of full years (and not fractions thereof) from the Effective Date to the Employment Termination Date; and (3) if the termination is by the Executive pursuant to Paragraph 6(d) or by NMG pursuant to Paragraph 6(e), the sum (not to exceed 100%) of 25% multiplied by the number of full years and fractions thereof from the Effective Date to the Employment Termination Date and 25%.

(iii)In the event Parent declares and pays an extraordinary dividend while the Executive’s Newco Options (as defined in that certain Letter Agreement, dated October 4, 2005, by and among NMG, Parent and Executive, the “Letter Agreement”) are outstanding, the Parent shall pay Executive a cash bonus equal to the amount that he would have received if he owned the shares underlying the then-outstanding Newco Options (other than any Newco Options for which the Company has an effective and exercisable call right pursuant to the Letter Agreement) pursuant to such dividend payment, provided such bonus payment complies with Section 409A of the Internal Revenue Code of 1986 and does not result in any adverse tax treatment in respect of the Newco Options.  In the event it is determined that such payment does not comply with Section 409A or it adversely effects the Newco Options, the parties hereto shall use their reasonable efforts and take reasonable actions necessary to put the Executive in the same position he would have been in if the payment was permitted under Section 409A to the extent reasonably practicable.  

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(iv)SERP Enhancement.  At the time of the Executive’s termination of employment with NMG and all of its Affiliates, the Executive’s years of service for purposes of calculating his benefit under The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan (the “SERP”) shall be determined by multiplying his actual service for purposes of the SERP by 2, subject to the 25-year maximum set forth in the SERP, and by then providing the Executive with an additional credit for each year of service by the Executive to NMG following his attainment of age sixty-five (65) (disregarding the 25-year maximum set forth in the SERP).  Following the Effective Date, NMG shall take any necessary steps to amend the SERP or create a supplemental SERP for the Executive in order to effectuate the crediting provisions set forth in this Paragraph 5.  During the Employment Term, the SERP shall not be terminated or amended in any way that adversely affects the Executive.

(d)Employee Benefits and Perquisites.  During the Employment Term, the Executive will be entitled to (i) participate in all employee benefit plans, programs, and arrangements that are generally made available by NMG to its senior executives, including without limitation NMG’s life insurance, long-term disability, and health plans and (ii) the perquisites and other fringe benefits that are made available by NMG to its senior executives generally and to such perquisites and fringe benefits that are made available by NMG to the Executive in particular, subject to any applicable terms and conditions of any specific perquisite or other fringe benefit.  NMG agrees that the employee benefit plans, programs and arrangements and perquisites and other fringe benefits that are made available to the Executive during the Employment Term will not be materially diminished in the aggregate from those benefit plans, programs and arrangements and perquisites and fringe benefits made available immediately prior to the Effective Date (subject to any diminution during the Subsequent Term that results from the diminution in the Executive’s Base Salary from the CEO Term to the Subsequent Term).  The Executive agrees to cooperate and participate in any medical or physical examinations as may be required by any insurance company in connection with the applications for such life and/or disability insurance policies.

(e)Support during Subsequent Term.  During the Subsequent Term, NMG will provide the Executive with a full-time administrative assistant and an executive office space and furnishings appropriate to his position and status.

(f)Expenses.  The Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by the Executive in performing his duties and responsibilities under this Agreement, consistent with NMG’s policies or practices for reimbursement of expenses incurred by other NMG senior executives.

(g)Vacations.  The Executive shall be eligible for vacation, sick pay, and other paid and unpaid time off in accordance with the policies and practices of NMG.  The Executive agrees to use his vacation and other paid time off at such times that are (i) consistent with the proper performance of his duties and responsibilities and (ii) mutually convenient for NMG and the Executive.

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(h)Indemnification.  The Executive will be entitled to indemnification on the same terms as indemnification is made available by NMG to its other senior executives, whether through NMG’s bylaws, the Merger Agreement or otherwise.

6.Termination of Employment.

(a)Death.  The Executive’s employment shall terminate automatically upon his death.

(b)Inability to Perform.  In the event of the Executive’s Inability to Perform during the Employment Term, NMG may notify the Executive of NMG’s termination of the Executive’s employment.

(c)Termination by NMG for Cause.  NMG may terminate the Executive’s employment for Cause.  To exercise its right to terminate the Executive pursuant to provision (iii) or provision (v) of the definition of Cause, however, NMG must first provide the Executive with a reasonable period of time to correct the circumstances or events, to the extent that they may reasonably be corrected, that NMG contends give rise to the existence of Cause under such provision.  Prior to terminating the Executive’s employment for Cause under this Paragraph 6(c), NMG must provide the Executive with a written notice of its intent to terminate his employment for Cause.  Such written notice must specify the particular act or acts or failure(s) to act that form(s) the basis for the decision to so terminate the Executive’s employment for Cause.  The Executive will be given the opportunity within 30 calendar days of his receipt of such notice to meet with the Board to defend himself with regard to the alleged act or acts or failure(s) to act.  If at the conclusion of or following such a meeting, the Board decides to proceed with the termination of the Executive’s employment for Cause, such a termination will be effected by providing the Executive with a Notice of Termination under Paragraph 6(f).  Upon or after NMG’s issuance of the notice of intent to terminate the Executive’s employment for Cause, NMG may suspend the Executive with pay pending the Board’s decision whether to proceed with the termination.

(d)Termination by the Executive for Good Reason.  The Executive may terminate his employment for Good Reason.  To exercise his right to terminate for Good Reason, the Executive must provide written notice to NMG of his belief that Good Reason exists, and that notice shall describe the circumstance believed to constitute Good Reason.  If that circumstance may reasonably be remedied, NMG shall have 30 days to effect that remedy.  If not remedied within that 30-day period, the Executive may submit a Notice of Termination; provided, however, that the Notice of Termination invoking the Executive’s right to terminate his employment for Good Reason must be given no later than 6 months after the later of (i) the first date the Executive knew that Good Reason existed, and (ii) the end of NMG’s 30-day cure period, if applicable; otherwise, the Executive is deemed to have accepted the circumstance(s) that may have given rise to the existence of Good Reason.

(e)Termination by Either Party Without Cause or Without Good Reason.  Either NMG or the Executive may terminate the Executive’s employment without Cause or Good Reason upon at least three months’ prior written notice to the other party.

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(f)Notice of Termination.  Any termination of the Executive’s employment by NMG or by the Executive (other than a termination pursuant to Paragraph 6(a)) shall be communicated by a Notice of Termination.  A “Notice of Termination” is a written notice that must (i) indicate the specific termination provision in this Agreement relied upon; (ii) in the case of a termination for Inability to Perform, Cause, or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision invoked, including the particular act or acts or failure(s) to act that is or are the basis of any termination for Cause or Good Reason; and (iii) if the termination is by the Executive under Paragraph 6(e), or by NMG for any reason, specify the Employment Termination Date.  The failure by NMG to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause shall not waive any right of NMG or preclude NMG from asserting such fact or circumstance in enforcing NMG’s rights.

(g)Employment Termination Date.  The Employment Termination Date shall be as follows: (i) if the Executive’s employment is terminated by his death, the date of his death; (ii) if the Executive’s employment is terminated by NMG because of his Inability to Perform or for Cause, the date specified in the Notice of Termination, which date shall be no earlier than the date such notice is given; (iii) if the Executive’s employment is terminated by the Executive for Good Reason, the date on which the Notice of Termination is given; or (iv) if the termination is under Paragraph 6(e), the date specified in the Notice of Termination, which date shall be no earlier than three months after the date such notice is given if such Notice of Termination is given by the Executive. 

(h)Resignation.  In the event of termination of the Executive’s employment (for any reason other than the death of the Executive), the Executive agrees that if at such time he is a member of the Board or is an officer of NMG or a director or officer of any of its Affiliates, he shall be deemed to have resigned from such position(s) effective on the Employment Termination Date.

7.Compensation Upon Termination of Employment.

(a)Death.  If the Executive’s employment is terminated by reason of the Executive’s death, NMG shall pay to the Executive’s estate (i) any unpaid portion of the Executive’s Base Salary through the Employment Termination Date and any bonus payable for preceding fiscal year that has otherwise not already been paid (together, the “Compensation Payment”), (ii) any accrued but unused vacation days (the “Vacation Payment”), (iii) any reimbursement for business travel and other expenses to which the Executive is entitled (the “Reimbursement”), and (iv) 85% of the Base Salary in effect immediately prior to the Employment Termination Date, multiplied by a fraction, the numerator of which is the number of days during the fiscal year up to and including the Employment Termination Date and the denominator of which is 365 (the “Prorated Bonus”).  This Paragraph 7(a) does not limit the entitlement of the Executive’s estate or beneficiaries to any death or other vested benefits to which the Executive may be entitled under any life insurance, stock ownership, stock options, or other benefit plan or policy that is maintained by NMG for the Executive’s benefit, including any amounts Executive is entitled to pursuant to Paragraph 5(c).

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(b)Inability to Perform.  If the Executive’s employment is terminated by reason of the Executive’s Inability to Perform, NMG shall pay to the Executive (i) the Compensation Payment, (ii) the Vacation Payment, (iii) the Reimbursement, and (iv) the Prorated Bonus.  This Paragraph 7(b) does not limit the entitlement of the Executive to any amounts payable pursuant to the terms of any applicable disability insurance plan, policy, or similar arrangement that is maintained by NMG for the Executive’s benefit.  This Paragraph 7(b) does not limit the entitlement of the Executive’s estate or beneficiaries to any death or other vested benefits to which the Executive may be entitled under any life insurance, stock ownership, stock options, or other benefit plan or policy that is maintained by NMG for the Executive’s benefit, including any amounts Executive is entitled to pursuant to
Paragraph 5(c).

(c)Termination by the Executive Without Good Reason.  If the Executive’s employment is terminated by the Executive pursuant to and in compliance with Paragraph 6(e) (other than in connection with a Change of Control Resignation), NMG shall pay to the Executive (i) the Compensation Payment, (ii) the Vacation Payment, and (iii) the Reimbursement.  This Paragraph 7(c) does not limit the entitlement of the Executive’s estate or beneficiaries to any death or other vested benefits to which the Executive may be entitled under any life insurance, stock ownership, stock options, or other benefit plan or policy that is maintained by NMG for the Executive’s benefit, including any amounts Executive is entitled to pursuant to Paragraph 5(c).

(d)Termination for Cause.  If the Executive’s employment is terminated by NMG for Cause, NMG shall pay to the Executive (i) the Compensation Payment, (ii) the Vacation Payment, and (iii) the Reimbursement.  This Paragraph 7(d) does not limit the entitlement of the Executive’s estate or beneficiaries to any death or other vested benefits to which the Executive may be entitled under any life insurance, stock ownership, stock options, or other benefit plan or policy that is maintained by NMG for the Executive’s benefit, including any amounts Executive is entitled to pursuant to Paragraph 5(c).

(e)Termination without Cause or with Good Reason; Change of Control Resignation.  If (x) the Executive’s employment is terminated by NMG for any reason other than death, Inability to Perform, or Cause, or is terminated by the Executive for Good Reason and, in each such case, the Executive is not entitled to receive payments or benefits under the Change of Control Agreement in connection with such termination or (y) the Executive’s employment terminates by reason of a Change of Control Resignation, NMG shall pay to the Executive (1) the Compensation Payment, (2) the Vacation Payment, and (3) the Reimbursement.  In addition, subject to the Executive’s execution of a mutual release and waiver of claims against NMG in the form attached as Exhibit B, NMG will pay the Executive a lump-sum payment equal to: the Prorated Bonus plus (A) if such termination occurs prior to the commencement of the Subsequent Term and is not a Change of Control Resignation, three (3) times the sum of the Executive’s Base Salary and Target Bonus in effect on the Employment Termination Date, and (B) if such termination occurs during the Subsequent Term or is a Change of Control Resignation, two (2) times the sum of the Executive’s Base Salary and Target Bonus in effect on the Employment Termination Date; provided, however, that the Executive shall be required to repay the above-described payments if:

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(i)the Executive receives written notice from NMG that in the reasonable judgment of NMG, the Executive engaged or is engaging in any conduct that violates Paragraph 8 or engaged or is engaging in any of the Restricted Activities described in Paragraph 9, unless within 30 days of the date NMG so notifies the Executive in writing, the Executive provides information to NMG that NMG determines is sufficient to establish that the Executive did not engage in any conduct that violated Paragraph 8 or engage in any of the Restricted Activities described in Paragraph 9; or

(ii)the Executive is arrested or indicted for any felony, other serious criminal offense, or any violation of federal or state securities laws, or has any civil enforcement action brought against him by any regulatory agency, for actions or omissions related to his employment with NMG or any of its Affiliates, or NMG reasonably believes that the Executive has committed any act or omission, either during his employment under this Agreement or, if related to such employment thereafter, that during his employment would have entitled NMG to terminate his employment for Cause under provisions (i), (ii), (iv), or (vi) of the definition of Cause and the Executive is found guilty or enters into a plea agreement, consent decree or similar arrangement with respect to any such criminal or civil proceedings, or if the Board makes a finding that the Executive has committed such an act or omission.  If any such criminal or civil proceedings do not result in a finding of guilt or the entry of a plea agreement or consent decree or similar arrangement, or if the Board makes a finding that the Executive has not committed such an act or omission, the Executive shall not be required to repay any amounts hereunder.

This Paragraph 7(e) does not limit the entitlement of the Executive’s estate or beneficiaries to any death or other vested benefits to which the Executive may be entitled under any life insurance, stock ownership, stock options, or other benefit plan or policy that is maintained by NMG for the Executive’s benefit, including any amounts Executive is entitled to pursuant to Paragraph 5(c).

(f)Welfare Benefits.  If, on or following the second anniversary of the Effective Date, the Executive’s employment with NMG or any Affiliate of NMG ends on account of a termination by NMG for any reason other than for death or Cause, or a termination by the Executive for Good Reason, the Executive will receive the benefits described in Paragraph 3b of the Change of Control Agreement, provided that the “Welfare Continuation Period” shall be reduced to 2 years if such termination occurs during the Subsequent Term or is a Change of Control Resignation.

(g)Termination under Change of Control Agreement.  If the Executive’s employment with NMG or an Affiliate or successor of NMG terminates under circumstances that would entitle the Executive to receive payments or benefits under the Change of Control Agreement, Executive shall not be entitled to receive any payments or benefits under Paragraph 7 of this Agreement, but shall instead be entitled to receive the payments and benefits specified in the Change of Control Agreement, which payments and benefits shall be subject to the

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obligations provided in the Change of Control Agreement and shall be in lieu of any severance payments or benefits that may otherwise be payable pursuant to Paragraph 7 of this Agreement.

(h)No Mitigation.  The Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will the amount of any payment provided for under this Agreement be reduced by any profits, income, earnings, or other benefits received by the Executive from any source other than NMG or its successor.

(i)Offset.  The Executive agrees that NMG may set off against, and he authorizes NMG to deduct from, any payments due to the Executive, or to his heirs, legal representatives, or successors, as a result of the termination of the Executive’s employment (other than pursuant to the Change of Control Agreement) any specified amounts which the Board determines in good faith are due and owing to NMG by the Executive, whether arising under this Agreement or otherwise.

(j)Mutual Release.  Following receipt of the Executive’s signed mutual release pursuant to this Agreement or the Change in Control Agreement (as modified by this Agreement), NMG and Parent shall have ten (10) days from the date such release becomes irrevocable to execute the release and deliver a copy to the Executive.  If NMG or Parent fail to execute such release within the time frame established by the preceding sentence, the release shall be null and void and the Executive shall be entitled to receive any benefits under this Agreement or the Change in Control Agreement, as applicable, as he would otherwise be entitled to receive had the mutual release been fully executed.

8.Confidential Information.

(a)The Executive acknowledges and agrees that (i) NMG is engaged in a highly competitive business; (ii) NMG has expended considerable time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit Confidential Information; (iii) NMG must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (iv) in the luxury specialty retail business, his participation in or direction of NMG’s day-to-day operations and strategic planning are an integral part of NMG’s continued success and goodwill; (v) given his position and responsibilities, he necessarily will be creating Confidential Information that belongs to NMG and enhances NMG’s goodwill, and in carrying out his responsibilities he in turn will be relying on NMG’s goodwill and the disclosure by NMG to him of Confidential Information; (vi) he will have access to Confidential Information that could be used by any Competitor of NMG in a manner that would irreparably harm NMG’s competitive position in the marketplace and dilute its goodwill; and (vii) he necessarily would use or disclose Confidential Information if he were to engage in competition with NMG.

(b)NMG acknowledges and agrees that the Executive must have and continue to have throughout his employment the benefits and use of its and its Affiliates’ goodwill and Confidential Information in order to properly carry out his responsibilities.  NMG accordingly promises upon execution and delivery of this Agreement to provide the Executive immediate

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access to new and additional Confidential Information and authorize him to engage in activities that will create new and additional Confidential Information.

(c)NMG and the Executive thus acknowledge and agree that during the Executive’s employment with NMG and upon execution and delivery of this Agreement he (i) has received, will receive, and will continue to receive, Confidential Information that is unique, proprietary, and valuable to NMG and/or its Affiliates; (ii) has created, will create, and will continue to create, Confidential Information that is unique, proprietary, and valuable to NMG and/or its Affiliates; and (iii) has benefited, will benefit, and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill NMG and its Affiliates have generated and from the Confidential Information.

(d)Accordingly, the Executive acknowledges and agrees that at all times during his employment by NMG and/or any of its Affiliates and thereafter:

(i)all Confidential Information shall remain and be the sole and exclusive property of NMG and/or its Affiliates;

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

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

(iv)if he believes he is compelled by law or valid legal process to disclose or divulge any Confidential Information, he will notify NMG in writing within 24 hours after receipt of legal process or other writing that causes him to form such a belief, or as soon as practicable if he receives less than 24 hours’ notice, so that NMG may defend, limit, or otherwise protect its interests against such disclosure;

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

(vi)absent the promises and representations of the Executive in this Paragraph 8 and in Paragraph 9, NMG would require him immediately to return any tangible Confidential Information in his possession, would not provide the Executive with new and additional Confidential Information, would not authorize the Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.

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9.Noncompetition and Nondisparagement Obligations.  In consideration of NMG’s promises to provide the Executive with new and additional Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of NMG in this Agreement, the Executive agrees that, while he is employed by NMG and/or any of its Affiliates and for a three-year period following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

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

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

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

(d)He will not associate directly or indirectly, as an employee, officer, director, agent, partner, stockholder, owner, member, representative, or consultant, with any Competitor of NMG or any of its Affiliates, unless (i) he has advised NMG in writing in advance of his desire to undertake such activities and the specific nature of such activities; (ii) NMG has received written assurances (that will be designed, among other things, to protect NMG’s and its Affiliates’ goodwill, Confidential Information, and other important commercial interests) from the Competitor and the Executive that are, in NMG’s sole discretion, adequate to protect its interests; (iii) NMG, in its sole discretion, has approved in writing such association; and (iv) the Executive and the Competitor adhere to such assurances.  This restriction (i) extends to the performance by the Executive, directly or indirectly, of the same or similar activities the Executive has performed for NMG or any of its Affiliates or such other activities that by their nature are likely to lead to the disclosure of Confidential Information, and (ii) with respect to the post-employment restriction, applies to any Competitor that has a retail store within 50 miles of, or in the same Metropolitan Statistical Area as, any retail store of NMG or any of its Affiliates.  The Executive shall not be in violation of this Paragraph 9(d) solely as a result of his investment in stock or other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the-counter market if he and the members of his immediate family do not, directly or indirectly, hold more than a total of one percent of all such shares of stock or other securities issued and outstanding.  The Executive acknowledges and agrees that engaging in the activities restricted by this Paragraph 9(d) would result in the

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inevitable disclosure or use of Confidential Information for the Competitor’s benefit or to the detriment of NMG or its Affiliates.

The Executive acknowledges and agrees that the restrictions contained in this Paragraph 9 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Paragraph 8; that NMG’s promises and undertakings set forth in Paragraph 8, the Executive’s position and responsibilities with NMG, and NMG granting to the Executive ownership in NMG in the form of NMG stock, give rise to NMG’s interest in restricting the Executive’s post-employment activities; that such restrictions are designed to enforce the Executive’s promises and undertakings set forth in this Paragraph 9 and his common-law obligations and duties owed to NMG and its Affiliates; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect NMG’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify NMG in writing should he believe or be advised that the restrictions are not, or likely are not, valid or enforceable under Texas law or the law of any other state that he contends or is advised is applicable (the “Enforceability Notification”); that the mutual promises and undertakings of NMG and the Executive under Paragraphs 8 and 9 are not contingent on the duration of the Executive’s employment with NMG; and that absent the promises and representations made by the Executive in this Paragraph 9 and Paragraph 8, NMG would require him to return any Confidential Information in his possession, would not provide the Executive with new and additional Confidential Information, would not authorize the Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.  Notwithstanding the foregoing, NMG agrees that the Executive’s conduct in providing the Enforceability Notification under this Paragraph 9(d) shall not constitute a waiver of any attorney-client privilege between the Executive and his attorney(s).

10.Intellectual Property.

(a)In consideration of NMG’s promises and undertakings in this Agreement, the Executive agrees that all Work Product will be disclosed promptly by the Executive to NMG, shall be the sole and exclusive property of NMG, and is hereby assigned to NMG, regardless of whether (i) such Work Product was conceived, made, developed or worked on during regular hours of his employment or his time away from his employment, (ii) the Work Product was made at the suggestion of NMG; or (iii) the Work Product was reduced to drawing, written description, documentation, models or other tangible form.  Without limiting the foregoing, the Executive acknowledges that all original works of authorship that are made by the Executive, solely or jointly with others, within the scope of his employment and that are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101), and are therefore owned by NMG from the time of creation.

(b)The Executive agrees to assign, transfer, and set over, and the Executive does hereby assign, transfer, and set over to NMG, all of his right, title and interest in and to all Work Product, without the necessity of any further compensation, and agrees that NMG is entitled to obtain and hold in its own name all patents, copyrights, and other rights in respect of all Work Product.  The Executive agrees to (i) cooperate with NMG during and after his employment with NMG in obtaining patents or copyrights or other intellectual-property

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protection for all Work Product; (ii) execute, acknowledge, seal and deliver all documents tendered by NMG to evidence its ownership thereof throughout the world; and (iii) cooperate with NMG in obtaining, defending and enforcing its rights therein.

(c)The Executive represents that there are no other contracts to assign inventions or other intellectual property that are now in existence between the Executive and any other person or entity.  The Executive further represents that he has no other employment or undertakings that might restrict or impair his performance of this Agreement.  The Executive will not in connection with his employment by NMG, use or disclose to NMG any confidential, trade secret, or other proprietary information of any previous employer or other person that the Executive is not lawfully entitled to disclose.

11.Reformation.  If the provisions of Paragraphs 8, 9, or 10 are ever deemed by a court to exceed the limitations permitted by applicable law, the Executive and NMG agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

12.Assistance in Litigation.  After the Employment Term, the Executive shall, upon reasonable notice, furnish such information and assistance to NMG or any of its Affiliates as may reasonably be requested by NMG in connection with any litigation in which NMG or any of its Affiliates is, or may become, a party.  NMG shall reimburse the Executive for all reasonable out-of-pocket expenses, including travel expenses, incurred by the Executive in rendering such assistance, but shall have no obligation to compensate the Executive for his time in providing information and assistance in accordance with this Paragraph 12.

13.No Obligation to Pay.  With regard to any payment due to the Executive under this Agreement, it shall not be a breach of any provision of this Agreement for NMG to fail to make such payment to the Executive if (i) NMG is legally prohibited from making the payment; (ii) NMG would be legally obligated to recover the payment if it was made; or (iii) the Executive would be legally obligated to repay the payment if it was made.

14.Survival.  The expiration or termination of the Employment Term will not impair the rights or obligations of any party hereto that accrue hereunder prior to such expiration or termination, except to the extent specifically stated herein.  In addition to the foregoing, NMG’s obligations under Paragraphs 5(h), 7 and 16, and the Executive’s obligations under Paragraphs 8, 9, 10 and 12, will survive the expiration or termination of the Executive’s employment.

15.Withholding Taxes.  NMG shall withhold from any payments to be made to the Executive pursuant to this Agreement such amounts (including social security contributions and federal income taxes) as shall be required by federal, state, and local withholding tax laws.

16.Excise Tax Provisions in Connection with a Change of Control. 

(a)If, after the Effective Date, there occurs a transaction that constitutes a “change of control” under Regulation 1.280G and, immediately prior to the consummation of such change of control, NMG is an entity whose stock is readily tradeable on an established

17

securities market (or otherwise) such that Excise Tax Exemption is not available, the following provisions will apply:

(i)In the event it shall be determined that any 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 Paragraph 16(b), 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 Paragraph 7(e), unless an alternative method of reduction is elected by Executive. 

(ii)All determinations required to be made under this Paragraph 16, 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 NMG (the “Accounting Firm”) which shall provide detailed supporting calculations both to NMG and the 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 NMG; provided that for purposes of determining the amount of any Gross-Up Payment, the 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 the 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 NMG.  Any Gross-Up Payment, as determined pursuant to this Paragraph 16, shall be paid by NMG to the Executive (or to the appropriate taxing authority on the Executive’s behalf) when the applicable tax is due.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall so indicate to the Executive in writing.  Any determination by the Accounting Firm shall be binding upon NMG and the

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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) the Executive was lower than the amount actually due (“Underpayment”).  In the event that NMG exhausts its remedies pursuant to Paragraph 16(b) and the 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 NMG to or for the benefit of Executive.

(iii)The Executive shall notify NMG in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by NMG of any Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise NMG of the nature of such claim and the date on which such claim is requested to be paid.  The 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 NMG (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If NMG notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall (i) give NMG any information reasonably requested by NMG relating to such claim, (ii) take such action in connection with contesting such claim as NMG 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 NMG, (iii) cooperate with NMG in good faith in order to effectively contest such claim and (iv) permit NMG to participate in any proceedings relating to such claim; provided, however, that NMG 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 the 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 Paragraph 16(b), NMG 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 the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the 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 NMG shall determine; provided, further, that if NMG directs the Executive to pay such claim and sue for a refund, NMG shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the 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 the Executive is required to extend the statute of limitations to enable NMG to contest such claim, the Executive may limit this extension solely to such contested

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amount.  NMG’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the 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.

(iv)If, after the receipt by the Executive of an amount paid or advanced by NMG pursuant to this Paragraph 16(b), the Executive becomes entitled to receive any refund with respect to a Gross-Up Payment, the Executive shall (subject to NMG’s complying with the requirements of Paragraph 16(b)) promptly pay to NMG the amount of such refund received (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the Executive of an amount advanced by NMG pursuant to Paragraph 16(b), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and NMG does not notify the 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.

17.Notices.  All notices, requests, demands, and other communications required or permitted to be given or made by either party shall be in writing and shall be deemed to have been duly given or made (a) when delivered personally, or (b) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt):

if to NMG, at:

The Neiman Marcus Group, Inc.
Attn: General Counsel
1618 Main Street
Dallas, TX 75201

with a copy to:

Cleary Gottlieb Steen & Hamilton LLP
Attn:  Robert J. Raymond
One Liberty Plaza
New York, NY 10006

If to the Executive, at the Executive’s then-current home address on file with NMG, with a copy to:

Morgan Lewis & Bockius LLP
Attn:  Gary Rothstein
101 Park Avenue
New York, NY 10178

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18.Injunctive Relief.  The Executive acknowledges and agrees that NMG would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Paragraphs 8, 9, and 10 were not performed in accordance with their specific terms or were otherwise breached.  Accordingly, the Executive agrees that NMG shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event the Executive breaches or threatens to breach any of the provisions of such Paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury.  Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by the Executive, but shall be in addition to all other remedies available to NMG at law or equity.

19.Binding Effect; No Assignment by the Executive; No Third Party Benefit.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors, and assigns; provided, however, that the Executive shall not assign or otherwise transfer this Agreement or any of his rights or obligations herein.  NMG is authorized to assign or otherwise transfer this Agreement or any of its rights or obligations herein to an Affiliate of NMG. The Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable under this Agreement shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution. Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

20.Assumption by Successor.  NMG shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG, by agreement in writing in form and substance reasonably satisfactory to the Executive, expressly, absolutely, and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that NMG would be required to perform it if no such succession or assignment had taken place.  If NMG fails to obtain such agreement by the effective time of any such succession or assignment, such failure shall be considered Good Reason; provided, however, that the compensation to which the Executive would be entitled upon a termination for Good Reason pursuant to Paragraph 7(e) shall be the sole remedy of the Executive for any failure by NMG to obtain such agreement.  As used in this Agreement, “NMG” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of NMG that executes and delivers the agreement provided for in this Paragraph 20 or that otherwise becomes obligated under this Agreement by operation of law.

21.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

21

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.

22.Costs of Proceedings.  The Company shall pay all costs and expenses of the Company and, at least monthly, of the Executive (including legal fees) in connection with any arbitration relating to the interpretation or enforcement of any provision of this Agreement, whether or not the Executive instituted the proceeding and whether or not the Executive prevails; provided that if the Executive instituted the proceeding and the arbitrator or other individual presiding over the proceeding affirmatively finds that the Executive instituted the proceeding in bad faith, the Executive shall reimburse the Company for all costs and expenses of the Executive previously paid by the Company pursuant to this Paragraph 22.

23.Section 409A Savings Clause.  Notwithstanding anything to the contrary contained herein, in the event that NMG receives advice of counsel selected by NMG and reasonably acceptable to the Executive, that payments under this Agreement are subject to Section 409A of the Code (or the Executive makes such determination and informs NMG of such determination):  (i) any payments in the nature of severance under this Agreement that would be treated as non-qualified deferred compensation under 409A shall not commence until six months after the Executive’s Date of Termination (or, if earlier, the date Executive dies) if required under Section 409A of the Code; and (ii) after consultation with the Executive and counsel, NMG may amend the Agreement to make such other changes it reasonably determines are required to comply with Section 409A of the Code in a manner that preserves the economics to the Executive to the extent reasonable practicable.  The Executive hereby stipulates that Cleary Gottlieb Steen and Hamilton LLP is acceptable counsel for purposes of this Paragraph 23

24.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. 

25.Entire Agreement.  This Agreement and the Change of Control Agreement contain the entire agreement between the parties concerning the subject matter hereof and supersede all prior agreements and understandings, written and oral, between the parties with respect to the subject matter of this Agreement and the Change of Control Agreement. 

26.Modification; Waiver.  No person, other than pursuant to a resolution duly adopted by the members of the Board, shall have authority on behalf of NMG to agree to modify, amend, or waive any provision of this Agreement.  Further, this Agreement may not be changed orally, but only by a written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced.  Each party to this Agreement acknowledges and agrees that no breach of this Agreement by the other party or failure to enforce or insist on its or his rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

27.Construction.  This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties.

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28.Severability.  If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

29.Counterparts.  This Agreement may be executed by the parties in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

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IN WITNESS WHEREOF, NMG has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Executive has executed this Agreement, effective as of the Effective Date.

THE NEIMAN MARCUS GROUP, INC.
By:	/s/	Nelson A. Bangs
Name:		Nelson A. Bangs
Title:		Senior Vice President and General Counsel
NEWTON ACQUISITION, INC.
By:	/s/	David Spuria
Name:		David Spuria
Title:		Vice President
NEWTON ACQUISITION MERGER SUB, INC.
By:	/s/	David Spuria
Name:		David Spuria
Title:		Vice President
EXECUTIVE:
/s/ Burton M. Tansky
Name:		Burton M. Tansky

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EXHIBIT A

Assumptions:
Equity Investment by Sponsors:	$	1,445,000,000.00
Shares Issued to LLC	1,000,000
Fair Market Value Per Share of Parent	$	1,445.00
Fair Market Value Per NMG Share	$	100.00
Total Management Investment (including Tansky option rollover)	$	25,629,355.00
Management Invest (excluding Tansky roll)	$	17,721,230.00
Tansky option roll (spread)	$	7,908,125
Shares Issued to Management at Closing	12,263.8270
Number of Shares Would Get with $7,908,125 Investment	5,472.7509
Shares after management invests (fully diluted basis)	1,017,736.5779
Original Pool (Before Adjustment for Tansky Options)	82,519.1820
Pool Issued at Closing (Before Adjustment for Tansky Options)	77,017.9032
Tansky Portion of the Pool (23.5784%)	18,159.5893
Tansky Portion of Options that are Time-Based	9,079.7946
Tansky Portion of Time-Based Options that Vest Each Year	2,269.9487

Existing Options - $100/share
Expiration Date	Strike Price		Number of Options	Spread
9/23/2010	$	35.6250	63,000	4,055,625.0000
5/16/2011	$	36.5000	25,000	1,587,500.0000
9/22/2011	$	24.5000	30,000	2,265,000.0000
			118,000	7,908,125.0000
Rollover Options
Expiration Date	Unadjusted Strike Price		Number of Options	Adjusted Strike Price		Adjusted Number of Options	Spread	Excess Options
9/23/2010	$	514.7813	4,359.8616	$	361.2500	3,742.2145	4,055,625.0000	935.5536
5/16/2011	$	527.4250	1,730.1038	$	361.2500	1,464.8212	1,587,500.0000	366.2053
9/22/2011	$	354.0250	2,076.1246	$	354.0250	2,076.1246	2,265,000.0000	508.6505
			8,166.0900			7,283.1603		1,810.4095
Tansky Option Summary
Total Adjusted Rollover Options Granted at Closing:*				7,283.1603
Excess Options				1,810.4095
Tranche 1 of 23.5784% of 7.0% Pool after reduction for excess option				459.5392

* If Tansky had invested his option spread at closing he would have been entitled to 5,472.7509 options. To maintain proper leverage, Tansky’s option grant under the Management Equity Incentive Plan 7% Pool must be reduced by 1,810.4095, which equals the number of shares underlying his Adjusted Rollover Options minus the number of shares he would have received had he invested cash at closing.

EXHIBIT B

GENERAL RELEASE

THIS GENERAL RELEASE is entered into between The Neiman Marcus Group, Inc., a Delaware corporation (“NMG”), Newton Acquisition Inc. (together with NMG, the “NMG Group”) and Burton M. Tansky (the “Employee”) as of the            day of                                ,               .  The NMG Group and the Employee agree as follows:

1.             Employment Status.  The Employee’s employment with the NMG Group shall terminate effective as of                              ,                           .

2.             Payment and Benefits.  Upon the effectiveness of the terms set forth herein, NMG shall provide the Employee with the payments and benefits set forth in Section 7 of the Employment Agreement between NMG and the Employee, dated as of                          (as amended from time to time, the “Employment Agreement”), or the payments and benefits set forth in Section 3(a) of the Change of Control Termination Protection Agreement dated as of April 1, 2005, between the Employee and The Neiman Marcus Group, Inc. (the “CIC Agreement”).

3.             No Liability.  This Release does not constitute an admission by the NMG Group, or any of their subsidiaries, affiliates, divisions, trustees, officers, directors, partners, agents, or employees, or by the Employee, of any unlawful acts or of any violation of federal, state or local laws.

4.             Release.  In consideration of the payments and benefits set forth in Section 7(e) and (f) of the Employment Agreement, the Employee for himself, his heirs, administrators, representatives, executors, successors and assigns (collectively, “Employee Releasors”) does hereby irrevocably and unconditionally release, acquit and forever discharge the NMG Group and each of their subsidiaries, affiliates, divisions, successors, assigns, trustees, officers, directors, partners, agents, and former and current employees, including without limitation all persons acting by, through, under or in concert with any of them, including without limitation the Majority Stockholders (as defined in the Management Stockholders’ Agreement dated as of                    among the Employee and the other parties specified therein) and Newton Holding, LLC  (collectively, “NMG Releasees”), and each of them from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys’ fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, national origin, religion, disability age (including without limitation under the Age Discrimination in Employment Act of 1967 as amended by the Older Workers Benefit Protection Act (“ADEA”), Title VII of the Civil Rights Act of 1964 as amended by the Civil Rights Act of 1991, the Equal Pay Act of 1962, and the Americans with Disabilities Act of 1990) or any other unlawful criterion or circumstance, which Employee Releasors had, now have, or may have or claim to have in the future against each or any of the NMG Releasees by reason of any matter, cause or thing occurring, done or omitted to be done from the beginning of the world until the date of the execution of this Release; provided,

however, that nothing herein shall release (i) any obligation of NMG under Sections 5(c), 7, 16 or 22 of the Employment Agreement or Section 3, 5 or 9 of the CIC Agreement as applicable, (ii) any obligation of Newton Acquisition, Inc. under Section 5(c) of the Employment Agreement and Section 10 of the Letter Agreement (as defined in the Employment Agreement) or (iii) any right of indemnification or to director and officer liability insurance coverage under any of the company’s organizational documents or at law under any plan or agreement and applicable to the Employee.

In addition, nothing in this Release is intended to interfere with the Employee’s right to file a charge with the Equal Employment Opportunity Commission in connection with any claim the Employee believes he may have against the NMG Releasees.  However, by executing this Release, the Employee hereby waives the right to recover in any proceeding that the Employee may bring before the Equal Employment Opportunity Commission or any state human rights commission or in any proceeding brought by the Equal Employment Opportunity Commission or any state human rights commission on the Employee’s behalf.  In addition, this release is not intended to interfere with the Employee’s right to challenge that his waiver of any and all ADEA claims pursuant to this Release is a knowing and voluntary waiver, notwithstanding the Employee’s specific representation to the NMG Group that he has entered into this Agreement knowingly and voluntarily.

5.             NMG Release.  The NMG Group on behalf of itself and its subsidiaries, affiliates, divisions, successors, assigns, officers, directors, agents, partners and current and former employees, including without limitation the Majority Stockholders and Newton Holding, LLC (collectively, the “Releasors”) agrees to and does hereby irrevocably and unconditionally release, acquit and forever discharge the Employee, and his heirs, executors, administrators, representatives, successors and assigns (hereinafter collectively referred to as the “Employee Releasees”), with respect to and from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, causes of action, suits, rights, demands, costs, losses, debts, and expenses (including attorneys’ fees and costs) of any kind whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law, which the Releasors had, now have, or may have or claim to have in the future against each or any of the Employee Releasees by reason of any matter, course or thing whatsoever from the beginning of the world until the date of execution of this Release; provided, however, that nothing herein shall release the Employee from (i) obligations or restrictions arising under or referred to or described in the Employment Agreement and nothing herein shall impair the right or ability of NMG to enforce such provisions in accordance with the terms of the Employment Agreement, or (ii) any claims arising out of the Employee’s fraud or willful misconduct in connection with the conduct of the business of the NMG Group.

6.             Bar.  The Employee acknowledges and agrees that if he should hereafter make any claim or demand or commence or threaten to commence any action, claim or proceeding against the NMG Releasees with respect to any cause, matter or thing which is the subject of the release under Paragraph 4 of this Release (other than a claim brought under ADEA), this Release may be raised as a complete bar to any such action, claim or proceeding, and the applicable NMG Releasee may recover from the Employee all costs incurred in connection with such action, claim or proceeding, including attorneys’ fees.  The NMG Group acknowledges and agrees that if it should hereafter make any claim or demand or commence or threaten to

2

commence any action, claim or proceeding against any of the Employee Releasees with respect to any cause, matter or thing which is the subject of the release under Paragraph 5 of this Release, this Release may be raised as a complete bar to any such action, claim or proceeding, and the applicable Employee Releasee may recover from NMG all costs incurred in connection with such action, claim or proceeding, including attorneys’ fees

7.             Restrictive Covenants.  The Employee acknowledges that the provisions of Sections 8, 9, 10 and 11 of the Employment Agreement shall continue to apply pursuant to their terms.

8.             Governing Law.  This Release shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflicts of laws principles.

9.             Acknowledgment.  The parties hereto have read this Release, understand it, and voluntarily accept its terms, and the Employee acknowledges that he has been advised by NMG to seek the advice of legal counsel before entering into this Release, and has been provided with a period of twenty-one (21) days in which to consider entering into this Release.

10.           Revocation.  The Employee has a period of seven (7) days following the execution of this Release during which the Employee may revoke this Release, and this Release shall not become effective or enforceable until such revocation period has expired.  If, within the ten (10) day period following such expiration, NMG or Newton Acquisition, Inc. fails to execute this Release, then this Release shall become null and void and have no force or effect.

11.           Counterparts.  This Release may be executed by the parties hereto in counterparts, which taken together shall be deemed one original.

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IN WITNESS WHEREOF, the parties have executed this Release on the date first set forth above.

Burton M. Tansky

Newton Acquisition, Inc.

By:

Title:

The Neiman Marcus Group, Inc.

By:

Title:

4

EX-10.4

Exhibit 10.4

Execution Copy

Newton Acquisition, Inc.

October 4, 2005

Mr. Burton Tansky
Chief Executive Officer
The Neiman Marcus Group, Inc.
1618 Main Street
Dallas, Texas 75201

Re:  Opportunity to Acquire Shares and Options

Dear Burt,

As you know, The Neiman Marcus Group, Inc. (“NMG”) is in the process of undergoing a change of control, and following the change of control, 100% of its outstanding shares will be owned by an entity called Newton Acquisition, Inc. (“Newco”).  This transaction is pursuant to an Agreement and Plan of Merger, dated as of May 1, 2005, by and among Newco, Newton Acquisition Merger Sub, Inc. and NMG (the “Merger Agreement”).  Although a delay is possible, we expect that the closing of the transaction will occur on October 6, 2005 (the “Closing”).

In connection with the transaction, we are pleased to offer you the opportunity to invest in shares of common stock of Newco (the “Shares”) on the terms and conditions set out below.  In addition, pursuant to the terms of the non-qualified stock option agreements (each, an “Option Grant Agreement”) awarding those options as set forth on Schedule I hereto (the “Rollover Options”), the Committee (as defined in each such Option Grant Agreement) has determined on October 3, 2005 (the “Committee Determination”) that these Rollover Options will not be subject to the cash-out provisions of Section 2.2 of the Merger Agreement and will therefore remain outstanding as of the Closing unless you choose to exercise them prior thereto, and Newco has agreed to assume and adjust the Rollover Options not so exercised to provide you with options to purchase shares of common stock of Newco (the “Newco Options” and together with the Shares, your “Newco Equity”) on the same terms and conditions as set forth in the applicable Option Grant Agreement and the plan pursuant to which such awards were made, except as expressly set forth herein.  In addition to the Rollover Options, you hold shares of common stock of NMG and are being given the opportunity to invest on a tax-deferred basis by “rolling over” some of these shares of common stock of NMG (any such shares being rolled over, the “Rollover Shares”).

1.Merger Consideration; Rollover Equity.  As a result of the transactions contemplated by the Merger Agreement, absent an election to contribute or “rollover” the Rollover Shares as contemplated in this agreement (this “Agreement”), you would be entitled, with respect to your

Rollover Shares, to the “Merger Consideration” (as defined in the Merger Agreement).  In particular, you would be entitled to the Merger Consideration in exchange for each Rollover Share (the aggregate such amount with respect to the Rollover Shares, the “Rollover Share Merger Consideration”).  You would also be entitled to the same consideration for shares you received pursuant to an election, prior to the Closing, to exercise some or all of the Rollover Options (the aggregate such amount with respect to the Rollover Options, the “Rollover Option Merger Consideration” and, with the Rollover Share Merger Consideration, the “Rollover Merger Consideration”).  By completing the Acceptance Form below, you agree (i) not to exercise the Rollover Options and (ii) to contribute your Rollover Shares to Newco.  Newco agrees to accept your Rollover Shares and assume and adjust your Rollover Options as provided herein.  This rollover will occur as set forth below in “Sale and Purchase of Newco Equity; Rollover Mechanics”, and you hereby agree that as a result you will not be entitled to receive any Rollover Merger Consideration.

2.Sale and Purchase of Newco Shares; Rollover Mechanics.  By completing and returning the Acceptance Form below, you agree to, immediately prior to the Closing, contribute your Rollover Shares to Newco and agree to forego any Rollover Share Merger Consideration to which you would otherwise have been entitled absent an election to invest in the Shares.  The Rollover Shares so contributed will be canceled and retired without any conversion thereof or payment or distribution thereon, as set forth in Section 2.1(b) of the Merger Agreement.  Additionally, pursuant to the terms of the Option Grant Agreements, you will, immediately prior to the Closing, cease to have any rights with respect to your Rollover Options including any Rollover Option Merger Consideration to which you would otherwise have been entitled absent the Committee Determination and your agreement not to exercise the Rollover Options.  The Rollover Options will be converted into the Newco Options without any payment or distribution thereon.

In exchange for the Rollover Shares, you will receive such number of Shares having an aggregate value equal (based on the valuation and capitalization set forth in Schedule I) to the aggregate value of the Rollover Shares immediately prior to the Closing as indicated on the Acceptance Form.  As soon as practicable following the Closing, you will either become the holder of record or receive physical certificates of the Shares.

3.Rollover Share Certificates; Assumption and Adjustment of the Rollover Options.  With respect to the Rollover Shares, you hereby authorize NMG to take such action as may be necessary to cause the Rollover Shares to be rolled over.

You agree that you will not exercise the Rollover Options prior to the Closing.  Newco agrees to assume the Rollover Options on their current terms and conditions, except that:

(a)the Newco Options will be fully vested at all times, except as provided in Section 7(b) below;

(b)the Newco Options will be exercisable for Shares;

(c)the exercise price per Share of each Newco Option will equal the lesser of (i) 25% of the fair market value of a Share, or (ii) the percentage of the fair market value of a Share that equals the ratio of the exercise price per NMG share of such option to the Merger Consideration;

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(d)the number of Shares underlying each Newco Option shall be as set forth in Schedule I; and

(e)at least 10 days prior to the termination or expiration of any Newco Option for any reason, if there is not a Public Market (as defined in the Stockholders’ Agreement) for the Shares, Newco will permit you to exercise any such vested Newco Options through net-physical settlement (i.e., by delivery of Shares net of the number of Shares having a Fair Market Value (as defined in the Stockholders’ Agreement, defined below) equal to the applicable exercise price and applicable withholding taxes at the minimum statutory rate), unless (i) Newco’s independent auditors determine that net-physical settlement of any such Newco Options would produce less-favorable accounting consequences for Newco or its affiliates than if you paid the exercise price for any such vested Newco Options in cash (other than those that would have an immaterial effect) or (ii) Newco receives advice from counsel, in accordance with Section 10 below, that such net-physical exercise would result in a penalty under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  If, in accordance with this paragraph, you are entitled to exercise Newco Options through net-physical exercise, Fair Market Value will be determined as set forth in the Stockholders’ Agreement, including any right to an Outside Appraisal (as defined therein).

4.Acceptance and Closing; Conditions.  You may accept this offer and the terms of this Agreement by completing and returning the Acceptance Form below, in which case the closing of the acquisition of your Newco Equity will occur immediately after the Closing.  This offer is conditioned upon the occurrence of the Closing.  If the Closing does not occur on or before October 17, 2005 (the “Closing Deadline”), this Agreement will be canceled and you will have no rights with respect hereto and any Rollover Shares that you have transferred or cash payment that you have made pursuant to Section 3 will be returned to you; provided, that if Newco determines on or before the Closing Deadline and in good faith that the Closing is likely to occur on or before October 31, 2005, the Closing Deadline shall automatically be extended to October 31, 2005.

5.Limitation.  Newco, in its discretion, may limit the number of Shares that you may purchase, and therefore may choose not to accept the full amount of your investment election with respect to your Rollover Shares.  Rollover Shares not so accepted pursuant to the preceding sentence will be treated in accordance with the provisions of the Merger Agreement.

6.Vesting.  Your Shares when issued will be fully vested.

7.Stockholders’ Agreement; Certain Other Agreements.

(a)By completing and returning the Acceptance Form below, you agree to become a party to the Management Stockholders’ Agreement, a copy of which is attached hereto as Annex A, as may be amended from time to time in accordance with its terms (the “Stockholders’ Agreement”) and you will be subject to the terms and conditions thereof with respect to your Shares; provided that the Shares shall not be subject to the call right in Section 3(b).  Newco agrees that it will, and that it will cause the Majority Stockholder (as defined below) to, also become a party to the Stockholders’ Agreement.

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(b)In addition to the terms and conditions of the Stockholders’ Agreement, with respect to Newco Options for a total of 1,810.4095 Shares, as determined pursuant to Schedule I (the “Excess Options”), in the event that, on or before the first anniversary of the Closing, your employment with NMG or any of its affiliates terminates as a result of NMG or its affiliates terminating your employment for Cause (as such term is defined in your employment agreement with NMG, dated October 6, 2005 (your “Employment Agreement”)), your voluntary resignation other than for your retirement or for Good Reason (as such term is defined in your Employment Agreement), Newco and its affiliates shall have the right, at any time until the earlier of (x) the fifth anniversary of the Closing or (y) a Public Market (as such term is defined in the Stockholders’ Agreement) exists for the Shares, to, at any time after delivery of a notice to you or your estate:

i.Cancel each Excess Option in exchange for a cash payment for each Share underlying such Excess Option being canceled equal to the difference between (1) the lesser of (A) Fair Market Value of the Share (as such term is defined in the Stockholders’ Agreement and subject to any right to seek an Outside Appraisal in accordance with the Stockholders’ Agreement) underlying such Excess Option and (B) $1,445 (whichever such amount applies, the “Excess Share Buyout Price”) and (2) the per Share exercise price of such Excess Option being canceled; or

ii.Purchase any or all Shares you hold as a result of the exercise of any or all of the Excess Options for the Excess Buyout Price.

(c)If, after the Closing Date but prior to the existence of a Public Market, Newco or Newton Holding, LLC (“Newton LLC”) proposes to issue additional shares of common stock of Newco or membership interests of Newton LLC (in each case with the exception of any issuance in connection with any merger, acquisition or similar corporate event or to employees pursuant to an employee incentive plan), Newco or Newton LLC, as applicable, shall provide written notice (the “Issuance Notice”) to you of such anticipated issuance no later than ten (10) days prior to the anticipated issuance date.  The Issuance Notice shall set forth the material terms and conditions of the issuance, including the proposed purchase price for the new shares of common stock of Newco or membership interests of Newton LLC.  You shall have the right, upon receipt of the Issuance Notice, to purchase additional shares of common stock of Newco up to your pro rata portion (based on the number of shares of common stock of Newco you own or subject to vested stock options you hold immediately prior to such issuance), at the price and on the terms and conditions specified in the Issuance Notice by delivering an irrevocable written notice to Newco no later than five (5) days before the anticipated issuance date, setting out the number of new shares of common stock of Newco for which the right is exercised; provided that if the issuance is of membership interests in Newton LLC, your pro rata portion shall be calculated as if the shares of common stock of Newco held by you and all other holders of the shares of common stock of Newco (other than Newton LLC) were converted into membership interests in Newton LLC and you held such membership interests together with all of the holders of membership interests in Newton LLC on the date the notice was delivered.  If you fail to exercise all or a portion of your preemptive rights, Newco or Newton LLC, as applicable, shall be permitted to complete the proposed issuance without any further notice or action related to the rights provided in this Section 7(d).  In the event that Newton LLC proposes to issue new membership interests, Newton LLC and Newco may determine, in their sole discretion, to permit

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you to exercise your preemptive rights to purchase membership interests in Newton LLC rather than additional shares of common stock of Newco.

8.Tax Reporting.  It is intended that the rollover of the Rollover Shares and Rollover Options contemplated herein shall be treated as a tax-free transfer under the Code.

All discussions of U.S. federal tax considerations in this document have been written to support the marketing of the Shares.  Such discussions were not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. federal tax penalties.  You should consult your own tax advisers in determining the tax consequences of the rollover and of holding the Shares, including the application to your particular situation of the U.S. federal tax considerations discussed herein, as well as the application of state, local, foreign, or other tax laws.

9.Representations; Acknowledgements.  By signing below and completing and returning the Acceptance Form, you hereby represent and warrant to Newco and NMG that:

(i)you have the requisite power, authority and capacity to execute this Agreement and to deliver or cause to be delivered the Rollover Shares, to perform your obligations under this Agreement and to consummate the transactions contemplated hereby;

(ii)the Acceptance Form has been duly and validly executed and delivered by you and constitutes your legal, valid and binding obligation, enforceable against you in accordance with its terms, except to the extent that such validly binding effect and enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium and other laws relating to or affecting creditors’ rights generally;

(iii)the Shares are being acquired for your own account, for investment purposes only and not with a view to or in connection with any distribution, reoffer, resale, public offering or other disposition thereof not in compliance with the Securities Act of 1933 (the “Securities Act”), as may be amended from time to time, or any applicable United States federal or state securities laws or regulations;

(iv)you are an “accredited investor”, as defined in Rule 501(a) under the Securities Act, which means you are:

a.A person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000;OR

b.A person whose income exceeded $200,000 in each of the two most recent years, or joint income with your spouse exceeded $300,000 in each of those years, and you have a reasonable expectation of reaching the same income level in this year;

(v)you possess such expertise, knowledge, and sophistication in financial and business matters generally, and in the type of transaction in which NMG and Newco propose to engage in particular;

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(vi)you have had access to all of the information and individuals with respect to the Shares and your investment that you deem necessary to make a complete evaluation thereof;

(vii)you have had an opportunity to consult an independent tax and legal advisor and your decision to acquire the interest for investment has been based solely upon your evaluation;

(viii)you are aware that the Internal Revenue Service or other relevant taxing authority may take a position regarding the rollover contemplated in this Agreement and/or the tax classification of Newco and the Shares contrary to that intended by Newco as provided in this Agreement and except as specifically provided in Section 10 herein you shall be solely responsible for any and all tax or other liabilities that may result from the IRS’s or other relevant taxing authority’s position; and

(ix)you are aware that the Stockholders’ Agreement provides significant restrictions on your ability to dispose of the Newco Equity.

By electing to contribute the Rollover Shares and not to exercise your Rollover Options pursuant to this Agreement, you acknowledge that you are instructing Newco and its affiliates to distribute to you, following the Closing, Shares and Newco Options instead of cash, as described above, and you hereby acknowledge that you do not have, and will not assert that you have, any claim against Newco, the Majority Stockholder (as defined below) or their respective affiliates to receive the Merger Consideration or any other payment in exchange for the Rollover Shares, except as contemplated herein.

The “Majority Stockholder” shall mean, collectively or individually as the context requires, Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII C.V. I, Warburg Pincus Germany Private Equity VIII K.G, Warburg Pincus Private Equity IX, L.P and/or their respective affiliates, successors or assigns.

10.Section 409A of the Code; Other Tax Provisions.  If Newco receives the advice of counsel selected by Newco and reasonably acceptable to you that any payment or distribution with respect to the Rollover Shares or Rollover Options (or the Shares and Newco Options you receive as a result of rolling over the Rollover Shares or Rollover Options) or the conversion of the Rollover Shares or Rollover Options into Shares and Newco Options pursuant to the terms of this Agreement (the “Payment”) would result in the imposition of a 20% additional tax pursuant to Section 409A of the Code, Newco shall have the right to make such modifications or amendments to Shares and/or Newco Options as are reasonably necessary to avoid the application of Section 409A of the Code, after consultation with you and your counsel.  In making any such amendments or modifications, Newco shall take all steps to put you in substantially the same economic position as you would have been in had such modifications or amendments not been made, to the extent reasonably practical.  You hereby stipulate that Cleary Gottlieb Steen and Hamilton LLP is acceptable counsel for purposes of this Section 10.  If, after giving effect to any such modifications or amendments, any Payment results in the imposition of an 20% additional tax, penalties and interest under Section 409A of the Code, Newco will pay the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained

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by the Executive after deduction of any 20% additional tax imposed under Section 409A of the Code, and any federal, state and local income, employment and excise tax imposed upon any Gross-Up Payment shall be equal to such 20% additional tax, penalties and interest.

In addition, the parties hereto expect that the rollover will be treated for federal income tax purposes as a tax-free rollover.  In the event the Internal Revenue Service challenges the structure of the rollover of your Rollover Shares or Rollover Options into Newco Equity, as set forth herein, the parties shall use their reasonable efforts and take reasonable actions to minimize any adverse tax treatment, including, without limitation, exercising Options.  If, after taking all reasonable and appropriate actions, you incur penalties or interest as a result of the Internal Revenue Service’s challenge, Newco will indemnify you for such penalties and interest costs on a net after-tax basis as described in the preceding paragraph.

11.Other NMG Interests.  You acknowledge that any other equity or equity-based interests that you hold in NMG that you do not elect to roll over, or which are not accepted for rollover for any reason pursuant to this Agreement, will be treated in accordance with the Merger Agreement.

12.Governing Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Delaware.

13.Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

*****

[Signature Page Follows]

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Please sign your name on the space provided below and please indicate whether and how you would like to invest in Newco by completing and executing the Acceptance Form attached to the end of this Agreement.  Please return an executed copy of this Agreement and the Acceptance Form in original form or by FAX no later than 1:00 p.m. (Central Daylight Time) on Monday, October 4, 2005 to the attention of Marita O’Dea, The Neiman Marcus Group, 1618 Main Street Dallas, TX 75201. The fax number is 214-743-7605.  (If you fax your election form on Monday, the original should be delivered to Marita O’Dea no later than Wednesday, October 5, 2005).

	Sincerely,
	/s/ David Spuria
	Newton Acquisition, Inc.
	By:	David Spuria
	Title:		Vice President
Agreed to and Accepted by:
/s/ Burton M. Tansky
Burton M. Tansky

By execution below, NMG and its respective affiliates agree, if so directed by you, to use reasonable efforts to effect a rollover pursuant to this Agreement as a tax-free distribution, unless otherwise required pursuant to a final determination, as defined in Section 1313 of the Code:

/s/ Nelson A. Bangs
for The Neiman Marcus Group, Inc.
By:	Nelson A. Bangs
Title:		Senior Vice President

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Acceptance of Offer to Acquire Shares and Options of Newco (the “Acceptance Form”)

Pursuant to the terms and conditions set forth in letter to me dated October 4, 2005 (the “Letter”), I, Burton M. Tansky, hereby elect make an investment in Newco in the amount and manner below:

1.  I will purchase Shares by contributing to Newco 13,419 shares of common stock of NMG having a value of $1,341,900 (at $100 per share).

2. I will not exercise any of the options to purchase NMG shares listed on Schedule I, which have an aggregate in-the-money value of $7,908,125.

Aggregate Investment = $9,250,025 (sum of 1 and 2)

/s/ Burton M. Tansky

Burton M. Tansky

October 4, 2005

Date

SCHEDULE I

Assumptions:
Equity Investment by Sponsors:	$	1,445,000,000.00
Shares Issued to LLC	1,000,000
Fair Market Value Per Share of Parent	$	1,445.00
Fair Market Value Per NMG Share	$	100.00
Total Management Investment (including Tansky option rollover)	$	25,629,355.00
Management Invest (excluding Tansky roll)	$	17,721,230.00
Tansky option roll (spread)	$	7,908,125
Shares Issued to Management at Closing	12,263.8270
Number of Shares Would Get with $7,908,125 Investment	5,472.7509
Shares after management invests (fully diluted basis)	1,017,736.5779
Original Pool (Before Adjustment for Tansky Options)	82,519.1820
Pool Issued at Closing (Before Adjustment for Tansky Options)	77,017.9032
Tansky Portion of the Pool (23.5784%)	18,159.5893
Tansky Portion of Options that are Time-Based	9,079.7946
Tansky Portion of Time-Based Options that Vest Each Year	2,269.9487

Existing Options - $100/share

Expiration Date	Strike Price	Number of Options	Spread
9/23/2010	$35.6250	63,000	4,055,625.0000
5/16/2011	$36.5000	25,000	1,587,500.0000
9/22/2011	$24.5000	30,000	2,265,000.0000
		118,000	7,908,125.0000

Rollover Options

Expiration Date	Unadjusted Strike Price	Number of Options	Adjusted Strike Price	Adjusted Number of Options	Spread	Excess Options
9/23/2010	$514.7813	4,359.8616	$361.2500	3,742.2145	4,055,625.0000	935.5536
5/16/2011	$527.4250	1,730.1038	$361.2500	1,464.8212	1,587,500.0000	366.2053
9/22/2011	$354.0250	2,076.1246	$354.0250	2,076.1246	2,265,000.0000	508.6505
		8,166.0900		7,283.1603		1,810.4095

Tansky Option Summary

Total Adjusted Rollover Options Granted at Closing:*	7,283.1603
Excess Options	1,810.4095
Tranche 1 of 23.5784% of 7.0% Pool after reduction for excess option	459.5392

* If Tansky had invested his option spread at closing he would have been entitled to 5,472.7509 options. To maintain proper leverage, Tansky’s option grant under the Management Equity Incentive Plan 7% Pool must be reduced by 1,810.4095, which equals the number of shares underlying his Adjusted Rollover Options minus the number of shares he would have received had he invested cash at closing.

MANAGEMENT STOCKHOLDERS’ AGREEMENT

MANAGEMENT STOCKHOLDERS’ AGREEMENT (this “Agreement”), dated as of October 6, 2005, between Newton Acquisition, Inc. (the “Company”), the Majority Stockholder (as defined below) and the individuals listed on Schedule A attached hereto (the “Management Stockholder”).

WHEREAS, the Management Stockholder may be the owner of shares of common stock of the Company, $0.01 par value per share (“Common Stock”) and/or may be granted options to purchase Common Stock (the “Options”), pursuant to The Newton Acquisition, Inc. Management Equity Incentive Plan (the “Plan”); and

WHEREAS, as a condition to the issuance of any shares of Common Stock by the Company to the Management Stockholder, the Management Stockholder is required to execute this Agreement; and

WHEREAS, the Management Stockholder, the Majority Stockholder and the Company desire to enter into this Agreement and to have this Agreement apply to any shares of Common Stock acquired by the Management Stockholder from whatever source (in the aggregate, the “Shares”);

NOW THEREFORE, in consideration of the premises hereinafter set forth, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions.  As used in this Agreement, the following capitalized terms shall have the following meanings:

(a)“Affiliate” shall 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” shall mean the Board of Directors of the Company or any committee appointed by the Board to administer the Plan pursuant to the terms of the Plan.

(c)“Cause” shall mean, when used in connection with the termination of a Management Stockholder’s Employment, unless otherwise provided in any stock option grant agreement entered between the Company and the Management Stockholder with respect to any Options that may be granted under the Plan, effective employment agreement or other written agreement with respect to the termination of a Management Stockholder’s Employment, the termination of the Management Stockholder’s Employment with the Company and all Affiliates on account of (i) a failure of the Management Stockholder to substantially perform his or her duties (other than as a result of physical or mental illness or injury) that has continued after NMG has provided written notice of such failure and Executive has not cured such failure within 30 days of the date of such written notice; (ii) the Management Stockholder’s willful misconduct or gross negligence which is materially injurious to the Company; (iii) a breach by a Management Stockholder of the Management Stockholder’s fiduciary duty or duty of loyalty to the Company and its Affiliates; (iv) the Management Stockholder’s unauthorized removal from the premises of the Company or an Affiliate of any document (in any medium or form) relating to the Company or an Affiliate or the customers of the Company or an Affiliate; or (v) the commission by the Management Stockholder of any felony or other serious crime involving moral turpitude.  Any rights the Company or an Affiliate may have hereunder in respect of the events giving rise to Cause shall be in addition to the rights the Company or Affiliate may have under any other agreement with the Management Stockholder or at law or in equity.  If, subsequent to a Management Stockholder’s termination of Employment, it is discovered that such Management Stockholder’s Employment could have been terminated for Cause, the Management Stockholder’s Employment shall, at the election of the Board, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred.  Notwithstanding the foregoing, a failure to meet performance expectations shall not, by itself, constitute Cause hereunder where the Board determines that the Management Stockholder has performed his duties in good faith.

(d)“Change of Control” shall mean the occurrence of any of the following events after the Effective Time: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company on a consolidated basis to any Person or group of related persons for purposes of Section 13(d) of the Exchange Act (a “Group”), together with any Affiliates thereof other than to a Majority Stockholder; (ii) the approval by the holders of the outstanding voting power of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iii) (A) any Person or Group (other than the Majority Stockholder) shall become the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), directly or indirectly, of Common Stock representing more than 40% of the aggregate outstanding voting power of the Company and such Person or Group actually has the power to vote such Common Stock in any such election and (B) the Majority Stockholder beneficially owns (within the meaning of Section 13(d) of the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Company than such other Person or Group; (iv) the replacement of a majority of the Board over a two-year period from the directors who constituted the Board at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board then still in office who either were members of such Board at the beginning of such period or whose election as a member of such Board was previously so approved or who were nominated by, or designees of, a Majority Stockholder; or (v) consummation of a merger or consolidation of the Company with another entity in which holders of the Common Stock of the Company immediately prior to the consummation of the transaction hold, directly or indirectly, immediately following the consummation of the transaction, less than 50% of the common equity interest in the surviving corporation in such transaction and the Majority Stockholder does not hold a sufficient amount of voting power (or similar securities) to elect a majority of the surviving entity’s board of directors.

Notwithstanding the foregoing, a Change of Control shall not be deemed to occur as a result of any event or transaction to the extent that treating such event or transaction as a Change of Control would cause any tax to become due under Section 409A of the Code.

(e)“Code” shall mean the Internal Revenue Code of 1986, as amended.

(f)“Disability” shall mean, unless otherwise provided in any stock option grant agreement entered between the Company and the Management Stockholder with respect to any Options that may be granted under the Plan, effective employment agreement or other written agreement, a permanent disability as defined in the Company’s or an Affiliate’s disability plans, or as defined from time to time by the Company, in its discretion.

(g)“Effective Time” shall have the meaning set forth in the Agreement and Plan of Merger by and among the Company, Newton Acquisition Merger Sub, Inc. and The Neiman Marcus Group, Inc, dated as of May 1, 2005.

(h)“Employment” shall mean employment with the Company or any Affiliate and shall include the provision of services as a director or consultant for the Company or any Affiliate.  “Employee” and “Employed” shall have correlative meanings.

(i)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(j)“Fair Market Value” shall mean, as of any date:

i.prior to the existence of a Public Market (as defined in Section 6 below) for the Common Stock, the value per share of Common Stock as determined in good faith by the Board; or

ii.on which a Public Market for the Common Stock exists, (i) closing price on such day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and ask prices on such day as reported on the National Association of Securities Dealers Automated Quotation System or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. (“NASD”) selected by the Board.  The Fair Market Value of a share of Common Stock as of any such date on which the applicable exchange or inter-dealer quotation system through which trading in the Common Stock regularly occurs is closed shall be the Fair Market Value determined pursuant to the preceding sentence as of the immediately preceding date on which the

Common Stock is traded, a bid and ask price is reported or a trading price is reported by any member of NASD selected by the Board.  In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value shall be determined by the Board in good faith to reflect the fair market value of a share of Common Stock.

(k)“Good Reason” shall mean, unless otherwise provided in any stock option grant agreement entered between the Company and the Management Stockholder with respect to any Options that may be granted under the Plan, effective employment agreement or other written agreement with respect to the termination of a Management Stockholder’s Employment,  (i) a material diminution in a Management Stockholder’s duties and responsibilities other than a change in such Management Stockholder’s duties and responsibilities that results from becoming part of a larger organization following a Change of Control, (ii) a decrease in a Management Stockholder’s base salary, bonus opportunity or benefits other than a decrease in bonus opportunity or benefits that applies to all employees of the Company or its Affiliates otherwise eligible to participate in the affected plan, or (iii) a relocation of a Management Stockholder’s primary work location more than 50 miles from the Management Stockholder’s work location immediately prior to the Management Stockholder’s execution of this Agreement, without the Management Stockholder’s prior written consent; provided that, within thirty days following the occurrence of any of the events set forth herein, the Management Stockholder shall have delivered written notice to the Company of his or her intention to terminate his or her Employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to give rise to the Management Stockholder’s right to terminate Employment for Good Reason, and the Company shall not have cured such circumstances within thirty days following the Company’s receipt of such notice.

(l)“Majority Stockholder,” for purposes of this Agreement, shall mean, collectively or individually as the context requires, Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII C.V. I, Warburg Pincus Germany Private Equity VIII K.G , Warburg Pincus Private Equity IX, L.P and/or their respective Affiliates.

(m)“Person” means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof.

(n)“Retirement” shall mean, when used in connection with the termination of a Management Stockholder’s Employment, a voluntary resignation of Employment by the Management Stockholder that occurs on or after (i) the first date on which the Management Stockholder has both attained age 60 and completed 10 years of service with the Company or its Affiliates or (ii) the date on which the Management Stockholder attains age 65.

(o)“Securities Act” shall mean the Securities Act of 1933, as amended.

(p)“Transfer” shall mean any transfer, sale, assignment, gift, testamentary transfer, pledge, hypothecation or other disposition of any interest.  “Transferee” and “Transferor” shall have correlative meanings.

2.Investment; Issuance of Shares.

(a)The Management Stockholder represents that the Shares are being acquired for investment and not with a view toward the distribution thereof.

(b)Issuance of Shares.  The Management Stockholder acknowledges and agrees that the certificate for the Shares shall bear the following legends (except that the second paragraph of this legend shall not be required after the Shares have been registered and except that the first paragraph of this legend shall not be required after the termination of this Agreement):

The shares represented by this certificate are subject to the terms and conditions of a Management Stockholders’ Agreement dated as of October 6, 2005 and may not be sold, transferred, hypothecated, assigned or encumbered, except as may be permitted by the aforesaid Agreement.  A

copy of the Management Stockholders’ Agreement may be obtained from the Secretary of the Company.

The shares represented by this certificate have not been registered under the Securities Act of 1933.  The shares have been acquired for investment and may not be sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Securities Act of 1933 or an opinion of counsel for the Company that registration is not required under said Act.

Upon the termination of this Agreement, or upon registration of the Shares under the Securities Act, the Management Stockholder shall have the right to exchange any Shares containing the above legend (i) in the case of the registration of the Shares, for Shares legended only with the first paragraph described above and (ii) in the case of the termination of this Agreement, for Shares legended only with the second paragraph described above.

3.Transfer of Shares; Call Rights; Put Rights.

(a)The Management Stockholder agrees that he will not cause or permit the Shares or his interest in the Shares to be sold, transferred, hypothecated, assigned or encumbered except as expressly permitted by this Section 3; provided, however, that the Shares or any such interest may be Transferred (i) on the Management Stockholder’s death by bequest or inheritance to the Management Stockholder’s executors, administrators, testamentary trustees, legatees or beneficiaries, (ii) subject to compliance with all applicable tax, securities and other laws, any “Family Member” as such term is defined in the Form S-8 Registration Statement under the Securities Act as of the date of Transfer, and (iii) in accordance with Section 4 of this Agreement, subject in each case to the agreement by each Transferee (other than the Company or as otherwise permitted by the Company) in writing to be bound by the terms of this Agreement as if such Transferee had been an original signatory hereto and provided in any such case that, in the case of a Transfer pursuant to Section 3(a)(i) or (ii), such Transfer will not be permitted if it would cause the Company to be required to register the Common Stock under Section 12(g) of the Exchange Act.

(b)(i)  In the event the Management Stockholder’s Employment with the Company is terminated by the Company for Cause or by the Management Stockholder for any reason other than Good Reason, death, Disability or Retirement, the Company (or its designated assignee) shall have the right, during the 120-day period following the later to occur of (x) such termination of Employment and (y) the date on which the Management Stockholder or Transferee has held the Shares most recently acquired to be sold pursuant to this Section 3(c) for at least six (6) months, to purchase from the Management Stockholder or the Management Stockholder’s Transferee, and upon the exercise of such right the Management Stockholder or such Transferee shall sell to the Company (or its designated assignee), all or any portion of the Shares acquired by the Management Stockholder or Transferee on the exercise of Options and held by the Management Stockholder or Transferee as of the date as of which such right is exercised at a per Share price equal to the Fair Market Value of a share of Common Stock determined as of the date such right is exercised.  The Company (or its designated assignee) shall exercise such right by delivering to the Management Stockholder or Transferee, as applicable, a written notice specifying its intent to purchase Shares held by the Management Stockholder or Transferee (the “Call Notice”), the date as of which such right is to be exercised and the number of Shares to be purchased.  Such purchase and sale shall occur on such date as the Company (or its designated assignee) shall specify, which date shall be within thirty (30) days after the date on which the Call Notice is delivered or the Outside Appraisal is delivered.  The Company will use commercially reasonable efforts to make the payment for the Shares in cash on the date of such purchase and sale; provided that, despite using such efforts, if such payment will result in the violation of the terms or provisions of, or result in a default or event of default under, any guarantee, financing or security agreement or document entered into by the Company or any of its Affiliates and in effect on such date (hereinafter a “Financing Agreement”), the Company may delay any such payment for no more than two (2) years.  In the event the payment of the purchase price is delayed as a result of a restriction imposed by a Financing Agreement as provided above, such payment shall be made without the application of further conditions or impediments as soon as practicable after the payment of such purchase price would no longer result in the violation of the terms or provisions of, or result in a default or event of default under, any Financing Agreement, and such payment shall equal the amount that would have been paid to the Management Stockholder or Transferee if no delay had occurred plus interest for the period from the date on which the purchase price would have been paid but for the delay in payment provided herein to the

date on which such payment is made (the “Delay Period”), calculated at an annual rate equal to the average annual prime rate charged during the Delay Period by a nationally recognized bank designated by the Board plus two (2) percentage points.  In the event that the Company is not able to make payment within two (2) years after the date specified in the Call Notice, the Company will, upon the written request of the Management Stockholder or Transferee, cancel the Call Notice and return to the Management Stockholder or Transferee the Shares subject to the Call Notice (as adjusted to take into account any corporate transactions during the intervening period) in exchange for cancellation of the debt and any interest payments that would have otherwise been payable thereon.

(ii)In the event that the Management Stockholder or Transferee disagrees with the Company’s determination of the Fair Market Value of a Share, the Management Stockholder or Transferee shall have the right to require the Company to seek an appraisal to determine the Fair Market Value of a Share in lieu of the Board determination (an “Outside Appraisal”); provided that the Transferee shall not be entitled to an Outside Appraisal in the event an appraisal to determine the Fair Market Value of a Share has been done within the three-month period immediately preceding delivery of the Call Notice and the Board determines in good faith that no event has occurred that would result in the prior determination of Fair Market Value being materially inaccurate.  Any such Outside Appraisal shall be made by one qualified person (which can be an accounting firm or investment banking firm or similar firm) (each, an “Appraiser”), having substantial experience in the valuation of similar enterprises in the United States.  The Company and the Management Stockholder or Transferee shall mutually agree upon such Appraiser within 30 days of the Call Notice; provided that in the event an appraisal to determine Fair Market Value of a Share has been done within the twelve-month period immediately preceding delivery of the Call Notice, the Outside Appraisal shall be done by the same Appraiser that performed the prior appraisal unless the Company consents to a different Appraiser.  The Company shall each bear 100% of the fees and expenses of the Appraiser.

(c)(i)In the event the Management Stockholder’s Employment with the Company terminates due to the death or Disability of the Management Stockholder, such Management Stockholder or Transferee shall have the right, during the 120-day period following the later to occur of (x) such termination of Employment and (y) the date on which the Management Stockholder or Transferee has held the Shares most recently acquired to be sold pursuant to this Section 3(c) for at least six (6) months, to sell to the Company (or its designated assignee), and upon the exercise of such right the Company (or its designated assignee) shall purchase from the Management Stockholder or Transferee, all or any portion of the Shares held by the Management Stockholder or Transferee as of the date as of which such right is exercised at a per Share price equal to the Fair Market Value of a Share of Common Stock determined as of the date as of which such right is exercised.  The Management Stockholder or Transferee shall exercise such right by delivering to the Company a written notice (the “Put Notice”) specifying his or her intent to sell Shares held by the Management Stockholder or Transferee, the date as of which such right is to be exercised and the number of Shares to be sold.  Such purchase and sale shall occur on such date as the Company (or its designated assignee) and the Stockholder shall agree, which date shall be within thirty (30) days after the later of the delivery of the Put Notice or the delivery of the Outside Appraisal.  The Company will use commercially reasonable efforts to make the payment for the Shares in cash on the date of such purchase and sale; provided that, despite using such efforts, if such payment will result in the violation of the terms or provisions of, or result in a default or event of default under, a Financing Agreement, the Company may delay any such payment for no more than two (2) years.  In the event the payment of the purchase price is delayed as a result of a restriction imposed by a Financing Agreement as provided above, the Company shall notify the Management Stockholder or Transferee as soon as practicable of the need for such a delay (the “Delay Notice”), and shall permit the Management Stockholder or Transferee, within ten (10) days of the delivery of the Delay Notice, to rescind the Put Notice.  If the Management Stockholder or Transferee does not rescind the Put Notice as provided in the preceding sentence, the Put Notice shall remain outstanding and any payment in respect thereof shall be made without the application of further conditions or impediments as soon as practicable after the payment of such purchase price would no longer result in the violation of the terms or provisions of, or result in a default or event of default under, any Financing Agreement, and such payment shall equal the amount that would have been paid to the Management Stockholder or Transferee if no delay had occurred plus interest for the Delay Period, calculated at an annual rate equal to the average annual prime rate charged during the Delay Period by a nationally recognized bank designated by the Board plus two (2) percentage points.  In the event that the Company is not able to make payment within two (2) years after the date specified in the Put Notice, the Company will, upon the written request of the Management Stockholder or Transferee, cancel the Put Notice in exchange for cancellation of the debt and any interest payments that would have otherwise been payable thereon.

(ii)In the event that the Management Stockholder or Transferee disagrees with the Company’s determination of the Fair Market Value of a Share, the Management Stockholder or Transferee shall have the right to require the Company to seek an Outside Appraisal in accordance with the terms and conditions set forth in Section 3(b) of this Agreement, substituting “Put Notice” in place of “Call Notice.”

(d)In addition, if the Board receives the advice of counsel selected by the Company and reasonably acceptable to the Management Stockholder or any Transferee that the inclusion of the call right or the put right described in this Section 3 would result in the Option or Shares becoming subject to Section 409A of the Code, the Board shall have the right to make such modifications or amendments to this Section 3 as the Board determines are reasonably necessary to avoid the application of Section 409A of the Code without the consent of the Management Stockholder or any Transferee.  In making any such amendments or modifications, the Board shall take all steps to put the parties in substantially same economic position as they would have been in had such modifications or amendments not been made to the extent reasonably practical.  The Management Stockholder and any Transferee hereby stipulate that Cleary Gottlieb Steen and Hamilton LLP is acceptable counsel for purposes of this Section 3(d).

4.Certain Rights.

(a)Drag Along Rights.  If one or more Majority Stockholder desires to sell all or substantially all of the Shares of Common Stock in which it has a “pecuniary interest” as defined in Rule 16a-1 of the Exchange Act (including through the disposition of interests in Newton Holding, LLC) or a portion of the Shares of Common Stock representing Control of the Company, in either case to a good faith independent purchaser (a “Purchaser”) (other than any other Majority Stockholder, other investment partnership, limited liability company or other entity established for investment purposes and controlled by one or more of the members (other than passive investors) or the principals of the Majority Stockholder or any of their Affiliates and other than any Employees of the Majority Stockholder or their Affiliates hereinafter referred to as a “Permitted Transferee”) and said Purchaser desires to acquire all or substantially all of the issued and outstanding Shares of Common Stock (or all or substantially all of the assets of the Company) upon such terms and conditions as agreed to with the Majority Stockholder, the Management Stockholder or Transferee agrees to sell to such Purchaser a number of its Shares of Common Stock, not to exceed (a) the number of shares of Common Stock held by such Management Stockholder or Transferee multiplied by (b) a fraction, the numerator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest that such Majority Stockholder has proposed to be transferred, and the denominator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest (or to vote such number of his Shares in favor of any merger or other transaction which would effect a sale of such shares of Common Stock or assets of the Company) at the same price per Share of Common Stock and pursuant to the same terms and conditions with respect to payment for the Shares of Common Stock in which the Majority Stockholder has a pecuniary interest as agreed to by the Majority Stockholder; provided that, except with respect to any liability incurred by such Management Stockholder or any Transferee individually, the Management Stockholders and any Transferees shall not be liable to a Purchaser for an amount greater than the proceeds from the sale.  In such case, the Majority Stockholder shall give written notice of such sale to the Management Stockholder or Transferee at least fifteen (15) days prior to the consummation of such sale, setting forth (i) the consideration to be received by the holders of Shares of Common Stock, (ii) the identity of the Purchaser, (iii) any other material items and conditions of the proposed transfer and (iv) the date of the proposed transfer.  The Company shall be responsible for the proportionate Share of the costs of the proposed Transfer incurred by the Management Stockholders and any Transferees to the extent not paid or reimbursed by the proposed Purchaser.

For purposes of this Section 4(a), “Control of the Company” shall mean the sale or disposition in a single transaction or a series of related transactions of at least fifty percent (50)% of the issued and outstanding Shares of Common Stock or securities representing at least fifty percent (50)% of the voting power of the Company, including a disposition of interests in Newton Holding, LLC that represents 50% or more of the voting power of the Company.

(b)Tag Along Rights.  (i) Subject to paragraph (iv) of this Section 4(b), if one or more Majority Stockholder or its Permitted Transferee proposes to transfer its direct or indirect pecuniary interest (as defined in Rule 16a-1 under the Exchange Act) in any Shares of Common Stock to a Purchaser (other than a

Permitted Transferee), then the Majority Stockholder or his Permitted Transferee (hereinafter referred to as a “Selling Stockholder”) shall give written notice of such proposed transfer to the Management Stockholder or Transferee (the “Selling Stockholder’s Notice”) at least thirty (30) days prior to the consummation of such proposed transfer, and shall provide notice to all other stockholders of the Company to whom the Majority Stockholder has granted similar “tag-along” rights (such stockholders together with the Management Stockholder or Transferee, referred to herein as the “Other Stockholders”) setting forth the proposed material terms and conditions of such Transfer (including price per Share).

(ii)The Management Stockholder or Transferee shall have the right to elect, by delivery of written notice to the Majority Stockholder within twenty (20) days from delivery of the Selling Stockholder’s Notice, to sell to the proposed transferee a number of its Shares of Common Stock, not to exceed (a) the number of shares of Common Stock and Shares underlying vested options held by such Management Stockholder or Transferee multiplied by (b) a fraction, the numerator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest that such Majority Stockholder has proposed to be transferred, and the denominator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest, on the same terms and conditions (including price per share of Common Stock) as the Majority Stockholder.  In the event that the transferee does not wish to acquire all of the Shares offered by the Management Stockholder or Transferee, the number of Shares of Common Stock to be purchased by such transferee shall be allocated pro rata among the Majority Stockholders and the Other Stockholders in accordance with the number of shares of Common Stock and Shares underlying vested Options that each such stockholder elected to transfer to the transferee.

(iii)Any transfer of Shares by the Management Stockholder or Transferee shall be at the same price per Share of Common Stock and pursuant to the same terms and conditions with respect to payment for the Shares of Common Stock as agreed to by the Selling Stockholder with respect to the sale of its pecuniary interest in the Shares, provided, that in order to be entitled to exercise its tag-along rights pursuant to this Section 4(b), the Management Stockholder or Transferee must agree to make to the proposed Purchaser, representations, warranties, covenants, indemnities and agreements comparable to those made by the Selling Stockholder in connection with the proposed transfer and agree to the same conditions to the proposed transfer as the Selling Stockholder agrees, it being understood that all such representation, warranties, covenants, indemnities and agreements shall be made by the Selling Stockholder, the Management Stockholder or Transferee and any Other Stockholder exercising similar tag-along rights severally and not jointly.  The Selling Stockholder, the Management Stockholder and any Other Stockholder who exercises similar tag-along rights shall be responsible for their proportionate share of the costs of the proposed Transfer to the extent not paid or reimbursed by the proposed Purchaser or the Company.

(iv)In connection with the exercise of its tag-along rights under this Section 4(b), if the Management Stockholder or Transferee desires to exercise vested Options to acquire up to the number of Shares the Management Stockholder or Transferee is permitted to sell pursuant to the exercise of its tag-along rights pursuant to this Section 4(b), the Company will permit the Management Stockholder or Transferee to exercise any such vested Options through net-physical settlement (net of the applicable exercise price and applicable withholding taxes) if the Company’s independent auditors determine that net-physical settlement of any such Options would not produce less-favorable accounting consequences for the Company than if the Management Stockholder or Transferee paid the exercise price for any such vested Options in cash.

(v)Notwithstanding anything to the contrary contained herein, the provisions of this Section 4(b) shall not apply during the period from the Effective Date through the first anniversary of the Effective Date to any sale or transfer by a Majority Stockholder of its pecuniary interest in any shares of Common Stock for a price that is equal to or less than the Fair Market Value of such share of Common Stock as of the Effective Date unless and until the Majority Stockholder, after giving effect to the proposed sale or transfer, shall have sold or transferred in the aggregate (other than to Permitted Transferees) its pecuniary interest in shares of Common Stock representing 15.0% or more of the shares of Common Stock in which the Majority Stockholder collectively had a pecuniary interest as of the Effective Time.

(c)Permitted Transferees.  Any Permitted Transferee to which a Majority Stockholder’s pecuniary interest in any shares of Common Stock is Transferred shall agree to execute this Agreement as a condition to such Transfer.

5.Piggyback Registration Rights.

(a)Notice to Management Stockholder.  If the Company determines that it will file a registration statement under the Securities Act, other than a registration statement on Form S-4 or Form S-8 or any successor form, for an offering which includes shares of Common Stock held by the Majority Stockholder, then the Company shall give prompt written notice to the Management Stockholder or Transferee that such filing is expected to be made (but in no event less than 30 days nor more than 60 days in advance of filing such registration statement), the jurisdiction or jurisdictions in which such offering is expected to be made, and the underwriter or underwriters (if any) that the Company (or the person requesting such registration) intends to designate for such offering.  If the Company, within 15 days after giving such notice, receives a written request for registration of any Shares from the Management Stockholder or Transferee, then the Company shall include in the same registration statement the number of Shares to be sold by the Management Stockholder or Transferee as shall have been specified in his or her request, except that the Management Stockholder or Transferee shall not be permitted to register more than a Pro Rata Portion of her Shares.  The Company shall bear all costs of preparing and filing the registration statement, and shall indemnify and hold harmless, to the extent customary and reasonable, pursuant to indemnification and contribution provisions to be entered into by the Company at the time of filing of the registration statement, the seller of any shares of Common Stock covered by such registration statement.

Notwithstanding anything herein to the contrary, the Company, on prior notice to the participating Stockholder, may abandon its intention to file a registration statement under this Section 5(a) at any time prior to such filing.

For purposes of Section 5 hereof, “Pro Rata Portion” shall mean a number equal to the product of (x) the total number of Shares, including any shares of Common Stock underlying vested Options, owned by the Management Stockholder or Transferee and (y) a fraction, the numerator of which shall be the total number of shares of Common Stock offered (for sale or registration, as applicable) by the Majority Stockholder, and the denominator of which shall be the total number of shares of Common Stock owned by the Majority Stockholder.

(b)Allocation.  If the managing underwriter shall inform the Company in writing that the number of shares of Common Stock requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering within a price range acceptable to the Majority Stockholder, then the Company shall include in such registration such number of shares of Common Stock which the Company is so advised can be sold in (or during the time of) such offering.  All holders of shares of Common Stock proposing to sell shares of Common Stock shall share pro rata in the number of shares of Common Stock to be excluded from such offering, such sharing to be based on the respective numbers of shares of Common Stock as to which registration has been requested by such holders.

(c)Permitted Transfer.  Notwithstanding anything to the contrary contained herein, sales of Shares pursuant to a registration statement filed by the Company may be made without compliance with any other provision of this Agreement.

6.Termination.  This Agreement shall terminate with respect to the Common Stock immediately following the existence of a Public Market for the Common Stock except that the requirements contained in Section 2 hereof shall survive the termination of this Agreement; provided that a Management Stockholder or his Transferee may sell Shares pursuant to Rule 144 of the Securities Act if such Management Stockholder or Transferee meets and complies with all of the applicable requirements thereof.  If, and only to the extent that, the Management Stockholder or his Transferee is not permitted to sell such Shares pursuant to Rule 144 of the Securities Act and such Shares are not included on a registration statement filed to register the sale of securities under the Securities Act, such Management Stockholder or Transferee may transfer such Shares only in accordance with Section 3(a) hereof.  For this purpose, a “Public Market” for the Common Stock shall be deemed to exist if at least 20% of the total outstanding Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act.

7.             Acknowledgement of Newton Holding, LLC and the Company.  The Company and Newton Holding, LLC (“Newton LLC”) hereby acknowledge that the Management Stockholders shall not be disadvantaged with respect to the Shares or Options solely by reason of holding shares or options to purchase shares of the Company’s Common Stock instead of membership interests or options to purchase membership interests in Newton LLC.  In the event there is a corporate transaction affecting the membership interests of Newton LLC or any dividend or distribution made to holders of the membership interests in Newton LLC in respect of such interests, the Company and Newton Holding shall take commercially reasonable steps to assure that appropriate adjustments and/or dividends or distributions are made to or in respect of the Shares such that the Management Stockholders will be in the same position in which they would have been had they received membership interests in Newton LLC instead of the Shares; provided that this Section 7 shall not be construed to entitle any Management Stockholder to any membership or other interests in Newton LLC.   For purposes of this Agreement, no Management Stockholder shall be deemed to be disadvantaged from a tax perspective by reason of his holding Options or Shares as opposed to membership interests in a limited liability company or partnership interests in a partnership.

8.             Distributions With Respect To Shares.  As used herein, the term “Shares” includes securities of any kind whatsoever distributed with respect to the Company’s Common Stock acquired by the Management Stockholder or his or her Transferee (whether pursuant to the Plan, the letter agreement dated on or about September 30, 3005 between the Company and such Management Stockholder or otherwise) or any such securities resulting from a stock split or consolidation involving such Common Stock.

9.             Amendment; Assignment.  This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by authorized representatives of the parties or, in the case of a waiver, by an authorized representative of the party waiving compliance.  No such written instrument shall be effective unless it expressly recites that it is intended to amend, supersede, cancel, renew or extend this Agreement or to waive compliance with one or more of the terms hereof, as the case may be.  Except for the Management Stockholder’s right to assign his or her rights under Section 4(a) or the Company’s right to assign its rights under Section 4(b), no party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other parties hereto.

10.           Notices. Each notice and other communication hereunder shall be in writing and shall be given and shall be deemed to have been duly given on the date it is delivered in person, on the next business day if delivered by overnight mail or other reputable overnight courier, or the third business day if sent by registered mail, return receipt requested, to the parties as follows:

If to the Majority Stockholder, to his most recent address shown on records of the Company or its Affiliate;

With a copy to:

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, NY 10006

Attention:  Robert J. Raymond

If to the Company:

Newton Acquisition, Inc.

301 Commerce Street, Suite 3300

Fort Worth, TX 76102

Attention: General Counsel

With a copy to:

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, NY 10006

Attention:  Robert J. Raymond

If to the Management Stockholder, to its most recent address shown on records of the Company or its Affiliate;

With a copy to:

Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, NY 10178

Attention:  Gary Rothstein

or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.

11.           Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but each of which together shall constitute one and the same document.

12.           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to its principles of conflicts of law.

13.           Binding Effect.  This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the heirs, personal representatives, successors and permitted assigns of the parties hereto.  Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other than the parties to this Agreement, or their respective heirs, personal representatives, successors or assigns, any legal or equitable rights, remedy or claim under or in respect of this Agreement or any provision contained herein.

14.           Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof.

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

16.           Miscellaneous.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

*     *     *     *     *     *

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

	NEWTON ACQUISITION, INC.
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President

	NEWTON HOLDING, LLC
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President & Secretary
	TPG NEWTON III LLC
By:	TPG Partners III, L.P., its Managing Member
By:	TPG GenPar III, L.P., its General Partner
By:	TPG Advisors III, Inc., its General Partner
By:	/s/ David A. Spuria
Name	David A. Spuria
Title:	Vice President
	TPG PARTNERS IV, L.P.
By:	TPG Gen Par IV, L.P., its General Partner
By:	TPG Advisors IV, Inc., its General Partner
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President
	TPG NEWTON CO-INVEST I LLC
By:	TPG GenPar IV, L.P., its Managing Member
By:	TPG Advisors IV, Inc., its General Partner
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President
	WARBURG PINCUS PRIVATE EQUITY VIII, L.P.
By:	Warburg Pincus Partners, LLC, its General Partner
By:	Warburg Pincus & Co., its Managing Member
By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director
	WARBURG PINCUS NETHLANDS PRIVATE
	EQUITY VIII C.V.I.
By:	Warburg Pincus Partners, LLC, its General Partner
By:	Warburg Pincus & Co., its Managing Member

By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director
	WARBURG PINCUS GERMANY PRIVATE
	EQUITY VIII K.G.
By:	Warburg Pincus Partners, LLC, its General Partner
By:	Warburg Pincus & Co., its Managing Member
By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director
	WARBURG PINCUS PRIVATE EQUITY IX, L.P.
By:	Warburg Pincus IX LLC, its General Partner
By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director

SCHEDULE A

MANAGEMENT STOCKHOLDERS

By:	/s/ Gerald A. Barnes
Name:	Gerald A. Barnes
By:	/s/ Steven P. Dennis
Name:	Steve P. Dennis
By:	/s/ Jeanie Galvin
Name:	Jeanie Galvin
By:	/s/ Ronald H. Goddard
Name:	Ronald H. Goddard
By:	/s/ James J. Gold
Name:	James J. Gold
By:	/s/ Neva L. Hall
Name:	Neva L. Hall
By:	/s/ Ginny Hershey
Name:	Mary Virginia Hershey
By:	/s/ Brendan Hoffman
Name:	Brendan Hoffman
By:	/s/ Wayne A. Hussey
Name:	Wayne A. Hussey
By:	/s/ Jonathan Joselove
Name:	Jonathan Joselove
By:	/s/ Karen Katz
Name:	Karen Katz
By:	/s/ Lisa M. Kazor
Name:	Lisa M. Kazor
By:	/s/ Steven Kornajcik
Name:	Steven Kornajcik
By:	/s/ Thomas Lind
Name:	Thomas Lind
By:	/s/ Marita O’Dea Glodt
Name:	Marita O’Dea Goldt
By:	/s/ Ann S. Paolini
Name:	Ann S. Paolini
By:	/s/ John Russell Patrick
Name:	John Russell Patrick

A-1

By:	/s/ Gregory G. Shields
Name:	Gregory G. Shields
By:	/s/ Stacie Shirley
Name:	Stacie Shirley
By:	/s/ James E. Skinner
Name:	James E. Skinner
By:	/s/ Margaret E. Spaniolo
Name:	Margaret E. Spaniolo
By:	/s/ Thomas P. Stangle
Name:	Thomas P. Stangle
By:	/s/ T. Dale Stapleton
Name:	T. Dale Stapleton
By:	/s/ Ann Stordahl
Name:	Ann Stordahl
By:	/s/ Burton M. Tansky
Name:	Burton M. Tansky
By:	/s/ Kim Yee
Name:	Kim Yee

A-2

EX-10.6

Exhibit 10.6

Execution Copy

Newton Acquisition, Inc.

September 30, 2005

Re:  Opportunity to Acquire Shares

Dear Neiman Marcus Executive,

As you know, The Neiman Marcus Group, Inc. (“NMG”) is in the process of undergoing a change of control, and following the change of control, 100% of its outstanding shares will be owned by an entity called Newton Acquisition, Inc. (“Newco”).  This transaction is pursuant to an Agreement and Plan of Merger, dated as of May 1, 2005, by and among Newco, Newton Acquisition Merger Sub, Inc. and NMG (the “Merger Agreement”).  Although a delay is possible, we expect that the closing of the transaction will occur on October 6, 2005 (the “Closing”).

We are pleased to offer you the opportunity to invest in shares of common stock of Newco (the “Shares”) on the terms and conditions set out below.  As further described below, to the extent that you own shares of NMG as a capital asset, you are being given the opportunity to invest on a tax-deferred basis by “rolling over” a portion of these shares (any such shares being rolled over, the “Rollover Shares”).  In addition, you are being offered the opportunity to make a cash contribution as set forth in Section 3 and the Acceptance Form (your “Cash Contribution”).

1.Merger Consideration; Rollover Shares.  As a result of the transactions contemplated by the Merger Agreement, absent an election to contribute or “rollover” the Rollover Shares as contemplated in this agreement (this “Agreement”), you would be entitled, with respect to your Rollover Shares, to the “Merger Consideration” (as defined in the Merger Agreement) for each such Rollover Share (the aggregate such amount that you would be entitled to receive with respect to your Rollover Shares, the “Rollover Merger Consideration”).  As a technical matter, the Rollover Merger Consideration that is payable to you in the absence of a rollover election would be distributed by NMG.  By completing the Acceptance Form below, you agree to, and instruct Newco and NMG to use their reasonable efforts to, roll over your Rollover Shares into the Shares in lieu of receiving the Rollover Merger Consideration in cash.  Upon your instruction, this rollover will occur as set forth below in “Sale and Purchase of Shares; Rollover Mechanics”, and will ultimately result in your Rollover Shares being contributed to Newco in exchange for the Shares.

2.Sale and Purchase of Shares; Rollover Mechanics.  By completing and returning the Acceptance Form below, you agree to, immediately prior to the Closing, contribute your Rollover Shares to Newco and agree to forego any Rollover Merger Consideration (and any Merger Consideration you are using to satisfy your Cash Contribution) to which you would otherwise have been entitled absent an election to invest in the Shares.  The Rollover Shares so contributed will be canceled and retired without any conversion thereof or payment or

distribution thereon, as set forth in Section 2.1(b) of the Merger Agreement. In exchange for the Rollover Shares and your Cash Contribution, you will receive such number of Shares having an aggregate value equal to the amount of your investment as indicated on the Acceptance Form.  You will be the holder of record of the Shares as of the Closing, whether or not Newco issues physical certificates to you.  This offer is conditioned upon the occurrence of the Closing.  If the Closing does not occur, this Agreement will be canceled and will be of no force and effect.

3.Form of Consideration.  If you choose to invest in the Shares, (i) you must invest a minimum of $50,000, and (ii) you must first satisfy your investment of the Rollover Shares by contributing all NMG shares that you purchased from NMG on October 29, 2004 under the NMG 1997 Stock Incentive Plan for $60.83 (the “10/29 Rollover Shares”), if you hold any such shares.  Thereafter, any additional investment of the Rollover Shares may be satisfied by rolling over other NMG shares that you hold as a capital asset (e.g., shares you acquired on the market or shares you acquired by exercising stock options, but not including restricted stock or stock units), if any, or by making your Cash Contribution.  Your Cash Contribution will automatically be deducted from your after-tax merger proceeds (e.g., from any cash payment of the Merger Consideration to which you may be entitled with respect to equity or equity-based interests other than those being rolled over pursuant to this Agreement), provided that if such proceeds are insufficient, any shortfall must be received by wire transfer by the close of business on the day before the Closing (wire information will be provided to you).   With respect to the 10/29 Rollover Shares, you hereby authorize NMG to take such action as may be necessary to cause these shares to be rolled over.  Delivery of any other Rollover Shares will occur as follows: (x) with respect to Rollover Shares for which physical certificates were delivered to you, by delivering the physical certificates that were so issued; and (y) with respect to Rollover Shares you hold through a brokerage account, by having the brokerage firm by which such Rollover Shares are held transfer these Rollover Shares to an account established in Newco’s name (the “Newco Account”) (transfer information will be provided to you).  The Rollover Shares must be credited to the Newco Account before 12:00 p.m., Wednesday, October 5, 2005, which means that you should instruct your broker to initiate the transfer by 12:00 p.m. on Tuesday, October 5, 2005.

4.Acceptance and Closing; Conditions.  You may accept this offer and the terms of this Agreement by completing and returning the Acceptance Form below, in which case the closing of the acquisition of the Shares will occur immediately after the Closing.  This offer is conditioned upon the occurrence of the Closing.  If the Closing does not occur on or before October 17, 2005 (the “Closing Deadline”), this Agreement will be canceled and you will have no rights with respect hereto and any Rollover Shares that you have transferred or cash payment that you have made pursuant to Section 3 will be returned to you; provided, that if Newco determines on or before the Closing Deadline and in good faith that the Closing is likely to occur on or before October 31, 2005, the Closing Deadline shall automatically be extended to October 31, 2005.

5.Limitation.  Newco, in its discretion, may limit the number of Shares that you may purchase, and therefore may choose not to accept the full amount of your investment election.  Rollover Shares not so accepted pursuant to the preceding sentence will be treated in accordance with the provisions of the Merger Agreement.

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6.Vesting.  Your Shares when issued will be fully vested.

7.Stockholders’ Agreement.  By completing and returning the Acceptance Form below, you agree to become a party to the Management Stockholders’ Agreement, a draft of which is attached hereto as Annex A, as may be amended from time to time in accordance with its terms (the “Stockholders’ Agreement”) and you will be subject to the terms and conditions thereof with respect to your Shares; provided that the Shares shall not be subject to the call right in Section 3(b).  Newco agrees that it will, and that it will cause the Majority Holders (as defined below) to, also become a party to the Stockholders’ Agreement.

8.Tax Reporting.  It is intended that your contribution of the Rollover Shares, if any, shall be treated as a tax-free transfer under Section 351 of the Internal Revenue Code of 1986, as amended (the “Code”).

All discussions of U.S. federal tax considerations in this document have been written to support the marketing of the Shares.  Such discussions were not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. federal tax penalties.  You should consult your own tax advisers in determining the tax consequences of the rollover and of holding the Shares, including the application to your particular situation of the U.S. federal tax considerations discussed herein, as well as the application of state, local, foreign, or other tax laws.

9.Representations; Acknowledgements.  By signing below and completing and returning the Acceptance Form, you hereby represent and warrant to Newco and NMG that:

(i)you have the requisite power, authority and capacity to execute this Agreement and to deliver or cause to be delivered the Rollover Shares, to perform your obligations under this Agreement and to consummate the transactions contemplated hereby;

(ii)the Acceptance Form has been duly and validly executed and delivered by you and constitutes your legal, valid and binding obligation, enforceable against you in accordance with its terms, except to the extent that such validly binding effect and enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium and other laws relating to or affecting creditors’ rights generally;

(iii)the Shares are being acquired for your own account, for investment purposes only and not with a view to or in connection with any distribution, reoffer, resale, public offering or other disposition thereof not in compliance with the Securities Act of 1933 (the “Securities Act”), as may be amended from time to time, or any applicable United States federal or state securities laws or regulations;

(iv)you are an “accredited investor”, as defined in Rule 501(a) under the Securities Act, which means you are:

a.A person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000;OR

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b.A person whose income exceeded $200,000 in each of the two most recent years, or joint income with your spouse exceeded $300,000 in each of those years, and you have a reasonable expectation of reaching the same income level in this year;

(v)you possess such expertise, knowledge, and sophistication in financial and business matters generally, and in the type of transaction in which NMG and Newco propose to engage in particular;

(vi)you have had access to all of the information and individuals with respect to the Shares and your investment that you deem necessary to make a complete evaluation thereof;

(vii)you have had an opportunity to consult an independent tax and legal advisor and your decision to acquire the interest for investment has been based solely upon your evaluation;

(viii)you are aware that the Internal Revenue Service or other relevant taxing authority may take a position regarding the rollover contemplated in this Agreement and/or the tax classification of Newco and the Shares contrary to that intended by Newco as provided in this Agreement and you shall be solely responsible for any and all tax or other liabilities that may result from the IRS’s or other relevant taxing authority’s position; and

(ix)you are aware that the Stockholders’ Agreement provides significant restrictions on your ability to dispose of the Shares.

By electing to contribute the Rollover Shares pursuant to this Agreement, you acknowledge that you are instructing Newco and its affiliates to distribute to you, following the Closing, Shares in Newco instead of cash, as described above, and you hereby acknowledge that you do not have, and will not assert that you have, any claim against Newco, the Majority Holders (as defined below) or their respective affiliates to receive the Merger Consideration or any other payment in exchange for the Rollover Shares, except as contemplated herein.  You further acknowledge that any tax bonus to make up for the differential between short-term and long-term capital gains rates that otherwise would be paid to you will not be so paid on the 10/29 Rollover Shares.

The “Majority Holders” shall mean, collectively or individually, TPG Partners III, L.P., TPG Partners IV, L.P., Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII I, C.V. and Warburg Pincus Germany Private Equity VIII K.G and their respective successors and assigns.

10.Other NMG Interests.  You acknowledge that any other equity or equity-based interests that you hold in NMG that you do not elect to roll over, or which are not accepted for rollover for any reason pursuant to this Agreement, will be treated in accordance with the Merger Agreement.

11.Governing Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Delaware.

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12.Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

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[Signature Page Follows]

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Please sign your name on the space provided below and please indicate whether and how you would like to invest in Newco by completing and executing the Acceptance Form attached to the end of this Agreement.  Please return an executed copy of this Agreement and the Acceptance Form in original form or by FAX no later than 1:00 p.m. (Central Daylight Time) on Monday, October 3, 2005 to the attention of Marita O’Dea, The Neiman Marcus Group, 1618 Main Street Dallas, TX 75201. The fax number is 214-743-7605.  (If you fax your election form on Monday, the original should be delivered to Marita O’Dea no later than Wednesday, October 5, 2005).

	Sincerely,
	Newton Acquisition, Inc.
	By:	David Spuria
	Title:		Vice President
Agreed to and Accepted by:
Signature
Please print your name and address:
By execution below, NMG and its respective affiliates agree, if so directed by you, to use reasonable efforts to effect a rollover pursuant to this Agreement as a tax-free distribution under section 351 of the Code, unless otherwise required pursuant to a final determination, as defined in Section 1313 of the Code:
for The Neiman Marcus Group, Inc.
By:
Title:

S-1

Acceptance of Offer to Acquire Shares of Newco (the “Acceptance Form”)

Pursuant to the terms and conditions set forth in letter to me dated September 30, 2005, I,                                             , hereby elect make an investment in Newco and purchase Shares in the amount and manner below:

1.  $                        , which will be satisfied through a contribution of                  NMG shares (at $100 per share).

2.  $                        , which will be satisfied through a reduction in my after-tax proceeds from any cash payment of the Merger Consideration I will receive in exchange equity or equity-based interests other than those being rolled over pursuant to this Agreement.

3.  $                        , which will be satisfied by wire transfer (wire instructions to be supplied).

Aggregate Investment = $                       (sum of 1, 2 and 3 above cannot be less than $50,000)

Signature

Date

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ANNEX A

[STOCKHOLDERS’ AGREEMENT]

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MANAGEMENT STOCKHOLDERS’ AGREEMENT

MANAGEMENT STOCKHOLDERS’ AGREEMENT (this “Agreement”), dated as of October 6, 2005, between Newton Acquisition, Inc. (the “Company”), the Majority Stockholder (as defined below) and the individuals listed on Schedule A attached hereto (the “Management Stockholder”).

WHEREAS, the Management Stockholder may be the owner of shares of common stock of the Company, $0.01 par value per share (“Common Stock”) and/or may be granted options to purchase Common Stock (the “Options”), pursuant to The Newton Acquisition, Inc. Management Equity Incentive Plan (the “Plan”); and

WHEREAS, as a condition to the issuance of any shares of Common Stock by the Company to the Management Stockholder, the Management Stockholder is required to execute this Agreement; and

WHEREAS, the Management Stockholder, the Majority Stockholder and the Company desire to enter into this Agreement and to have this Agreement apply to any shares of Common Stock acquired by the Management Stockholder from whatever source (in the aggregate, the “Shares”);

NOW THEREFORE, in consideration of the premises hereinafter set forth, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows.

1.Definitions.  As used in this Agreement, the following capitalized terms shall have the following meanings:

(a)“Affiliate” shall 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” shall mean the Board of Directors of the Company or any committee appointed by the Board to administer the Plan pursuant to the terms of the Plan.

(c)“Cause” shall mean, when used in connection with the termination of a Management Stockholder’s Employment, unless otherwise provided in any stock option grant agreement entered between the Company and the Management Stockholder with respect to any Options that may be granted under the Plan, effective employment agreement or other written agreement with respect to the termination of a Management Stockholder’s Employment, the termination of the Management Stockholder’s Employment with the Company and all Affiliates on account of (i) a failure of the Management Stockholder to substantially perform his or her duties (other than as a result of physical or mental illness or injury) that has continued after NMG has provided written notice of such failure and Executive has not cured such failure within 30 days of the date of such written notice; (ii) the Management Stockholder’s willful misconduct or gross negligence which is materially injurious to the Company; (iii) a breach by a Management Stockholder of the Management Stockholder’s fiduciary duty or duty of loyalty to the Company and its Affiliates; (iv) the Management Stockholder’s unauthorized removal from the premises of the Company or an Affiliate of any document (in any medium or form) relating to the Company or an Affiliate or the customers of the Company or an Affiliate; or (v) the commission by the Management Stockholder of any felony or other serious crime involving moral turpitude.  Any rights the Company or an Affiliate may have hereunder in respect of the events giving rise to Cause shall be in addition to the rights the Company or Affiliate may have under any other agreement with the Management Stockholder or at law or in equity.  If, subsequent to a Management Stockholder’s termination of Employment, it is discovered that such Management Stockholder’s Employment could have been terminated for Cause, the Management Stockholder’s Employment shall, at the election of the Board, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred.  Notwithstanding the foregoing, a failure to meet performance expectations shall not, by itself, constitute Cause hereunder where the Board determines that the Management Stockholder has performed his duties in good faith.

(d)“Change of Control” shall mean the occurrence of any of the following events after the Effective Time: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company on a consolidated basis to any Person or group of related persons for purposes of Section 13(d) of the Exchange Act (a “Group”), together with any Affiliates thereof other than to a Majority Stockholder; (ii) the approval by the holders of the outstanding voting power of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iii) (A) any Person or Group (other than the Majority Stockholder) shall become the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), directly or indirectly, of Common Stock representing more than 40% of the aggregate outstanding voting power of the Company and such Person or Group actually has the power to vote such Common Stock in any such election and (B) the Majority Stockholder beneficially owns (within the meaning of Section 13(d) of the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Company than such other Person or Group; (iv) the replacement of a majority of the Board over a two-year period from the directors who constituted the Board at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board then still in office who either were members of such Board at the beginning of such period or whose election as a member of such Board was previously so approved or who were nominated by, or designees of, a Majority Stockholder; or (v) consummation of a merger or consolidation of the Company with another entity in which holders of the Common Stock of the Company immediately prior to the consummation of the transaction hold, directly or indirectly, immediately following the consummation of the transaction, less than 50% of the common equity interest in the surviving corporation in such transaction and the Majority Stockholder does not hold a sufficient amount of voting power (or similar securities) to elect a majority of the surviving entity’s board of directors.

Notwithstanding the foregoing, a Change of Control shall not be deemed to occur as a result of any event or transaction to the extent that treating such event or transaction as a Change of Control would cause any tax to become due under Section 409A of the Code.

(e)“Code” shall mean the Internal Revenue Code of 1986, as amended.

(f)“Disability” shall mean, unless otherwise provided in any stock option grant agreement entered between the Company and the Management Stockholder with respect to any Options that may be granted under the Plan, effective employment agreement or other written agreement, a permanent disability as defined in the Company’s or an Affiliate’s disability plans, or as defined from time to time by the Company, in its discretion.

(g)“Effective Time” shall have the meaning set forth in the Agreement and Plan of Merger by and among the Company, Newton Acquisition Merger Sub, Inc. and The Neiman Marcus Group, Inc, dated as of May 1, 2005.

(h)“Employment” shall mean employment with the Company or any Affiliate and shall include the provision of services as a director or consultant for the Company or any Affiliate.  “Employee” and “Employed” shall have correlative meanings.

(i)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(j)“Fair Market Value” shall mean, as of any date:

i.prior to the existence of a Public Market (as defined in Section 6 below) for the Common Stock, the value per share of Common Stock as determined in good faith by the Board; or

ii.on which a Public Market for the Common Stock exists, (i) closing price on such day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and ask prices on such day as reported on the National Association of Securities Dealers Automated Quotation System or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. (“NASD”) selected by the Board.  The Fair Market Value of a share of Common Stock as of any such date on which the applicable exchange or inter-dealer quotation system through which trading in the Common Stock regularly occurs is closed shall be the Fair Market Value determined pursuant to the preceding sentence as of the immediately preceding date on which the

Common Stock is traded, a bid and ask price is reported or a trading price is reported by any member of NASD selected by the Board.  In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value shall be determined by the Board in good faith to reflect the fair market value of a share of Common Stock.

(k)“Good Reason” shall mean, unless otherwise provided in any stock option grant agreement entered between the Company and the Management Stockholder with respect to any Options that may be granted under the Plan, effective employment agreement or other written agreement with respect to the termination of a Management Stockholder’s Employment,  (i) a material diminution in a Management Stockholder’s duties and responsibilities other than a change in such Management Stockholder’s duties and responsibilities that results from becoming part of a larger organization following a Change of Control, (ii) a decrease in a Management Stockholder’s base salary, bonus opportunity or benefits other than a decrease in bonus opportunity or benefits that applies to all employees of the Company or its Affiliates otherwise eligible to participate in the affected plan, or (iii) a relocation of a Management Stockholder’s primary work location more than 50 miles from the Management Stockholder’s work location immediately prior to the Management Stockholder’s execution of this Agreement, without the Management Stockholder’s prior written consent; provided that, within thirty days following the occurrence of any of the events set forth herein, the Management Stockholder shall have delivered written notice to the Company of his or her intention to terminate his or her Employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to give rise to the Management Stockholder’s right to terminate Employment for Good Reason, and the Company shall not have cured such circumstances within thirty days following the Company’s receipt of such notice.

(l)“Majority Stockholder,” for purposes of this Agreement, shall mean, collectively or individually as the context requires, Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P., Warburg Pincus Netherlands Private Equity VIII C.V. I, Warburg Pincus Germany Private Equity VIII K.G , Warburg Pincus Private Equity IX, L.P and/or their respective Affiliates.

(m)“Person” means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof.

(n)“Retirement” shall mean, when used in connection with the termination of a Management Stockholder’s Employment, a voluntary resignation of Employment by the Management Stockholder that occurs on or after (i) the first date on which the Management Stockholder has both attained age 60 and completed 10 years of service with the Company or its Affiliates or (ii) the date on which the Management Stockholder attains age 65.

(o)“Securities Act” shall mean the Securities Act of 1933, as amended.

(p)“Transfer” shall mean any transfer, sale, assignment, gift, testamentary transfer, pledge, hypothecation or other disposition of any interest.  “Transferee” and “Transferor” shall have correlative meanings.

2.Investment; Issuance of Shares.

(a)The Management Stockholder represents that the Shares are being acquired for investment and not with a view toward the distribution thereof.

(b)Issuance of Shares.  The Management Stockholder acknowledges and agrees that the certificate for the Shares shall bear the following legends (except that the second paragraph of this legend shall not be required after the Shares have been registered and except that the first paragraph of this legend shall not be required after the termination of this Agreement):

The shares represented by this certificate are subject to the terms and conditions of a Management Stockholders’ Agreement dated as of October 6, 2005 and may not be sold, transferred, hypothecated, assigned or encumbered, except as may be permitted by the aforesaid Agreement.  A

copy of the Management Stockholders’ Agreement may be obtained from the Secretary of the Company.

The shares represented by this certificate have not been registered under the Securities Act of 1933.  The shares have been acquired for investment and may not be sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Securities Act of 1933 or an opinion of counsel for the Company that registration is not required under said Act.

Upon the termination of this Agreement, or upon registration of the Shares under the Securities Act, the Management Stockholder shall have the right to exchange any Shares containing the above legend (i) in the case of the registration of the Shares, for Shares legended only with the first paragraph described above and (ii) in the case of the termination of this Agreement, for Shares legended only with the second paragraph described above.

3.Transfer of Shares; Call Rights; Put Rights.

(a)The Management Stockholder agrees that he will not cause or permit the Shares or his interest in the Shares to be sold, transferred, hypothecated, assigned or encumbered except as expressly permitted by this Section 3; provided, however, that the Shares or any such interest may be Transferred (i) on the Management Stockholder’s death by bequest or inheritance to the Management Stockholder’s executors, administrators, testamentary trustees, legatees or beneficiaries, (ii) subject to compliance with all applicable tax, securities and other laws, any “Family Member” as such term is defined in the Form S-8 Registration Statement under the Securities Act as of the date of Transfer, and (iii) in accordance with Section 4 of this Agreement, subject in each case to the agreement by each Transferee (other than the Company or as otherwise permitted by the Company) in writing to be bound by the terms of this Agreement as if such Transferee had been an original signatory hereto and provided in any such case that, in the case of a Transfer pursuant to Section 3(a)(i) or (ii), such Transfer will not be permitted if it would cause the Company to be required to register the Common Stock under Section 12(g) of the Exchange Act.

(b)(i)  In the event the Management Stockholder’s Employment with the Company is terminated by the Company for Cause or by the Management Stockholder for any reason other than Good Reason, death, Disability or Retirement, the Company (or its designated assignee) shall have the right, during the 120-day period following the later to occur of (x) such termination of Employment and (y) the date on which the Management Stockholder or Transferee has held the Shares most recently acquired to be sold pursuant to this Section 3(c) for at least six (6) months, to purchase from the Management Stockholder or the Management Stockholder’s Transferee, and upon the exercise of such right the Management Stockholder or such Transferee shall sell to the Company (or its designated assignee), all or any portion of the Shares acquired by the Management Stockholder or Transferee on the exercise of Options and held by the Management Stockholder or Transferee as of the date as of which such right is exercised at a per Share price equal to the Fair Market Value of a share of Common Stock determined as of the date such right is exercised.  The Company (or its designated assignee) shall exercise such right by delivering to the Management Stockholder or Transferee, as applicable, a written notice specifying its intent to purchase Shares held by the Management Stockholder or Transferee (the “Call Notice”), the date as of which such right is to be exercised and the number of Shares to be purchased.  Such purchase and sale shall occur on such date as the Company (or its designated assignee) shall specify, which date shall be within thirty (30) days after the date on which the Call Notice is delivered or the Outside Appraisal is delivered.  The Company will use commercially reasonable efforts to make the payment for the Shares in cash on the date of such purchase and sale; provided that, despite using such efforts, if such payment will result in the violation of the terms or provisions of, or result in a default or event of default under, any guarantee, financing or security agreement or document entered into by the Company or any of its Affiliates and in effect on such date (hereinafter a “Financing Agreement”), the Company may delay any such payment for no more than two (2) years.  In the event the payment of the purchase price is delayed as a result of a restriction imposed by a Financing Agreement as provided above, such payment shall be made without the application of further conditions or impediments as soon as practicable after the payment of such purchase price would no longer result in the violation of the terms or provisions of, or result in a default or event of default under, any Financing Agreement, and such payment shall equal the amount that would have been paid to the Management Stockholder or Transferee if no delay had occurred plus interest for the period from the date on which the purchase price would have been paid but for the delay in payment provided herein to the

date on which such payment is made (the “Delay Period”), calculated at an annual rate equal to the average annual prime rate charged during the Delay Period by a nationally recognized bank designated by the Board plus two (2) percentage points.  In the event that the Company is not able to make payment within two (2) years after the date specified in the Call Notice, the Company will, upon the written request of the Management Stockholder or Transferee, cancel the Call Notice and return to the Management Stockholder or Transferee the Shares subject to the Call Notice (as adjusted to take into account any corporate transactions during the intervening period) in exchange for cancellation of the debt and any interest payments that would have otherwise been payable thereon.

(ii)In the event that the Management Stockholder or Transferee disagrees with the Company’s determination of the Fair Market Value of a Share, the Management Stockholder or Transferee shall have the right to require the Company to seek an appraisal to determine the Fair Market Value of a Share in lieu of the Board determination (an “Outside Appraisal”); provided that the Transferee shall not be entitled to an Outside Appraisal in the event an appraisal to determine the Fair Market Value of a Share has been done within the three-month period immediately preceding delivery of the Call Notice and the Board determines in good faith that no event has occurred that would result in the prior determination of Fair Market Value being materially inaccurate.  Any such Outside Appraisal shall be made by one qualified person (which can be an accounting firm or investment banking firm or similar firm) (each, an “Appraiser”), having substantial experience in the valuation of similar enterprises in the United States.  The Company and the Management Stockholder or Transferee shall mutually agree upon such Appraiser within 30 days of the Call Notice; provided that in the event an appraisal to determine Fair Market Value of a Share has been done within the twelve-month period immediately preceding delivery of the Call Notice, the Outside Appraisal shall be done by the same Appraiser that performed the prior appraisal unless the Company consents to a different Appraiser.  The Company shall each bear 100% of the fees and expenses of the Appraiser.

(c)(i)In the event the Management Stockholder’s Employment with the Company terminates due to the death or Disability of the Management Stockholder, such Management Stockholder or Transferee shall have the right, during the 120-day period following the later to occur of (x) such termination of Employment and (y) the date on which the Management Stockholder or Transferee has held the Shares most recently acquired to be sold pursuant to this Section 3(c) for at least six (6) months, to sell to the Company (or its designated assignee), and upon the exercise of such right the Company (or its designated assignee) shall purchase from the Management Stockholder or Transferee, all or any portion of the Shares held by the Management Stockholder or Transferee as of the date as of which such right is exercised at a per Share price equal to the Fair Market Value of a Share of Common Stock determined as of the date as of which such right is exercised.  The Management Stockholder or Transferee shall exercise such right by delivering to the Company a written notice (the “Put Notice”) specifying his or her intent to sell Shares held by the Management Stockholder or Transferee, the date as of which such right is to be exercised and the number of Shares to be sold.  Such purchase and sale shall occur on such date as the Company (or its designated assignee) and the Stockholder shall agree, which date shall be within thirty (30) days after the later of the delivery of the Put Notice or the delivery of the Outside Appraisal.  The Company will use commercially reasonable efforts to make the payment for the Shares in cash on the date of such purchase and sale; provided that, despite using such efforts, if such payment will result in the violation of the terms or provisions of, or result in a default or event of default under, a Financing Agreement, the Company may delay any such payment for no more than two (2) years.  In the event the payment of the purchase price is delayed as a result of a restriction imposed by a Financing Agreement as provided above, the Company shall notify the Management Stockholder or Transferee as soon as practicable of the need for such a delay (the “Delay Notice”), and shall permit the Management Stockholder or Transferee, within ten (10) days of the delivery of the Delay Notice, to rescind the Put Notice.  If the Management Stockholder or Transferee does not rescind the Put Notice as provided in the preceding sentence, the Put Notice shall remain outstanding and any payment in respect thereof shall be made without the application of further conditions or impediments as soon as practicable after the payment of such purchase price would no longer result in the violation of the terms or provisions of, or result in a default or event of default under, any Financing Agreement, and such payment shall equal the amount that would have been paid to the Management Stockholder or Transferee if no delay had occurred plus interest for the Delay Period, calculated at an annual rate equal to the average annual prime rate charged during the Delay Period by a nationally recognized bank designated by the Board plus two (2) percentage points.  In the event that the Company is not able to make payment within two (2) years after the date specified in the Put Notice, the Company will, upon the written request of the Management Stockholder or Transferee, cancel the Put Notice in exchange for cancellation of the debt and any interest payments that would have otherwise been payable thereon.

(ii)In the event that the Management Stockholder or Transferee disagrees with the Company’s determination of the Fair Market Value of a Share, the Management Stockholder or Transferee shall have the right to require the Company to seek an Outside Appraisal in accordance with the terms and conditions set forth in Section 3(b) of this Agreement, substituting “Put Notice” in place of “Call Notice.”

(d)In addition, if the Board receives the advice of counsel selected by the Company and reasonably acceptable to the Management Stockholder or any Transferee that the inclusion of the call right or the put right described in this Section 3 would result in the Option or Shares becoming subject to Section 409A of the Code, the Board shall have the right to make such modifications or amendments to this Section 3 as the Board determines are reasonably necessary to avoid the application of Section 409A of the Code without the consent of the Management Stockholder or any Transferee.  In making any such amendments or modifications, the Board shall take all steps to put the parties in substantially same economic position as they would have been in had such modifications or amendments not been made to the extent reasonably practical.  The Management Stockholder and any Transferee hereby stipulate that Cleary Gottlieb Steen and Hamilton LLP is acceptable counsel for purposes of this Section 3(d).

4.Certain Rights.

(a)Drag Along Rights.  If one or more Majority Stockholder desires to sell all or substantially all of the Shares of Common Stock in which it has a “pecuniary interest” as defined in Rule 16a-1 of the Exchange Act (including through the disposition of interests in Newton Holding, LLC) or a portion of the Shares of Common Stock representing Control of the Company, in either case to a good faith independent purchaser (a “Purchaser”) (other than any other Majority Stockholder, other investment partnership, limited liability company or other entity established for investment purposes and controlled by one or more of the members (other than passive investors) or the principals of the Majority Stockholder or any of their Affiliates and other than any Employees of the Majority Stockholder or their Affiliates hereinafter referred to as a “Permitted Transferee”) and said Purchaser desires to acquire all or substantially all of the issued and outstanding Shares of Common Stock (or all or substantially all of the assets of the Company) upon such terms and conditions as agreed to with the Majority Stockholder, the Management Stockholder or Transferee agrees to sell to such Purchaser a number of its Shares of Common Stock, not to exceed (a) the number of shares of Common Stock held by such Management Stockholder or Transferee multiplied by (b) a fraction, the numerator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest that such Majority Stockholder has proposed to be transferred, and the denominator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest (or to vote such number of his Shares in favor of any merger or other transaction which would effect a sale of such shares of Common Stock or assets of the Company) at the same price per Share of Common Stock and pursuant to the same terms and conditions with respect to payment for the Shares of Common Stock in which the Majority Stockholder has a pecuniary interest as agreed to by the Majority Stockholder; provided that, except with respect to any liability incurred by such Management Stockholder or any Transferee individually, the Management Stockholders and any Transferees shall not be liable to a Purchaser for an amount greater than the proceeds from the sale.  In such case, the Majority Stockholder shall give written notice of such sale to the Management Stockholder or Transferee at least fifteen (15) days prior to the consummation of such sale, setting forth (i) the consideration to be received by the holders of Shares of Common Stock, (ii) the identity of the Purchaser, (iii) any other material items and conditions of the proposed transfer and (iv) the date of the proposed transfer.  The Company shall be responsible for the proportionate Share of the costs of the proposed Transfer incurred by the Management Stockholders and any Transferees to the extent not paid or reimbursed by the proposed Purchaser.

For purposes of this Section 4(a), “Control of the Company” shall mean the sale or disposition in a single transaction or a series of related transactions of at least fifty percent (50)% of the issued and outstanding Shares of Common Stock or securities representing at least fifty percent (50)% of the voting power of the Company, including a disposition of interests in Newton Holding, LLC that represents 50% or more of the voting power of the Company.

(b)Tag Along Rights.  (i) Subject to paragraph (iv) of this Section 4(b), if one or more Majority Stockholder or its Permitted Transferee proposes to transfer its direct or indirect pecuniary interest (as defined in Rule 16a-1 under the Exchange Act) in any Shares of Common Stock to a Purchaser (other than a

Permitted Transferee), then the Majority Stockholder or his Permitted Transferee (hereinafter referred to as a “Selling Stockholder”) shall give written notice of such proposed transfer to the Management Stockholder or Transferee (the “Selling Stockholder’s Notice”) at least thirty (30) days prior to the consummation of such proposed transfer, and shall provide notice to all other stockholders of the Company to whom the Majority Stockholder has granted similar “tag-along” rights (such stockholders together with the Management Stockholder or Transferee, referred to herein as the “Other Stockholders”) setting forth the proposed material terms and conditions of such Transfer (including price per Share).

(ii)The Management Stockholder or Transferee shall have the right to elect, by delivery of written notice to the Majority Stockholder within twenty (20) days from delivery of the Selling Stockholder’s Notice, to sell to the proposed transferee a number of its Shares of Common Stock, not to exceed (a) the number of shares of Common Stock and Shares underlying vested options held by such Management Stockholder or Transferee multiplied by (b) a fraction, the numerator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest that such Majority Stockholder has proposed to be transferred, and the denominator of which is the aggregate number of Shares of Common Stock in which the Majority Stockholder has a pecuniary interest, on the same terms and conditions (including price per share of Common Stock) as the Majority Stockholder.  In the event that the transferee does not wish to acquire all of the Shares offered by the Management Stockholder or Transferee, the number of Shares of Common Stock to be purchased by such transferee shall be allocated pro rata among the Majority Stockholders and the Other Stockholders in accordance with the number of shares of Common Stock and Shares underlying vested Options that each such stockholder elected to transfer to the transferee.

(iii)Any transfer of Shares by the Management Stockholder or Transferee shall be at the same price per Share of Common Stock and pursuant to the same terms and conditions with respect to payment for the Shares of Common Stock as agreed to by the Selling Stockholder with respect to the sale of its pecuniary interest in the Shares, provided, that in order to be entitled to exercise its tag-along rights pursuant to this Section 4(b), the Management Stockholder or Transferee must agree to make to the proposed Purchaser, representations, warranties, covenants, indemnities and agreements comparable to those made by the Selling Stockholder in connection with the proposed transfer and agree to the same conditions to the proposed transfer as the Selling Stockholder agrees, it being understood that all such representation, warranties, covenants, indemnities and agreements shall be made by the Selling Stockholder, the Management Stockholder or Transferee and any Other Stockholder exercising similar tag-along rights severally and not jointly.  The Selling Stockholder, the Management Stockholder and any Other Stockholder who exercises similar tag-along rights shall be responsible for their proportionate share of the costs of the proposed Transfer to the extent not paid or reimbursed by the proposed Purchaser or the Company.

(iv)In connection with the exercise of its tag-along rights under this Section 4(b), if the Management Stockholder or Transferee desires to exercise vested Options to acquire up to the number of Shares the Management Stockholder or Transferee is permitted to sell pursuant to the exercise of its tag-along rights pursuant to this Section 4(b), the Company will permit the Management Stockholder or Transferee to exercise any such vested Options through net-physical settlement (net of the applicable exercise price and applicable withholding taxes) if the Company’s independent auditors determine that net-physical settlement of any such Options would not produce less-favorable accounting consequences for the Company than if the Management Stockholder or Transferee paid the exercise price for any such vested Options in cash.

(v)Notwithstanding anything to the contrary contained herein, the provisions of this Section 4(b) shall not apply during the period from the Effective Date through the first anniversary of the Effective Date to any sale or transfer by a Majority Stockholder of its pecuniary interest in any shares of Common Stock for a price that is equal to or less than the Fair Market Value of such share of Common Stock as of the Effective Date unless and until the Majority Stockholder, after giving effect to the proposed sale or transfer, shall have sold or transferred in the aggregate (other than to Permitted Transferees) its pecuniary interest in shares of Common Stock representing 15.0% or more of the shares of Common Stock in which the Majority Stockholder collectively had a pecuniary interest as of the Effective Time.

(c)Permitted Transferees.  Any Permitted Transferee to which a Majority Stockholder’s pecuniary interest in any shares of Common Stock is Transferred shall agree to execute this Agreement as a condition to such Transfer.

5.Piggyback Registration Rights.

(a)Notice to Management Stockholder.  If the Company determines that it will file a registration statement under the Securities Act, other than a registration statement on Form S-4 or Form S-8 or any successor form, for an offering which includes shares of Common Stock held by the Majority Stockholder, then the Company shall give prompt written notice to the Management Stockholder or Transferee that such filing is expected to be made (but in no event less than 30 days nor more than 60 days in advance of filing such registration statement), the jurisdiction or jurisdictions in which such offering is expected to be made, and the underwriter or underwriters (if any) that the Company (or the person requesting such registration) intends to designate for such offering.  If the Company, within 15 days after giving such notice, receives a written request for registration of any Shares from the Management Stockholder or Transferee, then the Company shall include in the same registration statement the number of Shares to be sold by the Management Stockholder or Transferee as shall have been specified in his or her request, except that the Management Stockholder or Transferee shall not be permitted to register more than a Pro Rata Portion of her Shares.  The Company shall bear all costs of preparing and filing the registration statement, and shall indemnify and hold harmless, to the extent customary and reasonable, pursuant to indemnification and contribution provisions to be entered into by the Company at the time of filing of the registration statement, the seller of any shares of Common Stock covered by such registration statement.

Notwithstanding anything herein to the contrary, the Company, on prior notice to the participating Stockholder, may abandon its intention to file a registration statement under this Section 5(a) at any time prior to such filing.

For purposes of Section 5 hereof, “Pro Rata Portion” shall mean a number equal to the product of (x) the total number of Shares, including any shares of Common Stock underlying vested Options, owned by the Management Stockholder or Transferee and (y) a fraction, the numerator of which shall be the total number of shares of Common Stock offered (for sale or registration, as applicable) by the Majority Stockholder, and the denominator of which shall be the total number of shares of Common Stock owned by the Majority Stockholder.

(b)Allocation.  If the managing underwriter shall inform the Company in writing that the number of shares of Common Stock requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering within a price range acceptable to the Majority Stockholder, then the Company shall include in such registration such number of shares of Common Stock which the Company is so advised can be sold in (or during the time of) such offering.  All holders of shares of Common Stock proposing to sell shares of Common Stock shall share pro rata in the number of shares of Common Stock to be excluded from such offering, such sharing to be based on the respective numbers of shares of Common Stock as to which registration has been requested by such holders.

(c)Permitted Transfer.  Notwithstanding anything to the contrary contained herein, sales of Shares pursuant to a registration statement filed by the Company may be made without compliance with any other provision of this Agreement.

6.Termination.  This Agreement shall terminate with respect to the Common Stock immediately following the existence of a Public Market for the Common Stock except that the requirements contained in Section 2 hereof shall survive the termination of this Agreement; provided that a Management Stockholder or his Transferee may sell Shares pursuant to Rule 144 of the Securities Act if such Management Stockholder or Transferee meets and complies with all of the applicable requirements thereof.  If, and only to the extent that, the Management Stockholder or his Transferee is not permitted to sell such Shares pursuant to Rule 144 of the Securities Act and such Shares are not included on a registration statement filed to register the sale of securities under the Securities Act, such Management Stockholder or Transferee may transfer such Shares only in accordance with Section 3(a) hereof.  For this purpose, a “Public Market” for the Common Stock shall be deemed to exist if at least 20% of the total outstanding Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act.

7.Acknowledgement of Newton Holding, LLC and the Company.  The Company and Newton Holding, LLC (“Newton LLC”) hereby acknowledge that the Management Stockholders shall not be disadvantaged with respect to the Shares or Options solely by reason of holding shares or options to purchase shares of the Company’s Common Stock instead of membership interests or options to purchase membership interests in Newton LLC.  In the event there is a corporate transaction affecting the membership interests of Newton LLC or any dividend or distribution made to holders of the membership interests in Newton LLC in respect of such interests, the Company and Newton Holding shall take commercially reasonable steps to assure that appropriate adjustments and/or dividends or distributions are made to or in respect of the Shares such that the Management Stockholders will be in the same position in which they would have been had they received membership interests in Newton LLC instead of the Shares; provided that this Section 7 shall not be construed to entitle any Management Stockholder to any membership or other interests in Newton LLC.   For purposes of this Agreement, no Management Stockholder shall be deemed to be disadvantaged from a tax perspective by reason of his holding Options or Shares as opposed to membership interests in a limited liability company or partnership interests in a partnership.

8.Distributions With Respect To Shares.  As used herein, the term “Shares” includes securities of any kind whatsoever distributed with respect to the Company’s Common Stock acquired by the Management Stockholder or his or her Transferee (whether pursuant to the Plan, the letter agreement dated on or about September 30, 3005 between the Company and such Management Stockholder or otherwise) or any such securities resulting from a stock split or consolidation involving such Common Stock.

9.Amendment; Assignment.  This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by authorized representatives of the parties or, in the case of a waiver, by an authorized representative of the party waiving compliance.  No such written instrument shall be effective unless it expressly recites that it is intended to amend, supersede, cancel, renew or extend this Agreement or to waive compliance with one or more of the terms hereof, as the case may be.  Except for the Management Stockholder’s right to assign his or her rights under Section 4(a) or the Company’s right to assign its rights under Section 4(b), no party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other parties hereto.

10.Notices. Each notice and other communication hereunder shall be in writing and shall be given and shall be deemed to have been duly given on the date it is delivered in person, on the next business day if delivered by overnight mail or other reputable overnight courier, or the third business day if sent by registered mail, return receipt requested, to the parties as follows:

If to the Majority Stockholder, to his most recent address shown on records of the Company or its Affiliate;

With a copy to:

Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006

Attention:  Robert J. Raymond

If to the Company:

Newton Acquisition, Inc.
301 Commerce Street, Suite 3300
Fort Worth, TX 76102

Attention: General Counsel

With a copy to:

Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006

Attention:  Robert J. Raymond

If to the Management Stockholder, to its most recent address shown on records of the Company or its Affiliate;

With a copy to:

Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178

Attention:  Gary Rothstein

or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.

11.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but each of which together shall constitute one and the same document.

12.Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to its principles of conflicts of law.

13.Binding Effect.  This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the heirs, personal representatives, successors and permitted assigns of the parties hereto.  Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other than the parties to this Agreement, or their respective heirs, personal representatives, successors or assigns, any legal or equitable rights, remedy or claim under or in respect of this Agreement or any provision contained herein.

14.Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof.

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

16.Miscellaneous.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

*     *     *     *     *     *

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

	NEWTON ACQUISITION, INC.
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President

	NEWTON HOLDING, LLC
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President & Secretary
	TPG NEWTON III LLC
By:	TPG Partners III, L.P., its Managing Member
By:	TPG GenPar III, L.P., its General Partner
By:	TPG Advisors III, Inc., its General Partner
By:	/s/ David A. Spuria
Name	David A. Spuria
Title:	Vice President
	TPG PARTNERS IV, L.P.
By:	TPG Gen Par IV, L.P., its General Partner
By:	TPG Advisors IV, Inc., its General Partner
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President
	TPG NEWTON CO-INVEST I LLC
By:	TPG GenPar IV, L.P., its Managing Member
By:	TPG Advisors IV, Inc., its General Partner
By:	/s/ David A. Spuria
Name:	David A. Spuria
Title:	Vice President
	WARBURG PINCUS PRIVATE
	EQUITY VIII, L.P.
By:	Warburg Pincus Partners, LLC, its General Partner
By:	Warburg Pincus & Co., its Managing Member
By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director
	WARBURG PINCUS NETHLANDS PRIVATE
	EQUITY VIII C.V.I.
By:	Warburg Pincus Partners, LLC, its General Partner
By:	Warburg Pincus & Co., its Managing Member

By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director
	WARBURG PINCUS GERMANY PRIVATE
	EQUITY VIII K.G.
By:	Warburg Pincus Partners, LLC, its General Partner
By:	Warburg Pincus & Co., its Managing Member
By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director
	WARBURG PINCUS PRIVATE EQUITY
	IX, L.P.
By:	Warburg Pincus IX LLC, its General Partner
By:	/s/ Kewsong Lee
Name:	Kewsong Lee
Title:	Managing Director

SCHEDULE A

MANAGEMENT STOCKHOLDERS

By:	/s/ Gerald A. Barnes
Name:	Gerald A. Barnes
By:	/s/ Steven P. Dennis
Name:	Steve P. Dennis
By:	/s/ Jeanie Galvin
Name:	Jeanie Galvin
By:	/s/ Ronald H. Goddard
Name:	Ronald H. Goddard
By:	/s/ James J. Gold
Name:	James J. Gold
By:	/s/ Neva L. Hall
Name:	Neva L. Hall
By:	/s/ Ginny Hershey
Name:	Mary Virginia Hershey
By:	/s/ Brendan Hoffman
Name:	Brendan Hoffman
By:	/s/ Wayne A. Hussey
Name:	Wayne A. Hussey
By:	/s/ Jonathan Joselove
Name:	Jonathan Joselove
By:	/s/ Karen Katz
Name:	Karen Katz
By:	/s/ Lisa M. Kazor
Name:	Lisa M. Kazor
By:	/s/ Steven Kornajcik
Name:	Steven Kornajcik
By:	/s/ Thomas Lind
Name:	Thomas Lind
By:	/s/ Marita O’Dea Glodt
Name:	Marita O’Dea Goldt
By:	/s/ Ann S. Paolini
Name:	Ann S. Paolini
By:	/s/ John Russell Patrick
Name:	John Russell Patrick

A-1

By:	/s/ Gregory G. Shields
Name:	Gregory G. Shields
By:	/s/ Stacie Shirley
Name:	Stacie Shirley
By:	/s/ James E. Skinner
Name:	James E. Skinner
By:	/s/ Margaret E. Spaniolo
Name:	Margaret E. Spaniolo
By:	/s/ Thomas P. Stangle
Name:	Thomas P. Stangle
By:	/s/ T. Dale Stapleton
Name:	T. Dale Stapleton
By:	/s/ Ann Stordahl
Name:	Ann Stordahl
By:	/s/ Burton M. Tansky
Name:	Burton M. Tansky
By:	/s/ Kim Yee
Name:	Kim Yee

A-2

EX-10.8

Exhibit 10.8

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

EXECUTION COPY

CREDIT AGREEMENT

Dated as of October 6, 2005

Among

THE FINANCIAL INSTITUTIONS PARTY HERETO

as the Lenders

and

CREDIT SUISSE

as Administrative Agent and Collateral Agent,

and

NEWTON ACQUISITION, INC.,

and

NEWTON ACQUISITION MERGER SUB, INC. (to be merged with and into The Neiman Marcus Group, Inc.)

and

The subsidiaries of The Neiman Marcus Group, Inc. from time to time party hereto

CREDIT SUISSE
DEUTSCHE BANK SECURITIES INC.
as Joint Lead Arrangers

BANC OF AMERICA SECURITIES LLC
GOLDMAN SACHS CREDIT PARTNERS L.P.
as Co-Arrangers

CREDIT SUISSE
DEUTSCHE BANK SECURITIES INC.
BANC OF AMERICA SECURITIES LLC
GOLDMAN SACHS CREDIT PARTNERS L.P.
as Joint Bookrunners

and

DEUTSCHE BANK SECURITIES INC.
BANC OF AMERICA SECURITIES LLC
GOLDMAN SACHS CREDIT PARTNERS L.P.
as Co-Syndication Agents

TABLE OF CONTENTS

ARTICLE I

Definitions

SECTION 1.01. Defined Terms

SECTION 1.02. Classification of Loans and Borrowings

SECTION 1.03. Terms Generally

SECTION 1.04. Effectuation of Transactions

ARTICLE II

The Credits

SECTION 2.01. Commitments

SECTION 2.02. Loans and Borrowings

SECTION 2.03. Request for Borrowing on the Closing Date

SECTION 2.04. Funding of the Borrowing on the Closing Date

SECTION 2.05. Type; Interest Elections

SECTION 2.06. Termination of Commitments

SECTION 2.07. Repayment of Loans; Evidence of Debt

SECTION 2.08. Optional Prepayment of Loans

SECTION 2.09. Mandatory Prepayment of Loans

SECTION 2.10. Fees

SECTION 2.11. Interest

SECTION 2.12. Alternate Rate of Interest

SECTION 2.13. Increased Costs

SECTION 2.14. Break Funding Payments

SECTION 2.15. Taxes

SECTION 2.16. Payments Generally; Allocation of Proceeds; Sharing of Set-offs

SECTION 2.17. Mitigation Obligations; Replacement of Lenders

SECTION 2.18. Illegality

SECTION 2.19. Change of Control

SECTION 2.20. Asset Sale Offer

SECTION 2.21. Repricing Protection

ARTICLE III

Representations and Warranties

SECTION 3.01. Organization; Powers

SECTION 3.02. Authorization; Enforceability

SECTION 3.03. Governmental Approvals; No Conflicts

SECTION 3.04. Financial Condition; No Material Adverse Change

SECTION 3.05. Properties

i

SECTION 3.06. Litigation and Environmental Matters

SECTION 3.07. Compliance with Laws and Agreements; Licenses and Permits

SECTION 3.08. Investment and Holding Company Status

SECTION 3.09. Taxes

SECTION 3.10. ERISA

SECTION 3.11. Disclosure

SECTION 3.12. Material Agreements

SECTION 3.13. Solvency

SECTION 3.14. Insurance

SECTION 3.15. Capitalization and Subsidiaries

SECTION 3.16. Security Interest in Collateral

SECTION 3.17. Labor Disputes

SECTION 3.18. Federal Reserve Regulations

SECTION 3.19. Transaction Documents

SECTION 3.20. Senior Indebtedness

ARTICLE IV

Conditions

ARTICLE V

Affirmative Covenants

SECTION 5.01. Financial Statements and Other Information

SECTION 5.02. Notices of Material Events

SECTION 5.03. Existence; Conduct of Business

SECTION 5.04. Payment of Obligations

SECTION 5.05. Maintenance of Properties

SECTION 5.06. Books and Records; Inspection Rights

SECTION 5.07. Maintenance of Ratings

SECTION 5.08. Compliance with Laws

SECTION 5.09. Use of Proceeds

SECTION 5.10. Insurance

SECTION 5.11. Additional Collateral; Further Assurances

SECTION 5.12. Maintenance of Corporate Separateness

SECTION 5.13. 2008 Notes Redemption

ARTICLE VI

Negative Covenants

SECTION 6.01. Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock

SECTION 6.02. Limitation on Liens

SECTION 6.03. Merger, Consolidation or Sale of All or Substantially All Assets

SECTION 6.04. Limitation on Restricted Payments

SECTION 6.05. Limitations on Transactions with Affiliates

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SECTION 6.06. Limitations on Asset Sales

SECTION 6.07. Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries

SECTION 6.08. Limitations on Guarantees of Indebtedness by Restricted Subsidiaries

SECTION 6.09. Limitations on Sale and Lease-Back Transactions

SECTION 6.10. Amendments to Subordination Provisions

SECTION 6.11. Obligations of the Borrower and the Restricted Subsidiaries Relating to Kate Spade

SECTION 6.12. Impairment of Security Interest

SECTION 6.13. Business of Borrower and Restricted Subsidiaries

ARTICLE VII

Events of Default

ARTICLE VIII

The Agent

ARTICLE IX

Miscellaneous

SECTION 9.01. Notices

SECTION 9.02. Waivers; Amendments

SECTION 9.03. Expenses; Indemnity; Damage Waiver

SECTION 9.04. Successors and Assigns

SECTION 9.05. Survival

SECTION 9.06. Counterparts; Integration; Effectiveness

SECTION 9.07. Severability

SECTION 9.08. Right of Setoff

SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process

SECTION 9.10. WAIVER OF JURY TRIAL

SECTION 9.11. Headings

SECTION 9.12. Confidentiality

SECTION 9.13. Several Obligations; Nonreliance; Violation of Law

SECTION 9.14. USA PATRIOT Act

SECTION 9.15. Disclosure

SECTION 9.16. Appointment for Perfection

SECTION 9.17. Interest Rate Limitation

SECTION 9.18. Effectiveness of the Merger

SECTION 9.19. INTERCREDITOR AGREEMENT

ARTICLE X

Loan Guaranty

SECTION 10.01. Guaranty

SECTION 10.02. Guaranty of Payment

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SECTION 10.03. No Discharge or Diminishment of Loan Guaranty
SECTION 10.04. Defenses Waived
SECTION 10.05. Rights of Subrogation
SECTION 10.06. Reinstatement; Stay of Acceleration
SECTION 10.07. Information
SECTION 10.08. Taxes
SECTION 10.09. Maximum Liability
SECTION 10.10. Contribution
SECTION 10.11. Liability Cumulative
SECTION 10.12. Release of Loan Guarantors
SCHEDULES:
Commitment Schedule
Schedule 1.01(a)			—	Immaterial Subsidiaries
Schedule 1.01(b)			—	Mortgaged Properties
Schedule 3.05(a)			—	Properties
Schedule 3.05(g)			—	Intellectual Property
Schedule 3.06			—	Disclosed Matters
Schedule 3.14			—	Insurance
Schedule 3.15			—	Capitalization and Subsidiaries
Schedule 3.17			—	Labor Disputes
Schedule 4.01(b)			—	Local Counsel
Schedule 6.01			—	Existing Indebtedness
Schedule 9.01			—	Borrower’s Website for Electronic Delivery
EXHIBITS:
Exhibit A	—	Form of Administrative Questionnaire
Exhibit B	—	Form of Assignment and Assumption
Exhibit C	—	Form of Compliance Certificate
Exhibit D	—	Joinder Agreement
Exhibit E	—	Form of Borrowing Request
Exhibit F	—	Form of Promissory Note

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CREDIT AGREEMENT dated as of October 6, 2005 (this “Agreement”), among NEWTON ACQUISITION MERGER SUB, INC. (“Merger Sub” and, prior to the Merger (as defined below), the “Borrower”), a Delaware corporation to be merged with and into THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (“Neiman Marcus” and, after the Merger, the “Borrower”), NEWTON ACQUISITION, INC., a Delaware corporation (“Holdings”), each subsidiary of Neiman Marcus from time to time party hereto, the Lenders (as defined in Article I) and CREDIT SUISSE, as administrative agent and collateral agent for the Lenders hereunder (in such capacities, the “Agent”).

Pursuant to or in connection with the Merger Agreement (such term and each other capitalized term used but not defined in this introductory statement having the meaning given it in Article I), (a) Merger Sub will merge (the “Merger”) with and into Neiman Marcus, with (i) the outstanding capital stock of Neiman Marcus being converted into (and certain outstanding options to purchase, and outstanding stock unit awards representing the right to receive, shares of capital stock of Neiman Marcus being canceled in exchange for) the right to receive an aggregate amount of approximately $5,110,800,000 in cash (the “Merger Consideration”), subject to dissenters’ rights,  (ii) Neiman Marcus surviving as a Wholly-Owned Subsidiary of Holdings and (iii) Neiman Marcus assuming by operation of law all of the Obligations of Merger Sub under this Agreement and the other Loan Documents, (b) the Borrower will obtain the Senior Secured Asset-Based Revolving Credit Facility in an aggregate principal amount of up to $600,000,000, (c) the Borrower will issue, in a public offering or in a Rule 144A or other private placement, (i) $700,000,000 aggregate principal amount of its Senior Notes and (ii) $500,000,000 aggregate principal amount of its Senior Subordinated Notes, (d) the Equity Contribution will be made, (e) the Existing Bank Debt Refinancing will be effected, (f) the 2008 Notes Call for Redemption will be effected, (g) the 2028 Debentures and the 2008 Notes will be secured by the Pari Passu Liens and (h) the Transaction Costs will be paid.

In connection with the foregoing, the Borrower has requested the Lenders to extend credit in the form of Loans on the Closing Date, in an aggregate principal amount not in excess of $1,975,000,000. The proceeds of the Loans are to be used solely to finance, in part, the Merger Consideration, the Existing Bank Debt Refinancing, the redemption after the Closing Date of the 2008 Notes and the Transaction Costs.

The Lenders are willing to extend such credit to the Borrower on the terms and subject to the conditions set forth herein.  Accordingly, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01.  Defined Terms.  As used in this Agreement, the following terms have the meanings specified below:

“ABL Security Documents” means any and all security agreements, pledge agreements, mortgages and other agreements and documents pursuant to which any Liens are granted to secure any Indebtedness or other obligations in respect of the Senior Secured Asset-Based Revolving Credit Facility.

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

“Acquired Indebtedness” means, with respect to any specified Person, (a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

“Additional Assets” means (a) any property, plant or equipment used or useful in a Similar Business, including any such asset acquired through any capital expenditure, (b) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Borrower or another Restricted Subsidiary or is merged with or into the Borrower or another Restricted Subsidiary and that is primarily engaged in a Similar Business, (c) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary that is primarily engaged in a Similar Business, (d) all or substantially all of the assets of a Similar Business or (e) other assets that are not classified as current assets under GAAP and that are used or useful in a Similar Business.

“Additional Interest” means all liquidated damages then owing pursuant to the Registration Rights Agreement.

“Adjusted LIBOR Rate” means, for any Interest Period, the rate obtained by dividing (a) the LIBOR Rate for such Interest Period by (b) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained against “Eurocurrency liabilities” as specified in Regulation D (including any marginal, emergency, special or supplemental reserves).

“Administrative Questionnaire” means an Administrative Questionnaire in the form of Exhibit A.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person.  For purposes of this Agreement, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

“Affiliate Transaction” has the meaning assigned to such term in Section 6.05.

“Agent” has the meaning assigned to such term in the preamble to this Agreement.

“Alternate Base Rate” means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1%.  Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Applicable Percentage” means, with respect to any Lender, a percentage equal to a fraction the numerator of which is the aggregate outstanding principal amount of the Loans (or, if no Loans are then outstanding, the Commitment) of such Lender and the denominator of which is the aggregate outstanding principal amount of the Loans (or, if no Loans are then outstanding, the Commitments) of all Lenders.

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“Applicable Rate” means, for any day, (a) with respect to any ABR Loan, 1.50%, or (b) with respect to any LIBOR Rate Loan, 2.50%.

“Approved Fund” means any Person (other than an natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.

“Asset Sale” means (a) the sale, conveyance, transfer or other disposition, whether in a single transaction or a series of related transactions, of property or assets (including by way of a Sale and Lease-Back Transaction) of the Borrower or any Restricted Subsidiary (each referred to in this definition as a “disposition”), and (b) the issuance or sale of Equity Interests of any Restricted Subsidiary, whether in a single transaction or a series of related transactions, in each case, other than:

(i) a disposition of cash, Cash Equivalents or Investment Grade Securities or obsolete or worn out equipment, vehicles or other similar assets in the ordinary course of business or any disposition of inventory or goods held for sale in the ordinary course of business;

(ii) the disposition of all or substantially all of the assets of the Borrower in a manner permitted pursuant to Section 6.03 or any disposition that constitutes a Change of Control;

(iii) the making of any Permitted Investment or the making of any Restricted Payment that is not prohibited by Section 6.04;

(iv) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary, in each case that do not or would not upon issuance constitute Term Loan First Lien Collateral, in any transaction or series of transactions with an aggregate fair market value of less than $25,000,000;

(v) any disposition of Term Loan First Lien Collateral in any transaction or series of transactions with an applicable fair market value of less than $10,000,000;

(vi) any disposition of property or assets or issuance of securities by a Restricted Subsidiary to the Borrower or by the Borrower or a Restricted Subsidiary to a Restricted Subsidiary;

(vii) to the extent allowable under Section 1031 of the Code, any exchange of like property (excluding any boot thereon) for use in a Similar Business;

(viii) the lease, assignment or sub-lease of any real or personal property in the ordinary course of business;

(ix) any issuance or sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary (other than any sale of Equity Interests in, or Indebtedness or other securities of, Kate Spade held by the Borrower or any Restricted Subsidiary);

(x) foreclosures on assets;

(xi) sales of accounts receivable, or participations therein, in connection with any Receivables Facility; and

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(xii) the unwinding of any Hedging Obligations.

“Asset Sale Offer” has the meaning assigned to such term in Section 2.20(d).

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Agent, in the form of Exhibit B or any other form approved by the Agent.

“Attributable Debt” in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the present value (discounted at the interest rate then borne by the Loans, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended); provided, however, that if such Sale and Lease-Back Transaction results in a Capitalized Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capitalized Lease Obligation”.

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Board of Directors” means (a) with respect to a corporation, the board of directors of the corporation, (b) with respect to a partnership, the board of directors of the general partner of the partnership and (c) with respect to any other Person, the board or committee of such Person serving a similar function.

“Board Resolution” means, with respect to the Borrower, a duly adopted resolution of the Board of Directors of the Borrower or any committee thereof.

“Borrower” has the meaning assigned to such term in the preamble to this Agreement; provided that when used in the context of determining the fair market value of an asset or liability under this Agreement, “Borrower” shall, unless otherwise expressly stated, be deemed to mean the Board of Directors of the Borrower when the fair market value of such asset or liability is equal to or in excess of $100,000,000.

“Borrowing” means any Loans of the same Type made, converted or continued on the same date and, in the case of LIBOR Rate Loans, as to which a single Interest Period is in effect.

“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03 and substantially in the form attached hereto as Exhibit E, or such other form as shall be approved by the Agent.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a LIBOR Rate Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

“Capital Expenditures” means, for any period, the aggregate of (a) all expenditures (whether paid in cash or accrued as liabilities) by the Borrower and the Restricted Subsidiaries during such period that, in conformity with GAAP, are or are required to be included as additions during such period to property, plant or equipment reflected in the consolidated balance sheet of the Borrower and the Restricted Subsidiaries and (b) the value of all assets under Capitalized Lease Obligations incurred by the

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Borrower and its Restricted Subsidiaries during such period; provided that the term “Capital Expenditures” shall not include:

(i) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed with (x) insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored or repaired or (y) awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced,

(ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time,

(iii) the purchase of plant, property or equipment to the extent financed with the proceeds of Asset Sales that are not applied to prepay Loans pursuant to Section 2.20,

(iv) expenditures that constitute Consolidated Lease Expense,

(v) expenditures that are accounted for as capital expenditures by the Borrower or any Restricted Subsidiary and that actually are paid for by a Person other than the Borrower or any Restricted Subsidiary and for which neither the Borrower nor any Restricted Subsidiary has provided or is required to provide or incur, directly or indirectly, any consideration or obligation to such Person or any other Person (whether before, during or after such period),

(vi) the book value of any asset owned by the Borrower or any Restricted Subsidiary prior to or during such period to the extent that such book value is included as a capital expenditure during such period as a result of such Person reusing or beginning to reuse such asset during such period without a corresponding expenditure actually having been made in such period, provided that (x) any expenditure necessary in order to permit such asset to be reused shall be included as a Capital Expenditure during the period in which such expenditure actually is made and (y) such book value shall have been included in Capital Expenditures when such asset was originally acquired, or

(vii) expenditures that constitute acquisitions of Persons or business units permitted hereunder.

“Capital Stock” means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Capitalized Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.

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“Cash Equivalents” means:

(a) Dollars;

(b) Canadian dollars, Japanese yen, pounds sterling, euro or, in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by it from time to time in the ordinary course of business;

(c) securities issued or directly and fully and unconditionally guaranteed or insured by the government of the United States of America or any agency or instrumentality thereof the securities of which are unconditionally guaranteed as a full faith and credit obligation of such government with maturities of 24 months or less from the date of acquisition;

(d) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $250,000,000;

(e) repurchase obligations for underlying securities of the types described in clauses (c) and (d) above entered into with any financial institution meeting the qualifications specified in clause (d) above;

(f) commercial paper rated at least “P-1” by Moody’s or at least “A-1” by S&P and in each case maturing within 12 months after the date of issuance thereof;

(g) investment funds investing at least 95% of their assets in securities of the types described in clauses (a) through (f) above;

(h) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody’s or S&P with maturities of 24 months or less from the date of acquisition; and

(i) Indebtedness or Preferred Stock issued by Persons with a rating of “A” or higher from S&P or “A2” or higher from Moody’s with maturities of 12 months or less from the date of acquisition.

Notwithstanding the foregoing, Cash Equivalents shall include amounts denominated in currencies other than those set forth in clauses (a) and (b) above; provided that such amounts are converted into one or more of the currencies set forth in clauses (a) and (b) above as promptly as practicable and in any event within ten (10) Business Days following the receipt of such amounts.

“Change of Control” means the occurrence of (a) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Borrower and its subsidiaries, taken as a whole, to any Person other than a Permitted Holder or (b) the Borrower becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act, or any successor provision), other than the Permitted Holders, in a single transaction or in a series of related transactions, by way of merger, consolidation or other business combination or

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purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of the total voting power of the Voting Stock of the Borrower or any of its direct or indirect parent companies.

“Change of Control Offer” has the meaning assigned to such term in Section 2.19(b).

“Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement (other than any such request, guideline or directive to comply with any law, rule or regulation that was in effect on the date of this Agreement).

“Closing Date” means the date on which the conditions specified in Article IV are satisfied (or waived in accordance with Section 9.02).

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Co-Investors” means the investment funds associated with each of Credit Suisse First Boston and Leonard Green & Partners, L.P., which are making a portion of the Equity Contribution, and their respective Affiliates.

“Collateral” means any and all property owned, leased or operated by a Person subject to a security interest or Lien under the Collateral Documents and any and all other property of any Loan Party, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of Agent, on behalf of itself and the Lenders, to secure the Secured Obligations; provided, however, that Collateral shall not at any time include any Margin Stock.

“Collateral Documents” means, collectively, the Security Agreement, the Mortgages and any other documents granting a Lien upon the Collateral as security for payment of the Secured Obligations.

“Commitment” means (a) with respect to each Lender, the commitment of such Lender to make Loans as set forth in the Commitment Schedule or in the most recent Assignment and Assumption executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make Loans, which aggregate commitment shall be $1,975,000,000 on the Closing Date.

“Commitment Schedule” means the Schedule attached hereto identified as such.

“Consolidated Depreciation and Amortization Expense” means with respect to any Person for any period, the total amount of depreciation and amortization expense, including the amortization of deferred financing fees and other related noncash charges of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.

“Consolidated Interest Expense” means, with respect to any Person for any period, the sum, without duplication, of (a) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted in computing Consolidated Net Income (including (i) amortization of original issue discount resulting from the issuance of Indebtedness

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at less than par, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit or bankers’ acceptances, (iii) noncash interest payments (but excluding any noncash interest expense attributable to the movement in the mark-to-market valuation of Hedging Obligations or other derivative instruments pursuant to GAAP), (iv) the interest component of Capitalized Lease Obligations and (v) net payments, if any, pursuant to interest rate Hedging Obligations with respect to Indebtedness, and excluding (A) any expense resulting from the discounting of the 2028 Debentures as a result of the application of purchase accounting in connection with the Transactions, (B) Additional Interest, (C) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses, (D) any expensing of bridge, commitment and other financing fees, (E) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Receivables Facility and (F) any redemption premiums paid in connection with the redemption of the 2008 Notes), plus (b) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, less (c) interest income for such period. For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.

“Consolidated Lease Expense” means for any period, all rental expenses of the Borrower and its Restricted Subsidiaries during such period under operating leases for real or personal property (including in connection with Sale and Lease-Back Transactions permitted hereunder), excluding real estate taxes, insurance costs and common area maintenance charges and net of sublease income, other than (a) obligations under vehicle leases entered into in the ordinary course of business, (b) all such rental expenses associated with assets acquired pursuant to an acquisition of a Person or business unit to the extent such rental expenses relate to operating leases in effect at the time of (and immediately prior to) such acquisition and related to periods prior to such acquisition and (c) all Capitalized Lease Obligations, all as determined on a consolidated basis in accordance with GAAP.

“Consolidated Leverage Ratio”, with respect to any Person as of any date of determination, means the ratio of (a) Consolidated Total Indebtedness of such Person as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur to (b) the aggregate amount of EBITDA of such Person for the period of the most recently ended four full consecutive fiscal quarters for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur, in each case with such pro forma adjustments to Consolidated Total Indebtedness and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of “Fixed Charge Coverage Ratio”.

“Consolidated Net Income” means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP; provided that, without duplication:

(a) any net after-tax extraordinary, non-recurring or unusual gains or losses (less all fees and expenses relating thereto) or expenses (including relating to severance, relocation, one-time compensation charges and the Transactions) shall be excluded,

(b) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period, whether effected through a cumulative effect adjustment or a retroactive application in each case in accordance with GAAP,

(c) any net after-tax income (loss) from disposed or discontinued operations and any net after-tax gains or losses on disposal of disposed or discontinued operations shall be excluded,

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(d) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions or the sale or other disposition of any Capital Stock of any Person other than in the ordinary course of business, as determined in good faith by the Borrower, shall be excluded,

(e) the Net Income for such period of any Person that is not a subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be excluded; provided that Consolidated Net Income of the Borrower shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period (subject in the case of dividends, distributions or other payments made to a Restricted Subsidiary to the limitations contained in clause (f) below),

(f) solely for the purpose of determining the amount available for Restricted Payments under Section 6.04(a)(iii)(A), the Net Income for such period of any Restricted Subsidiary (other than any Subsidiary Guarantor) shall be excluded if the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination wholly permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule, or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction with respect to the payment of dividends or similar distributions has been legally waived; provided that Consolidated Net Income of the Borrower will be increased by the amount of dividends or other distributions or other payments actually paid in cash (or to the extent converted into cash) to the Borrower or a Restricted Subsidiary thereof in respect of such period, to the extent not already included therein,

(g) any increase in amortization or depreciation or other noncash charges resulting from the application of purchase accounting in relation to the Transactions or any acquisition that is consummated after the Closing Date, net of taxes, shall be excluded,

(h) any net after-tax income (loss) from the early extinguishment of Indebtedness or Hedging Obligations or other derivative instruments shall be excluded,

(i) any impairment charge or asset write-off, in each case pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded, and

(j) any noncash compensation expense recorded from grants of stock appreciation or similar rights, stock options, restricted stock or other rights to officers, directors or employees shall be excluded.

Notwithstanding the foregoing, for the purpose of Section 6.04 only (other than clause (a)(iii)(D) thereof), there shall be excluded from Consolidated Net Income any income arising from any sale or other disposition of Restricted Investments made by the Borrower and the Restricted Subsidiaries, any repurchases and redemptions of Restricted Investments from the Borrower and the Restricted Subsidiaries, any repayments of loans and advances that constitute Restricted Investments by the Borrower or any Restricted Subsidiary, any sale of the stock of an Unrestricted Subsidiary or any distribution or dividend from an Unrestricted Subsidiary, in each case only to the extent such amounts increase the amount of Restricted Payments permitted under Section 6.04(a)(iii)(D); provided, however, that any income arising from any sale or other disposition of the Equity Interests in Kate Spade or any Extraordinary Distribution shall be excluded from Consolidated Net Income for the purpose of Section 6.04 only.

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“Consolidated Secured Debt Ratio” as of any date of determination means the ratio of (a) Consolidated Total Indebtedness of the Borrower and the Restricted Subsidiaries that is secured by Liens as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur to (b) the aggregate amount of EBITDA of the Borrower and the Restricted Subsidiaries for the period of the most recently ended consecutive four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur, in each case with such pro forma adjustments to Consolidated Total Indebtedness and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of “Fixed Charge Coverage Ratio”.

“Consolidated Total Indebtedness” means, as at any date of determination, an amount equal to the sum of (a) the aggregate amount of all outstanding Indebtedness of the Borrower and the Restricted Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, obligations in respect of Capitalized Lease Obligations, Attributable Debt in respect of Sale and Lease-Back Transactions and debt obligations evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers’ acceptances (and excluding (x) any undrawn letters of credit issued in the ordinary course of business and (y) all obligations relating to Receivables Facilities) and (b) the aggregate amount of all outstanding Disqualified Stock of the Borrower and all Disqualified Stock and Preferred Stock of the Restricted Subsidiaries (excluding items eliminated in consolidation), with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and Maximum Fixed Repurchase Prices, in each case determined on a consolidated basis in accordance with GAAP.  For purposes of this definition, the “Maximum Fixed Repurchase Price” of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock or Preferred Stock, such fair market value shall be determined reasonably and in good faith by the Borrower.

“Consolidated Working Capital” means, at any date, the excess of (a) the sum of all amounts (other than cash and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries at such date over (b) the sum of all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries on such date, including deferred revenue but excluding, without duplication, (i) the current portion of any Funded Debt, (ii) the current portion of interest and (iii) the current portion of current and deferred income taxes.

“Contingent Obligations” means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness (the “primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

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“Credit Card Sale” means the sale from the Borrower to HSBC Bank Nevada, N.A., of the private label credit card accounts of Neiman Marcus and related receivables and other assets, pursuant to the HSBC Agreements (it being understood that such sale was consummated on July 7, 2005).

“Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

“Derivative Transaction” means (a) an interest-rate transaction, including an interest-rate swap, basis swap, forward rate agreement, interest rate option (including a cap, collar, and floor), and any other instrument linked to interest rates that gives rise to similar credit risks (including when-issued securities and forward deposits accepted), (b) an exchange-rate transaction, including a cross-currency interest-rate swap, a forward foreign-exchange contract, a currency option, and any other instrument linked to exchange rates that gives rise to similar credit risks, (c) an equity derivative transaction, including an equity-linked swap, an equity-linked option, a forward equity-linked contract, and any other instrument linked to equities that gives rise to similar credit risk and (d) a commodity (including precious metal) derivative transaction, including a commodity-linked swap, a commodity-linked option, a forward commodity-linked contract, and any other instrument linked to commodities that gives rise to similar credit risks; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or its subsidiaries shall be a Derivative Transaction.

“Designated Asset Sale Proceeds” means net cash proceeds in an aggregate amount not to exceed $100,000,000 received by the Borrower or any Restricted Subsidiary from the sale, transfer, lease or other disposition of any asset or assets so designated as Designated Asset Sale Proceeds pursuant to an Officers’ Certificate delivered to the Agent on or prior to the date on which such asset or assets are sold.

“Designated Noncash Consideration” means the fair market value of noncash consideration received by the Borrower or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an Officers’ Certificate, setting forth the basis of such valuation, executed by an executive vice president and the principal financial officer of the Borrower, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of such Designated Noncash Consideration.

“Designated Preferred Stock” means Preferred Stock of the Borrower or any parent company thereof (in each case other than Disqualified Stock) that is issued for cash (other than to a Restricted Subsidiary) and is so designated as Designated Preferred Stock pursuant to an Officers’ Certificate executed by an executive vice president and the principal financial officer of the Borrower or the applicable parent company thereof, as the case may be, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in Section 6.04(a)(iii).

“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which, by its terms, or by the terms of any security into which it is convertible or for which it is putable or exchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than solely for Capital Stock that is not Disqualified Stock), other than as a result of a change of control or asset sale, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, other than as a result of a change of control or asset sale, in whole or in part, in each case prior to the date that is ninety-one (91) days after the earlier of the Maturity Date and the date the Loans are no longer outstanding; provided that if such Capital Stock is issued to any plan for the benefit of employees

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of the Borrower or its subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Borrower or its subsidiaries in order to satisfy applicable statutory or regulatory obligations.

“Dollars” or “$” refers to lawful money of the United States of America.

“Domestic Subsidiary” means, with respect to any Person, any Restricted Subsidiary of such Person other than (a) a Foreign Subsidiary or (b) any Domestic Subsidiary of a Foreign Subsidiary, but, in each case, including any subsidiary that guarantees or otherwise provides direct credit support for any indebtedness of the Borrower.

“EBITDA” means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period,

(a) increased by (without duplication): (i) provision for taxes based on income or profits, plus franchise or similar taxes, of such Person for such period deducted in computing Consolidated Net Income, plus (ii) consolidated Fixed Charges of such Person for such period to the extent the same was deducted in calculating Consolidated Net Income, plus (iii) Consolidated Depreciation and Amortization Expense of such Person for such period to the extent such depreciation and amortization were deducted in computing Consolidated Net Income, plus (iv) any expenses or charges related to any Equity Offering, Permitted Investment, acquisition, disposition, recapitalization or the incurrence of Indebtedness permitted to be incurred hereunder including a refinancing thereof (whether or not successful) and any amendment or modification to the terms of any such transactions, including such fees, expenses or charges related to the Transactions and the Credit Card Sale (including any one-time costs associated with entering into any program agreements or servicing agreements directly related to the Credit Card Sale, but not any payments required or contemplated by such agreements , other than payments in respect of transition services provided thereunder prior to the first anniversary of the Credit Card Sale), in each case, deducted in computing Consolidated Net Income, plus (v) the amount of any restructuring charge or reserve deducted in such period in computing Consolidated Net Income, including any one-time costs incurred in connection with (A) acquisitions after the Closing Date or (B) the closing of any stores or distribution centers after the Closing Date, plus (vi) any write offs, write downs or other noncash charges reducing Consolidated Net Income for such period, excluding any such charge that represents an accrual or reserve for a cash expenditure for a future period, plus (vii) the amount of any minority interest expense deducted in calculating Consolidated Net Income, plus (viii) the amount of management, monitoring, consulting and advisory fees and related expenses paid (or any accruals related to such fees or related expenses) during such period to the Sponsors to the extent permitted under Section 6.05, plus (ix) the amount of net cost savings projected by the Borrower in good faith to be realized as a result of specified actions taken during such period (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions; provided that (A) such cost savings are reasonably identifiable and factually supportable, (B) such actions are taken within 36 months after the Closing Date and (C) the aggregate amount of cost savings added pursuant to this clause (ix) shall not exceed $50,000,000 for any four consecutive quarter period (which adjustments may be incremental to pro forma adjustments made pursuant to the second paragraph of the definition of “Fixed Charge Coverage Ratio”), plus (x) any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or stockholders agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of the Borrower or net cash proceeds of issuance of Equity Interests of the Borrower

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(other than Disqualified Stock that is Preferred Stock) in each case, solely to the extent that such cash proceeds are excluded from the calculation set forth in Section 6.04(a)(iii);

(b) decreased by (without duplication) noncash gains increasing Consolidated Net Income of such Person for such period, excluding any gains that represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period (other than such cash charges that have been added back to Consolidated Net Income in calculating EBITDA in accordance with this definition); and

(c) increased or decreased, as applicable, by (without duplication) (i) any net gain or loss resulting in such period from Hedging Obligations and the application of Statement of Financial Accounting Standards #133, (ii) any net gain or loss resulting in such period from currency translation gains or losses related to currency remeasurements of Indebtedness and (iii) the amount of gain or loss resulting in such period from a sale of receivables and related assets to a Receivables Subsidiary in connection with a Receivables Facility.

“Eligible Assignee” means (i) a Lender, (ii) a commercial bank, insurance company, or company engaged in the business of making commercial loans or a commercial finance company, which Person, together with its Affiliates, has a combined capital and surplus in excess of $1,000,000,000, (iii) any Affiliate of a Lender under common control with such Lender or (iv) an Approved Fund of a Lender, provided that in any event, “Eligible Assignee” shall not include (w) any natural person, (x) Holdings or the Borrower or any Affiliate (which for this purpose shall not include the Agent or any of its branches or Affiliates engaged in the business of making commercial loans) thereof, (y) any Sponsor or any of their respective Affiliates or (z) any “creditor”, as defined in Regulation T, or “foreign branch of a broker-dealer”, within the meaning of Regulation X; provided, however, that upon the occurrence of an Event of Default, no Person (other than a Lender) shall be an “Eligible Assignee” if the assignment of any Commitment or Loan to such Person would cause such Person to have Commitments or Loans in excess of twenty-five percent (25%) of the then outstanding total aggregate Commitments or Loans, as the case may be.

“EMU” means the economic and monetary union contemplated by the Treaty of the European Union.

“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Contribution” means the contribution by the Sponsors, the Co-Investors and the Management Stockholders and certain other Persons investing through Newton Co-Invest I LLC or Newton Co-Invest II LLC, in an aggregate amount of not less than 25% of the total consolidated capitalization of Holdings on the Closing Date, after giving pro forma effect to the consummation of the

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Transactions and the redemption after the Closing Date of the 2008 Notes, in cash to Holdings (or any direct or indirect parent thereof) as common equity and/or preferred equity having terms reasonably satisfactory to the Joint Lead Arrangers, and the cash contribution by Holdings (or any direct or indirect parent thereof) of the amount so received to Merger Sub (or if by a direct or indirect parent of Holdings, by such parent to Holdings and by Holdings to Merger Sub) in respect of Holdings’ common equity and/or preferred equity in Merger Sub having terms reasonably satisfactory to the Joint Lead Arrangers or in exchange for the issuance to Holdings of Equity Interests of Merger Sub.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock.

“Equity Offering” means any public or private sale of common stock or Preferred Stock of the Borrower or any of its direct or indirect parent companies (excluding Disqualified Stock), other than (a) public offerings with respect to the Borrower’s or any direct or indirect parent company’s common stock registered on Form S-4 or Form S-8, (b) any such public or private sale that constitutes an Excluded Contribution and (c) an issuance to any subsidiary of the Borrower.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice of an intent to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is insolvent or in reorganization, within the meaning of Title IV of ERISA.

“euro” means the single currency of participating member states of the EMU.

“Event of Default” has the meaning assigned to such term in Article VII.

“Excess Cash Flow” means, for any fiscal year of the Borrower (or, in the case of the fiscal year of the Borrower ended July 30, 2006 (except for purposes of determining changes in Consolidated Working Capital), the portion thereof commencing on the Closing Date and ending on July 30, 2006), an amount equal to the excess of:

(a) the sum, without duplication, of:

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(i) Consolidated Net Income for such period,

(ii) an amount equal to the amount of all non-cash charges to the extent deducted in arriving at such Consolidated Net Income,

(iii) decreases in Consolidated Working Capital and long-term account receivables for such period (other than any such decreases arising from acquisitions by the Borrower and its Restricted Subsidiaries completed during such period), and

(iv) an amount equal to the aggregate net non-cash loss on the sale, lease, transfer or other disposition of assets by the Borrower and its Restricted Subsidiaries during such period (other than sales in the ordinary course of business) to the extent deducted in arriving at such Consolidated Net Income; over

(b) the sum, without duplication, of:

(i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income and cash charges included in clauses (a) through (j) of the definition of Consolidated Net Income,

(ii) without duplication of amounts deducted pursuant to clause (xi) below in prior periods, the amount of Capital Expenditures made in cash during such period, except to the extent that such Capital Expenditures were financed with the proceeds of Indebtedness of the Borrower or its Restricted Subsidiaries,

(iii) the aggregate amount of all principal payments of Indebtedness of the Borrower and its Restricted Subsidiaries (including (x) the principal component of payments in respect of Capitalized Lease Obligations and (y) the amount of any prepayment of Loans pursuant to Section 2.08 or 2.20 made with the proceeds of an Asset Sale to the extent such Asset Sale resulted in an increase to Consolidated Net Income and not in excess of the amount of such increase, but excluding all other prepayments of the Loans) made during such period (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), except to the extent financed with the proceeds of other Indebtedness of the Borrower or its Restricted Subsidiaries,

(iv) an amount equal to the aggregate net non-cash gain on the sale, lease, transfer or other disposition of assets by the Borrower and its Restricted Subsidiaries during such period (other than sales in the ordinary course of business) to the extent included in arriving at such Consolidated Net Income,

(v) increases in Consolidated Working Capital and long-term account receivables for such period (other than any such increases arising from acquisitions of a Person or business unit by the Borrower and its Restricted Subsidiaries during such period),

(vi) cash payments by the Borrower and its Restricted Subsidiaries during such period in respect of long-term liabilities of the Borrower and its Restricted Subsidiaries other than Indebtedness,

(vii) without duplication of amounts deducted pursuant to clause (xi) below in prior periods, the amount of Investments and acquisitions made during such period to the extent

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permitted under Section 6.04, to the extent that such Investments and acquisitions were financed with internally generated cash flow of the Borrower and its Restricted Subsidiaries,

(viii) the amount of Restricted Payments made during such period to the extent permitted under Section 6.04(b)(xvi), to the extent that such Restricted Payments were financed with internally generated cash flow of the Borrower and its Restricted Subsidiaries,

(ix) the aggregate amount of expenditures actually made by the Borrower and the Restricted Subsidiaries in cash during such period (including expenditures for the payment of financing fees) to the extent that such expenditures are not expensed during such period,

(x) the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by the Borrower and the Restricted Subsidiaries during such period that are required to be made in connection with any prepayment of Indebtedness,

(xi) without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by the Borrower or any of its Restricted Subsidiaries pursuant to binding contracts (the “Contract Consideration”) entered into prior to or during such period relating to acquisitions or Capital Expenditures to be consummated or made during the period of four consecutive fiscal quarters of the Borrower following the end of such period, provided that to the extent the aggregate amount of internally generated cash actually utilized to finance such acquisitions or Capital Expenditures during such period of four consecutive fiscal quarters is less than the Contract Consideration, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such period of four consecutive fiscal quarters, and

(xii) the amount of cash taxes paid in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Excluded Contribution” means net cash proceeds, marketable securities or Qualified Proceeds received by the Borrower from (a) contributions to its common equity capital, and (b) the sale (other than to a subsidiary of the Borrower or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Borrower) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of the Borrower, in each case designated as Excluded Contributions pursuant to an Officers’ Certificate executed by an executive vice president and the principal financial officer of the Borrower on the date such capital contributions are made or the date such Equity Interests are sold, as the case may be, which are excluded from the calculation set forth in Section 6.04(a)(iii).

“Excluded Taxes” means, with respect to the Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower or any other Loan Party hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower or any other Loan Party is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.17(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign

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Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 2.15(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower or any other Loan Party with respect to such withholding tax pursuant to Section 2.15(a).

“Existing Bank Debt Refinancing” means the payment in full of all amounts, if any, due or owing under the Existing Credit Agreement, the termination of all commitments thereunder and the release and discharge of all guarantees thereof (if any) and all security therefor (if any).

“Existing Credit Agreement” means the $350,000,000 Credit Agreement dated June 9, 2004 among Neiman Marcus, the lenders party thereto, Bank of America, N.A., as syndication agent, Wachovia Bank, N.A., Wells Fargo Bank National Association and BNP Paribas, as documentation agents, and JPMorgan Chase Bank, as administrative agent.

“Extraordinary Distribution” means any dividends, distributions or other payments made by Kate Spade to the Borrower or a Restricted Subsidiary (a) to the extent generated by (i) borrowings other than working capital borrowings, (ii) the sale of debt or equity securities or (iii) sales or other dispositions or assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of the normal retirement or replacement of assets or (b) representing a liquidating distribution or payment in connection with the liquidation or winding up of Kate Spade.

“Federal Funds Effective Rate” means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.

“Fee Letter” means that certain Amended and Restated Fee Letter dated as of May 26, 2005, by and among the Borrower, the Agent, Deutsche Bank Trust Company Americas, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc., Bank of America, N.A., Banc of America Bridge LLC, Banc of America Securities LLC and Goldman Sachs Credit Partners L.P.

“Financial Officer” means the chief financial officer, treasurer or controller of the Borrower.

“Fixed Charge Coverage Ratio” means, with respect to any Person for any period, the ratio of EBITDA of such Person for such period to the Fixed Charges of such Person for such period.  In the event that the Borrower or any Restricted Subsidiary incurs, assumes, guarantees, redeems, retires or extinguishes any Indebtedness (other than Indebtedness incurred under any revolving credit facility that has been permanently repaid and has not been replaced) or issues or redeems Disqualified Stock or Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to or simultaneously with the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption, retirement or extinguishing of Indebtedness, or such issuance or redemption of Disqualified Stock or Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period (the “reference period”).

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For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, consolidations and disposed operations (as determined in accordance with GAAP) that have been made by the Borrower or any Restricted Subsidiary during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, consolidations and disposed operations (and the change in any associated fixed charges and the change in EBITDA resulting therefrom) had occurred on the first day of the reference period.  If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Borrower or any Restricted Subsidiary since the beginning of such period) shall have made any Investment, acquisition, disposition, merger, consolidation or disposed operation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, consolidation or disposed operation had occurred at the beginning of the reference period.

For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Borrower.  If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness).  Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Borrower to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.  For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period.  Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Borrower may designate.

“Fixed Charges” means, with respect to any Person for any period, the sum of (a) Consolidated Interest Expense of such Person for such period, (b) all cash dividend payments (excluding items eliminated in consolidation) on any series of Preferred Stock during such period, and (c) all cash dividend payments (excluding items eliminated in consolidation) on any series of Disqualified Stock made during such period.

“Foreign Lender” means a person that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code.

“Foreign Subsidiary” means, with respect to any Person, any Restricted Subsidiary of such Person that is not organized or existing under the laws of the United States of America, any state thereof, the District of Columbia, or any territory thereof.

“Foreign Subsidiary Total Assets” means the total amount of all assets of Foreign Subsidiaries of the Borrower and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP as shown on the most recent balance sheet of the Borrower.

“Funded Debt” means all Indebtedness of the Borrower and its Restricted Subsidiaries for borrowed money that matures more than one year from the date of its creation or matures within one year from such date that is renewable or extendable, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders

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to extend credit during a period of more than one year from such date, including Indebtedness in respect of the Loans.

“GAAP” means generally accepted accounting principles in the United States of America that are in effect on the Closing Date.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“guarantee” means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations, and, when used as a verb, shall have a corresponding meaning.

“Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.

“Hazardous Materials”  means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Hedge Agreement” means any agreement with respect to any Derivative Transaction between the Borrower or any Subsidiary and any other Person.

“Hedging Obligations” means, with respect to any Person, the obligations of such Person under currency exchange, interest rate or commodity swap agreements, currency exchange, interest rate or commodity cap agreements and currency exchange, interest rate or commodity collar agreements and other agreements or arrangements, in each case designed to protect such Person against fluctuations in currency exchange, interest rates or commodity prices.

“Holdings” has the meaning assigned to such term in the preamble to this Agreement.

“HSBC Agreements” means the Purchase, Sale and Servicing Transfer Agreement dated as of June 8, 2005, among HSBC Bank Nevada, N.A., HSBC Finance Corporation (together with their Affiliates, “HSBC”), Neiman Marcus and Bergdorf Goodman, Inc., and all material agreements and instruments entered into in connection therewith, including the Credit Card Program Agreement and the related Services Agreement, in each case, as amended from time to time.

“HSBC Arrangements” means the private label credit card program between the Borrower and HSBC pursuant to the terms of the HSBC Agreements.

“Immaterial Subsidiary” means, at any date of determination, any Restricted Subsidiary designated as such in writing by the Borrower that (i) contributed 2.5% or less of EBITDA of the Borrower and the Restricted Subsidiaries for the period of four fiscal quarters most recently ended more than forty-five (45) days prior to the date of determination and (ii) had consolidated assets representing 2.5% or less of Total Assets on the last day of the most recent fiscal quarter ended more than forty-five (45) days prior to the date of determination.  The Immaterial Subsidiaries as of the Closing Date are listed on Schedule 1.01(a).

“incur” has the meaning set forth in Section 6.01.

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“incurrence” has the meaning set forth in Section 6.01.

“Indebtedness” means, with respect to any Person, (a) any indebtedness (including principal and premium) of such Person, whether or not contingent (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers’ acceptances (or, without double counting, reimbursement agreements in respect thereof), (iii) representing the balance deferred and unpaid of the purchase price of any property (including Capitalized Lease Obligations), except any such balance that constitutes a trade payable or similar obligation to a trade creditor, in each case accrued in the ordinary course of business, or (iv) representing any Hedging Obligations, if and to the extent that any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP; (b) to the extent not otherwise included, any obligation by such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the obligations of the type referred to in clause (a) of another Person (whether or not such items would appear upon the balance sheet of such obligor or guarantor), other than by endorsement of negotiable instruments for collection in the ordinary course of business; (c) to the extent not otherwise included, the obligations of the type referred to in clause (a) of another Person secured by a Lien on any asset owned by such Person, whether or not such obligations are assumed by such Person and whether or not such obligations would appear upon the balance sheet of such Person; provided that the amount of such Indebtedness will be the lesser of the fair market value of such asset at the date of determination and the amount of Indebtedness so secured; and (d) Attributable Debt in respect of Sale and Lease-Back Transactions; provided, however, that notwithstanding the foregoing, Indebtedness will be deemed not to include (A) Contingent Obligations incurred in the ordinary course of business and (B) Obligations under, or in respect of, Receivables Facilities.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Independent Financial Advisor” means an accounting, appraisal, investment banking firm or consultant to Persons engaged in Similar Businesses of nationally recognized standing that is, in the good faith judgment of the Borrower, qualified to perform the task for which it has been engaged and that is independent of the Borrower and its Affiliates.

“Information” has the meaning set forth in Section 3.11(a).

“Information Memorandum” means the Confidential Information Memorandum dated September 2005, relating to the Borrower and the Transactions.

“Intercreditor Agreement” means the Lien Subordination and Intercreditor Agreement dated the date hereof, among Holdings, the Borrower, the subsidiaries of the Borrower party from time to time thereto, the Agent and the Revolving Facility Agent (as defined therein).

“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05.

“Interest Payment Date” means (a) with respect to any ABR Loan, the first Business Day of each January, April, July and October and the Maturity Date and (b) with respect to any LIBOR Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a LIBOR Rate Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period (or if such day is not a Business Day, the next succeeding Business Day).

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“Interest Period” means (a) with respect to any LIBOR Rate Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, to the extent available to each Lender, nine or twelve months) thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period.  For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Investment Grade Securities” means (a) securities issued or directly and fully guaranteed or insured by the government of the United States of America or any agency or instrumentality thereof (other than Cash Equivalents), (b) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by Moody’s or the equivalent of such rating by such rating organization, or, if no rating of S&P or Moody’s then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Borrower and its subsidiaries, (c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b), which fund may also hold immaterial amounts of cash pending investment or distribution and (d) corresponding instruments in countries other than the United States of America customarily utilized for high quality investments.

“Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (including by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others, but excluding accounts receivable, trade credit, advances to customers, commission, travel and similar advances to officers and employees, in each case made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet (excluding the footnotes) of such Person in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property.  For purposes of the definition of “Unrestricted Subsidiary” and Section 6.04, (a) “Investments” shall include the portion (proportionate to the Borrower’s equity interest in such subsidiary) of the fair market value of the net assets of a subsidiary of the Borrower at the time that such subsidiary is designated an Unrestricted Subsidiary; provided that upon a redesignation of such subsidiary as a Restricted Subsidiary, the Borrower shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to (i) the Borrower’s “Investment” in such subsidiary at the time of such redesignation, less (ii) the portion (proportionate to the Borrower’s equity interest in such subsidiary) of the fair market value of the net assets of such subsidiary at the time of such redesignation, and (b) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Borrower.

“Joinder Agreement” has the meaning assigned to such term in Section 5.11.

“Joint Lead Arrangers” means Credit Suisse and Deutsche Bank Securities Inc.

“Kate Spade” means Kate Spade LLC, a Delaware limited liability company.

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“Lenders” means the Persons listed on the Commitment Schedule and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

“LIBOR Rate” means, with respect to any Interest Period, (a) the rate per annum determined by the Agent at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the commencement of such Interest Period by reference to the British Bankers’ Association Interest Settlement Rates for deposits in dollars (as set forth by any service selected by the Agent that has been nominated by the British Bankers’ Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the “LIBOR Rate” shall be the interest rate per annum determined by the Agent to be the average of the rates per annum at which deposits in dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Agent at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the beginning of such Interest Period.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the UCC (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating lease be deemed to constitute a Lien.

“Loan Documents” means this Agreement, any promissory notes issued pursuant to the Agreement, the Collateral Documents and the Intercreditor Agreement. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto.

“Loan Guarantor” means each Loan Party (other than the Borrower).

“Loan Guaranty” means Article X of this Agreement.

“Loan Parties” means Holdings, the Borrower, each Domestic Subsidiary (other than (i) subject to compliance with Section 5.11, any Domestic Subsidiary that is an Immaterial Subsidiary and (ii) any Unrestricted Subsidiary), and any other Person who becomes a party to this Agreement as a Loan Party pursuant to a Joinder Agreement, and their respective successors and assigns.

“Loans” means the term loans made by the Lenders pursuant to this Agreement.

“Management Services Agreement” means the agreement among Holdings, the Borrower and the Sponsors dated as of October 6, 2005, as amended from time to time, pursuant to which the Sponsors agree to provide certain services to Holdings and the Borrower in exchange for certain fees.

“Management Stockholders” means the members of management of the Borrower (or its direct parent) who are holders of Equity Interests of the Borrower (or any of its direct or indirect parent companies) on the Closing Date.

“Margin Stock” shall have the meaning assigned to such term in Regulation U.

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and the Subsidiaries taken as a whole, (b) the ability of

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the Borrower and the other Loan Parties (taken as a whole) to perform their obligations under the Loan Documents or (c) the rights of, or remedies available to the Agent or the Lenders under, the Loan Documents.

“Material Indebtedness” means Indebtedness (other than the Loans), or obligations in respect of one or more Hedge Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $50,000,000.  For purposes of determining Material Indebtedness, the “obligations” of the Borrower or any Subsidiary in respect of any Hedge Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedge Agreement were terminated at such time.

“Maturity Date” means April 6, 2013.

“Maximum Liability” has the meaning assigned to such term in Section 10.09.

“Merger” has the meaning assigned to such term in the introductory statement to this Agreement.

“Merger Agreement” means the Agreement and Plan of Merger dated as of May 1, 2005, among Holdings, Merger Sub and Neiman Marcus, as amended from time to time.

“Merger Consideration” has the meaning assigned to such term in the introductory statement to this Agreement.

“Merger Sub” has the meaning assigned to such term in the preamble to this Agreement.

“Moody’s” means Moody’s Investors Service, Inc. and any successor to its rating agency business.

“Mortgaged Properties” means, initially, the owned real properties and leasehold and subleasehold interests of the Loan Parties specified on Schedule 1.01(b), and shall include each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.11.

“Mortgages” means any mortgage, deed of trust or other agreement which conveys or evidences a Lien in favor of the Agent, for the benefit of the Agent and the Lenders, on real property of a Loan Party, including any amendment, modification or supplement thereto.

“Multiemployer Plan” means a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA.

“Neiman Marcus” has the meaning assigned to such term in the preamble to this Agreement.

“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.

“Net Proceeds” means the aggregate cash proceeds received by the Borrower or any Restricted Subsidiary in respect of any Asset Sale, including any cash received upon the sale or other disposition of any Designated Noncash Consideration received in any Asset Sale, net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Noncash Consideration, including legal, accounting and investment banking fees, and brokerage and sales commissions, any

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relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of principal, premium, if any, and interest on Indebtedness required (other than as required by Section 2.20(a)(i) or Section 2.20(b)(i)(A)) to be paid as a result of such transaction and any deduction of appropriate amounts to be provided by the Borrower as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Borrower after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.

“New Note Documents” means, collectively, the Senior Note Documents and the Senior Subordinated Note Documents.

“New Notes” means, collectively, the Senior Notes and the Senior Subordinated Notes.

“Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(e).

“Non-Paying Guarantor” has the meaning assigned to such term in Section 10.10.

“Obligated Party” has the meaning assigned to such term in Section 10.02.

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the Lenders or to any Lender, the Agent or any indemnified party arising under the Loan Documents.

“Officer” means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of the Borrower.

“Officers’ Certificate” means a certificate signed on behalf of the Borrower by two Officers of the Borrower, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Borrower.

“Other Information” has the meaning assigned to such term in Section 3.11(b).

“Other Pari Passu Lien Obligations” means (i) any Indebtedness constituting debt securities incurred pursuant to an indenture with an institutional trustee or loans incurred in the bank credit market (including institutional investor participation therein) and (ii) all obligations with respect to such Indebtedness.

“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement.

“Pari Passu Liens” means any Lien on the Collateral granted for the benefit of the holders of the 2028 Debentures and the holders of the 2008 Notes, in each case that is required by the terms of the indenture applicable thereto as a result of the grant of security interests pursuant to any Loan Document, the ABL Security Documents or otherwise.

“Participant” has the meaning assigned to such term in Section 9.04.

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“Paying Guarantor” has the meaning assigned to such term in Section 10.10.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Perfection Certificate” shall mean a certificate in the form of Exhibit I to the Security Agreement or any other form approved by the Agent.

“Permitted Asset Swap” means the concurrent purchase and sale or exchange of Related Business Assets or a combination of Related Business Assets and cash or Cash Equivalents between the Borrower or any of its Restricted Subsidiaries and another Person that is not the Borrower or any of its Restricted Subsidiaries; provided that any cash or Cash Equivalents received must be applied in accordance with Section 2.20.

“Permitted Collateral Liens” means:

(a) Liens securing any Other Pari Passu Lien Obligations; provided, however, that, at the time of incurrence and after giving pro forma effect thereto, the Consolidated Secured Debt Ratio would be no greater than 3.75 to 1.00;

(b) Liens existing on the Closing Date;

(c) Pari Passu Liens;

(d) Liens described in clauses (c), (d), (f), (h), (i), (l), (m), (o), (q) (but only with respect to clauses (h), (i) and (r) (but only with respect to Section 6.01(b)(vi) referred to therein) referred to therein), (r) (but only with respect to Sections 6.01(b)(vi) and (b)(xxii)(A) referred to therein), (t), (u) and (aa) (but only with respect to obligations secured by Liens described in clauses (a) or (c) set forth above) of the definition of “Permitted Liens”; and

(e) Liens on the Term Loan First Lien Collateral in favor of the Agent relating to the Agent’s administrative expenses with respect to the Term Loan First Lien Collateral.

“Permitted Debt” has the meaning assigned to such term in Section 6.01.

“Permitted Holders” means each of the Sponsors, the Co-Investors and Management Stockholders and any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision) of which any of the foregoing are members; provided that, in the case of such group and without giving effect to the existence of such group or any other group, the Sponsors, the Co-Investors and Management Stockholders, collectively, have beneficial ownership of more than 50% of the total voting power of the Voting Stock of the Borrower or any of its direct or indirect parent companies.  Any Person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with Section 2.19 will thereafter, together with its Affiliates, constitute an additional Permitted Holder.

“Permitted Investments” means:

(a) any Investment in the Borrower or any Restricted Subsidiary;

(b) any Investment in cash and Cash Equivalents or Investment Grade Securities;

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(c) (i) any Investment by the Borrower or any Restricted Subsidiary of the Borrower in a Person that is engaged in a Similar Business if as a result of such Investment (A) such Person becomes a Restricted Subsidiary of the Borrower or (B) such Person, in one transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Borrower or a Restricted Subsidiary of the Borrower, and (ii) any Investment held by such Person;

(d) any Investment in securities or other assets not constituting cash, Cash Equivalents or Investment Grade Securities and received in connection with an Asset Sale made pursuant to Section 6.06 or any other disposition of assets not constituting an Asset Sale;

(e) any Investment existing on the Closing Date or made pursuant to legally binding written commitments in existence on the Closing Date;

(f) loans and advances to, and guarantees of Indebtedness of, employees not in excess of $10,000,000 outstanding at any one time, in the aggregate;

(g) any Investment acquired by the Borrower or any Restricted Subsidiary (i) in exchange for any other Investment or accounts receivable held by the Borrower or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the Person in which such other Investment is made or which is the obligor with respect to such accounts receivable or (ii) as a result of a foreclosure by the Borrower or any Restricted Subsidiary with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;

(h) Hedging Obligations permitted under Section 6.01(b)(xii);

(i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case incurred in the ordinary course of business or consistent with past practice or to fund such Person’s purchase of Equity Interests of the Borrower or any direct or indirect parent company thereof under compensation plans approved by the Board of Directors of the Borrower in good faith;

(j) Investments the payment for which consists of Equity Interests of the Borrower, or any of its direct or indirect parent companies (exclusive of Disqualified Stock); provided that such Equity Interests will not increase the amount available for Restricted Payments under Section 6.04(a)(iii);

(k) guarantees of Indebtedness permitted under Section 6.01 and performance guarantees in the ordinary course of business;

(l) any transaction to the extent it constitutes an investment that is permitted and made in accordance with the provisions of Section 6.05(b) (other than any transaction set forth in clauses (ii), (vi) and (xi) of Section 6.05(b));

(m) Investments consisting of purchases and acquisitions of inventory, supplies, material or equipment or the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;

(n) Investments in a Similar Business having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (n) that are at that time

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outstanding (without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities), not to exceed the greater of (x) $100,000,000 and (y) 1.50% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);

(o) Investments relating to a Receivables Facility; provided that in the case of Receivables Facilities established after the Closing Date, such Investments are necessary or advisable (in the good faith determination of the Borrower) to effect such Receivables Facility; and

(p) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (p) that are at that time outstanding (without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities), not to exceed $150,000,000 (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value)

“Permitted Liens” means, with respect to any Person:

(a) Liens to secure Indebtedness incurred under Sections 6.01(b)(i) or (b)(ii), the 2008 Notes and the 2028 Debentures (and, in each case, any related obligations);

(b) pledges or deposits by such Person under workmen’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits to secure bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business;

(c) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar Liens, in each case, for sums not yet overdue for a period of more than thirty (30) days or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;

(d) Liens for taxes, assessments or other governmental charges or claims not yet overdue for a period of more than thirty (30) days or payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;

(e) Liens in favor of issuers of performance and surety bonds or bid bonds or with respect to other regulatory requirements or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business;

(f) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens

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incidental to the conduct of the business of such Person or to the ownership of its properties, in each case, which were not incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;

(g) Liens existing on the Closing Date;

(h) Liens on property or shares of stock of a Person at the time such Person becomes a subsidiary; provided that such Liens are not created or incurred in connection with, or in contemplation of, such other Person becoming such a subsidiary; provided, further, that such Liens may not extend to any other property owned by the Borrower or any Restricted Subsidiary;

(i) Liens on property at the time the Borrower or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Borrower or any Restricted Subsidiary; provided that such Liens are not created or incurred in connection with, or in contemplation of, such acquisition; provided, further, that the Liens may not extend to any other property owned by the Borrower or any Restricted Subsidiary;

(j) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Borrower or another Restricted Subsidiary permitted to be incurred in accordance with Section 6.01;

(k) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

(l) leases and subleases granted to others in the ordinary course of business which do not materially interfere with the ordinary conduct of the business of the Borrower or any of the Restricted Subsidiaries and do not secure any Indebtedness;

(m) Liens arising from financing statement filings under the UCC or similar state laws regarding operating leases entered into by the Borrower and its Restricted Subsidiaries in the ordinary course of business;

(n) Liens in favor of the Borrower or any Subsidiary Guarantor;

(o) Liens on inventory or equipment of the Borrower or any Restricted Subsidiary granted in the ordinary course of business to the Borrower’s client at which such inventory or equipment is located;

(p) Liens on accounts receivable and related assets incurred in connection with a Receivables Facility;

(q) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancing, refunding, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in clauses (a), (g), (h), (i), (r) and (aa) of this definition; provided that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property), and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described

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under clauses (a), (g), (h), (i), (r) and (aa) of this definition at the time the original Lien became a Permitted Lien pursuant this Agreement, and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement;

(r) Liens securing Indebtedness permitted to be incurred pursuant to Section 6.01(b)(vi), (b)(xix), (b)(xx), (b)(xxii)(A) and (b)(xxiii); provided that (A) Liens securing Indebtedness permitted to be incurred pursuant to Section 6.01(b)(vi) do not at any time encumber any property other than the property financed by such Indebtedness and the proceeds and the products thereof, (B) Liens securing Indebtedness permitted to be incurred pursuant to Section 6.01(b)(xix) are solely on acquired property or the assets of the acquired entity, as the case may be and (C) Liens securing Indebtedness permitted to be incurred pursuant to Section 6.01(b)(xx) extend only to the assets of Foreign Subsidiaries;

(s) deposits in the ordinary course of business to secure liability to insurance carriers;

(t) Liens securing judgments for the payment of money not constituting an Event of Default under paragraph (h) of Article VII, so long as such Liens are adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;

(u) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;

(v) Liens (i) of a collection bank arising under Section 4-210 of the UCC on items in the course of collection, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business and (iii) in favor of banking institutions arising as a matter of law encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;

(w) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Borrower or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Borrower or any of its Restricted Subsidiaries in the ordinary course of business;

(x) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;

(y) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 6.01; provided that such Liens do not extend to any assets other than those assets that are the subject of such repurchase agreement;

(z) other Liens securing obligations incurred in the ordinary course of business which obligations do not exceed $50,000,000 at any one time outstanding;

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(aa) Liens securing Hedging Obligations, so long as the related Indebtedness is, and is permitted to be pursuant to Section 6.02, secured by a Lien on the same property securing such Hedging Obligations; and

(bb) Liens incurred to secure obligations in respect of any Indebtedness permitted to be incurred pursuant to Section 6.01; provided that, at the time of incurrence and after giving pro forma effect thereto, the Consolidated Secured Debt Ratio would be no greater than 4.00 to 1.00.

“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Preferred Stock” means any Equity Interest with preferential rights of payment of dividends or upon liquidation, dissolution, or winding up.

“Prime Rate” means the rate of interest per annum determined from time to time by Credit Suisse as its prime rate in effect at its principal office in New York City and notified to the Borrower.

“Projections” means the projections of the Borrower and the Subsidiaries included in the Information Memorandum and any other projections and any forward-looking statements of such entities furnished to the Lenders or the Agent by or on behalf of Holdings, the Borrower or any of the Subsidiaries prior to the Closing Date.

“Qualified Proceeds” means assets that are used or useful in, or Capital Stock of any Person engaged in, a Similar Business; provided that the fair market value of any such assets or Capital Stock shall be determined by the Borrower in good faith.

“Receivables Facility” means one or more receivables financing facilities, as amended, supplemented, modified, extended, renewed, restated, refunded, replaced or refinanced from time to time, the Indebtedness of which is non-recourse (except for standard representations, warranties, covenants and indemnities made in connection with such facilities) to the Borrower and its Restricted Subsidiaries pursuant to which the Borrower or any of its Restricted Subsidiaries sells its accounts receivable to either (a) a Person that is not a Restricted Subsidiary or (b) a Receivables Subsidiary that in turn sells its accounts receivable to a Person that is not a Restricted Subsidiary.

“Receivables Fees” means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Facility.

“Receivables Subsidiary” means any subsidiary formed solely for the purpose of engaging, and that engages only, in one or more Receivables Facilities.

“Refinancing Indebtedness” has the meaning assigned to such term in Section 6.01(b)(xv).

“Refunding Capital Stock” has the meaning assigned to such term in Section 6.04(b)(ii).

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“Register” has the meaning assigned to such term in Section 9.04.

“Registration Rights Agreement” means the Registration Rights Agreement relating to the Senior Notes and the Senior Subordinated Notes, dated as of the Closing Date, among the Borrower, each Subsidiary Guarantor, Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., Banc of America Securities LLC and Goldman Sachs & Co.

“Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.

“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.

“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.

“Related Business Assets” means assets (other than cash or Cash Equivalents) used or useful in a Similar Business; provided that any assets received by the Borrower or a Restricted Subsidiary in exchange for assets transferred by the Borrower or a Restricted Subsidiary shall not be deemed to be Related Business Assets if they consist of securities of a Person, unless upon receipt of the securities of such Person, such Person would become a Restricted Subsidiary.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, trustees, employees, agents and advisors of such Person and such Person’s Affiliates.

“Required Lenders” means at any time (i) prior to the making of the Loans on the Closing Date, Lenders holding more than 50% of the total Commitments and (ii) thereafter, the Lenders holding more than 50% of the aggregate principal amount of Loans outstanding at such time.

“Requirement of Law” means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer” of any Person means the chief executive officer, the president, any vice president, the chief operating officer or any Financial Officer of such Person and any other officer or similar official thereof responsible for the administration of the obligations of such Person in respect of this Agreement, and, as to any document delivered on the Closing Date (but subject to the express requirements set forth in Article IV), shall include any secretary or assistant secretary of a Loan Party.  Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Payments” has the meaning assigned to such term in Section 6.04(a).

“Restricted Subsidiary” means, at any time, any direct or indirect subsidiary of the Borrower (including any Foreign Subsidiary) that is not then an Unrestricted Subsidiary; provided that

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upon the occurrence of an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such subsidiary shall be included in the definition of “Restricted Subsidiary”.

“Retired Capital Stock” has the meaning assigned to such term in Section 6.04(b)(ii).

“Revolving Facility First Lien Collateral” has the meaning set forth in the Intercreditor Agreement.

“Sale and Lease-Back Transaction” means any arrangement with any Person providing for the leasing by the Borrower or any Restricted Subsidiary of any real or tangible personal property, which property has been or is to be sold or transferred by the Borrower or such Restricted Subsidiary to such Person in contemplation of such leasing.

“S&P” means Standard & Poor’s Ratings Service, a division of the McGraw-Hill Companies, Inc., and any successor to its rating agency business.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of its functions.

“Secured Hedging Obligations” means all Hedging Obligations owing to the Agent, a Joint Lead Arranger or a co-arranger, a Lender or any Affiliate of any of the foregoing and with respect to which, at or prior to the time that the Hedge Agreement relating to such Hedging Obligation is entered into, the Borrower (or another Loan Party) and the Lender or other Person referred to above in this definition (or Affiliate) party thereto (except in the case of the Agent) shall have delivered written notice to the Agent that such a transaction has been entered into and that it constitutes a Secured Hedging Obligation entitled to the benefits of the Collateral Documents and the Intercreditor Agreement.

“Secured Indebtedness” means any Indebtedness secured by a Lien.

“Secured Obligations” means all Obligations, together with all Secured Hedging Obligations.

“Secured Parties” has the meaning assigned to such term in the Security Agreement.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Security Agreement” means that certain Pledge and Security and Intercreditor Agreement, dated as of the date hereof, between the Loan Parties and the Agent, for the benefit of the Agent and the other Secured Parties.

“Senior Indebtedness” means with respect to any Person (a) all Indebtedness of such Person, whether outstanding on the Closing Date or thereafter incurred and (b) all other obligations of such Person (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person whether or not post-filing interest is allowed in such proceeding) in respect of Indebtedness described in clause (a) above unless, in the case of clauses (a) and (b), the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness or other obligations are subordinate in right of payment to the Obligations or the Loan Guarantee of such Person, as the case may be; provided that Senior Indebtedness shall not include (i) any obligation of such Person to the Borrower or any subsidiary or to any joint venture in which the Borrower or any Restricted Subsidiary has an interest,  (ii) any liability for Federal, state, local or other Taxes owed or owing by such Person, (iii) any accounts payable or other liability to

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trade creditors in the ordinary course of business (including guarantees thereof as instruments evidencing such liabilities), (iv) any Indebtedness or other obligation of such Person that is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person or (v) that portion of any Indebtedness that at the time of incurrence is incurred in violation of this Agreement.

“Senior Note Documents” means the Senior Notes Indenture and all other instruments, agreements and other documents evidencing the Senior Notes or providing for any guarantee or other right in respect thereof.

“Senior Notes” means the Borrower’s 9%/9¾% Senior Notes due 2015, in an initial aggregate principal amount of $700,000,000.

“Senior Notes Indenture” means the Indenture dated as of the date hereof, among the Borrower, as issuer, certain of its subsidiaries, as guarantors, and Wells Fargo Bank, National Association, as trustee, pursuant to which the Senior Notes are issued.

“Senior Secured Asset-Based Revolving Credit Agreement” means the Credit Agreement dated as of the date hereof, among Holdings, Merger Sub, the subsidiaries of the Borrower from time to time party thereto, Deutsche Bank Trust Company Americas, as administrative agent and collateral agent, and the lenders from time to time party thereto.

“Senior Secured Asset-Based Revolving Credit Facility” means the credit facility provided under the Senior Secured Asset-Based Revolving Credit Agreement, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, replacements, renewals, restatements, refundings or refinancings thereof and any indentures or credit facilities or commercial paper facilities with banks or other institutional lenders or investors that extend, replace, refund, refinance, renew or defease any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof (provided that such increase in borrowings is permitted under Section 6.01).

“Senior Secured Term Loan Facility” means the credit facility provided under this Agreement, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, replacements, renewals, restatements, refundings or refinancings thereof and any indentures or credit facilities or commercial paper facilities with banks or other institutional lenders or investors that extend, replace, refund, refinance, renew or defease any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof (provided that such increase in borrowings is permitted under Section 6.01).

“Senior Subordinated Notes Indenture” means the Indenture dated as of the date hereof, among the Borrower, as issuer, certain of its subsidiaries, as guarantors, and Wells Fargo Bank, National Association, as trustee, pursuant to which the Senior Subordinated Notes are issued.

“Senior Subordinated Notes” means the Borrower’s 103/2% Senior Subordinated Notes due 2015, in an initial aggregate principal amount of $500,000,000.

“Senior Subordinated Note Documents” means the Senior Subordinated Notes Indenture and all other instruments, agreements and other documents evidencing the Senior Subordinated Notes or providing for any guarantee or other right in respect thereof.

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“Significant Subsidiary” means any Restricted Subsidiary of the Borrower that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the date hereof.

“Similar Business” means any business conducted by the Borrower and its Restricted Subsidiaries on the Closing Date or any business that is similar, reasonably related, incidental or ancillary thereto.

“Sponsors” means Texas Pacific Group and Warburg Pincus LLC and their respective Affiliates.

“Subordinated Indebtedness” means (a) with respect to the Borrower, any Indebtedness of the Borrower that is by its terms subordinated in right of payment to the Obligations, and (b) with respect to any Loan Guarantor, any Indebtedness of such Loan Guarantor that is by its terms subordinated in right of payment to the Loan Guaranty of such Loan Guarantor.

“subsidiary” means, with respect to any Person, (a) any corporation, association, or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person or a combination thereof and (b) any partnership, joint venture, limited liability company or similar entity of which (i) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise, and (ii) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity.

“Subsidiary” means, unless the context otherwise requires, a Restricted Subsidiary of the Borrower.  For purposes of Sections 3.06, 3.09, 3.10, 3.15, 5.04 and 5.08 only, references to Subsidiaries shall be deemed also to be references to Unrestricted Subsidiaries.

“Subsidiary Guarantor” means each Restricted Subsidiary of the Borrower that is a Loan Party and that executes this Agreement as a Loan Guarantor on the Closing Date and each other Restricted Subsidiary of the Borrower that thereafter guarantees the Secured Obligations pursuant to the terms of this Agreement.

“Successor Borrower” has the meaning assigned to such term in Section 6.03(a)(i).

“Successor Person” has the meaning assigned to such term in Section 6.03(c)(i).

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Term Loan First Lien Collateral” has the meaning set forth in the Intercreditor Agreement.

“Title Insurance Company” means the title insurance company providing the Title Insurance Policies.

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“Title Insurance Policies” means the lender’s title insurance policies issued to Agent with respect to the Mortgaged Properties.

“Total Assets” means the total amount of all assets of the Borrower and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP as shown on the most recent balance sheet of the Borrower.

“Transaction Costs” means fees and expenses payable or otherwise borne by Holdings, the Borrower and its subsidiaries in connection with the Transactions and the transactions contemplated thereby (including redemption or other premiums payable in connection with the redemption after the Closing Date of the 2008 Notes in accordance with Section 5.13).

“Transactions” means, collectively, (a) the execution, delivery and performance by Holdings and Merger Sub of the Merger Agreement and the consummation of the transactions contemplated thereby, (b) the execution, delivery and performance by the Loan Parties of the Loan Documents to which they are a party and the making of the Borrowings hereunder, (c) the execution, delivery and performance by Holdings, the Borrower and the subsidiaries of the Borrower party thereto of the New Note Documents and the issuance of the New Notes, (d) the execution, delivery and performance of the Senior Secured Asset-Based Revolving Credit Agreement and all other instruments, agreements and other documents evidencing or governing the Senior Secured Asset-Based Revolving Credit Facility or providing for any guarantee or other right in respect thereof and the making of borrowings thereunder, (e) the execution, delivery and performance by all parties thereto of the Intercreditor Agreement, (f) the Existing Bank Debt Refinancing, (g) the 2008 Notes Call for Redemption, (h) the granting of Pari Passu Liens, (i) the making of the Equity Contribution (j) the entering into of the HSBC Arrangements and (k) the payment of the Transaction Costs.

“2008 Notes” means the 6.65% Senior Unsecured Notes due 2008 of Neiman Marcus outstanding on the Closing Date.

“2008 Notes Call for Redemption” means the call for redemption of, and the deposit into a segregated account of the estimated amount of the redemption payment related to, all outstanding 2008 Notes in accordance with the indenture governing the 2008 Notes and applicable law, and the securing of the 2008 Notes by the Pari Passu Liens on the Closing Date.

“2028 Debentures” means the 7.125% Senior Debentures due 2028 of Neiman Marcus outstanding on the Closing Date.

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBOR Rate or the Alternate Base Rate.

“UCC” means the Uniform Commercial Code as in effect from time to time in the state of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.

“Unliquidated Obligations” means, at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations, but excluding

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unripened or contingent obligations related to indemnification under Section 9.03 for which no written demand has been made.

“Unrestricted Subsidiary” means (a) any subsidiary of the Borrower that at the time of determination is an Unrestricted Subsidiary (as designated by the Borrower, as provided below) and (b) any subsidiary of an Unrestricted Subsidiary.

The Borrower may designate any subsidiary of the Borrower (including any existing subsidiary and any newly acquired or newly formed subsidiary) to be an Unrestricted Subsidiary unless such subsidiary or any of its subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on, any property of, the Borrower or any subsidiary of the Borrower (other than any subsidiary of the subsidiary to be so designated); provided that (i) any Unrestricted Subsidiary must be an entity of which shares of the capital stock or other equity interests (including partnership interests) entitled to cast at least a majority of the votes that may be cast by all shares or equity interests having ordinary voting power for the election of directors or other governing body are owned, directly or indirectly, by the Borrower, (ii) such designation complies with Section 6.04 and (iii) each of (A) the subsidiary to be so designated and (B) its subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Borrower or any Restricted Subsidiary.

The Borrower may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that, immediately after giving effect to such designation no Default shall have occurred and be continuing and either (x) the Borrower could incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described in the first paragraph of Section 6.01 or (y) the Fixed Charge Coverage Ratio for the Borrower and its Restricted Subsidiaries would be greater than such ratio for the Borrower and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation.

Any such designation by the Borrower shall be notified by the Borrower to the Agent by promptly delivering to the Agent a copy of any applicable Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing provisions.  Notwithstanding the foregoing, as of the Closing Date, all of the subsidiaries of the Borrower will be Restricted Subsidiaries, other than Neiman Marcus Funding Corporation, Kate Spade, Gurwitch Products LLC and their respective subsidiaries, which shall be Unrestricted Subsidiaries.

“USA PATRIOT Act” means The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107-56 (signed into law October 26, 2001)), as amended from time to time.

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness, Disqualified Stock or Preferred Stock, as the case may be, at any date, the quotient obtained by dividing (1) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock or Preferred Stock multiplied by the amount of such payment, by (2) the sum of all such payments.

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“Wholly-Owned Subsidiary” of any Person means a subsidiary of such Person, 100% of the outstanding Capital Stock or other ownership interests of which (other than directors’ qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Subsidiaries of such Person.

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02.  Classification of Loans and Borrowings.  For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a “LIBOR Rate Loan” or a “LIBOR Rate Borrowing”).

SECTION 1.03.  Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  Unless otherwise specifically indicated, the term “consolidated” with respect to any Person refers to such Person consolidated with its Restricted Subsidiaries, and excludes from such consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such Person.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04.  Effectuation of Transactions.  Each of the representations and warranties of the Loan Parties contained in this Agreement (and all corresponding definitions) are made after giving effect to the Transactions, unless the context otherwise requires. References to the Transactions in Sections 3.02 and 3.03 shall be deemed not to include the Transactions described in clause (j) of the definition of the term “Transactions” set forth in Section 1.01.

ARTICLE II

The Credits

SECTION 2.01.  Commitments.  Subject to the terms and conditions set forth herein, each Lender agrees, severally and not jointly, to make a Loan to the Borrower on the Closing Date, in a principal amount not to exceed its Commitment.  Amounts prepaid or repaid in respect of Loans may not be reborrowed.

SECTION 2.02.  Loans and Borrowings.  (a)  Each Loan shall be made as part of a Borrowing consisting of Loans of the same Type made by the Lenders ratably in accordance with their respective Commitments.  The failure of any Lender to make any Loan required to be made by it shall not

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relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

(b)  Subject to Section 2.12, each Borrowing shall be comprised entirely of ABR Loans or LIBOR Rate Loans as the Borrower may request in accordance herewith.  Each Lender at its option may make any LIBOR Rate Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that (i) any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement, (ii)in exercising such option, such Lender shall use reasonable efforts to minimize any increase in the Adjusted LIBOR Rate or increased costs to the Borrower resulting therefrom (which obligation of such Lender shall not require it to take, or refrain from taking, actions that it determines would result in increased costs for which it will not be compensated hereunder or that it otherwise determines would be disadvantageous to it and in the event of such request for costs for which compensation is provided under this Agreement, the provisions of Section 2.13 shall apply) and (iii) such branch or Affiliate of such Lender would not be included in clause (z) of the first proviso to the definition of the term “Eligible Assignee” set forth in Section 1.01.

(c)  At the commencement of each Interest Period for any LIBOR Rate Borrowing, such Borrowing shall comprise an aggregate principal amount that is an integral multiple of $1,000,000 and not less than $5,000,000.  Each ABR Borrowing when made shall be in a minimum principal amount of $1,000,000; provided that an ABR Borrowing may be maintained in a lesser amount equal to the difference between the aggregate principal amount of all other Borrowings and the total amount of Loans at such time outstanding.  Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of ten different Interest Periods in effect for LIBOR Rate Borrowings at any time outstanding.

(d)  Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

SECTION 2.03.  Request for Borrowing on the Closing Date.  (a)  To request the making of the Loans hereunder on the Closing Date, the Borrower shall notify the Agent of such request either in writing by delivery of a Borrowing Request (by hand or facsimile) signed by the Borrower or by telephone not later than 11:00 a.m., New York City time, two (2) Business Days before the proposed Closing Date (or such later time as shall be acceptable to the Agent).  A telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Agent of a written Borrowing Request signed by the Borrower.  Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.01:

(i) the aggregate amount of the requested Borrowing;

(ii) the date of the Borrowing, which shall be a Business Day;

(iii) whether the Borrowing is to be an ABR Borrowing or a LIBOR Rate Borrowing;

(iv) in the case of a LIBOR Rate Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and

(v) the location and number of the Borrower’s account to which funds are to be disbursed.

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(b)  If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with respect to any LIBOR Rate Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.  Promptly following receipt of the Borrowing Request in accordance with this Section, the Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

SECTION 2.04.  Funding of the Borrowing on the Closing Date.  (a)  Each Lender shall make the Loan to be made by it hereunder on the Closing Date by wire transfer of immediately available funds by 12:00 (noon), New York City time, to the account of the Agent most recently designated by it for such purpose by notice to the Lenders, in an amount equal to such Lender’s Applicable Percentage of the aggregate principal amount of the Loans made on the Closing Date.

(b)  Unless the Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Agent such Lender’s share of the Borrowing on the Closing Date, the Agent may assume that such Lender has made such share available on the Closing Date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  In such event, if a Lender has not in fact made its share of the Borrowing available to the Agent, then the applicable Lender and the Borrower severally agree to pay to the Agent forthwith on demand (without duplication) such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans.  If such Lender pays such amount to the Agent, then such amount shall constitute such Lender’s Loan included in the Borrowing on the Closing Date.  Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Agent or the Borrower or any Loan Party may have against any Lender as a result of any default by such Lender hereunder.

SECTION 2.05.  Type; Interest Elections.  (a)  The Loans initially shall be of the Type specified in the Borrowing Request and, in the case of a LIBOR Rate Borrowing, shall have an initial Interest Period (not to exceed two (2) months’ duration) as specified in such Borrowing Request.  Thereafter, the Borrower may elect to convert all or any portion of any Borrowing (subject to the minimum amounts for Borrowings of the applicable Type specified in Section 2.02(c)) to a different Type or to continue such Borrowing and, in the case of a LIBOR Rate Borrowing, may elect Interest Periods therefor, all as provided in this Section.  The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b)  To make an election pursuant to this Section, the Borrower shall notify the Agent of such election by telephone (i) in the case of an election to convert to or continue as a LIBOR Rate Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of the proposed conversion or continuation or (ii) in the case of an election to convert to or continue as an ABR Borrowing, not later than 10:00 a.m., New York City time, on the date of the proposed conversion or continuation.  Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Agent of a written Interest Election Request in a form approved by the Agent and signed by the Borrower.

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(c)  Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a LIBOR Rate Borrowing; and

(iv) if the resulting Borrowing is a LIBOR Rate Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a LIBOR Rate Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d)  Promptly following receipt of an Interest Election Request, the Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e)  If the Borrower fails to deliver a timely Interest Election Request with respect to a LIBOR Rate Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing.  Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a LIBOR Rate Borrowing and (ii) unless repaid, each LIBOR Rate Borrowing shall be converted to an ABR Borrowing at the end of the then current Interest Period applicable thereto.

SECTION 2.06.  Termination of Commitments.  The Commitments shall automatically terminate upon earlier to occur of (i) the making of the Loans on the Closing Date and (ii) 5:00 p.m., New York City time, on the Termination Date (as defined in the Merger Agreement).

SECTION 2.07.  Repayment of Loans; Evidence of Debt.  (a)  The Borrower hereby unconditionally promises to pay to the Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date.

(b)  Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c)  The Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each

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Lender hereunder and (iii) the amount of any sum received by the Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(d)  The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e)  Any Lender may request that Loans made by it be evidenced by a promissory note.  In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in substantially the form of Exhibit F hereto.  Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the payee named therein and its registered assigns.

SECTION 2.08.  Optional Prepayment of Loans.  (a)  Upon prior notice in accordance with paragraph (b) of this Section, the Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part without premium or penalty (but subject to Section 2.14); provided that any optional prepayment of Loans pursuant to this paragraph (a) (other than any such prepayment that is made with Designated Asset Sale Proceeds) made prior to the first anniversary of the Closing Date shall be accompanied by a prepayment fee in an amount (expressed as a percentage of the principal amount of Loans to be prepaid) equal to 1.00% of the principal amount of the Loans to be prepaid.

(b)  The Borrower shall notify the Agent by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of prepayment of a LIBOR Rate Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the day of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing, the Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest as required by Section 2.11.

SECTION 2.09.  Mandatory Prepayment of Loans.  (a)  No later than the earlier of (i) ninety (90) days after the end of each fiscal year of the Borrower, commencing with the fiscal year ending on July 30, 2006, and (ii) the date on which the financial statements with respect to such period are delivered pursuant to Section 5.01(a), the Borrower shall prepay outstanding Loans in an aggregate principal amount equal to 50% of Excess Cash Flow for the fiscal year then ended; provided that the amount of such prepayment shall be reduced to 25% of such Excess Cash Flow if the Consolidated Leverage Ratio at the end of such fiscal year shall be equal to or less than 5.00 to 1.00, but greater than 4.50 to 1.00, and (ii) such prepayment shall not be required if the Consolidated Leverage Ratio at the end of such fiscal year shall be equal to or less than 4.50 to 1.00.

(b)  The Borrower shall deliver to the Agent, at the time of each prepayment required under this Section 2.09, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three (3) days prior written notice of such prepayment. Each notice of prepayment shall specify the

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prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest as required by Section 2.11. All prepayments of Borrowings under this Section 2.09 shall be subject to Section 2.14, but shall otherwise be without premium or penalty.

SECTION 2.10.  Fees.  The Borrower agrees to pay to the Agent, for its own account, the agency fees set forth in the Fee Letter, as amended, restated, supplemented or otherwise modified from time to time, or such agency fees as may otherwise be separately agreed upon by the Borrower and the Agent payable in the amounts and at the times specified therein or as so otherwise agreed upon.

SECTION 2.11.  Interest.  (a)  The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.

(b)  The Loans comprising each LIBOR Rate Borrowing shall bear interest at the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(c)  Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.

(d)  Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any LIBOR Rate Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e)  All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate, Adjusted LIBOR Rate or LIBOR Rate shall be determined by the Agent, and such determination shall be conclusive absent manifest error.

SECTION 2.12.  Alternate Rate of Interest.  If prior to the commencement of any Interest Period for a LIBOR Rate Borrowing:

(a) the Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate or the LIBOR Rate, as applicable, for such Interest Period; or

(b) the Agent is advised by the Required Lenders that the Adjusted LIBOR Rate or the LIBOR Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;

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then the Agent shall promptly give notice thereof to the Borrower and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a LIBOR Rate Borrowing shall be ineffective and such Borrowing shall be converted to an ABR Borrowing on the last day of the Interest Period applicable thereof.

SECTION 2.13.  Increased Costs.  (a)  If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBOR Rate); or

(ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or LIBOR Rate Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any LIBOR Rate Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then, following delivery of the certificate contemplated by paragraph (c) of this Section, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered (except for any Taxes, which shall be dealt with exclusively pursuant to Section 2.15).

(b)  If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law other than due to Taxes, which shall be dealt with exclusively pursuant to Section 2.15 (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time following delivery of the certificate contemplated by paragraph (c) of this Section the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c)  A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company as specified in paragraph (a) or (b) of this Section and setting forth in reasonable detail the manner in which such amount or amounts was determined shall be delivered to the Borrower and shall be conclusive absent manifest error.  The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

(d)  Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.14.  Break Funding Payments.  In the event of (a) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto

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(including as a result of an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any notice delivered pursuant hereto, or (d) the assignment of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.17, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event.  In the case of a LIBOR Rate Loan, such loss, cost or expense to any Lender shall be deemed to be the amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBOR Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market.  A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section and the basis therefor and setting forth in reasonable detail the manner in which such amount or amounts was determined shall be delivered to the Borrower and shall be conclusive absent manifest error.  The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

SECTION 2.15.  Taxes.  (a)  Any and all payments by or on account of any obligation of any Loan Party hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if a Loan Party shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Agent or Lender (as applicable) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make such deductions and (iii) such Loan Party shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.  If at any time a Loan Party is required by applicable law to make any deduction or withholding from any sum payable hereunder, such Loan Party shall promptly notify the relevant Lender or Agent upon becoming aware of the same. In addition, each Lender or Agent shall promptly notify a Loan Party upon becoming aware of any circumstances as a result of which a Loan Party is or would be required to make any deduction or withholding from any sum payable hereunder.

(b)  In addition, the Loan Parties shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)  Each Loan Party shall indemnify the Agent and each Lender, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Agent or such Lender, as applicable, on or with respect to any payment by or on account of any obligation of such Loan Party hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(d)  As soon as practicable after any payment of Indemnified Taxes or Other Taxes by a Loan Party to a Governmental Authority, such Loan Party shall deliver to the Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Agent.

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(e)  Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate.  In particular, on or prior to the date which is ten (10) Business Days after the Closing Date, each Foreign Lender shall deliver to the Borrower (with a copy to the Agent) two duly signed, properly completed copies of either IRS Form W- 8BEN or any successor thereto (relating to such Foreign Lender and entitling it to an exemption from, or reduction of, United States withholding tax on all payments to be made to such Foreign Lender by the Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document) or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such Foreign Lender by the Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document) or such other evidence reasonably satisfactory to the Borrower and the Agent that such Foreign Lender is entitled to an exemption from, or reduction of, United States withholding tax, including any exemption pursuant to Section 871(h) or 881(c) of the Code, and in the case of a Foreign Lender claiming such an exemption under Section 881(c) of the Code, a certificate that establishes in writing to the Borrower and the Agent that such Foreign Lender is not (i) a “bank” as defined in Section 881(c)(3)(A) of the Code, (ii) a 10-percent stockholder within the meaning of Section 871(h)(3)(B) of the Code, or (iii) a controlled foreign corporation related to the Borrower with the meaning of Section 864(d) of the Code.  Thereafter and from time to time, each such Foreign Lender shall (A) promptly submit to the Borrower (with a copy to the Agent) such additional duly completed and signed copies of one or more of such forms or certificates (or such successor forms or certificates as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States Laws and regulations to avoid, or such evidence as is reasonably satisfactory to the Borrower and the Agent of any available exemption from, or reduction of, United States withholding taxes in respect of all payments to be made to such Foreign Lender by the Borrower or other Loan Party pursuant to this Agreement, or any other Loan Document, in each case, (1) on or before the date that any such form, certificate or other evidence expires or becomes obsolete, (2) after the occurrence of any event requiring a change in the most recent form, certificate or evidence previously delivered by it to the Borrower and (3) from time to time thereafter if reasonably requested by the Borrower or the Agent, and (B) promptly notify the Borrower and the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction.

(f)  Each Lender or Agent that is a United States person, agrees to complete and deliver to the Borrower a statement signed by an authorized signatory of the Lender to the effect that it is a United States person together with a duly completed and executed copy of Internal Revenue Service Form W-9 or successor form.

(g)  If the Agent or a Lender determines, in good faith in its sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by a Loan Party or with respect to which such Loan Party has paid additional amounts pursuant to this Section 2.15, it shall pay over such refund to such Loan Party (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 2.15 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Agent or such Lender (including any Taxes imposed with respect to such refund) as is determined by the Agent or such Lender in good faith in its sole discretion, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that such Loan Party, upon the request of the Agent or such Lender, agrees to repay as soon as reasonably practicable the amount paid over to such Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental

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Authority) to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to such Loan Party or any other Person.

(h)  If the Borrower determines in good faith that a reasonable basis exists for contesting any Indemnified Taxes or Other Taxes for which additional amounts have been paid under this Section 2.15, the relevant Lender or Agent shall cooperate with the Borrower in challenging such Indemnified Taxes or Other Taxes, at the Borrower’s expense, if so requested by the Borrower in writing.

SECTION 2.16.  Payments Generally; Allocation of Proceeds; Sharing of Set-offs.  (a)  Unless otherwise specified, the Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00 (noon), New York City time, on the date when due, in immediately available funds, without set-off or counterclaim.  Any amounts received after such time on any date may, in the discretion of the Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Agent to the applicable account designated to the Borrower by the Agent, except that payments pursuant to Sections 2.13, 2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto.  The Agent shall distribute any such payments received by it, except as otherwise provided, for the account of any other Person to the appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.  All payments hereunder shall be made in Dollars.  Any payment required to be made by the Agent hereunder shall be deemed to have been made by the time required if the Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by the Agent to make such payment.

(b)  Subject in all respects to the provisions of the Intercreditor Agreement, all proceeds of Collateral received by the Agent after an Event of Default has occurred and is continuing and all or any portion of the Loans shall have been accelerated hereunder pursuant to Article VII, shall upon election by the Agent or at the direction of the Required Lenders be applied, first, to, ratably, pay any fees, indemnities, or expense reimbursements then due to the Agent from the Borrower (other than in connection with Hedging Obligations), second, ratably, to pay any fees or expense reimbursements then due to the Lenders from the Borrower (other than in connection with Hedging Obligations), third, to pay interest due and payable in respect of the Loans, ratably, fourth, to prepay principal on the Loans and any amounts owing with respect to Hedging Obligations, ratably, fifth, to the payment of any other Secured Obligation due to the Agent or any Lender by the Borrower, sixth, as provided for under the Intercreditor Agreement, and seventh, to the Borrower or as the Borrower shall direct.

(c)  If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders at such time outstanding to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered,  such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express

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terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply).  The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d)  Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Agent for the account of the Lenders that the Borrower will not make such payment, the Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due.  In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation.

(e)  If any Lender shall fail to make any payment required to be made by it pursuant to Sections 2.03(a), 2.16(c) or 9.03(c), then the Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.

SECTION 2.17.  Mitigation Obligations; Replacement of Lenders.  (a)  If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as applicable, in the future and (ii) would not subject such Lender to any material unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender in any material respect.  The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b)  If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Agent, replace such Lender by requiring such Lender to assign and delegate (and such Lender shall be obligated to assign and delegate), without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments.  A Lender shall not be required to make any such assignment and delegation

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if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

SECTION 2.18.  Illegality.  If any Lender reasonably determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted after the Closing Date that it is unlawful, for such Lender or its applicable lending office to make or maintain any LIBOR Rate Loans, then, on notice thereof by such Lender to the Borrower through the Agent, any obligations of such Lender to make or continue LIBOR Rate Loans or to convert ABR Borrowings to LIBOR Rate Borrowings shall be suspended until such Lender notifies the Agent and the Borrower that the circumstances giving rise to such determination no longer exist.  Upon receipt of such notice, the Borrower shall upon demand from such Lender (with a copy to the Agent), either convert all LIBOR Rate Borrowings of such Lender to ABR Borrowings, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such LIBOR Rate Borrowings to such day, or immediately, if such Lender may not lawfully continue to maintain such Loans.  Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.  Each Lender agrees to designate a different lending office if such designation will avoid the need for such notice and will not, in the determination of such Lender, otherwise be disadvantageous to it.

SECTION 2.19.  Change of Control.  (a)  The Borrower shall (i) within thirty (30) days following the occurrence of a Change of Control, make an offer to all Lenders to prepay all Loans pursuant to a Change in Control Offer (as defined in paragraph (b) of this Section 2.19) at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of prepayment, in accordance with the terms contemplated in this Section 2.19; and (ii) prepay all the Loans of all Lenders properly accepting such offer of prepayment in accordance with such Change of Control Offer.

(b)  A “Change of Control Offer” means a notice delivered to the Agent (which will promptly furnish such notice to the Lenders) stating:

(i) that a Change of Control has occurred and that such Lender has the right to require the Borrower to prepay all or a portion of such Lender’s Loans at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of prepayment;

(ii) the Change of Control prepayment date (which shall be no earlier than thirty (30) days nor later than sixty (60) days from the date such notice is delivered);

(iii) that any Loans as to which such offer is not properly accepted will remain outstanding and continue to accrue interest;

(iv) unless the Borrower defaults in the payment of the purchase price of any Loans as to which the Change of Control Offer shall have been accepted, all Loans accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control prepayment date;

(v) Lenders electing to have any Loans purchased pursuant to a Change of Control Offer will be required to notify the Agent prior to the close of business on the third Business Day preceding the Change of Control prepayment date; and

(vi) that Lenders will be entitled to withdraw their election to require the Borrower to prepay their Loans; provided that the Agent receives, not later than the close of business on the last day of the offer period, a notice setting forth the name of the Lender, the principal amount of Loans

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tendered for prepayment, and a statement that such Lender is withdrawing its election to have such Loans prepaid.

(c)  On the prepayment date, the Borrower shall prepay the Loans of all Lenders who accept the Change of Control Offer at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of prepayment.  If at the time of any prepayment pursuant to this Section 2.19 there shall be outstanding Borrowings of different Types or LIBOR Rate Borrowings with different Interest Periods, and if some but not all Lenders shall have accepted such Change of Control Offer, then the aggregate amount of such prepayment shall be allocated ratably to each outstanding Borrowing that comprises the Loans of the accepting Lenders.  All prepayments of Loans under this Section 2.19 shall be subject to Section 2.14.

(d)  Notwithstanding the foregoing provisions of this Section, the Borrower shall be deemed to have made a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section 2.19(b) applicable to a Change of Control Offer made by the Borrower and prepays all Loans as to which offers for prepayment have been validly accepted and not withdrawn pursuant to the terms of such Change of Control Offer.

(e)  A Change of Control Offer may be made in advance of a Change of Control, conditional upon such Change of Control, if a definitive agreement is in place for such Change of Control at the time of making of the Change of Control Offer.

SECTION 2.20.  Asset Sale Offer.  (a)  Within 450 days after the Agent’s receipt of the Net Proceeds of any Asset Sale of Term Loan First Lien Collateral, the Borrower or the applicable Restricted Subsidiary may, at its option, apply the Net Proceeds from such Asset Sale (i) (A) to make an offer to the Lenders to prepay Loans or (B) to make an offer to purchase, prepay or permanently reduce Other Pari Passu Lien Obligations secured by a Permitted Collateral Lien; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to this clause (i), the Borrower or such Restricted Subsidiary shall permanently retire such Indebtedness and, in the case of obligations under revolving credit facilities or other similar Indebtedness, shall correspondingly permanently reduce commitments with respect thereto (other than obligations owed to the Borrower or a Restricted Subsidiary); provided, further, however, that if the Borrower or any Restricted Subsidiary shall so reduce obligations under any such Other Pari Passu Lien Obligations, the Borrower or such Restricted Subsidiary will, equally and ratably, reduce the amount of Indebtedness outstanding under this Agreement by, at its option, (I) prepaying Loans in accordance with Section 2.08 or (II) making an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all Lenders to prepay their Loans at 100% of the principal amount thereof, plus the amount of accrued and unpaid interest on the principal amount of Loans to be prepaid; or (ii) to acquire Additional Assets; provided, however, that such Additional Assets are concurrently with their acquisition added to the Collateral securing the Secured Obligations in accordance with the provisions of Section 5.11 and the Collateral Documents, and provided, further, that to the extent such Additional Assets constitute the Capital Stock of any Person, the assets of such Person that may be used or useful in a Similar Business are, in accordance with the provisions of Section 5.11 and the Collateral Documents, concurrently with the acquisition added to the Collateral securing the Secured Obligations.  Notwithstanding the foregoing, if during such 450-day period the Borrower or a Restricted Subsidiary enters into a definitive binding agreement committing it to apply such Net Proceeds of any Asset Sale of Term Loan First Lien Collateral to acquire Additional Assets pursuant to clause (ii) of this paragraph (a), such 450-day period will be extended with respect to the amount of Net Proceeds so committed until such Net Proceeds are required to be applied in

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accordance with such agreement (but such extension will in no event be for a period longer than 180 days) (or, if earlier, the date of termination of such agreement).

(b)  Within 450 days after any of the Borrower’s or any Restricted Subsidiary’s receipt of the Net Proceeds of any Asset Sale (other than an Asset Sale of Term Loan First Lien Collateral), the Borrower or such Restricted Subsidiary may, at its option, apply the Net Proceeds from such Asset Sale (i) to permanently reduce (A) obligations under any Senior Indebtedness of the Borrower or any Subsidiary Guarantor and, in the case of obligations under revolving credit facilities or other similar Indebtedness, to correspondingly permanently reduce commitments with respect thereto (other than obligations owed to the Borrower or a Restricted Subsidiary); provided that if the Borrower or any Restricted Subsidiary shall so reduce obligations under any Senior Indebtedness (other than Senior Indebtedness under the Senior Secured Asset-Based Revolving Credit Facility secured by the Revolving Facility First Lien Collateral), the Borrower or such Subsidiary Guarantor will, equally and ratably, reduce the amount of Indebtedness outstanding under this Agreement by, at its option, (I) prepaying Loans in accordance with Section 2.08 or (II) making an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all Lenders to prepay their Loans at 100% of the principal amount thereof, plus the amount of accrued and unpaid interest on the principal amount of Loans to be prepaid, or (B) Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor, other than Indebtedness owed to the Borrower or another Restricted Subsidiary; or (ii) to an investment in (A) any one or more businesses; provided that such investment in any business is in the form of the acquisition of Capital Stock and results in the Borrower or any Restricted Subsidiary owning an amount of the Capital Stock of such business such that it constitutes a Restricted Subsidiary, (B) properties, (C) capital expenditures or (D) acquisitions of other assets, that in each of (A), (B), (C) and (D), are used or useful in a Similar Business or replace the businesses, properties and assets that are the subject of such Asset Sale.  Notwithstanding the foregoing, if during such 450-day period the Borrower or a Restricted Subsidiary enters into a definitive binding agreement committing it to apply such Net Proceeds in accordance with the requirements of clause (ii) of this paragraph (b), such 450-day period will be extended with respect to the amount of Net Proceeds so committed until such Net Proceeds are required to be applied in accordance with such agreement (but such extension will in no event be for a period longer than 180 days) (or, if earlier, until termination of such agreement).

(c)  Any Net Proceeds from an Asset Sale that are not invested or applied in accordance with paragraph (a) or (b) of this Section 2.20 within 450 days from the date of the receipt of such Net Proceeds will be deemed to constitute “Excess Proceeds”.  When the aggregate amount of Excess Proceeds exceeds $45,000,000, the Borrower shall (i) make an offer within ten (10) Business Days after the date that Excess Proceeds exceed $45,000,000 to all Lenders and, if required by the terms of any other Senior Indebtedness, to the holders of such Senior Indebtedness (other than with respect to Hedging Obligations) in accordance with the procedures set forth below for prepayment or an Asset Sale Offer, to prepay the maximum aggregate principal amount of Loans and prepay or purchase the maximum principal amount of such Senior Indebtedness that is an integral multiple of $1,000 that may be purchased out of the Excess Proceeds at a prepayment or purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of prepayment or repurchase, in accordance with the terms contemplated in this Section 2.20; and (ii) prepay all the Loans of Lenders properly accepting such offer of prepayment in accordance with such Asset Sale Offer (subject to the proration provisions set forth in paragraph (f) of this Section 2.20).  The Borrower may satisfy the foregoing obligations with respect to any Net Proceeds from an Asset Sale by making an Asset Sale Offer with respect to such Net Proceeds prior to the expiration of the relevant 450 day period or with respect to Excess Proceeds of $45,000,000 or less.

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(d)  An “Asset Sale Offer” means a notice delivered to the Agent (which will promptly furnish such notice to the Lenders) stating:

(i) that an Asset Sale Offer is being made pursuant to this Section 2.20 and that such Lender has the right to require the Borrower to prepay all or a portion of such Lender’s Loans (subject to the proration provisions set forth in paragraph (f) of this Section 2.20) at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of prepayment; and

(ii) the prepayment date (which shall be no earlier than thirty (30) days nor later than sixty (60) days from the date such notice is mailed).

(e)  On the prepayment date, the Borrower (subject to the proration provisions set forth in paragraph (f) of this Section 2.20) shall prepay the Loans of all Lenders who accept the Asset Sale Offer at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of prepayment.  If at the time of any prepayment pursuant to this Section 2.20 there shall be outstanding Borrowings of different Types or LIBOR Rate Borrowings with different Interest Periods, and if some but not all Lenders shall have accepted such Asset Sale Offer, then the aggregate amount of such prepayment shall be allocated ratably to each outstanding Borrowing that comprises the Loans of the accepting Lenders.  All prepayments of Loans under this Section 2.20 shall be subject to Section 2.14.

(f)  To the extent that the aggregate amount of Loans and other Senior Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Borrower may use any remaining Excess Proceeds for general corporate purposes, subject to the terms of this Agreement.  If the aggregate principal amount of Loans and other Senior Indebtedness tendered pursuant to an Asset Sale Offer exceeds the amount of Excess Proceeds, the Borrower shall select or cause to be selected the Loans and such other Senior Indebtedness to be prepaid or purchased on a pro rata basis based on the principal amount (or accreted value) of the Loans and other Senior Indebtedness tendered.  Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds related to such Asset Sale Offer shall be reset at zero.

(g)  Pending the final application of any Net Proceeds pursuant to this Section 2.20, the Borrower or the applicable Restricted Subsidiary may apply such Net Proceeds temporarily to reduce Indebtedness outstanding under a revolving credit facility or otherwise invest such Net Proceeds in any manner not prohibited hereunder.

SECTION 2.21.  Repricing Protection.  In the event that, prior to the first anniversary of the Closing Date, any Lender receives a Repricing Prepayment (as defined below), then, at the time thereof, the Borrower shall pay to such Lender a prepayment premium equal to 1.00% of the amount of such Repricing Prepayment.  As used herein, with respect to any Lender, a “Repricing Prepayment” is the amount of principal of the Loans of such Lender that is received by such Lender as a result of the mandatory assignment of such Loans in the circumstances described in Section 9.02(e) following the failure of such Lender to consent to an amendment of this Agreement that would have the effect of reducing the Applicable Rate with respect to such Loans.

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ARTICLE III

Representations and Warranties

Each Loan Party represents and warrants to the Lenders that:

SECTION 3.01.  Organization; Powers.  Each of the Loan Parties and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to own its property and assets and to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.

SECTION 3.02.  Authorization; Enforceability.  The Transactions are within each applicable Loan Party’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action of such Loan Party.  Each Loan Document to which each Loan Party is a party have been duly executed and delivered by such Loan Party and is a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and to general principles of equity.

SECTION 3.03.  Governmental Approvals; No Conflicts.  The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, except for filings necessary to perfect Liens created pursuant to the Loan Documents and the ABL Security Documents and except for filings in connection with consummating the Merger and filings as may be required under the Exchange Act and applicable stock exchange rules in connection therewith, (b) will not violate any Requirement of Law applicable to any Loan Party or any of its Subsidiaries, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries or its assets, or (except for the Merger Consideration and the 2008 Notes Call for Redemption) give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents and the ABL Security Documents; except, in each case other than with respect to the creation of Liens, to the extent that any such violation, default or right, or any failure to obtain such consent or approval or to take any such action, would not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.04.  Financial Condition; No Material Adverse Change.  (a)  The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of earnings, shareholders’ equity and cash flows (i) as of and for the fiscal years ended July 31, 2004 and July 30, 2005, each reported on by Deloitte & Touche LLP, independent public accountants, and (ii) to the extent possible in the exercise of the Borrower’s commercially reasonable efforts, as of and for each subsequent fiscal month ended at least thirty (30) days before the Closing Date, certified by its chief financial officer.  Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to the absence of footnotes and normal year-end adjustments in the case of the statements referred to in clause (ii) above.

(b)  The Borrower has heretofore delivered to the Lenders its unaudited pro forma consolidated balance sheet and related pro forma statements of earnings, shareholder’s equity and cash flows as of July 30, 2005, prepared giving effect to the Transactions as if they had occurred, with respect to such balance sheet, on such date and, with respect to such other financial statements, on the first day of

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the 12-month period ending on such date. Such pro forma financial statements have been prepared in good faith by the Borrower, based on the assumptions used to prepare the pro forma financial information contained in the Information Memorandum (which assumptions are believed by the Borrower on the date hereof and on the Closing Date to be reasonable), are based on the best information available to the Borrower as of the date of delivery thereof, accurately reflect all adjustments required to be made to give effect to the Transactions and present fairly on a pro forma basis the estimated consolidated financial position of the Borrower and its consolidated Subsidiaries as of such date and for such period, assuming that the Transactions had actually occurred at such date or at the beginning of such period, as the case may be.

(c)  No event, change or condition has occurred that has had, or would reasonably be expected to have, a Material Adverse Effect, since July 30, 2005.

SECTION 3.05.  Properties.  (a)  As of the date of this Agreement, Schedule 3.05(a) sets forth the address of each parcel of real property (or each set of parcels that collectively comprise one operating property) that is owned or leased by each Loan Party, together with a list of the lessors with respect to all such leased property.  Schedule 3.05(a) also identifies the principal place of business and chief executive office of each Loan Party.  The books and records of each Loan Party, and all of their respective chattel paper and records of Accounts, are maintained exclusively at such locations. There is no location at which any Loan Party has any Collateral (except for vehicles and inventory in transit in the ordinary course of business) other than those locations identified on Schedule 3.05(a).

(b)  Each of the Borrower and each of the Subsidiaries has good and insurable fee simple title to, or valid leasehold interests in, or easements or other limited property interests in, all its real properties (including all Mortgaged Properties) and has good and marketable title to its personal property and assets, in each case, except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  All such properties and assets are free and clear of Liens, other than Liens (i) permitted by Section 6.02 or (ii) arising by operation of law (which Liens, in the case of this clause (ii) do not materially interfere with the ability of Holdings, the Borrower or the relevant Subsidiary to carry on its business as now conducted or to utilize the affected properties or assets for their intended purposes).

(c)  Each of the Borrower and each of the Subsidiaries has complied with all obligations under all leases to which it is a party, except where the failure to comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and all such leases are in full force and effect, except leases in respect of which the failure to be in full force and effect would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  Each of the Borrower and each of the Subsidiaries enjoys peaceful and undisturbed possession under all such leases, other than leases in respect of which the failure to enjoy peaceful and undisturbed possession would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(d)  As of the Closing Date, none of Holdings, the Borrower or any Subsidiary has received any notice of, nor has any knowledge of, any pending or contemplated condemnation proceeding affecting any of the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation.

(e)  To the Borrower’s knowledge, as of the Closing Date, none of the Borrower or any Subsidiary is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein.

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(f)  Copies of certificates of occupancy relating to each Mortgaged Property that the mortgagor has in its possession have been delivered to the Agent as mortgagee with respect to each Mortgaged Property.

(g)  Each of the Borrower and the Subsidiaries owns or possesses, or is licensed to use, all patents, trademarks, service marks, trade names and copyrights and all licenses and rights with respect to the foregoing, necessary for the present conduct of its business, without any conflict with the rights of others, and free from any burdensome restrictions on the present conduct of its business, except where such failure to own, possess or hold pursuant to a license or such conflicts and restrictions would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or except as set forth on Schedule 3.05(g).

SECTION 3.06.  Litigation and Environmental Matters.  (a)  Other than the Disclosed Matters, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting the Loan Parties or any of their Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan Documents or the Transactions.

(b)  Except for the Disclosed Matters or any other matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect (i) no Loan Party nor any of its Subsidiaries has received notice of any claim with respect to any Environmental Liability or knows of any basis for any Environmental Liability and (ii) no Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.

(c)  Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

SECTION 3.07.  Compliance with Laws and Agreements; Licenses and Permits. 
(a)  Each Loan Party is in compliance with all Requirements of Law applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

(b)  Each Loan Party and its Subsidiaries has obtained and holds in full force and effect, all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary or advisable for the operation of its businesses as presently conducted and as proposed to be conducted, except where the failure to have so obtained or hold or to be in force, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.  No Loan Party or any of its Subsidiaries is in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval, except where any such violation, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.08.  Investment and Holding Company Status.  No Loan Party is (a) an “investment company” as defined in, or is required to be registered under, the Investment Company Act of 1940 or (b) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

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SECTION 3.09.  Taxes.  Each Loan Party and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.10.  ERISA.  No ERISA Event has occurred in the five year period prior to the date on which this representation is made or deemed made and is continuing or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect.  Except as would not reasonably be expected to have a Material Adverse Effect, the present value of all accumulated benefit obligations under all Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plans, in the aggregate.

SECTION 3.11.  Disclosure.  (a)  All written information (other than the Projections, the pro forma financial statements and estimates and information of a general economic nature) concerning Holdings, the Borrower, the Subsidiaries, the Transactions and any other transactions contemplated hereby included in the Information Memorandum or otherwise prepared by or on behalf of the foregoing or their representatives and made available to any Lenders or the Agent in connection with the Transactions on or before the date hereof (the “Information”), when taken as a whole, as of the date such Information was furnished to the Lenders and as of the Closing Date, did not contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements were made.

(b)  The Projections, pro forma financial statements and estimates and information of a general economic nature prepared by or on behalf of the Borrower or any of its representatives and that have been made available to any Lenders or the Agent in connection with the Transactions on or before the date hereof (the “Other Information”) (i) have been prepared in good faith based upon assumptions believed by the Borrower to be reasonable as of the date thereof (it being understood that actual results may vary materially from the Other Information), and (ii) as of the Closing Date, have not been modified in any material respect by the Borrower.

SECTION 3.12.  Material Agreements.  No Loan Party is in default in any material respect in the performance, observance or fulfillment of any of its obligations contained in (i) any material agreement to which it is a party or (ii) any agreement or instrument to which it is a party evidencing or governing Indebtedness, except where any such default would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

SECTION 3.13.  Solvency.  (a)  Immediately after the consummation of the Transactions to occur on the Closing Date, (i) the fair value of the assets of the Loan Parties on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Loan Parties on a consolidated basis; (ii) the present fair saleable value of the property of the Loan Parties on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Loan Parties on a consolidated basis, on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Loan Parties on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Loan Parties on a consolidated basis will not have unreasonably small capital with which to conduct the

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businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.

(b)  The Loan Parties do not intend to incur debts beyond their ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by the Loan Parties and the timing and amounts of cash to be payable by the Loan Parties on or in respect of their Indebtedness.

SECTION 3.14.  Insurance.  Schedule 3.14 sets forth a true, complete and correct description of all insurance maintained by or on behalf of the Loan Parties and the Subsidiaries as of the Closing Date.  As of the Closing Date, all such insurance is in full force and effect and all premiums in respect of such insurance have been duly paid.  The Borrower believes that the insurance maintained by or on behalf of the Borrower and the Subsidiaries is adequate and is in accordance with normal industry practice.

SECTION 3.15.  Capitalization and Subsidiaries.  Schedule 3.15 sets forth (a) a correct and complete list of the name and relationship to the Borrower of each and all of the Borrower’s Subsidiaries, (b) a true and complete listing of each class of each of the Borrower’s authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 3.15, and (c) the type of entity of the Borrower and each of its Subsidiaries.  All of the issued and outstanding Equity Interests of the Subsidiaries owned by any Loan Party have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable free and clear of all Liens (other than Liens created under the Loan Documents and the ABL Security Documents).

SECTION 3.16.  Security Interest in Collateral.  The provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Agent, for the benefit of the Agent and the Lenders; and upon the proper filing of UCC financing statements required pursuant to paragraph (l) of Article IV and any Mortgages with respect to Mortgaged Properties, such Liens constitute perfected and continuing Liens on the Collateral, securing the Secured Obligations, enforceable against the applicable Loan Party and all third parties, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Liens, to the extent any such Permitted Liens would have priority over the Liens in favor of the Agent pursuant to any applicable law, (b) Liens perfected only by possession (including possession of any certificate of title) to the extent the Agent has not obtained or does not maintain possession of such Collateral and (c) subject to and as provided for under the terms of the Intercreditor Agreement, the Liens granted under the ABL Security Documents.

SECTION 3.17.  Labor Disputes.  As of the Closing Date, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes, lockouts or slowdowns against any Loan Party pending or, to the knowledge of the Borrower, threatened, (b) the hours worked by and payments made to employees of the Loan Parties and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters and (c) all payments due from any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Loan Party or such Subsidiary to the extent required by GAAP.  Except (i) as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect or (ii) as set forth on Schedule 3.17, the consummation of the Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which Holdings, the Borrower or any of the Subsidiaries (or any predecessor) is a party or by which Holdings, the Borrower or any of the Subsidiaries (or any predecessor) is bound.

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SECTION 3.18.  Federal Reserve Regulations.  (a)  On the Closing Date, none of the Collateral is Margin Stock.

(b)  None of Holdings, the Borrower and the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.

(c)  No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or carry Margin Stock (other than pursuant to, or in connection with, the Merger) or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund indebtedness originally incurred for such purpose, or (ii) for any purpose that entails a violation of, or that is inconsistent with, the provisions of Regulation T, U or X.

SECTION 3.19.  Transaction Documents.  Holdings and the Borrower have delivered to the Agent a complete and correct copy of the Merger Agreement (including all schedules, exhibits, amendments, supplements and modifications thereto). Neither Holdings, the Borrower nor any other Loan Party or, to the knowledge of Holdings, the Borrower or each Loan Party, any other Person party thereto is in default in the performance or compliance with any material provisions thereof.  Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, all representations and warranties set forth in the Merger Agreement were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made).

SECTION 3.20.  Senior Indebtedness.  The Obligations constitute “Senior Indebtedness” and “Designated Senior Indebtedness” under and as defined in the Senior Subordinated Note Documents.

ARTICLE IV

Conditions

The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) Credit Agreement and Loan Documents.  The Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence satisfactory to the Agent (which may include facsimile transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) duly executed copies of the Loan Documents and such other certificates, documents, instruments and agreements as the Agent shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including any promissory notes requested by a Lender pursuant to Section 2.07.

(b) Legal Opinions.  The Agent shall have received, on behalf of itself and the Lenders on the Closing Date, a favorable written opinion of (i) Cleary Gottlieb Steen & Hamilton LLP, special counsel for Holdings and the Borrower, in form and substance reasonably satisfactory to the Agent and (ii) local or other counsel reasonably satisfactory to the Agent as specified on Schedule 4.01(b), in each case (A) dated the Closing Date, (B) addressed to the Agent and the Lenders and (C) in form and substance reasonably satisfactory to the Agent and covering such other matters relating to the Loan Documents and the Transactions as the Agent shall reasonably request.

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(c) Financial Statements and Projections.  The Lenders shall have received (i) the financial statements and opinion referred to in Section 3.04(a) and (b) and (ii)  projections in customary form for the Borrower and its Subsidiaries on a pro forma basis for completion of the Transactions for the fiscal years 2006 through 2010.

(d) Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates.  The Agent shall have received (i) a certificate of each Loan Party, dated the Closing Date and executed by its Secretary or Assistant Secretary (or, in the case of NM Nevada Trust, its Clerk), which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including the certificate or articles of incorporation or organization of each Loan Party certified by the relevant authority of the jurisdiction of organization of such Loan Party and a true and correct copy of its by-laws or operating, management or partnership agreement, and (ii) a good standing certificate for each Loan Party from its jurisdiction of organization.

(e) No Default Certificate.  The Agent shall have received a certificate, signed by the chief financial officer of the Borrower, dated the Closing Date (i) stating that no Default has occurred and is continuing (other than any Default arising pursuant to clause (c) of Article VII with respect to any of the representations enumerated clause (ii) below) and (ii) stating that the representations and warranties contained in Article III (except the representations contained in Sections 3.04, 3.05, 3.06, 3.07, 3.09, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.17 and 3.19) are true and correct in all material respects as of such date.

(f) Fees. The Lenders and the Agent shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable documented fees and expenses of legal counsel), on or before the Closing Date.

(g) Lien and Judgment Searches.  The Agent shall have received the results of recent lien and judgment searches in each of the jurisdictions contemplated by the Perfection Certificate, and such search shall reveal no material judgments and no liens on any of the assets of the Loan Parties except for Permitted Liens or Liens discharged on or prior to the Closing Date pursuant to a pay-off letter or other documentation reasonably satisfactory to the Agent.

(h) Pay-Off Letter.  The Agent shall have received a pay-off letter reasonably satisfactory to it in respect of the repayment of the Existing Credit Agreement from the proceeds of the Loans, confirming that all Liens upon any of the property of the Loan Parties constituting Collateral arising under the Existing Credit Agreement, if any, will be terminated concurrently with such payment and all letters of credit issued or guaranteed as part of such Indebtedness shall have been cash collateralized or supported by a letter of credit issued under the Senior Secured Asset-Based Revolving Credit Facility.

(i) Solvency.  The Agent shall have received a customary certificate from the chief financial officer of the Borrower certifying that Holdings and its Subsidiaries, on a consolidated basis after giving effect to the Transactions to occur on the Closing Date, are solvent (within the meaning of Section 3.13).

(j) Equity Contribution.  The Equity Contribution shall have been made in full.

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(k) Pledged Stock; Stock Powers; Pledged Notes.  The Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Security Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Agent pursuant to the Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.

(l) Perfection Certificate; Filings, Registrations and Recordings.  The Agent shall have received a completed Perfection Certificate dated the Closing Date and signed by a Responsible Officer of the Borrower, together with all attachments contemplated thereby.  Each document (including any Uniform Commercial Code financing statement) required by the Collateral Documents or under law or reasonably requested by the Agent to be filed, registered or recorded in order to create in favor of the Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Permitted Liens), shall be in proper form for filing, registration or recordation. The Agent, on behalf of the Lenders, shall have a security interest in the Collateral of the type and priority described in the Collateral Documents (subject to Liens expressly permitted by Section 6.02 and, subject to the terms of the Intercreditor Agreement, the Liens granted under the ABL Security Documents).

(m) Mortgages, etc.  The Agent shall have received, with respect to each Mortgaged Property, each of the following, in form and substance reasonably satisfactory to the Agent:

(i) a Mortgage on such property;

(ii) evidence that a counterpart of the Mortgage has been recorded or delivered to the appropriate title insurance company subject to arrangements reasonably satisfactory to the Agent for recording promptly following the closing hereunder, in each case, in the place necessary, in the Agent’s reasonable judgment, to create a valid and enforceable first priority Lien (subject to the Intercreditor Agreement) in favor of the Agent for the benefit of itself and the Lenders;

(iii) ALTA or other mortgagee’s title policy;

(iv) an opinion of counsel in the state in which such parcel of real property is located in form and substance and from counsel reasonably satisfactory to the Agent; and

(v) such other information, documentation, and certifications as may be reasonably required by the Agent.

provided, that, (i) the amount of debt secured by each Mortgage in any State that imposes a mortgage tax shall be reasonably limited to an amount less than the Commitments so as to avoid multiple mortgage tax assessments and (ii) notwithstanding the foregoing, the conditions set forth in this clause (m) shall be considered satisfied even if the Borrower does not deliver such items by the Closing Date, so long as the Borrower has used commercially reasonable efforts to obtain and deliver such items to Agent by the Closing Date.

(n) Closing Date Material Adverse Effect.  Since July 31, 2004 and except as contemplated by the Merger Agreement, there shall not have been any event, condition, development or occurrence that, has had, or would reasonably be expected to have, individually or in the aggregate, any change, circumstance, effect, event or occurrence that would be

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materially adverse to the assets, liabilities, business, financial condition or results of operations of Neiman Marcus and its subsidiaries taken as a whole, other than any change or effect resulting from (i) changes in general economic conditions, (ii) general changes or developments in the industries in which Neiman Marcus and its subsidiaries operate, (iii) the announcement of the Merger Agreement and the transactions contemplated thereby, including any termination of, reduction in or similar negative impact on relationships, contractual or otherwise, with any customers, suppliers, distributors, partners or employees of Neiman Marcus and its subsidiaries to the extent due to the announcement and performance of the Merger Agreement or the identity of the parties to the Merger Agreement, or the performance of the Merger Agreement and the transactions contemplated thereby, including compliance with the covenants set forth therein, (iv) any actions required under the Merger Agreement to obtain any approval or authorization under applicable antitrust or competition laws for the consummation of the merger contemplated by the Merger Agreement or (v) changes in any tax laws or regulations or applicable accounting regulations or principles, unless, in the case of the foregoing clauses (i) and (ii), such changes referred to therein have a disproportionate effect on Neiman Marcus and its subsidiaries taken as a whole relative to other participants in the industries in which Neiman Marcus and its subsidiaries operate.  For the purposes of this clause (n), “industries in which Neiman Marcus and its subsidiaries operate” means the luxury retail segments of the apparel, accessories, jewelry, beauty and decorative home products industries.

(o) Other Indebtedness.  The 2008 Notes Call for Redemption and the Existing Bank Debt Refinancing shall have been effected.  After giving effect to the Transactions and the other transactions contemplated hereby, Holdings, the Borrower and the Subsidiaries shall not have any outstanding Indebtedness or preferred stock other than (a) the Obligations, (b) Indebtedness under the Senior Secured Asset-Based Revolving Credit Facility, (c) the New Notes, (d) the 2028 Debentures, (e) preferred Equity Interests issued in connection with the Equity Contribution, if any, (f) the 2008 Notes and (g)  Indebtedness set forth on Schedule 6.01.

(p) Insurance.  The Agent shall have received evidence of insurance coverage in form, scope, and substance reasonably satisfactory to the Agent and otherwise in compliance with the terms of Section 5.10 and Section 4.11 of the Security Agreement.

(q) Merger.  The Merger shall be consummated substantially simultaneously with the making of the Loans, in accordance with the Merger Agreement (which shall not have been amended or modified prior to the Closing Date in a manner adverse to the Lenders in any material respect without the prior written consent of the Joint Lead Arrangers).

(r) Other Financing.  The Borrower shall have (i) received gross cash proceeds of not less than $1,200,000,000 from the issuance of the New Notes and (ii) obtained the Senior Secured Asset-Based Revolving Credit Facility.  The terms and conditions of the New Notes and the Senior Secured Asset-Based Revolving Credit Facility shall be reasonably satisfactory to the Agent.

(s) Intercreditor Agreement.  The Intercreditor Agreement shall have been duly executed and delivered by each party thereto, and shall be in full force and effect.

(t) PATRIOT Act.  The Agent shall have received all documentation and other information reasonably requested by it that is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act.

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The Agent shall notify the Borrower and the Lenders of the Closing Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 5:00 p.m., New York City time, on the Termination Date (as defined in the Merger Agreement) (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

ARTICLE V

Affirmative Covenants

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Lenders that:

SECTION 5.01.  Financial Statements and Other Information.  The Borrower will furnish to the Agent (which will promptly furnish such information to the Lenders):

(a) within ninety (90) days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of earnings, shareholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing and reasonably acceptable to the Agent (without a “going concern” or like qualification or exception or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly, in all material respects, the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP;

(b) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of earnings, shareholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly, in all material respects, the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;

(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower in substantially the form of Exhibit C (i) certifying that no Event of Default or Default has occurred and, if an Event of Default or Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto and (ii) setting forth, in the case of the financial statements delivered under clause (a), (x) the Borrower’s calculation of Excess Cash Flow for such fiscal year and (y) a list of names of all Immaterial Subsidiaries (if any), that each Subsidiary set forth on such list individually qualifies as an Immaterial Subsidiary and that all Domestic Subsidiaries listed as Immaterial Subsidiaries in the aggregate comprise less than 5% of Total Assets of the Borrower and the Subsidiaries at the end of the period to which such financial statements relate and

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represented (on a contribution basis) less than 5% of EBITDA for the period to which such financial statements relate;

(d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default or Event of Default (which certificate may be limited to the extent required by accounting rules or guidelines);

(e) concurrently with any delivery of consolidated financial statements under clause (a) or (b) above, the related unaudited consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements;

(f) within ninety (90) days after the beginning of each fiscal year, a detailed consolidated budget of the Borrower and its Subsidiaries for such fiscal year (including a projected consolidated balance sheet and the related consolidated statements of projected cash flows and projected income as of the end of and for such fiscal year), including a summary of the underlying material assumptions with respect thereto (collectively, the “Budget”), and, as soon as available, significant revisions, if any, of such Budget, which Budget or revisions thereto shall in each case be accompanied by the statement of a Financial Officer of the Borrower to the effect that, to the best of his knowledge, the Budget is a reasonable estimate for the period covered thereby;

(g) as soon as practicable upon the reasonable request of the Agent, deliver an updated Perfection Certificate (or, to the extent such request relates to specified information contained in the Perfection Certificate, such information) reflecting all changes since the date of the information most recently received pursuant to this clause (g) or Section 5.11;

(h) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials publicly filed by the Borrower or any Subsidiary with the SEC, or with any national securities exchange, or, after an initial public offering of shares of Capital Stock of the Borrower, distributed by the Borrower to its shareholders generally, as the case may be;

(i) promptly, a copy of any final “management letter” received from the Borrower’s independent public accountants to the extent such independent public accountants have consented to the delivery of such management letter to the Agent upon the request of the Borrower;

(j) promptly following the Agent’s request therefor, all documentation and other information that the Agent reasonably requests on its behalf or on behalf of any Lender in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act; and

(k) as promptly as reasonably practicable from time to time following the Agent’s request therefor, such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Agent may reasonably request (on behalf of itself or any Lender).

Notwithstanding the foregoing, the obligations in clauses (a) and (b) of this Section 5.01 may be satisfied with respect to financial information of the Borrower and its Subsidiaries by furnishing

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(A) the applicable financial statements of Holdings (or any direct or indirect parent of Holdings) or (B) the Borrower’s or Holdings’ (or any direct or indirect parent thereof), as applicable, Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect to each of clauses (A) and (B), (i) to the extent such information relates to Holdings (or a parent thereof), such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to Holdings (or such parent), on the one hand, and the information relating to the Borrower and its Subsidiaries on a standalone basis, on the other hand and (ii) to the extent such information is in lieu of information required to be provided under clause (a) of this Section 5.01, such materials are accompanied by a report and opinion of Deloitte & Touche LLP or other independent public accountants of recognized national standing and reasonably acceptable to the Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit.

Documents required to be delivered pursuant to clauses (a), (b) or (h) of this Section 5.01 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 9.01; or (ii) on which such documents are posted on the Borrower’s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that:  (i) upon written request by the Agent, the Borrower shall deliver paper copies of such documents to the Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Agent and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Agent of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents.  Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the compliance certificates required by clause (c) of this Section 5.01 to the Agent.

The financial statements required to be delivered pursuant to clause (b) of this Section 5.01 with respect to the first fiscal quarter after the Closing Date shall not be required to contain all purchase accounting adjustments relating to the Transactions to the extent it is not practicable to include any such adjustments in such financial statements.

SECTION 5.02.  Notices of Material Events.  The Borrower will furnish to the Agent written notice of the following promptly after any Responsible Officer of Holdings or the Borrower obtains knowledge thereof:

(a) the occurrence of any Event of Default or Default;

(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against Holdings, the Borrower or any of the Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect;

(c) any loss, damage, or destruction to the Collateral in the amount of $10,000,000 or more, whether or not covered by insurance;

(d) any and all default notices received under or with respect to any leased location or public warehouse where any material Collateral is located;

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(e) the occurrence of any ERISA Event that, together with all other ERISA Events that have occurred and are continuing, would reasonably be expected to have a Material Adverse Effect; and

(f) any other development that results in, or would reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section 5.02 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03.  Existence; Conduct of Business.  Each Loan Party will, and will cause each Subsidiary to, do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits (except as such would otherwise reasonably expire, be abandoned or permitted to lapse in the ordinary course of business), necessary or desirable in the normal conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except (i) other than with respect to Holdings’ or the Borrower’s existence, to the extent such failure to do so would not reasonably be expected to have a Material Adverse Effect or (ii) pursuant to a transaction permitted by Section 6.03.

SECTION 5.04.  Payment of Obligations.  Each Loan Party will, and will cause each Subsidiary to, pay or discharge all material Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Loan Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.05.  Maintenance of Properties.  Each Loan Party will, and will cause each Subsidiary to (a) at all times maintain and preserve all material property necessary to the normal conduct of its business in good repair, working order and condition, ordinary wear and tear excepted and casualty or condemnation excepted and (b) make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto as necessary in accordance with prudent industry practice in order that the business carried on in connection therewith, if any, may be properly conducted at all times, except, in each case, where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.06.  Books and Records; Inspection Rights.  Each Loan Party will, and will cause each Subsidiary to, (i) keep proper books of record and account in accordance with GAAP in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (ii) permit any representatives designated by the Agent (including employees of the Agent or any consultants, accountants, lawyers and appraisers retained by the Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, including environmental assessment reports and Phase I or Phase II studies, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested.

SECTION 5.07.  Maintenance of Ratings.  Holdings and the Borrower shall use their commercially reasonable efforts to cause the credit facilities provided for herein to be continuously rated by S&P and Moody’s.

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SECTION 5.08.  Compliance with Laws.  Each Loan Party will, and will cause each Subsidiary to, comply in all material respects with all Requirements of Law applicable to it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.09.  Use of Proceeds.  The proceeds of the Loans will be used only for the purposes specified in the introductory statement to this Agreement.  No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that would entail a violation of Regulations T, U or X.

SECTION 5.10.  Insurance.  Each Loan Party will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies (a) insurance in such amounts and against such risks, as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations (after giving effect to any self-insurance reasonable and customary for similarly situated companies) and (b) all insurance required pursuant to the Collateral Documents (and shall cause the Agent to be listed as a loss payee (together with any other loss payee in accordance with the Intercreditor Agreement) on property and casualty policies covering loss or damage to Collateral and as an additional insured on liability policies).  The Borrower will furnish to the Agent, upon request, information in reasonable detail as to the insurance so maintained.

SECTION 5.11.  Additional Collateral; Further Assurances.  (a)  Subject to applicable law, the Borrower and each Subsidiary that is a Loan Party shall cause (i) each of its Domestic Subsidiaries (other than any Immaterial Subsidiary (except as otherwise provided in paragraph (e) of this Section 5.11) or Unrestricted Subsidiary) formed or acquired after the date of this Agreement in accordance with the terms of this Agreement that is required to become a Subsidiary Guarantor pursuant to Section 6.08 and (ii) any such Domestic Subsidiary that was an Immaterial Subsidiary but, as of the end of the most recently ended fiscal quarter of the Borrower has ceased to qualify as an Immaterial Subsidiary, to become a Loan Party as promptly thereafter as reasonably practicable by executing a Joinder Agreement in substantially the form set forth as Exhibit D hereto (the “Joinder Agreement”). Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents and (ii) will simultaneously therewith or as soon as practicable thereafter grant Liens to the Agent, for the benefit of the Agent and the Lenders and each other Secured Party at such time party to or benefiting from the Intercreditor Agreement or the Security Agreement (including, if applicable, the holders of the 2028 Debentures or the 2008 Notes), in each case to the extent required by the terms thereof, in any property (subject to the limitations with respect to Equity Interests set forth in paragraph (b) of this Section 5.11, the limitations with respect to real property set forth in paragraph (f) of this Section 5.11 and any other limitations set forth in the Security Agreement) of such Loan Party which constitutes Collateral, on such terms as may be required pursuant to the terms of the Collateral Documents and in such priority as may be required pursuant to the terms of the Intercreditor Agreement.

(b)  The Borrower and each Subsidiary that is a Loan Party will cause (i) 100% of the issued and outstanding Equity Interests of each of its Domestic Subsidiaries, other than any Domestic Subsidiary taxed as a partnership for federal income tax purposes that holds Capital Stock of a Foreign Subsidiary whose Equity Interests are pledged pursuant to clause (ii) below, and (ii) 65% of the issued and outstanding Equity Interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and outstanding Equity Interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) in each Foreign Subsidiary directly owned by the Borrower or any Subsidiary that is a Loan Party to be subject at all times to a first priority perfected Lien in favor of the Agent pursuant to the terms and conditions of the Loan Documents or other security documents as the Agent shall reasonably request; provided, however this paragraph (b) shall not require the Borrower or

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any Subsidiary to grant a security interest in (i) any Equity Interests of a Subsidiary to the extent a pledge of such Equity Interests in favor of the Agent or to secure any debt securities of the Borrower or any Subsidiary that would be entitled to such a security interest would require separate financial statements of a Subsidiary to be filed with the SEC (or any other government agency) under Rule 3-10 or Rule 3-16 of Regulation S-X under the Securities Act (or any successor thereto) or any other law, rule or regulation or (ii) the Equity Interests of any Unrestricted Subsidiary.

(c)  Without limiting the foregoing, each Loan Party will, and will cause each Subsidiary that is a Loan Party to, execute and deliver, or cause to be executed and delivered, to the Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Article IV, as applicable (including the delivery of the items contemplated by paragraph (m) thereof to the extent the Borrower has been unable to deliver such items by the Closing Date after having used its commercially reasonable efforts to obtain and deliver such items by the Closing Date)), which may be required by law or which the Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties.

(d)  Subject to the limitations set forth or referred to in this Section 5.11, if any material assets (including any real property or improvements thereto or any interest therein) are acquired by the Borrower or any Subsidiary that is a Loan Party after the Closing Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien in favor of the Agent upon acquisition thereof), the Borrower will notify the Agent and the Lenders thereof, and, if requested by the Agent or the Required Lenders, the Borrower will cause such assets to be subjected to a Lien securing the Secured Obligations and will take, and cause the Loan Parties that are Subsidiaries to take, such actions as shall be necessary or reasonably requested by the Agent to grant and perfect such Liens, including actions described in paragraph (c) of this Section, all at the expense of the Loan Parties.

(e)  If, at any time and from time to time after the Closing Date, Subsidiaries that are not Loan Parties because they are Immaterial Subsidiaries comprise in the aggregate more than 5% of Total Assets as of the end of the most recently ended fiscal quarter of the Borrower or more than 5% of EBITDA of the Borrower and the Restricted Subsidiaries for the period of four consecutive fiscal quarters as of the end of the most recently ended fiscal quarter of the Borrower, then the Borrower shall, not later than 45 days after the date by which financial statements for such quarter are required to be delivered pursuant to this Agreement, cause one or more such Subsidiaries to become additional Loan Parties (notwithstanding that such Subsidiaries are, individually, Immaterial Subsidiaries) such that the foregoing condition ceases to be true.

(f)  Notwithstanding anything to the contrary in this Section 5.11, real property required to be mortgaged under this Section 5.11 shall be limited to real property located in the U.S. that are full-line Neiman Marcus retail stores owned in fee by a Loan Party or leased by a Loan Party pursuant to a financeable lease or other real property owned in fee by a Loan Party having a fair market value at the time of the acquisition thereof of $5,000,000 or more (provided that the cost of perfecting such Lien is not unreasonable in relation to the benefits to the Lenders of the security afforded thereby in the Agent’s reasonable judgment after consultation with the Borrower; provided further that the Borrower shall use commercially reasonable efforts to ensure that all leases entered into after the Closing Date by the Borrower and the other Loan Parties will be financeable leases).

(g)  Notwithstanding anything to the contrary contained herein, the Loan Parties shall not be required to include as Collateral any Excluded Assets (as defined in the Security Agreement).

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SECTION 5.12.  Maintenance of Corporate Separateness.  Each Loan Party will, and will cause each Subsidiary to, satisfy customary corporate or limited liability company formalities, including the maintenance of corporate and business records.

SECTION 5.13.  2008 Notes Redemption.  Within forty (40) days after the Closing Date, the Borrower shall deposit with the trustee under the indenture governing the 2008 Notes sufficient funds for the full satisfaction and discharge of the entire outstanding principal amount of the 2008 Notes.

ARTICLE VI

Negative Covenants

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees, expenses and other amounts payable under any Loan Document have been paid in full, the Loan Parties covenant and agree, jointly and severally, with the Lenders that:

SECTION 6.01.  Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.  (a)  The Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise (collectively, “incur” and collectively, an “incurrence”) with respect to any Indebtedness (including Acquired Indebtedness), and the Borrower will not issue any shares of Disqualified Stock and will not permit any Restricted Subsidiary to issue any shares of Disqualified Stock or Preferred Stock; provided that the Borrower may incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock, and any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness), issue shares of Disqualified Stock or issue shares of Preferred Stock, if the Fixed Charge Coverage Ratio on a consolidated basis for the Borrower’s and its Restricted Subsidiaries’ most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of the proceeds therefrom had occurred at the beginning of such four-quarter period; provided that the amount of Indebtedness (including Acquired Indebtedness), Disqualified Stock and Preferred Stock that may be incurred or issued, as applicable, pursuant to the foregoing by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed $100,000,000 at any one time outstanding;

(b)  The limitations set forth in paragraph (a) of this Section 6.01 shall not apply to any of the following items (collectively, “Permitted Debt”):

(i) Indebtedness incurred pursuant to the Senior Secured Asset-Based Revolving Credit Facility by the Borrower or any Restricted Subsidiary; provided that immediately after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (i) and then outstanding does not exceed the greater of (A) $800,000,000 less up to $150,000,000 in the aggregate of all principal payments with respect to such Indebtedness made pursuant to Section 2.20(b)(i)(A) and (B) the lesser of (1) 80% of the value of the eligible inventory of the Borrower and its Restricted Subsidiaries valued at the lower of cost or market value and (2) 85% of the net orderly liquidation value of the eligible inventory of the Borrower and its Restricted Subsidiaries;

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(ii) Indebtedness incurred pursuant to the Senior Secured Term Loan Facility by the Borrower or any Restricted Subsidiary; provided that after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (ii) and then outstanding does not exceed $1,975,000,000 less up to $250,000,000 in the aggregate of all principal payments with respect to such Indebtedness made pursuant to Section 2.20(a)(i) or Section 2.20(b)(i)(A);

(iii) the incurrence by the Borrower and any Subsidiary Guarantor of Indebtedness represented by the Senior Notes issued on the Closing Date (including any guarantees thereof) and the exchange notes and related exchange guarantees to be issued in exchange for the Senior Notes pursuant to the Registration Rights Agreement (other than any Additional Senior Notes (as defined in the Senior Notes Indenture));

(iv) the incurrence by the Borrower and any Subsidiary Guarantor of Indebtedness represented by the Senior Subordinated Notes issued on the Closing Date (including any guarantees thereof) and the exchange notes and related exchange guarantees to be issued in exchange for the Senior Subordinated Notes pursuant to the Registration Rights Agreement (other than any Additional Senior Subordinated Notes (as defined in the Senior Subordinated Notes Indenture));

(v) Indebtedness existing on the date hereof and set forth in Schedule 6.01;

(vi) Indebtedness (including Capitalized Lease Obligations), Disqualified Stock and Preferred Stock incurred by the Borrower or any of the Restricted Subsidiaries, to finance the development, construction, purchase, lease (other than the lease, pursuant to Sale and Lease-Back Transactions, of property (real or personal), equipment or other fixed or capital assets owned by the Borrower or any Restricted Subsidiary as of the Closing Date or acquired by the Borrower or any Restricted Subsidiary after the Closing Date in exchange for, or with the proceeds of the sale of, such assets owned by the Borrower or any Restricted Subsidiary as of the Closing Date), repairs, additions or improvement of property (real or personal), equipment or other fixed or capital assets that are used or useful in a Similar Business, whether through the direct purchase of assets or the Capital Stock of any Person owning such assets; provided that the aggregate amount of Indebtedness, Disqualified Stock and Preferred Stock incurred pursuant to this clause (vi) does not exceed $250,000,000 at any one time outstanding;

(vii) Indebtedness incurred by the Borrower or any Restricted Subsidiary constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including letters of credit in respect of workers’ compensation claims, or other Indebtedness with respect to reimbursement type obligations regarding workers’ compensation claims; provided that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within thirty (30) days following such drawing or incurrence;

(viii) Indebtedness arising from agreements of the Borrower or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or subsidiary for the purpose of financing such acquisition; provided that (A) such Indebtedness is not reflected on the balance sheet of the Borrower or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not

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otherwise reflected on the balance sheet shall not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Borrower and the Restricted Subsidiaries in connection with such disposition;

(ix) Indebtedness of the Borrower to a Restricted Subsidiary; provided that any such Indebtedness owing to a Restricted Subsidiary that is not a Subsidiary Guarantor is subordinated in right of payment to the Obligations; provided, further, that that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Borrower or another Restricted Subsidiary) shall be deemed, in each case, to be an incurrence of such Indebtedness;

(x) Indebtedness of a Restricted Subsidiary to the Borrower or another Restricted Subsidiary; provided that if a Subsidiary Guarantor incurs such Indebtedness to a Restricted Subsidiary that is not a Subsidiary Guarantor such Indebtedness is subordinated in right of payment to the obligations of such Subsidiary Guarantor under its Loan Guaranty; provided, further, that any subsequent issuance or transfer of Capital Stock or any other event that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of any such Indebtedness (except to the Borrower or another Restricted Subsidiary) shall be deemed, in each case, to be an incurrence of such Indebtedness;

(xi) shares of Preferred Stock of a Restricted Subsidiary issued to the Borrower or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to the Borrower or another Restricted Subsidiary) shall be deemed, in each case, to be an issuance of such shares of Preferred Stock;

(xii) Hedging Obligations (excluding Hedging Obligations entered into for speculative purposes) for the purpose of limiting: (A) interest rate risk with respect to any Indebtedness that is permitted under this Agreement to be outstanding, (B) exchange rate risk with respect to any currency exchange or (C) commodity pricing risk with respect to any commodity;

(xiii) obligations in respect of performance, bid, appeal and surety bonds and completion guarantees and similar obligations provided by the Borrower or any Restricted Subsidiary in the ordinary course of business;

(xiv) (A) any guarantee by the Borrower or a Restricted Subsidiary of Indebtedness or other obligations of any Restricted Subsidiary, so long as the incurrence of such Indebtedness by such Restricted Subsidiary is permitted under the terms of this Agreement or (B) any guarantee by a Restricted Subsidiary of Indebtedness of the Borrower permitted to be incurred under the terms of this Agreement; provided that such guarantee is incurred in accordance with Section 6.08;

(xv) the incurrence by the Borrower or any Restricted Subsidiary of Indebtedness, Disqualified Stock or Preferred Stock that serves to extend, replace, refund, refinance, renew or defease any Indebtedness, Disqualified Stock or Preferred Stock incurred as permitted under

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paragraph (a) of this Section 6.01 and clauses (iii), (iv), (v) and (vi) above, this clause (xv) and clauses (xvi) and (xxii)(B) of this paragraph (b) or any Indebtedness, Disqualified Stock or Preferred Stock issued to so extend, replace, refund, refinance, renew or defease such Indebtedness, Disqualified Stock or Preferred Stock including additional Indebtedness, Disqualified Stock or Preferred Stock incurred to pay premiums and fees in connection therewith (the “Refinancing Indebtedness”) prior to its respective maturity; provided, however, that such Refinancing Indebtedness (A) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred which is not less than the remaining Weighted Average Life to Maturity of the Indebtedness, Disqualified Stock or Preferred Stock being extended, replaced, refunded, refinanced, renewed or defeased (provided that this clause (A) shall not apply to any refunding or refinancing of any Senior Indebtedness outstanding under the 2028 Debentures), (B) to the extent such Refinancing Indebtedness extends, replaces, refunds, refinances, renews or defeases (1) Indebtedness subordinated to the Obligations or the Loan Guaranty of any Subsidiary Guarantor, such Refinancing Indebtedness is subordinated to the Obligations or such Loan Guaranty at least to the same extent as the Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased or (2) Disqualified Stock or Preferred Stock, such Refinancing Indebtedness must be Disqualified Stock or Preferred Stock, respectively, and (C) shall not include (1) Indebtedness, Disqualified Stock or Preferred Stock of a subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of the Borrower, (2) Indebtedness, Disqualified Stock or Preferred Stock of a subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary Guarantor or (3) Indebtedness, Disqualified Stock or Preferred Stock of the Borrower or a Restricted Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of an Unrestricted Subsidiary;

(xvi) Indebtedness, Disqualified Stock or Preferred Stock (x) of the Borrower or any of its Restricted Subsidiaries incurred to finance the acquisition of any Person or assets or (y) of Persons that are acquired by the Borrower or any Restricted Subsidiary or merged into the Borrower or a Restricted Subsidiary in accordance with the terms of this Agreement; provided that either (A) after giving effect to such acquisition or merger, either (1) the Borrower would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in paragraph (a) of this Section 6.01; or (2) the Fixed Charge Coverage Ratio of the Borrower and the Restricted Subsidiaries on a consolidated basis is greater than immediately prior to such acquisition or merger; or (B) such Indebtedness, Disqualified Stock or Preferred Stock (1) is not Secured Indebtedness and is Subordinated Indebtedness with subordination terms no more favorable to the holders thereof than the subordination terms set forth in the indenture governing the Senior Subordinated Notes as in effect on the Closing Date, (2) is not incurred while a Default exists and no Default shall result therefrom, (3) does not mature (and is not mandatorily redeemable in the case of Disqualified Stock or Preferred Stock) and does not require any payment of principal prior to Maturity Date and (4) in the case of clause (y) above only, is not incurred in contemplation of such acquisition or merger;

(xvii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within two (2) Business Days of its incurrence;

(xviii) Indebtedness of the Borrower or any Restricted Subsidiary supported by a letter of credit issued pursuant to the Senior Secured Asset-Based Revolving Credit Facility, in a principal amount not in excess of the stated amount of such letter of credit;

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(xix) Indebtedness, Disqualified Stock or Preferred Stock of a Restricted Subsidiary incurred to finance or assumed in connection with an acquisition which, when aggregated with the principal amount of all other Indebtedness, Disqualified Stock and Preferred Stock incurred pursuant to this clause (xix) and then outstanding, does not exceed $75,000,000 (it being understood that any Indebtedness, Disqualified Stock and Preferred Stock incurred pursuant to this clause (xix) shall cease to be deemed incurred or outstanding for purposes of this clause (xix) but shall be deemed incurred pursuant to paragraph (a) of this Section 6.01 from and after the first date on which the Borrower or such Restricted Subsidiary could have incurred such Indebtedness, Disqualified Stock or Preferred Stock pursuant to paragraph (a) of this Section 6.01 without reliance on this clause (xix));

(xx) Indebtedness incurred by a Foreign Subsidiary which, when aggregated with the principal amount of all other Indebtedness incurred pursuant to this clause (xx) and then outstanding, does not exceed 5.0% of Foreign Subsidiary Total Assets (it being understood that any Indebtedness, Disqualified Stock and Preferred Stock incurred pursuant to this clause (xx) shall cease to be deemed incurred or outstanding for purposes of this clause (xx) but shall be deemed incurred pursuant to paragraph (a) of this Section 6.01 from and after the first date on which the Borrower or such Restricted Subsidiary could have incurred such Indebtedness, Disqualified Stock or Preferred Stock pursuant to paragraph (a) of this Section 6.01 without reliance on this clause (xx));

(xxi) Indebtedness consisting of Indebtedness issued by the Borrower or any Restricted Subsidiary to current or former officers, managers, directors and employees thereof, their respective estates, spouses or former spouses, in each case to finance the purchase or redemption of Equity Interests of the Borrower or any direct or indirect parent company of the Borrower to the extent described in Section 6.04(b)(iv);

(xxii) Indebtedness, Disqualified Stock and Preferred Stock of the Borrower or any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount or liquidation preference, which, when aggregated with the principal amount and liquidation preference of all other Indebtedness, Disqualified Stock and Preferred Stock incurred pursuant to this clause (xxii) and then outstanding, does not at any one time outstanding exceed the sum of (A) $175,000,000 (it being understood that any Indebtedness, Disqualified Stock and Preferred Stock incurred pursuant to this clause (xxii)(A) shall cease to be deemed incurred or outstanding for purposes of this clause (xxii)(A) but shall be deemed incurred pursuant to paragraph (a) of this Section 6.01 from and after the first date on which the Borrower or such Restricted Subsidiary could have incurred such Indebtedness, Disqualified Stock or Preferred Stock pursuant to paragraph (a) of this Section 6.01 without reliance on this clause (xxii)(A)), plus (B) 200% of the net cash proceeds received by the Borrower since after the Closing Date from the issue or sale of Equity Interests of the Borrower or cash contributed to the capital of the Borrower (in each case, other than proceeds of Disqualified Stock or sales of Equity Interests to the Borrower or any of its subsidiaries) as determined in accordance with Sections 6.04(a)(iii)(B) and (a)(iii)(C) to the extent such net cash proceeds or cash have not been applied pursuant to such clauses to make Restricted Payments or to make other investments, payments or exchanges pursuant to Section 6.04(b) or to make Permitted Investments (other than Permitted Investments specified in clauses (a) and (c) of the definition thereof); and

(xxiii) Attributable Debt incurred by the Borrower or any Restricted Subsidiary pursuant to Sale and Lease-Back Transactions of property (real or personal), equipment or other fixed or capital assets owned by the Borrower or any Restricted Subsidiary as of the Closing Date or

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acquired by the Borrower or any Restricted Subsidiary after the Closing Date in exchange for, or with the proceeds of the sale of, such assets owned by the Borrower or any Restricted Subsidiary as of the Closing Date, provided that the aggregate amount of Attributable Debt incurred under this clause (xxiii) does not exceed $100,000,000.

(c)  For purposes of determining compliance with this Section 6.01, in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xxiii) of paragraph (b) of this Section 6.01 or is entitled to be incurred pursuant to paragraph (a) of this Section 6.01, the Borrower, in its sole discretion, shall classify or reclassify, or later divide, classify or reclassify, such item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) and shall only be required to include the amount and type of such Indebtedness, Disqualified Stock or Preferred Stock in one or more of the above clauses; provided that all Indebtedness outstanding under the Senior Secured Asset-Based Revolving Credit Facility and the term loan facility provided for herein on the Closing Date shall be deemed to have been incurred on such date in reliance on the exception in clauses (i) and (ii) of the definition of “Permitted Debt”.

(d)  The accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness, Disqualified Stock or Preferred Stock shall not be deemed to be an incurrence of Indebtedness, Disqualified Stock or Preferred Stock for purposes of this Section 6.01.

(e)  For purposes of determining compliance with any Dollar-denominated restriction on the incurrence of Indebtedness, the Dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case of revolving credit debt; provided that if such Indebtedness is incurred to extend, replace, refund, refinance, renew or defease other Indebtedness denominated in a foreign currency, and such extension, replacement, refunding, refinancing, renewal or defeasance would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such extension, replacement, refunding, refinancing, renewal or defeasance, such Dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased.

(f)  The principal amount of any Indebtedness incurred to extend, replace, refund, refinance, renew or defease other Indebtedness, if incurred in a different currency from the Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such extension, replacement, refunding, refinancing, renewal or defeasance.

SECTION 6.02.  Limitation on Liens.  Holdings and the Borrower will not, and the Borrower will not permit any of the Subsidiary Guarantors to, directly or indirectly, create, incur, assume or suffer to exist any Lien (the “Initial Lien”) that secures obligations under any Indebtedness on any asset or property of Holdings, the Borrower or any Subsidiary Guarantor now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom, except:

(a) in the case of the Term Loan First Lien Collateral, any Initial Lien if (i) such Initial Lien expressly ranks junior to the first-priority security interest intended to be created in favor of the Agent for the benefit of the Term Loan Secured Parties (as defined in the Intercreditor Agreement) pursuant to the Collateral Documents; provided, however, that the terms of such

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junior interest shall be no more favorable to the beneficiaries thereof than the terms contained in the Intercreditor Agreement; or (ii) such Initial Lien is a Permitted Collateral Lien;

(b) in the case of the Revolving Facility First Lien Collateral, any Initial Lien if (i) the Obligations or the applicable Loan Guaranty of a Loan Party, as the case may be, are equally and ratably secured on a second-priority basis by such Revolving Facility First Lien Collateral until such time as such Initial Lien is released (other than through the exercise of remedies with respect thereto) or (ii) such Initial Lien is a Permitted Lien; and

(c) in the case of any other asset or property, any Initial Lien if (i) the Obligations or the applicable Loan Guaranty of a Loan Party, as the case may be, are equally and ratably secured with (or on a senior basis to, in the case such Initial Lien secures any Subordinated Indebtedness) the obligations secured by such Initial Lien or (ii) such Initial Lien is a Permitted Lien.

Any Lien created for the benefit of the Secured Parties pursuant to clause (b) or (c) of the preceding paragraph shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien (other than through the exercise of remedies with respect thereto).

SECTION 6.03.  Merger, Consolidation or Sale of All or Substantially All Assets. 
(a)  The Borrower shall not consolidate or merge with or into or wind up into (whether or not the Borrower is the surviving entity), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:

(i) the Borrower is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Borrower) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States of America, any state thereof, the District of Columbia, or any territory thereof (the Borrower or such Person, as the case may be, being herein called the “Successor Borrower”);

(ii) the Successor Borrower, if other than the Borrower, expressly assumes all the obligations of the Borrower under this Agreement and the other Loan Documents pursuant to supplements to the Loan Documents or other documents or instruments in form reasonably satisfactory to the Agent;

(iii) immediately after such transaction, no Default exists;

(iv) immediately after giving pro forma effect to such transaction, as if such transaction had occurred at the beginning of the applicable four-quarter period, (A) the Successor Borrower would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 6.01(a) or (B) the Fixed Charge Coverage Ratio for the Successor Borrower and the Restricted Subsidiaries on a consolidated basis would be greater than such ratio for the Borrower and the Restricted Subsidiaries immediately prior to such transaction;

(v) each Loan Guarantor, unless it is the other party to the transactions described above (in which case clause (i)(B) of paragraph (c) of this Section 6.03 or clause (ii) of paragraph (e) of this Section 6.03, as applicable, shall apply) shall have by supplement to the Loan Documents confirmed that its guarantee of the Obligations shall apply to such Person’s obligations under the Loan Documents and the Loans; and

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(vi) the Borrower shall have delivered to the Agent an Officers’ Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplements to the Loan Documents, if any, comply with this Agreement and the other Loan Documents.

(b)  The Successor Borrower shall succeed to, and be substituted for, the Borrower under this Agreement and the other Loan Documents and, except in the case of a lease transaction, the predecessor Borrower will be released from its obligations hereunder and thereunder.  Notwithstanding clauses (iii) and (iv) of paragraph (a) of this Section 6.03, (i) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to, the Borrower, and (ii) the Borrower may merge with an Affiliate of the Borrower incorporated solely for the purpose of reincorporating the Borrower in another state of the United States of America so long as the amount of Indebtedness of the Borrower and the Restricted Subsidiaries is not increased thereby.

(c)  Subject to Section 10.12, no Subsidiary Guarantor shall, and the Borrower shall not permit any Subsidiary Guarantor to, consolidate or merge with or into or wind up into (whether or not such Subsidiary Guarantor is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person unless:

(i) (A) such Subsidiary Guarantor is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States of America, any state thereof, the District of Columbia, or any territory thereof (such Subsidiary Guarantor or such Person, as the case may be, being herein called the “Successor Person”), (B) the Successor Person, if other than such Subsidiary Guarantor, expressly assumes all the obligations of such Subsidiary Guarantor under such Subsidiary Guarantor’s Loan Guaranty and the other Loan Documents, pursuant to a Joinder Agreement and supplements to the Loan Documents or other documents or instruments in form reasonably satisfactory to the Agent, (C) immediately after such transaction, no Default exists and (D) the Borrower shall have delivered to the Agent an Officers’ Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such Joinder Agreement and supplements, if any, comply with this Agreement and the other Loan Documents; or

(ii) the transaction is made in compliance with Section 2.20.

(d)  The Successor Person shall succeed to, and be substituted for, such Subsidiary Guarantor under such Subsidiary Guarantor’s Loan Guaranty and the other Loan Documents and, except in the case of a lease transaction, such Subsidiary Guarantor will be released from its obligations thereunder.  Notwithstanding the foregoing, any Subsidiary Guarantor may merge into or transfer all or part of its properties and assets to another Subsidiary Guarantor or the Borrower.

(e)  Holdings will not consolidate or merge with or into or wind up into (whether or not Holdings is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person unless (i) Holdings is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than Holdings) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States of America, any state thereof, the District of Columbia, or any territory thereof (Holdings or such Person, as the case may be, being herein called the “Successor Holdings Guarantor”), (ii) the Successor Holdings Guarantor, if other than Holdings, expressly assumes all the obligations of Holdings under

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Holdings’ Loan Guaranty and the other Loan Documents, pursuant to a Joinder Agreement or other supplements or other documents or instruments in form reasonably satisfactory to the Agent, (iii) immediately after such transaction, no Event of Default or payment Default exists and (iv) the Borrower shall have delivered to the Agent an Officers’ Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the Joinder Agreement and such supplements or other documents or instruments, if any, comply with this Agreement.

(f)  The Successor Holdings Guarantor will succeed to, and be substituted for, Holdings under Holdings’ Loan Guaranty and the other Loan Documents and, except in the case of a lease transaction, the predecessor Holdings will be released from its obligations thereunder.  Notwithstanding the foregoing, Holdings may merge into or transfer all or part of its properties and assets to a Subsidiary Guarantor or the Borrower, and Holdings may merge with an Affiliate of the Borrower incorporated solely for the purpose of reincorporating Holdings in another state of the United States of America so long as the amount of Indebtedness of Holdings, the Borrower and the Restricted Subsidiaries is not increased thereby.

(g)  Notwithstanding the foregoing, the Merger shall be permitted without compliance with this Section 6.03.

(h)  For purposes of this Section 6.03, the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more subsidiaries of the Borrower or Holdings, as applicable, which properties and assets, if held by the Borrower or Holdings, as applicable, instead of such subsidiaries, would constitute all or substantially all of the properties and assets of the Borrower and its subsidiaries on a consolidated basis or Holdings and its subsidiaries on a consolidated basis, as applicable, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Borrower or Holdings, as applicable.

SECTION 6.04.  Limitation on Restricted Payments.  (a)  The Borrower shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly (w) declare or pay any dividend or make any distribution on account of the Borrower’s or any Restricted Subsidiary’s Equity Interests, including any dividend or distribution payable in connection with any merger or consolidation, other than (A) dividends or distributions by the Borrower payable in Equity Interests (other than Disqualified Stock) of the Borrower or (B) dividends or distributions by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly-Owned Subsidiary, the Borrower or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities, (x) purchase, redeem, defease or otherwise acquire or retire for value any Equity Interests of the Borrower or any direct or indirect parent of the Borrower, including in connection with any merger or consolidation, (y) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value in each case, prior to any scheduled repayment, sinking fund payment or maturity, any Subordinated Indebtedness other than (A) Indebtedness permitted under clauses (ix) and (x) of Section 6.01(b) or (B) the purchase, repurchase or other acquisition of Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition or (z) make any Restricted Investment (all such payments and other actions set forth in clauses (w) through (z) above being collectively referred to as “Restricted Payments”), unless, at the time of such Restricted Payment:

(i) no Default shall have occurred and be continuing or would occur as a consequence thereof;

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(ii) immediately after giving effect to such transaction on a pro forma basis, the Borrower could incur $1.00 of additional Indebtedness under Section 6.01(a); and

(iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Borrower and the Restricted Subsidiaries after the Closing Date pursuant paragraph (a) of this Section 6.04 or clauses (i), (ii) (with respect to the payment of dividends on Refunding Capital Stock pursuant to clause (B) thereof only), (vi)(C), (viii) and (xii) of paragraph (b) of this Section 6.04 (and excluding, for the avoidance of doubt, all other Restricted Payments made pursuant to paragraph (b) of this Section 6.04), is less than the sum, without duplication, of:

(A) 50% of the Consolidated Net Income of the Borrower for the period (taken as one accounting period) from August 1, 2005 to the end of the Borrower’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment, or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit, provided that if, at the time of a proposed Restricted Payment under paragraph (a) of this Section 6.04, the Consolidated Leverage Ratio of the Borrower is less than 4.50 to 1.00, for purposes of calculating availability of amounts hereunder for such Restricted Payment only, the reference to 50% in this clause (A) above shall be deemed to be 75%, plus

(B) 100% of the aggregate net cash proceeds and the fair market value, as determined in good faith by the Borrower, of marketable securities or other property received by the Borrower after the Closing Date (less the amount of such net cash proceeds to the extent such amount has been relied upon to permit the incurrence of Indebtedness or issuance of Disqualified Stock or Preferred Stock pursuant to Section 6.01(b)(xxii)(B)) from the issue or sale of (x) Equity Interests of the Borrower, including Retired Capital Stock, but excluding cash proceeds and the fair market value, as determined in good faith by the Borrower, of marketable securities or other property received from the sale of (1) Equity Interests to any future, present or former employees, directors, managers or consultants of the Borrower, any direct or indirect parent company of the Borrower or any of the Borrower’s subsidiaries after the Closing Date to the extent such amounts have been applied to Restricted Payments made in accordance with clause (iv) of paragraph (b) of this Section 6.04 and (2) Designated Preferred Stock, and to the extent actually contributed to the Borrower, Equity Interests of the Borrower’s direct or indirect parent companies (excluding contributions of the proceeds from the sale of Designated Preferred Stock of such companies or contributions to the extent such amounts have been applied to Restricted Payments made in accordance with clause (iv) of paragraph (b) of this Section 6.04) or (y) debt securities of the Borrower that have been converted into or exchanged for such Equity Interests of the Borrower; provided that this clause (B) shall not include the proceeds from (I) Refunding Capital Stock, (II) Equity Interests of the Borrower or debt securities of the Borrower that have been converted into or exchanged for Equity Interests of the Borrower sold to a Restricted Subsidiary or the Borrower, as the case may be, (III) Disqualified Stock or debt securities that have been converted into or exchanged for Disqualified Stock or (IV) Excluded Contributions, plus

(C) 100% of the aggregate amount of cash and the fair market value, as determined in good faith by the Borrower, of marketable securities or other property contributed to the capital of the Borrower after the Closing Date (less the amount of such net cash proceeds to the extent such amount has been relied upon to permit the incurrence

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of Indebtedness or issuance of Disqualified Stock or Preferred Stock pursuant to Section 6.01(b)(xxii)(B)) (other than by a Restricted Subsidiary and other than by any Excluded Contributions), plus

(D) to the extent not already included in Consolidated Net Income, 100% of the aggregate amount received in cash and the fair market value, as determined in good faith by the Borrower, of marketable securities or other property received after the Closing Date by means of (1) the sale or other disposition (other than to the Borrower or a Restricted Subsidiary) of Restricted Investments made by the Borrower or any Restricted Subsidiary and repurchases and redemptions of such Restricted Investments from the Borrower or any Restricted Subsidiary and repayments of loans or advances that constitute Restricted Investments by the Borrower or any Restricted Subsidiary or (2) the sale (other than to the Borrower or a Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary (other than Kate Spade) or a distribution from an Unrestricted Subsidiary (other than an Extraordinary Distribution) (other than in each case to the extent the Investment in such Unrestricted Subsidiary was made by the Borrower or a Restricted Subsidiary pursuant to clauses (ix) or (xiii) of paragraph (b) of this Section 6.04 or to the extent such Investment constituted a Permitted Investment) or a dividend from an Unrestricted Subsidiary (other than an Extraordinary Distribution), plus

(E) in the case of the redesignation of an Unrestricted Subsidiary (other than Kate Spade) as a Restricted Subsidiary after the Closing Date, the fair market value of the Investment in such Unrestricted Subsidiary, as determined by the Borrower in good faith or if, in the case of an Unrestricted Subsidiary, such fair market value may exceed $125,000,000, in writing by an Independent Financial Advisor, at the time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary, other than an Unrestricted Subsidiary to the extent the Investment in such Unrestricted Subsidiary was made by the Borrower or a Restricted Subsidiary pursuant to clauses (ix) or (xiii) of paragraph (b) of this Section 6.04 or to the extent such Investment constituted a Permitted Investment.

(b)  The provisions of paragraph (a) of this Section 6.04 shall not prohibit:

(i) the payment of any dividend or distribution within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of this Agreement;

(ii) (A) the redemption, repurchase, retirement or other acquisition of any Equity Interests (“Retired Capital Stock”) or Subordinated Indebtedness of the Borrower or any Equity Interests of any direct or indirect parent company of the Borrower, in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, Equity Interests of the Borrower (in each case, other than any Disqualified Stock) (“Refunding Capital Stock”) and (B) if immediately prior to the retirement of Retired Capital Stock, the declaration and payment of dividends thereon was permitted under clause (vi) of this paragraph (b), the declaration and payment of dividends on the Refunding Capital Stock (other than Refunding Capital Stock the proceeds of which were used to redeem, repurchase, retire or otherwise acquire any Equity Interests of any direct or indirect parent company of the Borrower) in an aggregate amount per year no greater than the aggregate amount of dividends per annum that was declarable and payable on such Retired Capital Stock immediately prior to such retirement;

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(iii) the defeasance, redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of the Borrower or a Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness of such Person that is incurred in compliance with Section 6.01 so long as (A) the principal amount of such new Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Subordinated Indebtedness being so defeased, redeemed, repurchased, acquired or retired for value, plus the amount of any reasonable premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness being so defeased, redeemed, repurchased, acquired or retired and any reasonable fees and expenses incurred in connection with the issuance of such new Indebtedness, (B) such Indebtedness is subordinated to the Obligations at least to the same extent as such Subordinated Indebtedness so defeased, redeemed, repurchased, acquired or retired, (C) such Indebtedness has a final scheduled maturity date equal to or later than the final scheduled maturity date of the Subordinated Indebtedness being so defeased, redeemed, repurchased, acquired or retired and (D) such Indebtedness has a Weighted Average Life to Maturity equal to or greater than the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness being so defeased, redeemed, repurchased, acquired or retired;

(iv) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of Equity Interests (other than Disqualified Stock) of the Borrower or any of its direct or indirect parent companies held by any future, present or former employee, director, manager or consultant of the Borrower, any of its subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement; provided that the aggregate Restricted Payments made under this clause (iv) do not exceed in any calendar year $10,000,000 (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $20,000,000 in any calendar year); provided, further, that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds from the sale of Equity Interests (other than Disqualified Stock) of the Borrower and, to the extent contributed to the Borrower, Equity Interests of any of the Borrower’s direct or indirect parent companies, in each case to members of management, directors, managers or consultants of the Borrower, any of its subsidiaries or any of its direct or indirect parent companies that occurs after the Closing Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (iii) of paragraph (a) of this Section 6.04, plus (B) the cash proceeds of key man life insurance policies received by the Borrower and the Restricted Subsidiaries after the Closing Date, less (C) the amount of any Restricted Payments previously made pursuant to clauses (A) and (B) of this clause (iv); and provided, further, that cancellation of Indebtedness owing to the Borrower from members of management, directors, managers or consultants of the Borrower, any of its direct or indirect parent companies or any Restricted Subsidiary in connection with a repurchase of Equity Interests of the Borrower or any of its direct or indirect parent companies shall not be deemed to constitute a Restricted Payment for purposes of this Section 6.04 or any other provision of this Agreement;

(v) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Borrower or any Restricted Subsidiary issued in accordance Section 6.01 to the extent such dividends are included in the definition of “Fixed Charges”;

(vi) the declaration and payment of dividends (A) to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by the Borrower after the Closing Date, (B) to a direct or indirect parent company of the Borrower, the proceeds of which

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will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) of such parent company issued after the Closing Date; provided that the amount of dividends paid pursuant to this clause (B) shall not exceed the aggregate amount of cash actually contributed to the Borrower from the sale of such Designated Preferred Stock, or (C) on Refunding Capital Stock that is Preferred Stock in excess of the dividends declarable and payable thereon pursuant to clause (ii) of this paragraph (b); provided, however, in the case of each of (A), (B) and (C) of this clause (vi), that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock or the declaration of such dividends on Refunding Capital Stock that is Preferred Stock, after giving effect to such issuance or declaration on a pro forma basis, the Borrower and the Restricted Subsidiaries on a consolidated basis would have had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00;

(vii) repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;

(viii) the declaration and payment of dividends on the Borrower’s common stock following the first public offering of the Borrower’s common stock or the common stock of any of its direct or indirect parent companies after the Closing Date, of up to 6% per annum of the net proceeds received by or contributed to the Borrower in or from any such public offering, other than public offerings with respect to the Borrower’s common stock registered on Form S-4 or Form S-8 and other than any public sale constituting an Excluded Contribution;

(ix) Restricted Payments that are made with Excluded Contributions;

(x) the declaration and payment of dividends by the Borrower to, or the making of loans to, its direct parent company in amounts required for the Borrower’s direct or indirect parent companies to pay (A) franchise taxes and other fees, taxes and expenses required to maintain their corporate existence, (B) Federal, state and local income taxes, to the extent such income taxes are attributable to the income of the Borrower and the Restricted Subsidiaries and, to the extent of the amount actually received from its Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent attributable to the income of such Unrestricted Subsidiaries, (C) customary salary, bonus and other benefits payable to officers and employees of any direct or indirect parent company of the Borrower to the extent such salaries, bonuses and other benefits are attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, (D) general corporate overhead expenses of any direct or indirect parent company of the Borrower to the extent such expenses are attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, and (E) reasonable fees and expenses incurred in connection with any unsuccessful debt or equity offering by such direct or indirect parent company of the Borrower;

(xi) any Restricted Payments used to fund the Transactions and the fees and expenses related thereto, including those owed to Affiliates, in each case to the extent permitted under Section 6.05;

(xii) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to provisions similar to those set forth in Sections 2.19 and 2.20; provided that, prior to such repurchase, redemption or other acquisition, the Borrower (or a third party to the extent permitted by this Agreement) shall have made a Change of Control Offer or Asset Sale Offer, as the case may be, with respect to the outstanding Loans and shall have

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repaid all such Loans validly tendered for prepayment and not withdrawn in connection with such Change of Control Offer or Asset Sale Offer;

(xiii) Investments in Unrestricted Subsidiaries having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (xiii) that are at the time outstanding, without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities, not to exceed the greater of (x) $75,000,000 and (y) 1.00% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time such Investment is made and without giving effect to subsequent changes in value);

(xiv) distributions or payments of Receivables Fees;

(xv) the distribution, as a dividend or otherwise (and the declaration of such dividend), of shares of Capital Stock of, or Indebtedness owed to the Borrower or a Restricted Subsidiary by, any Unrestricted Subsidiary (other than Kate Spade); and

(xvi) other Restricted Payments in an amount which, when taken together with all other Restricted Payments made pursuant to this clause (xvi), does not exceed $75,000,000;

provided, however, that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (xv) and (xvi) of this paragraph (b), no Default shall have occurred and be continuing or would occur as a consequence thereof.

(c)  Notwithstanding anything to the contrary herein, the Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, make any (i) Restricted Payment covered in clauses (w) through (y) of the definition of Restricted Payments set forth in paragraph (a) of this Section 6.04 to the holders of Equity Interests of the Borrower or any of its direct or indirect parent companies (which shall include the Sponsors, the Co-Investors and their respective Affiliates) other than to the Borrower and its Restricted Subsidiaries, future, present or former employees, directors, managers or consultants of the Borrower, any of its subsidiaries or any of its direct or indirect parent companies with respect to Equity Interests held by them in such capacities and other than a Restricted Payment made pursuant to clause (x) of paragraph (b) of this Section 6.04 or (ii)  Investment in the Sponsors, the Co-Investors, any Permitted Holders who are members of a group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) with the Sponsors or any Co-Investors or any Person or group who becomes a Permitted Holder following a Change of Control as provided for in the definition of “Permitted Holders” or their respective Affiliates (other than in the Borrower and its subsidiaries and members of management of the Borrower (or its direct parent)), in each case during any period beginning on the date on which the Borrower makes an election to pay interest on the Senior Notes by increasing the principal amount of the outstanding Senior Notes or by issuing additional Senior Notes pursuant to the Senior Notes Indenture (or an election under any similar provision set forth in any instrument governing any Indebtedness refinancing, refunding, extending, renewing or replacing the Senior Notes) with respect to any interest period relating thereto and ending on the first date after such interest period on which the Borrower makes a payment of interest in cash on the Senior Notes pursuant to the Senior Notes Indenture (or pursuant to any such other instrument) with respect to a subsequent interest period relating thereto on the Senior Notes pursuant to the Senior Notes Indenture with respect to a subsequent interest period.

(d)  The Borrower shall not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the penultimate paragraph of the definition of “Unrestricted Subsidiary”.

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For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Borrower and the Restricted Subsidiaries (except to the extent repaid) in the subsidiary so designated shall be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investment”.  Such designation shall be permitted only if a Restricted Payment in such amount would be permitted at such time, whether pursuant to paragraph (a) of this Section 6.04 or under clauses (ix), (xiii) or (xvi) of paragraph (b) of this Section 6.04, or pursuant to the definition of “Permitted Investments”, and if such subsidiary otherwise meets the definition of an “Unrestricted Subsidiary”.

SECTION 6.05.  Limitations on Transactions with Affiliates.  (a)  The Borrower shall not, and shall not permit any Restricted Subsidiary to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Borrower (each of the foregoing, an “Affiliate Transaction”) involving aggregate payments or consideration in excess of $10,000,000, unless (i) such Affiliate Transaction is on terms that are not materially less favorable to the Borrower or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Borrower or such Restricted Subsidiary with an unrelated Person and (ii) the Borrower delivers to the Agent with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate payments or consideration in excess of $30,000,000, a Board Resolution adopted by the majority of the members of the Board of Directors of the Borrower approving such Affiliate Transaction and set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (i) above.

(b)  The limitations set forth in paragraph (a) of this Section 6.05 shall not apply to:

(i) transactions between or among the Borrower or any of the Restricted Subsidiaries;

(ii) Restricted Payments that are permitted by the provisions of Section 6.04 and the definition of “Permitted Investments”;

(iii) the payment of management, consulting, monitoring and advisory fees and related expenses to the Sponsors and any termination or other fee payable to the Sponsors upon a change of control or initial public equity offering of the Borrower or any direct or indirect parent company thereof pursuant to the Management Services Agreement as in effect on the Closing Date;

(iv) the payment of reasonable and customary fees paid to, and indemnities provided on behalf of, officers, directors, managers, employees or consultants of the Borrower, any of its direct or indirect parent companies or any Restricted Subsidiary;

(v) payments by the Borrower or any Restricted Subsidiary to any of the Sponsors and the Co-Investors for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by a majority of the members of the Board of Directors of the Borrower in good faith;

(vi) transactions in which the Borrower or any Restricted Subsidiary, as the case may be, delivers to the Agent a letter from an Independent Financial Advisor stating that such transaction is fair to the Borrower or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (i) of paragraph (a) of this Section 6.05;

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(vii) payments or loans (or cancellations of loans) to employees or consultants of the Borrower, any of its direct or indirect parent companies or any Restricted Subsidiary and employment agreements, stock option plans and other compensatory arrangements with such employees or consultants that are, in each case, approved by the Borrower in good faith;

(viii) any agreement, instrument or arrangement as in effect as of the Closing Date, or any amendment thereto (so long as any such amendment is not disadvantageous to the Lenders in any material respect as compared to the applicable agreement as in effect on the Closing Date as reasonably determined in good faith by the Borrower);

(ix) the existence of, or the performance by the Borrower or any of the Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement or its equivalent (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Closing Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Borrower or any Restricted Subsidiary of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Closing Date shall only be permitted by this clause (ix) to the extent that the terms of any such existing agreement together with all amendments thereto, taken as a whole, or new agreement are not otherwise more disadvantageous to the Lenders in any material respect than the terms of the original agreement in effect on the Closing Date as reasonably determined in good faith by the Borrower;

(x) the Transactions, the Credit Card Sale and the payment of all fees and expenses related to the Transactions and the Credit Card Sale, in each case as disclosed in the offering circular relating to the New Notes;

(xi) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Agreement that are fair to the Borrower and the Restricted Subsidiaries, in the reasonable determination of the Board of Directors or the senior management of the Borrower, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;

(xii) the issuance of Equity Interests (other than Disqualified Stock) of the Borrower to any Permitted Holder or to any director, manager, officer, employee or consultant of the Borrower or any direct or indirect parent company thereof;

(xiii) sales of accounts receivable, or participations therein, in connection with any Receivables Facility; and

(xiv) investments by the Sponsors and the Co-Investors in securities of the Borrower or any of its Restricted Subsidiaries so long as (A) the investment is being offered generally to other investors on the same or more favorable terms and (B) the investment constitutes less than 5.0% of the proposed or outstanding issue amount of such class of securities.

SECTION 6.06.  Limitations on Asset Sales.  (a)  The Borrower shall not, and shall not permit any Restricted Subsidiary to, cause, make or suffer to exist an Asset Sale of any Term Loan First Lien Collateral, unless:

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(i) the Borrower or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Borrower) of the assets sold or otherwise disposed of;

(ii) except in the case of a Permitted Asset Swap, at least 75% of the consideration therefor received by the Borrower or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents (provided that the amount of (A) any liabilities (as shown on the Borrower’s or such Restricted Subsidiary’s most recent balance sheet or in the notes thereto) of the Borrower or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the Obligations, that are assumed by the transferee of any such assets (or a third party on behalf of the transferee) and for which the Borrower or such Restricted Subsidiary has been validly released by all creditors in writing, (B) any securities, notes or other obligations or assets received by the Borrower or such Restricted Subsidiary from such transferee that are converted by the Borrower or such Restricted Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of such Asset Sale and (C) any Designated Noncash Consideration received by the Borrower or such Restricted Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (C) that is at that time outstanding, not to exceed the greater of (I) $125,000,000 and (II) 1.75% of Total Assets at the time of the receipt of such Designated Noncash Consideration, with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value, shall be deemed to be cash for purposes of this provision and for no other purpose);

(iii) an amount equal to 100% of the Net Proceeds of such Asset Sale (less, in the case of the sale of Capital Stock of a Person, the amount allocable to the inventory and related assets of such Person, as determined by the Borrower in good faith) is paid directly by the purchaser thereof to the Agent to be held in trust for application in accordance with Section 2.20; and

(b)  The Borrower shall not, and shall not permit any Restricted Subsidiary to, cause, make or suffer to exist an Asset Sale (other than an Asset Sale of Term Loan First Lien Collateral), unless:

(i) the Borrower or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Borrower) of the assets sold or otherwise disposed of;

(ii) except in the case of a Permitted Asset Swap, at least 75% of the consideration therefor received by the Borrower or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents (provided that the amount of (A) any liabilities (as shown on the Borrower’s or such Restricted Subsidiary’s most recent balance sheet or in the notes thereto) of the Borrower or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the Obligations, that are assumed by the transferee of any such assets (or a third party on behalf of the transferee) and for which the Borrower or such Restricted Subsidiary has been validly released by all creditors in writing, (B) any securities, notes or other obligations or assets received by the Borrower or such Restricted Subsidiary from such transferee that are converted by the Borrower or such Restricted Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of such Asset Sale and (C) any Designated Noncash Consideration received by the Borrower or such Restricted Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (C) that is at that time outstanding, not to exceed the greater of (I) $125,000,000 and (II) 1.75% of Total Assets at the time of the receipt of such Designated Noncash Consideration, with the fair market value of each item of Designated Noncash

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Consideration being measured at the time received and without giving effect to subsequent changes in value, shall be deemed to be cash for purposes of this provision and for no other purpose); and

(iii) the Net Proceeds of such Asset Sale are applied in accordance with Section 2.20.

SECTION 6.07.  Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries.  (a)  The Borrower shall not, and shall not permit any Restricted Subsidiary that is not a Subsidiary Guarantor to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:

(i) (A) pay dividends or make any other distributions to the Borrower or any Restricted Subsidiary on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, or (B) pay any Indebtedness owed to the Borrower or any Restricted Subsidiary;

(ii) make loans or advances to the Borrower or any Restricted Subsidiary; or

(iii) sell, lease or transfer any of its properties or assets to the Borrower or any Restricted Subsidiary.

(b)  The limitations set forth in paragraph (a) of this Section 6.07 shall not apply (in each case) to such encumbrances or restrictions existing under or by reason of:

(i) contractual encumbrances or restrictions in effect on the Closing Date, including pursuant to the Loan Documents, the Senior Secured Asset-Based Revolving Credit Facility and the related documentation (including security documents and intercreditor agreements) and Hedging Obligations, the 2008 Notes and the 2028 Debentures;

(ii) the New Note Documents and the New Notes and the subsidiary guarantees of the New Notes issued thereunder, the Collateral Documents, the ABL Security Documents and the Intercreditor Agreement;

(iii) purchase money obligations for property acquired in the ordinary course of business and Capitalized Lease Obligations that impose restrictions of the nature discussed in clause (iii) of paragraph (a) of this Section 6.07 on the property so acquired;

(iv) applicable law or any applicable rule, regulation or order;

(v) any agreement or other instrument of a Person acquired by the Borrower or any Restricted Subsidiary in existence at the time of such acquisition (but not created in connection therewith or in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired;

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(vi) contracts for the sale of assets, including customary restrictions with respect to a subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such subsidiary;

(vii) Secured Indebtedness otherwise permitted to be incurred pursuant to Sections 6.01 and 6.02 that limit the right of the debtor to dispose of the assets securing such Indebtedness;

(viii) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;

(ix) other Indebtedness, Disqualified Stock or Preferred Stock of Restricted Subsidiaries permitted to be incurred after the Closing Date pursuant to Section 6.01;

(x) customary provisions in joint venture agreements and other similar agreements;

(xi) customary provisions contained in leases and other agreements entered into in the ordinary course of business;

(xii) restrictions created in connection with any Receivables Facility; provided that in the case of Receivables Facilities established after the Closing Date, such restrictions are necessary or advisable, in the good faith determination of the Borrower, to effect such Receivables Facility;

(xiii) restrictions or conditions contained in any trading, netting, operating, construction, service, supply, purchase or other agreement to which the Borrower or any of its Restricted Subsidiaries is a party entered into in the ordinary course of business; provided that such agreement prohibits the encumbrance of solely the property or assets of the Borrower or such Restricted Subsidiary that are the subject of such agreement, the payment rights arising thereunder or the proceeds thereof and does not extend to any other asset or property of the Borrower or such Restricted Subsidiary or the assets or property of any other Restricted Subsidiary; and

(xiv) any encumbrances or restrictions of the type referred to in clauses (i), (ii) and (iii) of paragraph (a) of this Section 6.07 imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (i) through (xiii) of this paragraph (b); provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Borrower, not materially more restrictive with respect to such encumbrance and other restrictions than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing; provided, further, that with respect to contracts, instruments or obligations existing on the Closing Date, any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive with respect to such encumbrances and other restrictions than those contained in such contracts, instruments or obligations as in effect on the Closing Date.

SECTION 6.08.  Limitations on Guarantees of Indebtedness by Restricted Subsidiaries.  The Borrower will not permit any of its Wholly-Owned Subsidiaries that are Restricted Subsidiaries (and non-Wholly-Owned Subsidiaries if such non-Wholly-Owned Subsidiaries guarantee other capital markets debt securities), other than a Subsidiary Guarantor or a Foreign Subsidiary, to guarantee the payment of any Indebtedness of the Borrower or any other Subsidiary Guarantor unless:

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(a) such Restricted Subsidiary within thirty (30) days executes and delivers a Joinder Agreement providing for a Loan Guaranty by such Restricted Subsidiary, except that with respect to a guarantee of Indebtedness of the Borrower or any Subsidiary Guarantor, that is by its express terms subordinated in right of payment to the Obligations or the Loan Guaranty of such Restricted Subsidiary, any such guarantee by such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Loan Guaranty substantially to the same extent as such Indebtedness is subordinated to the Obligations;

(b) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Borrower or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Loan Guaranty; and

(c) such Restricted Subsidiary shall deliver to the Agent an opinion of counsel to the effect that (i) such Loan Guaranty has been duly executed and authorized and (ii) such Loan Guaranty constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy, insolvency or similar laws (including all laws relating to fraudulent transfers) and except insofar as enforcement thereof is subject to general principles of equity;

provided that this Section 6.08 shall not be applicable to any guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary.

SECTION 6.09.  Limitations on Sale and Lease-Back Transactions.  The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction with respect to any property unless:

(a) the Borrower or such Restricted Subsidiary would be entitled to (i) incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale and Lease-Back Transaction pursuant to Section 6.01 and (ii) create a Lien on such property securing such Attributable Debt without securing the Obligations pursuant to Section 6.02;

(b) the consideration received by the Borrower or any Restricted Subsidiary in connection with such Sale and Lease-Back Transaction is at least equal to the fair market value (as determined in good faith by the Borrower) of such property; and

(c) the Borrower applies the proceeds of such transaction in compliance with Section 2.20.

SECTION 6.10.  Amendments to Subordination Provisions.  Without the consent of the Required Lenders, the Borrower will not amend, modify or alter the Senior Subordinated Notes Indenture in any way to:

(a) increase the rate of or change the time for payment of interest on any Senior Subordinated Notes;

(b) increase the principal of, advance the final maturity date of or shorten the Weighted Average Life to Maturity of any Senior Subordinated Notes;

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(c) alter the redemption provisions or the price or terms at which the Borrower is required to offer to purchase any Senior Subordinated Notes; or

(d) amend the provisions of the Senior Subordinated Notes Indenture that relate to subordination.

SECTION 6.11.  Obligations of the Borrower and the Restricted Subsidiaries Relating to Kate Spade.  In the event that Kate Spade sells, conveys, transfers or otherwise disposes of, all or substantially all of its properties or assets, in one or more related transactions, the Borrower shall, subject to its fiduciary duties to the holders of minority Equity Interests in Kate Spade and subject to any other obligations in the organizational documents of Kate Spade or other agreements with Kate Spade or holders of its Equity Interests (in each case, as in effect on the Closing Date), exercise its rights and powers as a controlling holder of Equity Interests in Kate Spade to cause Kate Spade to distribute to the Borrower its pro rata share of the net proceeds of such sale, conveyance, transfer or other disposition, the Borrower shall apply such proceeds in accordance with Section 2.20 and such proceeds will constitute Net Proceeds thereunder.  In addition, the Borrower will, and will cause its Restricted Subsidiaries to, apply the amount of any other Extraordinary Distribution in accordance with Section 2.20 and such amount will constitute Net Proceeds thereunder.  Furthermore, the Borrower, in its capacity as a holder of Equity Interests in Kate Spade, will not, and will cause its Restricted Subsidiaries not to, waive any of its rights to receive dividends, distributions or other payments from Kate Spade or consent to an amendment of Kate Spade’s organizational documents or other agreements that would restrict Kate Spade’s ability to make any such distributions.

SECTION 6.12.  Impairment of Security Interest.  Subject to the rights of the holders of Permitted Liens or Permitted Collateral Liens and except as permitted by this Agreement or the Loan Documents, the Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, take or knowingly or negligently omit to take, any action which action or omission would reasonably be expected to have the result of materially impairing the security interest with respect to the Collateral for the benefit of the Secured Parties.

SECTION 6.13.  Business of Borrower and Restricted Subsidiaries.  The Borrower will not, and will not permit any Restricted Subsidiary to, engage to any material extent in any material line of business substantially different from those lines of business conducted by the Borrower and the Restricted Subsidiaries on the date of execution of this Agreement or businesses reasonably related or ancillary thereto.

ARTICLE VII

Events of Default

If any of the following events (“Events of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of thirty (30) days;

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(c) any representation or warranty made or deemed made by or on behalf of any Loan Party herein or in any other Loan Document or any amendment or modification thereof or waiver thereunder, or in any report or other certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document, shall prove to have been materially incorrect when made or deemed made;

(d) failure by Holdings, the Borrower or any Subsidiary Guarantor for sixty (60) days after receipt of written notice given by the Agent or the Required Lenders to comply with any of its other agreements in this Agreement or any Loan Document;

(e) (i) any Loan Party shall fail to make any payment beyond the applicable grace period (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Material Indebtedness, or (ii) any event or condition occurs (other than with respect to Material Indebtedness constituting Derivative Transactions, termination events or equivalent events pursuant to the terms of the related Hedge Agreements in accordance with the terms thereof and not as a result of any default thereunder by any Loan Party) that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with the giving of notice, if required) the holder or holders of any such Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this paragraph (e) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness;

(f) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Holdings, the Borrower or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) or for a substantial part of its assets, and, in any such case of clause (i) or (ii), such proceeding or petition shall continue undismissed and unstayed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;

(g) Holdings, the Borrower or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (f) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding or (v) make a general assignment for the benefit of creditors;

(h) failure by Holdings, the Borrower or any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) to pay final judgments aggregating in excess of $50,000,000, which final judgments remain unpaid, undischarged and

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unstayed for a period of more than sixty (60) days after such judgment becomes final, and in the event such judgment is covered by insurance, an enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;

(i) the Loan Guaranty of any Significant Subsidiary (or any group of Subsidiaries that together would constitute a Significant Subsidiary) or Holdings shall for any reason cease to be in full force and effect or be declared null and void or any Responsible Officer of any Subsidiary Guarantor that is a Significant Subsidiary (or the Responsible Officers of any group of Subsidiaries that together would constitute a Significant Subsidiary) or Holdings, as the case may be, denies that it has any further liability under its Loan Guaranty or gives notice to such effect, other than by reason of the termination of this Agreement or the release of any such Loan Guaranty in accordance with this Agreement;

(j) unless all of the Collateral has been released from the Liens in accordance with the provisions of the Collateral Documents, any Collateral Document shall for any reason cease to be in full force and effect or the assertion by Holdings, the Borrower or any Restricted Subsidiary, in any pleading in any court of competent jurisdiction, that any security interest thereunder is invalid or unenforceable and, in the case of any such Restricted Subsidiary, the failure by the Borrower to cause such Restricted Subsidiary to rescind such assertions within thirty (30) days after the Borrower has actual knowledge of such assertions; or

(k) the failure by Holdings, the Borrower or any Restricted Subsidiary to comply for sixty (60) days after receipt of written notice given by the Agent or the Required Lenders with its other agreements contained in the Collateral Documents, except for a failure that would not materially affect the value of the Collateral, or the remedies with respect thereto, in each case taken as a whole,

then, and in every such event (other than an event with respect to any Loan Party described in clause (f) or (g) of this Article), and at any time thereafter during the continuance of such event, the Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take any of the following actions, at the same or different times:  (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that upon the occurrence of an event with respect to any Loan Party described in clause (f) or (g) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, without further action of the Agent or any Lender.  Upon the occurrence and the continuance of an Event of Default, the Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.

In the event of any Event of Default specified in clause (e) of the preceding paragraph of this Article, such Event of Default and all consequences thereof (excluding any resulting payment default) shall be annulled, waived and rescinded automatically and without any action by the Agent or the Lenders if, within twenty (20) days after such Event of Default arose, (i) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged, (ii) the holders thereof have rescinded or waived the

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acceleration, notice or action (as the case may be) giving rise to such Event of Default or (iii) the default that is the basis for such Event of Default has been cured.

ARTICLE VIII

The Agent

Each of the Lenders hereby irrevocably appoints the Agent as its agent and authorizes the Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto.

The bank serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any subsidiary of a Loan Party or other Affiliate thereof as if it were not the Agent hereunder.

The Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents.  Without limiting the generality of the foregoing, (a) the Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any of its Subsidiaries that is communicated to or obtained by the bank serving as Agent or any of its Affiliates in any capacity.  The Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct.  The Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Agent by the Borrower or a Lender, and the Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Agent.

The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person.  The Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon.  The Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be

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liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

The Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Agent.  The Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties.  The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.

Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, the Agent may resign at any time by notifying the Lenders and the Borrower.  Upon any such resignation, the Required Lenders shall have the right, with the consent (not to be unreasonably withheld or delayed) of the Borrower, to appoint a successor; provided that, during the existence and continuation of an Event of Default, no consent of the Borrower shall be required.  If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank or an Affiliate of any such commercial bank reasonably acceptable to the Borrower.  Upon the acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder.  The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor.  After the Agent’s resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent.

Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.

The co-arrangers, joint bookrunners, co-syndication agents and the documentation agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such.

ARTICLE IX

Miscellaneous

SECTION 9.01.  Notices.  (a)  Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

(i) if to any Loan Party, to the Borrower at:

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One Marcus Square
1618 Main Street
Dallas, Texas 75201
Attention: General Counsel
Facsimile No: (214) 743-7611

(ii) if to the Agent, to Credit Suisse at:

Eleven Madison Avenue
New York, NY 10010
Attention: Agency Group
Facsimile No: (212) 325-8304

(iii) if to any other Lender, to it at its address or facsimile number set forth in its Administrative Questionnaire.

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received or (ii) sent by facsimile shall be deemed to have been given when sent and when receipt has been confirmed by telephone, provided that if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient.

(b)  Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(d) unless otherwise agreed by the Agent and the applicable Lender.  The Agent or the Borrower (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.

(c)  Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

SECTION 9.02.  Waivers; Amendments.  (a)  No failure or delay by the Agent or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of the Agent and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific

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instance and for the purpose for which given.  Without limiting the generality of the foregoing, to the extent permitted by law, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Agent or any Lender may have had notice or knowledge of such Default at the time.

(b)  Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or, (ii) in the case of any other Loan Document (other than any such amendment to effectuate any modification thereto expressly contemplated by the terms of such other Loan Documents), pursuant to an agreement or agreements in writing entered into by the Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Lenders; provided that no such agreement shall (A) increase the Commitment of any Lender without the written consent of such Lender; it being understood that a waiver of any condition precedent set forth in Article IV or the waiver of any Default or mandatory prepayment shall not constitute an increase of any Commitment of any Lender, (B) reduce or forgive the principal amount of any Loan or reduce the rate of interest thereon, or reduce or forgive any interest or fees (including fees set forth in Sections 2.08, 2.19 and 2.21) payable hereunder, without the written consent of each Lender directly affected thereby, (C) postpone any scheduled date of payment of the principal amount of any Loan, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby; provided that only the consent of the Required Lenders shall be necessary to amend the provisions of Section 2.11(c) providing for the default rate of interest, or to waive any obligations of the Borrower to pay interest at such default rate, (D) change Section 2.16(b) or (c) in a manner that would alter the manner in which payments are shared, without the written consent of each Lender, (E) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision of any Loan Document specifying the number or percentage of Lenders required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender, (F) release any material Loan Guarantor from its obligation under its Loan Guaranty (except as otherwise permitted herein or in the other Loan Documents), without the written consent of each Lender, or (G) except as provided in clauses (c) and (d) of this Section or in any Collateral Document, release all or substantially all of the Collateral, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Agent hereunder without the prior written consent of the Agent.  The Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04.

(c)  The Lenders hereby irrevocably agree that the Liens granted to the Agent by the Loan Parties on any Collateral shall be automatically released (i) upon the termination of the Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than Unliquidated Obligations), and the cash collateralization of all Unliquidated Obligations in a manner satisfactory to the Agent, (ii) upon the sale or other disposition of the property constituting such Collateral (including as part of or in connection with any other sale or other disposition permitted hereunder) to any Person other than another Loan Party, to the extent such sale or other disposition is made in compliance with the terms of this Agreement (and the Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iii) to the extent such Collateral is comprised of property leased to a Loan Party, upon termination or expiration of such lease, (iv) subject to paragraph (b) of this Section 9.02, if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders, (v) to the extent the property constituting such Collateral is owned by any Loan Guarantor, upon the release of such Guarantor from its obligations under its Loan Guaranty in accordance with the provisions of this Agreement, (vi) as required to effect any sale or other disposition of such

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Collateral in connection with any exercise of remedies of the Agent and the Lenders pursuant to the Collateral Documents or (vii) as required pursuant to the terms of the Intercreditor Agreement; provided that the Agent may, in its discretion, release the Lien on Collateral valued in the aggregate not in excess of $5,000,000 during each fiscal year without consent of any Lender.  Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral to the extent required under the provisions of the Loan Documents.

(d)  Notwithstanding anything to the contrary contained in this Section 9.02, guarantees, collateral security documents and related documents executed by Foreign Subsidiaries in connection with this Agreement may be in a form reasonably determined by the Agent and may be amended and waived with the consent of the Agent at the request of the Borrower without the need to obtain the consent of any other Lenders if such amendment or waiver is delivered in order (i) to comply with local law or advice of local counsel, (ii) to cure ambiguities or defects or (iii) to cause such guarantee, collateral security document or other document to be consistent with this Agreement and the other Loan Documents.

(e)  If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender directly affected thereby”, the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the Agent shall agree, as of such date, to purchase for cash the Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, (ii) the replacement Lender shall pay the processing and recordation fee referred to in Section 9.04(b)(ii)(C), if applicable in accordance with the terms of such Section, (iii) the replacement Lender shall grant its consent with respect to the applicable proposed amendment, waiver or consent and (iv) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.13, 2.15 and 2.21, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.14 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.

SECTION 9.03.  Expenses; Indemnity; Damage Waiver.  (a)  The Borrower shall pay (i) all reasonable documented out-of-pocket expenses incurred by the Agent and its Affiliates, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore LLP, counsel for the Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation of the Loan Documents and related documentation, (ii) all reasonable documented out-of-pocket expenses incurred by the Agent and its Affiliates, including the reasonable fees, charges and disbursements of outside legal counsel to the Agent, in connection with any amendments, modifications or waivers of the provisions of any Loan Documents (whether or not the transactions contemplated thereby shall be consummated), (iii) all reasonable documented out-of-pocket expenses incurred by the Agent or the Lenders, including the reasonable documented fees, charges and disbursements of any counsel for the Agent and for one law firm retained by the Lenders, in connection with the enforcement, collection or

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protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made hereunder, including all such reasonable documented out-of-pocket expenses incurred during any workout, restructuring or related negotiations in respect of such Loans, and (iv) subject to any other provisions of this Agreement, of the Loan Documents or of any separate agreement entered into by the Borrower and the Agent with respect thereto, all reasonable documented out-of-pocket expenses incurred by the Agent in the administration of the Loan Documents.  Expenses reimbursable by the Borrower under this Section include, without limiting the generality of the foregoing, subject to any other applicable provision of any Loan Document, reasonable documented out-of-pocket costs and expenses incurred in connection with:

(i) lien and title searches and title insurance; and

(ii) taxes, fees and other charges for recording the Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Agent’s Liens.

Other than to the extent required to be paid on the Closing Date, all amounts due under this paragraph (a) shall be payable by the Borrower within ten (10) Business Days of receipt of an invoice relating thereto and setting forth such expenses in reasonable detail.

(b)  The Borrower shall indemnify the Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Environmental Liability related in any way to the Borrower or any of its Subsidiaries or to any property owned or operated by the Borrower or any of its Subsidiaries, or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto (and regardless of whether such matter is initiated by a third party or by the Borrower, any other Loan Party or any of their respective Affiliates); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c)  To the extent that the Borrower fails to pay any amount required to be paid by it to the Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Agent such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Agent in its capacity as such.

(d)  To the extent permitted by applicable law, no party to this Agreement shall assert, and each hereby waives, any claim against any other party hereto or any Related Party thereof, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.

(e)  All amounts due under this Section shall be paid promptly after written demand therefor.

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SECTION 9.04.  Successors and Assigns.  (a)  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section (any attempted assignment or transfer not complying with the terms of this Section shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)  (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment or the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:

(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to another Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default specified in paragraphs (a), (b), (f) or (g) of Article VII has occurred and is continuing, any other Eligible Assignee and provided further that no consent of the Borrower shall be required for an assignment during the primary syndication of the Loans to Persons identified by the Agent to the Borrower on or prior to the Closing Date and reasonably acceptable to the Borrower; and

(B) the Agent.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to another Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans, the amount of the Commitment or the principal amount of Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent and determined on an aggregate basis in the event of concurrent assignments to Related Funds (as defined below)) shall not be less than $1,000,000 unless each of the Borrower and the Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default specified in paragraphs (a), (b), (f) or (g) of Article VII has occurred and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

(C) the parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption via an electronic settlement system acceptable to the Agent (or, if previously agreed with the Agent, manually), and shall pay to the Agent a processing and recordation fee of $3,500 (which fee may be waived or reduced in the sole discretion of the Agent and shall not be payable in the case of any assignment by any Joint Lead Arranger or any of its Affiliates); provided that only one such fee shall be payable in the case of concurrent assignments to two or more Related Funds; and

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(D)  the assignee, if it shall not be a Lender, shall deliver on or prior to the effective date of such assignment, to the Agent (1) an Administrative Questionnaire and (2) if applicable, an appropriate Internal Revenue Service form (such as Form W-8BEN or W-8ECI or any successor form adopted by the relevant United States taxing authority) as required by applicable law supporting such assignee’s position that no withholding by any Borrower or the Agent for United States income tax payable by such assignee in respect of amounts received by it hereunder is required.

The term “Related Funds” shall mean with respect to any Lender that is an Approved Fund, any other Approved Fund that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.03 with respect to facts and circumstances occurring on or prior to the effective date of such assignment).  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, or principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire and tax certifications required by Section 9.04(b)(ii)(D)(2)(unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.04(a), 2.16(c) or 9.03(c), the Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon.  No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(vi) By executing and delivering an Assignment and Assumption, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the

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other parties hereto as follows:  (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Assumption, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is an Eligible Assignee, legally authorized to enter into such Assignment and Assumption; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.04(a) or delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (v) such assignee will independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

(c)  (i)  Any Lender may, without the consent of the Borrower or the Agent, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment or the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (C) the Borrower, the Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (D) no such Participant shall be a “creditor” as defined in Regulation T or a “foreign branch of a broker-dealer” within the meaning of Regulation X.  Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant.  Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section.  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.16(c) as though it were a Lender.

(ii)  A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of the participation sold to

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such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as though it were a Lender.

(d)  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(e)  Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPC”), identified as such in writing from time to time by the Granting Lender to the Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof and (iii) no SPC shall be a “creditor” as defined in Regulation T or a “foreign branch of a broker-dealer” within the meaning of Regulation X.  The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender.  Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Agreement (including its obligations under Section 2.13, 2.14 or 2.15), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender) and (iii) the Granting Lender shall for all purposes including approval of any amendment, waiver or other modification of any provision of the Loan Documents, remain the Lender of record hereunder.  In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any state thereof.  In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC.

SECTION 9.05.  Survival.  All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated.  The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and

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Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.

SECTION 9.06.  Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement, the other Loan Documents and the Fee Letter and any separate letter agreements with respect to fees payable to the Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Article IV, this Agreement shall become effective when it shall have been executed by the Agent and when the Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 9.07.  Severability.  To the extent permitted by law, any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.08.  Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower or any Loan Guarantor against any of and all the Secured Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured.  The applicable Lender shall notify the Borrower and the Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section.  The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. NOTWITHSTANDING THE FOREGOING, AT ANY TIME THAT ANY OF THE SECURED OBLIGATIONS SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO LENDER SHALL EXERCISE A RIGHT OF SETOFF, LENDER’S LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY LOAN DOCUMENT UNLESS IT IS TAKEN WITH THE CONSENT OF THE LENDERS REQUIRED BY SECTION 9.02 OF THIS AGREEMENT, IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO THE AGENT PURSUANT TO THE COLLATERAL DOCUMENTS OR THE ENFORCEABILITY OF THE OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OR ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE PARTIES AS REQUIRED ABOVE, SHALL BE NULL AND VOID.  THIS PARAGRAPH SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS.

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SECTION 9.09.  Governing Law; Jurisdiction; Consent to Service of Process.  (a)  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN AS EXPRESSLY SET FORTH IN ANY OTHER LOAN DOCUMENT) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

(b)  Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any U.S. Federal or New York State court sitting in the Borough of Manhattan, New York, New York in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement or any other Loan Document shall affect any right that the Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.

(c)  Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)  To the extent permitted by law, each party to this Agreement hereby irrevocably waives personal service of any and all process upon it and agrees that all such service of process may be made by registered mail (return receipt requested) directed to it at its address for notices as provided for in Section 9.01.  Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11.  Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.12.  Confidentiality.  The Agent and each Lender agrees (and each Lender agrees to cause its SPC, if any) to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to

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whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory, governmental or administrative authority, (c) to the extent required by law or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, including, without limitation, any SPC, (ii) any pledgee referred to in Section 9.04(d) or (iii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Loan Parties and their obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Agent or any Lender on a nonconfidential basis from a source other than the Borrower.  For the purposes of this Section, “Information” means all information received from any Loan Party relating to the Loan Parties or their businesses, the Sponsors or the Transactions other than any such information that is available to the Agent or any Lender on a nonconfidential basis prior to disclosure by any Loan Party.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

SECTION 9.13.  Several Obligations; Nonreliance; Violation of Law.  The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that (a) it is not relying on or looking to any Margin Stock for the repayment of the Borrowings provided for herein and acknowledges that the Collateral shall not include any Margin Stock and (b) it is not and will not become a “creditor” as defined in Regulation T or a “foreign branch of a broker-dealer” within the meaning of Regulation X.  Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any Requirement of Law.

SECTION 9.14.  USA PATRIOT Act.  Each Lender that is subject to the requirements of the USA Patriot Act hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the USA Patriot Act.

SECTION 9.15.  Disclosure.  Each Loan Party and each Lender hereby acknowledges and agrees that the Agent and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with any of the Loan Parties and their respective Affiliates. In addition, each Loan Party and each Lender hereby acknowledges that (i) the Agent or its Affiliate may be a lender under the Senior Secured Asset-Based Revolving Credit Facility and (ii) an Affiliate of the Agent will be an initial purchaser of the New Notes.

SECTION 9.16.  Appointment for Perfection.  Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Agent and the Lenders, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession.  Should any Lender (other than the Agent) obtain possession of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent’s request therefor shall deliver such Collateral to the Agent or otherwise deal with such Collateral in accordance with the Agent’s instructions.

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SECTION 9.17.  Interest Rate Limitation.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

SECTION 9.18.  Effectiveness of the Merger.  Neiman Marcus shall have no rights or obligations hereunder until the consummation of the Merger and any representations and warranties of Neiman Marcus hereunder shall not become effective until such time.  Upon consummation of the Merger, Neiman Marcus succeed to all the rights and obligations of Merger Sub as the Borrower under this Agreement and all representations and warranties of Neiman Marcus as the Borrower shall become effective as of the date hereof, without any further action by any Person.

SECTION 9.19.  INTERCREDITOR AGREEMENT.  REFERENCE IS MADE TO THE INTERCREDITOR AGREEMENT.  EACH LENDER HEREUNDER (A) CONSENTS TO THE SUBORDINATION OF LIENS PROVIDED FOR IN THE INTERCREDITOR AGREEMENT, (B) AGREES THAT IT WILL BE BOUND BY AND WILL TAKE NO ACTIONS CONTRARY TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND (C) AUTHORIZES AND INSTRUCTS THE AGENT TO ENTER INTO THE INTERCREDITOR AGREEMENT AS TERM LOAN AGENT AND ON BEHALF OF SUCH LENDER.  THE FOREGOING PROVISIONS ARE INTENDED AS AN INDUCEMENT TO THE LENDERS UNDER THIS AGREEMENT TO EXTEND CREDIT AND SUCH LENDERS ARE INTENDED THIRD PARTY BENEFICIARIES OF SUCH PROVISIONS AND THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.

ARTICLE X

Loan Guaranty

SECTION 10.01.  Guaranty.  Each Loan Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, and absolutely and unconditionally guarantees to the Lenders the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Secured Obligations (collectively the “Guaranteed Obligations”). Each Loan Guarantor further agrees that the Guaranteed Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal.

SECTION 10.02.  Guaranty of Payment.  This Loan Guaranty is a guaranty of payment and not of collection. Each Loan Guarantor waives any right to require the Agent or any Lender to sue the Borrower, any Loan Guarantor, any other guarantor, or any other Person obligated for all or any part of the Guaranteed Obligations (each, an “Obligated Party”), or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations.

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SECTION 10.03.  No Discharge or Diminishment of Loan Guaranty.  (a)  Except as otherwise provided for herein, the obligations of each Loan Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Guaranteed Obligations), including:  (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Guaranteed Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of the Borrower or any other guarantor of or other Person liable for any of the Guaranteed Obligations; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Obligated Party, or their assets or any resulting release or discharge of any obligation of any Obligated Party; or (iv) the existence of any claim, setoff or other rights which any Loan Guarantor may have at any time against any Obligated Party, the Agent, any Lender, or any other Person, whether in connection herewith or in any unrelated transactions.

(b)  The obligations of each Loan Guarantor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Guaranteed Obligations or otherwise, or any provision of applicable law or regulation purporting to prohibit payment by any Obligated Party, of the Guaranteed Obligations or any part thereof.

(c)  Further, the obligations of any Loan Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the failure of the Agent or any Lender to assert any claim or demand or to enforce any remedy with respect to all or any part of the Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct security for the obligations of the Borrower for all or any part of the Guaranteed Obligations or any obligations of any other guarantor of or other Person liable for any of the Guaranteed Obligations; (iv) any action or failure to act by the Agent or any Lender with respect to any collateral securing any part of the Guaranteed Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Guaranteed Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Guarantor or that would otherwise operate as a discharge of any Loan Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of the Guaranteed Obligations).

SECTION 10.04.  Defenses Waived.  To the fullest extent permitted by applicable law, each Loan Guarantor hereby waives any defense based on or arising out of any defense of the Borrower or any Loan Guarantor or the unenforceability of all or any part of the Guaranteed Obligations from any cause, or the cessation from any cause of the liability of the Borrower or any Loan Guarantor, other than the indefeasible payment in full in cash of the Guaranteed Obligations. Without limiting the generality of the foregoing, each Loan Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Obligated Party, or any other Person.  The Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any collateral securing all or a part of the Guaranteed Obligations, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with any Obligated Party or exercise any other right or remedy available to it against any Obligated Party, without affecting or impairing in any way the liability of such Loan Guarantor under this Loan Guaranty except to the extent the Guaranteed Obligations have been fully and indefeasibly paid in cash.  To the fullest extent permitted by applicable law, each Loan Guarantor waives any defense arising out of any such election even though that election

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may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Loan Guarantor against any Obligated Party or any security.

SECTION 10.05.  Rights of Subrogation.  No Loan Guarantor will assert any right, claim or cause of action, including, without limitation, a claim of subrogation, contribution or indemnification that it has against any Obligated Party, or any collateral, until the Loan Parties and the Loan Guarantors have fully performed all their obligations to the Agent and the Lenders.

SECTION 10.06.  Reinstatement; Stay of Acceleration.  If at any time any payment of any portion of the Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise, each Loan Guarantor’s obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made. If acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Guaranteed Obligations shall nonetheless be payable by the Loan Guarantors forthwith on demand by the Lender.

SECTION 10.07.  Information.  Each Loan Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each Loan Guarantor assumes and incurs under this Loan Guaranty, and agrees that neither the Agent nor any Lender shall have any duty to advise any Loan Guarantor of information known to it regarding those circumstances or risks.

SECTION 10.08.  Taxes.  All payments of the Guaranteed Obligations will be made by each Loan Guarantor free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Loan Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Guarantor shall make such deductions and (iii) such Loan Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

SECTION 10.09.  Maximum Liability.  The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, Federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Loan Guarantor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Loan Guarantor’s liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Loan Guarantors or the Lenders, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Loan Guarantor’s “Maximum Liability”.  This Section with respect to the Maximum Liability of each Loan Guarantor is intended solely to preserve the rights of the Lenders to the maximum extent not subject to avoidance under applicable law, and no Loan Guarantor nor any other Person or entity shall have any right or claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Loan Guarantor hereunder shall not be rendered voidable under applicable law. Each Loan Guarantor agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Loan Guarantor without impairing this Loan Guaranty or affecting the

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rights and remedies of the Lenders hereunder, provided that, nothing in this sentence shall be construed to increase any Loan Guarantor’s obligations hereunder beyond its Maximum Liability.

SECTION 10.10.  Contribution.  In the event any Loan Guarantor (a “Paying Guarantor”) shall make any payment or payments under this Loan Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other Loan Guarantor (each a “Non-Paying Guarantor”) shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor’s “Guarantor Percentage” of such payment or payments made, or losses suffered, by such Paying Guarantor.  For purposes of this Article X, each Non-Paying Guarantor’s “Guarantor Percentage” with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Non-Paying Guarantor from the Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Loan Guarantors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Loan Guarantor, the aggregate amount of all monies received by such Loan Guarantors from the Borrower after the date hereof (whether by loan, capital infusion or by other means).  Nothing in this provision shall affect any Loan Guarantor’s several liability for the entire amount of the Guaranteed Obligations (up to such Loan Guarantor’s Maximum Liability).  Each of the Loan Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to the payment in full in cash of the Guaranteed Obligations.  This provision is for the benefit of both the Agent, the Lenders and the Loan Guarantors and may be enforced by any one, or more, or all of them in accordance with the terms hereof.

SECTION 10.11.  Liability Cumulative.  The liability of each Loan Party as a Loan Guarantor under this Article X is in addition to and shall be cumulative with all liabilities of each Loan Party to the Agent and the Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

SECTION 10.12.  Release of Loan Guarantors.  Notwithstanding anything in Section 9.02(b) to the contrary (i) a Subsidiary Guarantor shall automatically be released from its obligations hereunder and its Loan Guaranty shall be automatically released upon the consummation of any transaction permitted hereunder as a result of which such Subsidiary Guarantor ceases to be a subsidiary of the Borrower and (ii) so long as no Event of Default has occurred and is continuing (A) if a Loan Guarantor is or becomes an Immaterial Subsidiary, and such release would not result in any Immaterial Subsidiary being required pursuant to Section 5.11(e) to become a Loan Party hereunder (except to the extent that on and as of the date of such release, one or more other Immaterial Subsidiaries become Loan Guarantors hereunder and the provisions of Section 5.11(e) are satisfied upon giving effect to all such additions and releases), or (B) a Restricted Subsidiary is redesignated as an Unrestricted Subsidiary in accordance with Section 6.04(d), then in the case of each of clauses (A) and (B), such Subsidiary Guarantor shall be automatically released from its obligations hereunder and its Loan Guaranty shall be automatically released upon notification thereof from the Borrower to the Agent.  In connection with any such release, the Agent shall execute and deliver to any Subsidiary Guarantor, at such Subsidiary Guarantor’s expense, all documents that such Subsidiary Guarantor shall reasonably

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request to evidence such termination or release.  Any execution and delivery of documents pursuant to the preceding sentence of this Section 10.12 shall be without recourse to or warranty by the Agent.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

NEWTON ACQUISITION MERGER SUB, INC.,
By
	/s/ Kewsong Lee
	Name:	Kewsong Lee
	Title:	Senior Vice President
NEWTON ACQUISITION, INC.,
By
	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Senior Vice President
		and General Counsel
THE NEIMAN MARCUS GROUP, INC.,
By
	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Senior Vice President
		and General Counsel
NEIMAN MARCUS SPECIAL EVENTS, INC. NEMA BEVERAGE CORPORATION NM FINANCIAL SERVICES, INC. NM KITCHENS, INC. BERGDORFGOODMAN.COM, LLC BERGDORF GOODMAN, INC. BERGDORF GRAPHICS, INC. NEIMAN MARCUS HOLDINGS, INC. NEMA BEVERAGE HOLDING CORPORATION NEMA BEVERAGE PARENT CORPORATION WORTH AVENUE LEASING COMPANY NMGP, LLC,
By
	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Vice President

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NM NEVADA TRUST,
By
	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Vice President

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CREDIT SUISSE, CAYMAN ISLANDS BRANCH, individually and as Agent,
By
	/s/ Robert Hetu
	Name:	Robert Hetu
	Title:	Director
By
	/s/ Vanessa Gomez
	Name:	Vanessa Gomez
	Title:	Vice President

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COMMITMENT SCHEDULE

Lender	Commitment
Credit Suisse	$	1,950,000,000
Deutsche Bank Trust Company Americas	$	5,000,000
Wachovia Bank, N.A.	$	5,000,000
LaSalle Retail Finance, a Division of LaSalle Business Credit, LLC	$	3,000,000
National City Bank	$	3,000,000
PNC Bank, N.A.	$	3,000,000
The Bank of New York	$	2,000,000
U.S. Bank, National Association	$	2,000,000
Credit Industriel et Commercial	$	2,000,000
Total	$	1,975,000,000

SCHEDULE 1.01(a)

Immaterial Subsidiaries

Willow Bend Beverage Corporation

SCHEDULE 1.01(b)

Mortgaged Properties

Store	Address	County
Owned
San Francisco	150 Stockton Street San Francisco, CA 94108	San Francisco County
Tyson’s Corner II	2255 International Drive McLean, VA 22102	Fairfax County
Plano Willowbend	2201 Dallas Pkwy Plano, TX 75093	Collin County
Orlando	4170 Conroy Rd Orlando, FL 32839	Orange County
San Antonio	The Shops at La Cantera 15900 La Cantera Parkway San Antonio, TX 78357	Bexar County
Leased
Houston Galleria	2600 S. Post Oak Blvd. Houston, TX 77056	Harris County
Short Hills	1200 Morris Tnpke Short Hills, NJ 07078	Essex County
King of Prussia	The Plaza 170 North Gulph Rd. King of Prussia, PA 19406 Township of Upper Merion	Montgomery County
Scottsdale	6900 East Camelback Road Scottsdale, AZ 85251	Maricopa County
Troy	2705 West Big Beaver Road Troy, MI 48084	Oakland County

2

Paramus	503 Garden State Plaza Paramus, NJ 07652	Bergen County
Fort Lauderdale	2442 East Sunrise Boulevard Ft. Lauderdale, FL 33304	Broward County
Coral Gables	390 San Lorenzo Avenue Coral Gables, FL 33146	Miami-Dade County
Palo Alto	400 Stamford Shop Center Palo Alto, CA 94304	Santa Clara County
Denver	Cherry Creek Mall 3030 East 1st Avenue Denver, CO 80206	Denver County
Tampa Bay	2223 WestShore Blvd. Tampa, FL 33607	Hillsborough County
Los Angeles	9700 Wilshire Boulevard Beverly Hills, CA 90212	Los Angeles County
Northpark	400 Northpark Center Dallas, TX 75225	Dallas County
Atlanta	3393 Peachtree Road, N.E. Atlanta, GA 30326	Fulton County
Westchester	Maple & Paulding Avenues (2 Maple Ave.) White Plains, NY 10601	Westchester County
Fashion Island(1)	601 Newport Center Drive Newport Beach, CA 92660	Orange County
Washington	5300 Wisconsin Avenue, N.W. Washington DC 20015	Washington DC
Bergdorf Goodman Men’s Store	745 Fifth Avenue New York, NY 10019	New York County

(1) The executed mortgage for this site will be delivered on the Closing Date to First American Title Insurance Company to be held in escrow until such time as the Borrower may, using commercially reasonable efforts, obtain the landlord’s consent to grant the mortgage.

3

SCHEDULE 3.05(a)

Properties

I. Real Estate Owned or Leased

The Neiman Marcus Group, Inc. (or “NMG”)

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IFAPPLICABLE)
1618 Main Street	Dallas	TX	75201	Trustees of the Estate ofJames Charles O’Connor
				Trustee for S.P. CimiottiTrust Gregg Edwards
				Cholly Edwards
				Carolyn Edwards Kazmann
				Dallas Foundation Trust
				Trustees for C.C. Slaughter William Slaughter Rogers
				Nancy MacGregor RogersO’Neil
				Richard Slaughter Bauer
				SunTrust Bank N.A.
				Pacifico Partners, Ltd.
Commerce St.	Dallas	TX	75201	Dalpark Partners, Ltd
400 North Park Center	Dallas	TX	75225	Raymond D. Nasher
2201 Dallas Parkway	Plano	TX	75093	Owned by NMG
2100 Green Oaks Rd.	Ft. Worth	TX	76116	Eversan Limited Partnership(77%) and SusanSandelman, as Trustee of theSansteve Trust (23%)
2600 S. Post Oak Road	Houston	TX	77056	Galleria Limited, Inc.

4

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IFAPPLICABLE)
3393 Peachtree Rd.,NE	Atlanta	GA	30326	The Retail Property TrustBroad Atlantic PropertiesCorp.
9700 Collins Avenue	Bal Harbour	FL	33154	Bal Harbour Shops, Inc.
2442 E. Sunrise Blvd.	Ft. Lauderdale	FL	33304	Keystone-Florida PropertyHolding Corp.
151 Worth Avenue	Palm Beach	FL	33480	151 Worth AvenuePartnership, Ltd.
2223 Westshore Blvd.	Tampa	FL	33607	Tampa WestshoreAssociates, LLP
The Mall at Millenia 4170 Conroy Road	Orlando	FL	32839	NMG Owned Property
Village of MerrickPark 390 San Lorenzo	Coral Gables	FL	33146	Rouse-Coral Gables, LLC
Maple & PauldingAve.	White Plains	NY	10601	Fashion Mall Partners, LP
2255 International Dr.	McLean	VA	22102	Owned by NMG
503 Garden State Plaza	Paramus	NJ	07652	Westland Garden StatePlaza, LP
The Plaza @ King ofPrussia, 170 N. GulphRoad	King of Prussia	PA	19406	King of Prussia Associates
1200 Morris Turnpike	Short Hills	NJ	07078	Short Hills Associates
5 Copley Place	Boston	MA	02116	7611- Copley PlaceAssociates, LLC
5300 Wisconsin Ave.,N.W.	Washington	DC	20015	TIAA-CREF
2705 W. Big Beaver	Troy	MI	48048	Somerset Collection LimitedPartnership
100 Plaza Frontenac	St. Louis	MO	63131	BROAD FRONTENACASSOC
505 Nicollet Mallon 5th St.	Minneapolis	MN	55402	Brookfield DB Inc.
737 N. Michigan Avenue	Chicago	IL	60611	M & J Wilkow, Ltd.

5

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IFAPPLICABLE)
6 Oakbrook Center	Oak Brook	IL	60523	Urban Investment andDevelopment Company
				ML Dover Associates
5000 Northbrook Ct.	Northbrook	IL	60062	General Growth Properties
				Westcoast Estates
9700 Wilshire Blvd.	Beverly Hills	CA	90212	Joan Keller Selznick, LarryLarson, and asAdministrator of the Estatesof Melissa Oshier andFlorence Selznick Howard, Susan Archer and BarbaraSelznick
				Larry Larson
				Estate of Melissa OshierLarson
				Barbara Smalley-Selznick
				Joan Keller-Selznick
				Larry Larson as SpecialAdministrator Re: theEstate of Florence SelznickHoward
150 Stockton St.	San Francisco	CA	94108	Owned by NMG
Scottsdale FashionSquare6900 E. CamelbackRd.	Scottsdale	AZ	85251	Business Realty of Arizona,Inc.
				Scottsdale Fashion SquarePartnership
601 Newport CenterDr.	Newport Beach	CA	92660	The Irvine Company RetailProperties-Fashion Island
400 Stanford Shop.Ctr.	Palo Alto	CA	94304	The Trustees of The LelandStandford Junior University

6

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IF APPLICABLE)
1450 Ala Moana Blvd.	Honolulu	HI	96814	D/E Hawaii Joint VentureHawaii CentralDevelopment, Inc.
				Fujiyama, Duffy &Fujiyama
Fashion Valley Center7027 Friars Road	San Diego	CA	92108	I.T.C. Fashion ValleyCorporation
				ML Dover Associates
Cherry Creek Mall3030 E. 1st Avenue	Denver	CO	80206	Taubman—Cherry Creek, LP
15900 LaCanteraParkway, Suite 14	San Antonio	TX	78256	Owned by NMG
5860 Glades Road	Boca Raton	FL	33431	The Town Center at BocaRaton Trust
32100 Las VegasBlvd. South, Suite 116	Primm	NV	89019	Fashion Outlet of Las VegasAssociates
934 Grapevine Court	Central Valley	NY	10917	Chelsea GCA RealtyPartnership, LP
651 Kapkowski Rd.,Suite 0200	Elizabeth	NJ	07201	JG Elizabeth, LLC
4115 Capital of TexasHwy. S.	Austin	TX	78704	Austin Retail BOA I & II
5000 Arizona MillsCir.	Tempe	AZ	85282	Arizona Mills, LLC
4030 Baldwin Road	Auburn Hills	MI	48326	Taubman Auburn HillsAssociates LimitedPartnership
1634 Franklin MillsCir.	Philadelphia	PA	19154	Franklin Mills Associates,L.P.
12801 W. SunriseBlvd.	Sunrise	FL	33323	Sawgrass Mills Phase II, LP
5900 Sugarloaf Pkwy.Space 235/A4	Lawrenceville	GA	30043	Sugarloaf Mills, L.P.

7

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IF APPLICABLE)
3000 Grapevine MillsPkwy. Suite 233	Grapevine Mills	TX	76051	Grapevine Mills IV LimitedPartnership
14500 W. Colfax Ave.Space 241	Lakewood	CO	80401	Colorado Mills LimitedPartnership
11441 NW 12th St.#D100	Miami	FL	33172	Taubman-Dolphin MallAssociates, LLC
5000 Katy Mills CircleSuite 321	Katy	TX	77494	Katy Mills, LimitedPartnership
4061 Camino de laPlaza — Suite 490	San Diego	CA	92173	PCCP/SB Las Americas,LLC
Prime Outlets @ SanMarcos 3939-IH-35South	San Marcos	TX	78666	Prime Outlets at San MarcosII Limited Partnership
7000 Arundel Mills Cir. — Suite D-2	Hanover	MD	21076	Arundel Mills LimitedPartnership
3046 Mockingbird Ln.	Dallas	TX	75205	Park Cities Village JointVenture
3400 Preston Rd.Suite 210	Plano	TX	75093	Thames Financial Services,LTD.
754 5th Avenue	New York	NY	10019	754 Fifth Avenue Associates
745 5th Avenue	New York	NY	10022	745 AssociatesWvF-Paramount 745Property, LP
625 Madison Avenue	New York	NY	10022	625 Madison AvenueAssociates, L.P.
43-30 24th Street	Long IslandCity	NY	11101	Leon Levin & Sons, Inc.
1201 Elm Street	Dallas	TX	75270	Trizechahn RenaissanceTower, LP
1700 Pacific	Dallas	TX	75201	Berkeley First City, LP
1450 Broadway	New York	NY	10018	1450 Broadway Associates,LLC
125 Worth Avenue	Palm Beach	FL	33480	125 Worth Ave. Ltd.Partnership

8

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IF APPLICABLE)
Space I-2A, 670 AuahiStreet	Honolulu	HI	96813	Campbell Hawaii Investor, LLC
9701 Wilshire Blvd.	Beverly Hills	CA	90212	Lantana Wilshire Associates, LP
400 E. Royal LaneSuite 112	Irving	TX	75039	Charter DCC Partners
5044 Sharp Street	Dallas	TX	75247	ProLogis LimitedPartnership II
2301 Neiman MarcusPkwy.	Longview	TX	75602	Longview Warehouse andStorage, Ltd.
5950 Colwell Blvd.	Irving	TX	75039	Owned by NMG
4121 Pinnacle PointDr.	Dallas	TX	75211	PDC Properties, Inc.Pinnacle West Land, L.P.
2784 Executive Way	Miramar	FL	33025	Sunbeam Properties, Inc.
9501 Winona	Schiller Park	IL	60175	Northern Equities, LLC,Trustee U/T 26-2649-00 Winona Building Account
2500 S. Workman MillCity of Industry	Whittier	CA	90601	RR&C Development Co.
3302 Miller Road,Suite 700	Garland	TX	75041	Duke-Weeks Realty LimitedPartnership
727 Regal Row	Dallas	TX	75247	Charter Asset Management,LP
1125 Globe Avenue	Mountainside	NJ	07092	Jackal Holdings, LLC
8919 Diplomacy Row	Dallas	TX	75247	Cullum-Thomas
3832 Green IndustrialWay	Chamblee	GA	30341	MDM Family, LP
3393 Peachtree RoadNE	Atlanta	GA	30326	Lenox Square
3225 Third Street	San Francisco	CA	94124	William D SpencerSpencer Properties
261 S. KenmoreAvenue	Los Angeles	CA	90004	Mr. Young Hoon Choi

9

ADDRESS	CITY	STATE	ZIP	LESSOR(S) (IF APPLICABLE)
Opakapaka Street	Kapolai	HI		Fort Street InvestmentCorporation
2700 Post Oak	Houston	TX	77056	Walton Houston GalleriaOffice, L.P.
1499 N. Post Oak	Houston	TX	77055	Warehouse Associates
3585 S. HighlandDrive	Las Vegas	NV	89103	Plaza Vegas Ministorage
Storage Room M1 @Galleria	Ft. Lauderdale	FL	33304	Keystone-Florida PropertyHolding Corp.
Storage Space 2137-S@ Scottsdale FashionSquare Center	Scottsdale	AZ	85251	Scottsdale Fashion SquarePartnership

NM Nevada Trust

ADDRESS	CITY	STATE	ZIP	LESSORS
3200 Las VegasBlvd. So.	Las Vegas	NV	89109	H-S Las Vegas Associates Rouse FS, LLC and Fashion Show Expansion, LLC

10

II. Principal Place of Business and Chief Executive Office of each Loan Party

Loan Party	Principal place of business	Chief executive office
Newton Acquisition, Inc.	301 Commerce Street, Suite 3300 Forth Worth, TX 76102	301 Commerce Street, Suite 3300Forth Worth, TX 76102
Newton Acquisition Sub, Inc. (2)	301 Commerce Street, Suite 3300Forth Worth, TX 76102	301 Commerce Street, Suite 3300Forth Worth, TX 76102
The Neiman Marcus Group, Inc.	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
Bergdorf Goodman, Inc.	754 Fifth AvenueNew York, NY 10019	754 Fifth AvenueNew York, NY 10019
Bergdorf Graphics, Inc.	754 Fifth AvenueNew York, NY 10019	754 Fifth AvenueNew York, NY 10019
BergdorfGoodman.com, LLC	5950 Colwell Blvd.Irving, TX 75039	5950 Colwell Blvd.Irving, TX 75039
NEMA Beverage Corporation	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
NEMA Beverage Holding Corporation	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
NEMA Beverage Parent Corporation	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
NM Financial Services, Inc.	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
NMGP, LLC	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
NM Kitchens, Inc.	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
NM Nevada Trust	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
Neiman Marcus Holdings, Inc.	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
Neiman Marcus Special Events, Inc.	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
Willow Bend Beverage Corporation	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201
Worth Avenue Leasing Company	1618 Main StreetDallas, TX 75201	1618 Main StreetDallas, TX 75201

(2) Is a Loan Party (the Borrower) prior to the Merger.

11

SCHEDULE 3.05(g)

Intellectual Property

NONE

12

SCHEDULE 3.06

Disclosed Matters

NECA-IBEW Pension Fund (The Decatur Plan) v. The Neiman Marcus Group, Inc. et al. (CA No. 3-05 CV-0898B)

13

SCHEDULE 3.14

Insurance

SEE FOLLOWING PAGES

14

0

NAME	THE NEIMAN MARCUS GROUP, INC.	Aon Risk Services
		Cityplace Center East
ADDRESS	1618 Main Street, Dallas, Texas 75201	2711 N. Haskell Avenue
		Suite 800 – Lock Box #8
DATE OF ANALYSIS	September 12, 2005	Dallas, Texas 75204-2999
		Telephone 214 989-0000
NAME OF ANALYST	Annie K. McCarley

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
Liberty Mutual Insurance Group	August 1, 2005	See		$	[***]	COMMERCIAL GENERAL LIABILITY
[***]	to	Coverage				Policy provides legal liability coverage for bodily injury and property damage
	August 1, 2006					claims from the public. Limits of Liability are:
						Limits of Liability:
						$	[***]		General Aggregate
						$	[***]		Products/Completed Operations Aggregate
						$	[***]		Personal & Advertising Injury
						$	[***]		Each Occurrence
						$	[***]		Damages to Premises Rented to You Limit
									(subject to occurrence limit)
						Excess Employers Liability – Maritime Coverage:
						$	[***]		Bodily Injury by Accident Annual Aggregate
						$	[***]		Bodily Injury Each Accident
						$	[***]		Bodily Injury by Disease Annual Aggregate
						Excess Employers Liability – Other than Maritime Coverage:
						$	[***]		Bodily Injury by Accident Annual Aggregate
						$	[***]		Bodily Injury Each Accident
						$	[***]		Bodily Injury by Disease Annual Aggregate
						$	[***]		Bodily Injury by Disease Each Employee
						Deductible:
						$		[***]	Employee Benefit Liability Each Claim
						$		[***]	Bodily Injury, Property Damage, Advertising Injury Each
									Occurrence

15

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
						Coverage is generally described as your liability arising from:
						Premises/Operations
						Acts of Independent Contractors
						Products/Completed Operations
						Contractual Liability
						Personal & Advertising Injury
						Host Liquor
						Fire Legal
						Broad Form Property Damage
						Incidental Medical Malpractice
						Non-Owned Watercraft
						Limited Worldwide Liability
						Additional Persons Insured
						Extended Bodily Injury
						Automatic Coverage on Newly Acquired Organizations (90 Days)
						Terrorism Per the Terrorism Risk Insurance Act of 2002
						The policy is subject to audit for final determination of premium.
Liberty Mutual Insurance Group	August 1, 2005	See			[***]	COMMERCIAL GENERAL LIABILITY – CANADA
[***]	to August 1, 2006	Coverage				Policy provides legal liability coverage for bodily injury and property damage claims from the public. Limits of Liability are:

16

Company/Policy Number	Policy Term	Limits	Coins.	Premium	Coverage
					Limits of Liability:
					$	[***]		General Aggregate (at inception)
					$	[***]		Products/Completed Operations Aggregate
					$	[***]		Personal & Advertising Injury
					$	[***]		Each Occurrence
					$	[***]		Fire Damage (any one fire)
					$	[***]		Each Occurrence and Aggregate
					Excess Employers Liability – Maritime Coverage:
					$	[***]		Bodily Injury by Accident Annual Aggregate
					$	[***]		Bodily Injury Each Accident
					$	[***]		Bodily Injury by Disease Annual Aggregate
					Excess Employers Liability – Other than Maritime Coverage:
					$	[***]		Bodily Injury by Accident Annual Aggregate
					$	[***]		Bodily Injury Each Accident
					$	[***]		Bodily Injury by Disease Annual Aggregate
					$	[***]		Bodily Injury by Disease Each Employee
					Deductible:
					$		[***]	Employee Benefit Liability Each Claim
					$		[***]	Bodily Injury, Property Damage, Advertising Injury Each Occurrence
					Coverage is generally described as your liability arising from:
					Premises/Operations
					Acts of Independent Contractors
					Products/Completed Operations

17

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
						Contractual Liability
						Personal & Advertising Injury
						Premises Medical Payments
						Host Liquor
						Fire Legal
						Broad Form Property Damage
						Incidental Medical Malpractice
						Non-Owned Watercraft
						Limited Worldwide Liability
						Additional Persons Insured
						Extended Bodily Injury
						Automatic Coverage on Newly Acquired Organizations (90 Days)
						Terrorism Per the Terrorism Risk Insurance Act of 2002
						The policy is subject to audit for final determination of premium.
Liberty Mutual Insurance Group	August 1, 2005	See		$	[***]	COMMERCIAL AUTOMOBILE LIABILITY
[***]	to	Coverage				Policy provides liability to the public arising from All Owned, Nonowned and Hired
	August 1, 2006					automobiles. Coverages are briefly described as follows:
						Public Liability with bodily injury and property damage [***] should the public be injured or their property damaged.
						Medical Payments providing [***] each passenger for medical, hospital, first aid, and funeral expenses on passengers injured in owned automobiles owned by you.
						Personal Injury Protection providing Minimum Required Limits each passenger for

18

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
						medical, loss wages, and services for persons occupying automobiles owned by you and subject to No Fault benefits in the state where the automobile is licensed or principally garaged.
						Drive Other Car Coverage:
						Provided for all employees who are furnished company vehicles.
						Uninsured/Underinsured Motorist:
						Rejected except vehicles that are licensed in states that require you to have andwhere you cannot reject the coverage.
						VEHICLES INSURED:
						All Owned, Nonowned and Hired
						The policy is subject to audit for final determination of premium.
Liberty Mutual Insurance Group	August 1, 2005	See		$	[***]	WORKERS’ COMPENSATION
	to	Coverage				Policy provides medical, disability and death benefits to injured employees pursuant

19

Company/Policy Number	Policy Term	Limits	Coins.	Premium	Coverage
[***]	August 1, 2006				to the Workers’ Compensation statutory requirement of states scheduled in thepolicy. declaration. Section C of the policy provides an extension for still otherstates, except monopolistic state fund states (North Dakota, Ohio, Washington, WestVirginia and Wyoming). The policy is subject to audit for final determination ofpremium.
					Employer’s Liability included for limits of:
					Bodily Injury by Accident -			[***]   each accident
					Bodily Injury by Disease -			[***]   policy limit
					Bodily Injury by Disease -			[***]   each employee
					Deductible:
					$	[***]	Bodily Injury by Accident Each Occurrence
					$	[***]	Bodily Injury By Disease Each Claim
					Additional Coverage Included:
					· United States Longshore and Harbor Workers Compensation Act
					· Terrorism Risk Insurance Act of 2002
					· Waiver of Subrogation as required by contract
					· Voluntary Compensation and Employers Liability
					· Unintentional Errors & Omissions
					· Unintentional Failure to Disclose
					· Inclusion of Sports and Recreational Activities
					· Maritime Coverage
					· Foreign Employers Liability [***]
St. Paul Fire & Marine	August 1, 2005	See		[***]	COMPREHENSIVE CATASTROPHE LIABILITY (UMBRELLA)
[***]	to	Coverage

20

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
	August 1, 2006					Policy provides liability limit(s) of $[***] should the public be injured or theirproperty damaged for which the insured is legally liable. The coverage is essentially excess over Employer’s, General, Automobile and other primary liability as designated in the schedule of underlying insurance. Retained limit $[***] applies when coverage is afforded by Umbrella but not by primary liability.
Federal Insurance Company	August 1, 2005	See			[***]	EXCESS LIABILITY
[***]	to	Coverage				Policy provides liability limits of $[***] excess of $  [***]
	August 1, 2006
XL Insurance America, Inc.	August 1, 2005	See			[***]	EXCESS LIABILITY
[***]	to	Coverage				Policy provides liability limits of [***] Part of $50,000,000 excess of [***]
	August 1, 2006
Great American Ins. Co.	August 1, 2005	See			[***]	EXCESS LIABILITY
[***]	to	Coverage				Policy provides liability limits of [***] Part of $50,000,000 excess of [***]
	August 1, 2006
American Guarantee and	August 1, 2005	See			[***]	EXCESS LIABILITY
Liability Ins. Co.	to	Coverage				Policy provides liability limits of $[***] Part of $100,000,000 excess of $[***]
[***]	August 1, 2006
RSUI Indemnity Company	August 1, 2005	See			[***]	EXCESS LIABILITY
[***]	to	Coverage				Policy provides liability limits of [***] Part of [***] excess of [***]
	August 1, 2006
Fireman’s Fund Ins. Co.	August 1, 2005	See			[***]	EXCESS LIABILITY
[***]	to	Coverage				Policy provides liability limits of [***] Part of [***] excess of $[***]
	August 1, 2006
FM Global Ins. Co.	December 1, 2004	See			[***]
[***]	to	Coverage				PRIMARY PROPERTY & BOILER & MACHINERY POLICY
	December 1, 2005

21

Company/Policy Number	Policy Term	Limits	Coins.	Premium	Coverage
					PROPERTY COVERAGE:
					All Risk subject to policy terms, conditions and exclusions.
					VALUATION BASIS:
					Replacement Cost - Furniture, Fixtures, Equipment and Building
					Selling Price – Inventory
					LIMITS:
					per occurrence for Real Property, Personal Property, Leasehold Interest, Business Interruption and Extra Expense subject to a separate annual aggregate limit for flood and earthquake of [***] except:
					$	[***]	per occurrence and annual aggregate – California Earthquake
					$	[***]	per occurrence – Accounts Receivable
					$	[***]	per occurrence – Contingent Business Income
					$	[***]	per occurrence Fine Arts
					$	[***]	per occurrence Off Premises Power/Service Interruption
					$	[***]	Unintentional Errors & Omissions
					$	[***]	per occurrence – Valuable Papers & Records
					$	[***]	per occurrence – Automatic Coverage (90 Days Reporting)
					$	[***]	per occurrence – Miscellaneous Unnamed Locations
					$	[***]	per occurrence – Pollution Cleanup and Removal
					$	[***]	Earth Movement Except $[***] for California
					$	[***]	Flood Except $[***] for property located below grade and/or bin
					basements.
					DEDUCTIBLES
					$[***] - Per loss except
					$[***] Furs of Customers combined all losses

22

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
						With respects to California Earthquake
						[***] of the 100% Property Damage value of the locations sustaining lossor damage each applied separately: Each Building or Structure,Contents & PPof each building or structure,
						[***] of the full 12 month Time Element values at the location where thephysical damage occurred and all other locations where Time Element loss ensues
						The above deductibles are subject to a minimum of [***] per location
						With respects to Flood
						$[***] Combined all coverages except as follows:
						For locations in Honolulu, Hawaii, Boca Raton, Fort Lauderdale, Palm Beach, Sunrise, Bal Habor and Orlando Florida:
						$[***] per building Real Property
						$[***] per building Personal Property
						$[***] Time Element
						LOCATIONS COVERED:
						Per schedule on file with the Insurance Company
Insurance Company of the West	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of $[***] Excess of Primary [***]

23

Company/Policy Number	Policy Term	Limits	Coins.	Premium			Coverage
Underwriters at Lloyds	December 1, 2004	See				[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage					(Excess Flood and Earth Movement)
	December 1, 2005
							LOCATIONS:
							Per schedule on file with the insurance company
							LIMIT:
							$[***] Part of $[***] Excess of Primary $[***]
Westchester Surplus Lines	December 1, 2004	See				[***]	DIFFERENCE IN CONDITIONS - 1ST Layer
[***]	to	Coverage					(Excess Flood and Earth Movement)
	December 1, 2005
							LOCATIONS:
							Per schedule on file with the insurance company
							LIMIT:
							$[***] Part of $[***] Excess of Primary [***]
Essex Ins. Co.	December 1, 2004	See				[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage					(Excess Flood and Earth Movement)
	December 1, 2005
							LOCATIONS:
							Per schedule on file with the insurance company
							LIMIT:
							[***] Part of $[***] Excess of Primary $[***]
Alea London LTD	December 1, 2004	See			[***]		DIFFERENCE IN CONDITIONS – 1ST Layer
	to

24

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
[***]	December 1, 2005	Coverage				(Excess Flood and Earth Movement)
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of $[***] Excess of $[***]
Greenwich Ins. Co.	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of $[***] Excess of $[***]
Westchester Surplus Lines	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of $[***] Excess of [***]

25

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
Insurance Company of the West	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of [***] Excess of [***]
Essex Ins. Co.	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of $[***] Excess of $[***]
Insurance Company of the West	December 1, 2004	See		$	[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of $[***] Excess of $[***]

26

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
Westchester Surplus Lines	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of [***] Excess of [***]
Lloyds of London	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of [***] Excess of $[***]
Lloyds of London	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						[***] Part of [***] Excess of $[***]

27

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
Essex Insurance Company	December 1, 2004	See			[***]	DIFFERENCE IN CONDITIONS – 1ST Layer
[***]	to	Coverage				(Excess Flood and Earth Movement)
	December 1, 2005
						LOCATIONS:
						Per schedule on file with the insurance company
						LIMIT:
						$[***] Part of $[***] Excess of $[***]
Affiliated FM Ins. Co.	December 1, 2002			Adjustable		OCEAN CARGO POLICY
[***]	Until Canceled			Annually
						Limits of Insurance:
						$	[***]	Any one aircraft or connecting conveyance
						$	[***]	While on deck of any one vessel
						$	[***]	Any one parcel post or mail package
						Valuation:
						Amount of invoice including all charges therein, including any prepaid and/or advanced and/or guaranteed freight, plus 10%, except the Assured’s selling price on pre-sold catalog items.
						Deductible:
						$	[***]
AIG WorldSource	August 1, 2005					FOREIGN LIABILITY PACKAGE
[***]	to
	August 1, 2006					Coverage Territory:
						Anywhere in the world, including international waters or airspace, but excluding:
						The United States of America (including its territories or possessions), Puerto Rico and Canada; and those countries against which the Office of Foreign Asses Control of the U.S. Department of the Treasury administers and enforces economic and trade sanctions.

28

Company/Policy Number	Policy Term	Limits	Coins.	Premium	Coverage
					(GENERAL LIABILITY)
					Limits of Liability:
					$	[***]	Master Control Program Aggregate
					$	[***]	General Aggregate
					$	[***]	Products Completed Operations Aggregate
					$	[***]	Personal & Advertising Injury
					$	[***]	Each Occurrence
					$	[***]	Damages to Premises Rented to You
					$	[***]	Medical Expense
					(EMPLOYEE BENEFITS LIABILITY)
					Limits of Liability:
					$	[***]	Each Wrongful Act or series of related wrongful acts
					$	[***]	Each Annual Aggregate
					Deductible:
					$	[***]	Each Wrongful Act or series of related wrongful acts
					(COMMERCIAL AUTOMOBILE LIABILITY)
					Limits of Liability:
					$	[***]	Bodily Injury Each Person
					$	[***]	Bodily Injury Each Occurrence
					$	[***]	Property Damage Each Occurrence
					$	[***]	Medical Expense Coverage Each Person
					$	[***]	Medical Expense Coverage Each Accident
					Covered Vehicles:
					All Owned, Leased, Hired and Non Owned Automobiles

29

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
						Additional Coverage Territory exclusions: Cuba, North Korea, Libya, Iran, Iraq and territorial waters of the U.S. its territories or possessions, Canada, Puerto Rico, Gulf of Mexico and international waters or air space when the BI or PD occurs in the course of travel or transportation which is both to or from any country or place named above.
						(VOLUNTARY WORKERS’ COMPENSATION/EMPLOYERS LIABILITY)
						Employers Liability Limits of Liability:
							[***]	Per Occurrence
							[***]	Excess Repatriation Expenses Per Person
						State of Hire Benefits for U.S. Hired and/or U.S. Citizens
						Workers’ Compensation Limits:
						Country of Hire for Third Country Nationals
						Excludes Local Nationals
Federal Insurance Company	July 31, 2005	See			[***]	DIRECTORS & OFFICERS (Claims-Made Policy)
[***]	toJuly 31, 2006	Coverage				Policy provides coverage for losses arising from claims made against a Director or Officer for any wrongful act while acting in their capacity as officers or directors of the company.
						Limits of Liability:
						$	[***]	Each Loss
						$		[***]   Each Policy Period
						Deductible:
							[***]	Executive Indemnification
						Pending or Prior Date:
						August 26, 1987
						Continuity Date:
						August 26, 1987

30

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
Illinois National Insurance Company	July 31, 2005	See			[***]	EXCESS DIRECTORS & OFFICERS(Claims-Made Policy)
[***]	to	Coverage
	July 31, 2006					Limits of Liability:
						$	[***]	Each Loss
						$	[***]	Each Policy Period
Arch Insurance Company	July 31, 2005	See			[***]	EXCESS DIRECTORS & OFFICERS(Claims-Made Policy)
[***]	to	Coverage
	July 31, 2006					Limits of Liability:
						$	[***]	Each Loss
						$	[***]	Each Policy Period
Twin City Fire Ins. Co.	July 31, 2005	See			[***]	EXCESS DIRECTORS & OFFICERS(Claims-Made Policy)
[***]	to	Coverage
	July 31, 2005					Limits of Liability:
						$	[***]	Each Loss
						$	[***]	Each Policy Period
Great American Ins. Co.	July 31, 2005	See			[***]	EXCESS DIRECTORS & OFFICERS(Claims-Made Policy)
[***]	to	Coverage
	July 31, 2006					Limits of Liability:
						$	[***]	Each Loss
						$	[***]	Each Policy Period

31

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
AXIS Reinsurance Compamy	July 31, 2005	See			[***]	EXCESS DIRECTORS & OFFICERS(Claims-Made Policy)
[***]	to	Coverage
	July 31, 2006					Limits of Liability:
						$	[***]	Each Loss
						$	[***]	Each Policy Period
Federal Insurance Company	July 31, 2005	See		$	[***]	FIDUCIARY LIABILITY(Claims-Made Policy)
[***]	to	Coverage				Provides coverages for any breach of Fiduciary Duty for which the Insured is legally liable to pay as damages for any claim or claims made.
	July 31, 2006
						Limit of Liability:
						$	[***]	Each Claim Limit
						$	[***]	Each Policy Period Limit
						Retention:
						$	[***]
Federal Insurance Company	July 31, 2005	See		$	[***]	CRIME COVERAGE
[***]	to	Coverage
	July 31, 2006					Limit of Liability:
						$	[***]	Employee Theft
						$	[***]	Premises Theft
						$	[***]	In Transit
						$	[***]	Forgery
						$	[***]	Computer Theft and Funds Transfer Fraud
						$	[***]	Money Orders and Counterfeit Fraud
						$	[***]	Credit Card Fraud

32

Company/Policy Number	Policy Term	Limits	Coins.	Premium		Coverage
						$	[***]	Client
						$	[***]	Expense
						Retention:
						$	[***]
Executive Risk Indemnity Inc.	July 1, 2005	See		$	[***]	ERRORS & OMISSIONS
[***]	to	Coverage
	July 1, 2006					Limit of Liability:
						$	[***]	Each Claim or Related Claims
						$	[***]	Aggregate
						Deductible:
						$	[***]	Each Claim or Related Claim
						Retroactive Date:
						July 1, 2005
National Union Fire Ins. Co.	December 21, 2004	See		$	[***]	NON OWNED AIRCRAFT LIABILITY:
[***]	to	Coverage
	December 21, 2005					Limit of Liability:
						$	[***]	Single Limit Including Passengers
National Union Fire	December 31, 2002	See		$	[***]	SPECIAL CRIME:
[***]	to	Coverage
	December 31, 2005					Limits of Liability: SEE POLICY

33

SCHEDULE 3.15

Capitalization and Subsidiaries

Subsidiary (unless otherwise indicated)	Type of Entity	Each Class of Authorized and Validly Issued Equity Interests	Record and Beneficial Owner	Percentage Ownership
Newton Acquisition MergerSub, Inc. (the Borrower priorto the Merger)	Corporation	900 shares ofCommon Stock $0.01 par value	NewtonAcquisition, Inc.	100	%
The Neiman Marcus Group,Inc. (the Borrower after theMerger)	Corporation	900 shares ofCommon Stock $0.01 par value	Newton Acquisition, Inc. (3)	100	%
Bergdorf Goodman, Inc.	Corporation	1,000 shares ofCommon Stock $1.00 par value	Neiman MarcusHoldings, Inc.	100	%
Bergdorf Graphics, Inc.	Corporation	1,000 shares ofCommon Stock $0.01 par value	BergdorfGoodman, Inc.	100	%
BergdorfGoodman.com, LLC	LimitedLiabilityCompany	MembershipInterests	The NeimanMarcus Group,Inc.	100	%
Neiman Marcus Holdings,Inc.	Corporation	100 shares ofCommon Stock $1.00 par value	The Neiman Marcus Group, Inc.	100	%
Neiman Marcus SpecialEvents, Inc.	Corporation	10 shares ofCommon Stock No par value	The NeimanMarcus Group,Inc.	100	%
NEMA Beverage Corporation	Corporation	100 shares ofCommon Stock $1.00 par value	NEMA BeverageHoldingCorporation	100	%
NEMA Beverage HoldingCorporation	Corporation	100 shares ofCommon Stock $1.00 par value	NEMA BeverageParentCorporation	100	%
NEMA Beverage Parent	Corporation	100 shares of	The Neiman	100	%

(3) After the Merger.

34

Corporation		Common Stock $1.00 par value	Marcus Group, Inc.
NM Financial Services, Inc.	Corporation	10 shares ofCommon Stock No par value	The NeimanMarcus Group,Inc.	100	%
NM Nevada Trust	Business Trust	100 shares No par value	1. The NeimanMarcus Group,Inc. 2. BergdorfGoodman, Inc.	1. 90 2. 10	% %
NMGP, LLC	LimitedLiabilityCompany	MembershipInterests	The NeimanMarcus Group,Inc.	100	%
NM Kitchens, Inc.	Corporation	10 shares ofCommon Stock No par value	The NeimanMarcus Group,Inc.	100	%
Willow Bend BeverageCorporation(4)	NonprofitCorporation	N/A	N/A	N/A
Worth Avenue LeasingCompany	Corporation	10 shares ofCommon Stock $1.00 par value	The Neiman Marcus Group, Inc.	100	%

(4) As a Texas nonprofit corporation, Willow Bend Beverage Corporation does not issue equity interests.

35

Name and Relationship to the Borrower of each of Borrower’s Subsidiaries

THE NEIMAN MARCUS GROUP, INC.

Delaware

NM Kitchens, Inc.	NEMA Beverage Parent Corporation
Delaware	Texas
Gurwitch Products, L.L.C.	NEMA Beverage Holding
Delaware(5)	Corporation
	Texas
Kate Spade LLC	NEMA Beverage Corporation
Delaware(6)	Texas
NM Financial Services, Inc.	Neiman Marcus Holdings, Inc.
Delaware	California
NM Nevada Trust	Bergdorf Goodman, Inc.
Massachusetts(7)	New York
Neiman Marcus Funding Corp.	Bergdorf Graphics, Inc.
Delaware	New York
Neiman Marcus Special Events, Inc.	BergdorfGoodman.com, LLC
Delaware	Delaware
Quality Call Care Solutions, Inc.	Worth Avenue Leasing
Ontario, Canada	Company
	Florida
NMGP, LLC	Willow Bend Beverage Corporation
Virginia	Texas(8)

(5) 51% NMG; 49% Others

(6) 56% NMG; 44% Others

(7) 90% NMG; 10% BG

(8) As a Texas nonprofit corporation, Willow Bend Beverage Corporation does not issue equity interests.

36

SCHEDULE 3.17

Labor Disputes

NONE

37

SCHEDULE 4.01(b)

Local Counsel

Law Firm	State	Street Address	Contact	Telephone/Fax	Email
Quarles &Brady	AZ	One Renaissance	Jim Morrow,	Tel: (602) 229-5644	jmorrow@quarles.com
		Square Two	Partner	Tel: (520) 770-8719
		North Central		Fax: (602) 420-5013
		Ave., Phoenix,
		AZ 85004, One
		South Church St.,	Bob Bornhoft,	Tel: (602) 230-5576	rbornhoft@quarles.com
		Suite	Partner	Fax: (602) 229-5690
		1700,Tucson, AZ
		85701
Kirkpatrick & Lockhart Nicholson Graham	CA	10100 Santa	Bill Bernfeld,	Tel: (310) 552-5014	wbernfeld@klng.com
		Monica	Partner	Fax: (310) 552-5001
		Boulevard, 7th	David Schack,	Tel: (310) 552-5061	dschack@klng.com
		Floor, Los	Partner	Fax: (310) 552-5001
		Angeles, CA
		90067
	DC & VA	1800 Massachusetts	Bruce Nielson,	Tel: (202) 778-9256	bnielson@klng.com
		Ave, NW,	Partner	Fax: (202) 778-9100
		Washington, D.C.
		20036
	FL	559 Lexington Ave, New York, NY 10022	Jon Grouf,	Tel: (212) 536-3940	jgrouf@klng.com
			Partner	Fax: (212) 536-3901
			Jeffrey Kucera,	Tel: (305) 539-3322	jkucera@klng.com
			Partner	Fax: (305) 358-7095
	NJ	One Newark	John Marmora,	Tel: (973) 848-4016	jmarmora@klng.com
		Center, 10th	Partner	Fax: (973) 848-4001
		Floor, Newark,
		NJ 07102
	NY	559 Lexington	Jeff Weitzman,	Tel: (212) 536-3956	jweitzman@klng.com
		Ave, New York,	Partner	Fax: (212) 536-3901
		NY 10022
	PA	Henry W. Oliver	Pierce Richardson,	Tel: (412) 355-6786	prichardson@klng.com
		Bldg.	Partner	Fax: (412) 355-6501
		535 Smithfield	Charles Harris,	Tel: (412) 355-6730	charris@klng.com
		Street, Pittsburgh,	Partner	Fax: (412) 355-6501
		PA 15222
	TX	2828 North Harwood St., Suite 1800, Dallas, TX 75201	Eugene Segrest,	Tel: (214) 939-4991	esegrest@klng.com
			Partner	Fax: (214) 939-4949
			John Dickey,	Tel: (214) 939-4941	jdickey@klng.com
			Partner	Fax: (214) 939-4949
Sutherland, Asbill & Brennan		999 Peachtree	Alfred G. Adams,	Tel: (404) 853-8014	al.adams@sablaw.com
		Street, NE,	Jr., Partner	Fax: (404) 853-8806
	GA	Atlanta, GA
		30309

38

Allen &Vellone, PC	CO	1600 Stout Street,	Mike Vellone,	Tel: (303) 534-4499	mvellone@allen-vellone.com
		Suite 1100,	Partner	Fax: (303) 893-8332
		Denver, CO
		80202
Clark Hill,PLC	MI	500 Woodward	Bill Dunn,	Tel: (313) 965-8511	wdunn@clarkhill.com
		Ave., Suite 3500	Partner	Fax: (313) 965-8252
		Detroit, MI 48226
Morris, James, Hitchens & Williams LLP	DE	222 Delaware Ave, 10th floor P.O. Box 2306 Wilmington, DE 19899-2306	Robert Symonds,	Tel: (302) 888-6803	rsymonds@morrisjames.com
			Partner	Fax: (302) 888-6989
			Norman M. Powell,	Tel: (302) 888-6975	npowell@morrisjames.com
			Partner	Fax: (302) 888-6989
			Matt O’Toole,	Tel: (302) 888-6875	motoole@morrisjames.com
			Partner	Fax: (302) 888-6989
Wilmer Cutler Pickering Hale and Dorr LLP	MA	60 State Street Boston, MA 02109	Jeffrey Hermanson,	Tel: (617) 526-6229	Jeffrey.Hermanson@wilmerhale.com
			Partner	Fax: (617) 526-5000
			John Sigel,	Tel: (617) 526-6728	john.sigel@wilmerhale.com
			Partner	Fax: (617) 526-5000

39

SCHEDULE 6.01

Existing Indebtedness

2008 Notes

2028 Debentures

$1.4 million of other indebtedness

40

SCHEDULE 9.01

Borrower’s Website for Electronic Delivery

www.neimanmarcusgroup.com

41

EXHIBIT A

[FORM OF]
ADMINISTRATIVE QUESTIONNAIRE

NEIMAN MARCUS GROUP, INC.

Agent Information	Agent Closing Contact
Credit Suisse	Jeannette Crespo
Eleven Madison Avenue	Tel: 212-325-5683
New York, NY 10010	Fax: 212-325-8304
	E-Mail: jeannette.crespo@csfb.com

Agent Wire Instructions

Bank of New York

ABA [***]

Account Name: [***]

Account Number: [***]

It is very important that all of the requested information be completed accurately and that this questionnaire be returned promptly. If your institution is sub-allocating its allocation, please fill out an administrative questionnaire for each legal entity.

Legal Name of Lender to appear in Documentation:

Signature Block Information:

·Signing Credit Agreement o Yes                  oNo

·Coming in via Assignment o Yes                 o No

Type of Lender:

(Bank, Asset Manager, Broker/Dealer, CLO/CDO; Finance Company, Hedge Fund, Insurance, Mutual Fund, Pension Fund, Other Regulated Investment Fund, Special Purpose Vehicle, Other-please specify)

Lender Parent:

Lender Domestic Address Lender Eurodollar Address

Contacts/Notification Methods: Borrowings, Paydowns, Interest, Fees, etc.

	Primary Credit Contact	Secondary Credit Contact
Name:
Company:
Title:
Address:
Telephone:
Facsimile:
E-Mail Address:

	Primary Operations Contact	Secondary Operations Contact
Name:
Company:
Title:
Address:
Telephone:
Facsimile:
E-Mail Address:

Lender’s Domestic Wire Instructions

Bank Name:

ABA/Routing No.:

Account Name:

Account No.:

FFC Account Name:

FFC Account No.:

Attention:

Reference:

2

Tax Documents

NON-U.S. LENDER INSTITUTIONS:

I.  Corporations:

If your institution is incorporated outside of the United States for U.S. federal income tax purposes, and is the beneficial owner of the interest and other income it receives, you must complete one of the following three tax forms, as applicable to your institution: a.) Form W-8BEN (Certificate of Foreign Status of Beneficial Owner), b.) Form W-8ECI (Income Effectively Connected to a U.S. Trade or Business), or c.) Form W-8EXP (Certificate of Foreign Government or Governmental Agency).

A U.S. taxpayer identification number is required for any institution submitting Form W-8ECI. It is also required on Form W-8BEN for certain institutions claiming the benefits of a tax treaty with the U.S. Please refer to the instructions when completing the form applicable to your institution. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. An original tax form must be submitted.

II.  Flow-Through Entities:

If your institution is organized outside the U.S., and is classified for U.S. federal income tax purposes as either a Partnership, Trust, Qualified or Non-Qualified Intermediary, or other non-U.S. flow-through entity, an original Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding) must be completed by the intermediary together with a withholding statement. Flow-through entities other than Qualified Intermediaries are required to include tax forms for each of the underlying beneficial owners.

Please refer to the instructions when completing this form. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. Original tax form(s) must be submitted.

U.S. LENDER INSTITUTIONS:

If your institution is incorporated or organized within the United States, you must complete and return Form W-9 (Request for Taxpayer Identification Number and Certification). Please be advised that we request that you submit an original Form W-9.

Pursuant to the language contained in the tax section of the Credit Agreement, the applicable tax form for your institution must be completed and returned prior to the first payment of income. Failure to provide the proper tax form when requested may subject your institution to U.S. tax withholding.

3

EXHIBIT B

[FORM OF]
ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any guarantees included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1.	Assignor:
2.	Assignee:
		[and is an Affiliate/Approved Fund of [identify Lender](1)]
3.	Borrower(s)	The Neiman Marcus Group, Inc.
4.	Agent:	Credit Suisse as the administrative agent and collateral agent under the Credit Agreement
5.	Credit Agreement:	The Credit Agreement dated as of October 6, 2005, among The Neiman Marcus Group, Inc., a Delaware corporation (the “Borrower”, formerly known as Newton Acquisition Merger Sub, Inc.), Newton Acquisition, Inc., a Delaware corporation, the Subsidiaries of the Borrower from time to time party thereto, the Lenders parties thereto, and Credit Suisse, as Agent.

(1) Select as applicable.

6. Assigned Interest:

Aggregate Amount of Commitment/Loans	Amount of Commitment/Loans Assigned	Percentage Assigned of Commitments/Loans(2)		CUSIP
$	$		%
$	$		%
$	$		%

Effective Date:                               , 20        [TO BE INSERTED BY AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR
	[NAME OF ASSIGNOR]
	by
		Name:
		Title:

ASSIGNEE
	[NAME OF ASSIGNEE]
	by
		Name:
		Title:

(2) Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

2

Consented to and Accepted:

CREDIT SUISSE, as Agent

by:
	Name:
	Title:

by:
	Name:
	Title:

[Consented to:](3)

[THE NEIMAN MARCUS GROUP, INC.]

by:
	Name:
	Title:

(3) To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

3

ANNEX 1

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1.  Representations and Warranties.

1.1  Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) its Commitment, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth herein, and (iv) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2.  Assignee. The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Section 3.04(a) or delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (ii) it appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent, by the terms thereof, together with such powers as are reasonably incidental thereto, and (iii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2.  Payments. From and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3.  General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be construed in accordance with and governed by the laws of the State of New York.

EXHIBIT C

[FORM OF]
COMPLIANCE CERTIFICATE

To:	The Lenders parties to the
	Credit Agreement described below

This Compliance Certificate is furnished pursuant to that certain Credit Agreement dated as of October 6, 2005 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among The Neiman Marcus Group, Inc. (formerly known as Newton Acquisition Merger Sub, Inc.) (the “Borrower”), the other Loan Parties, the Lenders party thereto and Credit Suisse, as Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1.             I am the duly elected                                 of the Borrower and a Financial Officer of the Borrower;

2.             I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements;

3.             The examinations described in paragraph 2 did not disclose, except as set forth below, and I have no knowledge of (i) the existence of any condition or event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate and (ii) the disclosure set forth below specifies the details of any such condition or event and any action taken or proposed to be taken with respect thereto;

4.  No Loan Party (a) has changed (i) its name, (ii) the location of its chief executive office or its principal place of business, (iii) its organizational legal entity designation or jurisdiction of incorporation or formation, or (iv) its Federal Taxpayer Identification Number or organizational identification number assigned to it by its jurisdiction of incorporation or formation, or (b) has made an acquisition of any material property for which additional filings or recordings are necessary to perfect and maintain the Agent’s security interest therein, in each case, without having given the Agent the notice required by Section 4.1 of the Security Agreement; and

5.             [For annual certificates, add: Schedule I attached hereto sets forth reasonably detailed calculations of the Borrower’s Excess Cash Flow for such fiscal year.] and

6.             [For annual certificates, add: Schedule II sets forth a list of names of all Immaterial Subsidiaries, each Subsidiary set forth on Schedule II individually qualifies as an Immaterial Subsidiary and all Domestic Subsidiaries listed as Immaterial Subsidiaries in the aggregate comprise less than 5% of consolidated total assets of the Borrower and the Subsidiaries at the end of the accounting period covered by the attached financial statements and represented (on a contribution basis) less than 5% of EBITDA for such period;] and

The description below sets forth the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:

The foregoing certifications, together with the information set forth in the Schedules hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this day of              ,      20    .

THE NEIMAN MARCUS GROUP, INC.
by:
	Name:
	Title:

2

SCHEDULE I

Calculations of the Borrower’s
Excess Cash Flows

SCHEDULE II

Immaterial Subsidiaries

EXHIBIT D

[FORM OF]
JOINDER AGREEMENT

THIS JOINDER AGREEMENT (this “Agreement”), dated as of                ,          , 20     , is entered into between                                                     , a                                   (the “New Subsidiary”) and CREDIT SUISSE, as Agent, under that certain Credit Agreement, dated as of October 6, 2005 (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among The Neiman Marcus Group, Inc., a Delaware corporation (the “Borrower”, formerly known as Newton Acquisition Merger Sub, Inc.), Newton Acquisition, Inc., a Delaware corporation, the Subsidiaries of the Borrower from time to time party thereto, the other Loan Parties from time to time party thereto, the Lenders from time to time party thereto and the Agent. All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.

The New Subsidiary and the Agent, for the benefit of the Lenders, hereby agree as follows:

1.             The New Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the New Subsidiary will be deemed to be a Loan Party under the Credit Agreement and a Loan Guarantor for all purposes of the Credit Agreement and shall have all of the obligations of a Loan Party and a Loan Guarantor thereunder as if it had executed the Credit Agreement. The New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Agreement, including without limitation (a) all of the representations and warranties of the Loan Parties set forth in Article III of the Credit Agreement (to the extent made or deemed made on or after the effective date hereof), (b) all of the covenants set forth in Articles V and VI of the Credit Agreement and (c) all of the guaranty obligations set forth in Article X of the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the New Subsidiary, subject to the limitations set forth in Section 10.09 of the Credit Agreement, hereby absolutely and unconditionally guarantees, jointly and severally with the other Loan Guarantors, to the Agent and the Lenders, the prompt payment of the Guaranteed Obligations in full when due (whether at stated maturity, upon acceleration or otherwise) to the extent of and in accordance with Article X of the Credit Agreement.

2.             If required, the New Subsidiary is, simultaneously with the execution of this Agreement, executing and delivering such Collateral Documents (and such other documents and instruments) as requested by the Agent in accordance with the Credit Agreement.

3.             The New Subsidiary hereby waives acceptance by the Agent and the Lenders of the guaranty by the New Subsidiary upon the execution of this Agreement by the New Subsidiary.

4.             This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument.

5.             THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly executed by its authorized officer, and the Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written.

[NEW SUBSIDIARY]
by:
	Name:
	Title:
Acknowledged and accepted:
CREDIT SUISSE, as Agent
by:
	Name:
	Title:
by:
	Name:
	Title:

2

EXHIBIT E

[FORM OF]
BORROWING REQUEST

Credit Suisse,

as Agent for the Lenders referred to below,

Eleven Madison Avenue

New York, NY 10010

Attention: Agency Group

Fax: (212) 325-8304

[Date](1)

Ladies and Gentlemen:

Reference is made to the Credit Agreement dated as of October 6, 2005, among Newton Acquisition Merger Sub, Inc., a Delaware corporation (prior to the Merger, the “Borrower”), The Neiman Marcus Group, Inc., a Delaware corporation (after the Merger, the “Borrower”), Newton Acquisition, Inc., a Delaware corporation, the Subsidiaries of the Borrower from time to time party thereto, the Lenders parties thereto, and Credit Suisse, as Agent (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Terms defined in the Credit Agreement are used herein with the same meanings.

The undersigned hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that it requests the Borrowing under the Credit Agreement to be made on the Closing Date, and in that connection sets forth below the terms on which the Borrowing is requested to be made:

(A)	Date of Borrowing
	(which shall be a Business Day)
(B)	Principal Amount of Borrowing
(C)	Type of Borrowing(2)
(D)	Interest Period and the last day thereof(3)
(E)	Account Number and Location

(1)Must be notified in writing or by telephone (with such telephonic notification to be confirmed promptly in writing) (i) in the case of a LIBOR Rate Borrowing, not later than 11:00 a.m., New York City time, two (2) Business Days before the Closing Date or (ii) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the Closing Date.

(2)Specify a LIBOR Rate Borrowing or an ABR Borrowing.

(3)The initial Interest Period applicable to a LIBOR Rate Borrowing shall be subject to the definition of “Interest Period”.

NEWTON ACQUISITION MERGER SUB, INC.
by:
	Name:
	Title:

2

EXHIBIT F

[FORM OF]
PROMISSORY NOTE

$[          ]	New York, New York
	[·], 200[·]

FOR VALUE RECEIVED, the undersigned, THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (the “Borrower”), hereby promises to pay to [ ] (the “Lender”) or its registered assigns, at the office of Credit Suisse (the “Agent”) at Eleven Madison Avenue, New York, New York 10010, on the dates and in the amounts set forth in the Credit Agreement dated as of October 6, 2005 (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, Newton Acquisition, Inc., the Subsidiaries from time to time party thereto, the Lenders party thereto and the Agent, in lawful money of the United States of America in immediately available funds, the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement and to pay interest from the date of such Loans on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Credit Agreement. Terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement.

The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from the due dates at a rate or rates provided in the Credit Agreement.

The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.

All borrowings evidenced by this promissory note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedules attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower under this Note.

This promissory note is one of the promissory notes referred to in the Credit Agreement that, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This promissory note is entitled to the benefit of the Credit Agreement and is guaranteed and secured as provided therein and in the other Loan Documents referred to in the Credit Agreement. THIS PROMISSORY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

THE NEIMAN MARCUS GROUP, INC.,
by:
	Name:
	Title:

Schedule A to Note

LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS

Date Amount of ABR Loans Amount Converted to ABR
Loans Amount of Principal of
ABR Loans Repaid Amount of ABR Loans
Converted to LIBOR Rate
Loans Unpaid Principal Balance
of ABR Loans Notation Made By

Schedule B to Note

LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF LIBOR RATE LOANS

Date Amount of LIBOR
Rate Loans Amount Converted
to LIBOR Rate
Loans Interest Period and
Adjusted LIBOR with
Respect Thereto Amount of Principal of
LIBOR Rate Loans
Repaid Amount of LIBOR
Rate Loans Converted
to ABR Loans Unpaid Principal
Balance of LIBOR
Rate Loans Notation Made By

2

EX-10.11

Exhibit 10.11

EXECUTION COPY

PLEDGE AND SECURITY AND INTERCREDITOR AGREEMENT

THIS PLEDGE AND SECURITY AND INTERCREDITOR AGREEMENT (as it may be amended or modified from time to time, this “Agreement”) is entered into as of October 6, 2005 by and among Newton Acquisition, Inc., a Delaware corporation (“Holdings”), Newton Acquisition Merger Sub., Inc., a Delaware corporation (“Merger Sub” and, prior to the Merger, the “Borrower”), The Neiman Marcus Group, Inc., a Delaware corporation (“Neiman Marcus”, and after the Merger, the “Borrower”), the Subsidiary Parties (as defined below) from time to time party hereto and Credit Suisse, in its capacity as administrative agent and collateral agent for the Secured Parties (as defined below) (in such capacity, the “Agent”).

PRELIMINARY STATEMENT

Reference is hereby made to (a) the Credit Agreement dated as of the date hereof providing for a term loan facility in an aggregate principal amount of $1,975,000,000 (as amended, restated, supplemented or otherwise modified from time to time, the “Term Loan Credit Agreement”), among Holdings, Merger Sub, the Subsidiaries of Neiman Marcus from time to time party thereto and Credit Suisse, as administrative agent, and (b) the Indenture dated as of May 27, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the “Existing Notes Indenture”), between Neiman Marcus and The Bank of New York, as trustee (in such capacity, the “Existing Notes Trustee”), pursuant to which the Borrower’s 7.125% Debentures due 2028 in an initial aggregate principal amount of $125,000,000 (the “2028 Debentures”) and the Borrower’s 6.65% Senior Notes due 2008 in an initial aggregate principal amount of $125,000,000 (the “2008 Notes”) were issued.

Pursuant to the Term Loan Credit Agreement, the Grantors are entering into this Agreement in order to induce the Term Loan Lenders to enter into and extend credit to the Borrower under the Term Loan Credit Agreement and to secure the Term Loan Obligations.

Pursuant to the Existing Notes Indenture, the Borrower may not secure the Term Loan Obligations with any Existing Notes Designated Collateral unless the Borrower shall have made effective provision to secure the 2028 Debentures and the 2008 Notes equally and ratably with the Term Loan Obligations for as long as such obligations are secured by any Existing Notes Designated Collateral.

ACCORDINGLY, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1.Terms Defined in Term Loan Credit Agreement.  All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Term Loan Credit Agreement.

Section 1.2.Terms Defined in UCC.  Terms defined in the UCC that are not otherwise defined in this Agreement are used herein as defined in the UCC.

Section 1.3.Definitions of Certain Terms Used Herein.  As used in this Agreement, in addition to the terms defined in the preamble and Preliminary Statement above, the following terms shall have the following meanings:

“Account” shall have the meaning set forth in Article 9 of the UCC.

“Aggregate Term Loan Credit Exposure” means, at any time, the aggregate principal amount of loans outstanding under the Term Loan Credit Agreement at such time.

“Article” means a numbered article of this Agreement, unless another document is specifically referenced.

“Bankruptcy Proceeding” means, with respect to any Person, a general assignment by such Person for the benefit of its creditors, or the institution by or against such Person of any proceeding seeking relief as debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of such Person or its debts, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property.

“Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.

“Collateral” shall have the meaning set forth in Article II.

“Commercial Tort Claim” shall have the meaning set forth in Article 9 of the UCC.

“Consignment Inventory” means any Inventory held by a Grantor on a consignment basis, which Inventory is not owned by a Grantor (and would not be reflected on a consolidated balance sheet of Borrower and its Subsidiaries prepared in accordance with GAAP).

“Consignment Proceeds” means any proceeds from the sale of any Consignment Inventory, solely to the extent that such proceeds are identifiable proceeds from the sale of Consignment Inventory and that the Borrower identifies such proceeds as such through a method of tracing reasonably satisfactory to the Agent.

 “Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

“Copyrights” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:  (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.

“Credit Agreement Event of Default” means any “Event of Default”, as defined in the Term Loan Credit Agreement.

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“Deposit Account” shall have the meaning set forth in Article 9 of the UCC.

“Document” shall have the meaning set forth in Article 9 of the UCC.

“Equipment” shall have the meaning set forth in Article 9 of the UCC.

“Event of Default” means a Credit Agreement Event of Default or an Existing Notes Event of Default.

“Excluded Assets” means

(a)the Specified Credit Card Receivables, any Specified Credit Card Payments and any Specified In-Store Credit Card Payments;

(b)the HSBC Credit Card Receivables Accounts;

(c)more than 65% of the issued and outstanding voting Equity Interests of any Foreign Subsidiary;

(d)any Domestic Subsidiary that is taxed as a partnership for federal income tax purposes that holds Equity Interests of a Foreign Subsidiary whose Equity Interests are pledged pursuant to this Security Agreement;

(e)any Margin Stock;

(f)Equity Interests in Kate Spade LLC, Gurwitch Products, L.L.C. and Willow Bend Beverage Corporation;

(g)any intercompany Indebtedness of (i) the Borrower or any Subsidiary that is a Loan Party owing to a Subsidiary that is a Loan Party, (ii) a Subsidiary that is a Loan Party owing to the Borrower or (iii) any Subsidiary that is not a Loan Party owing to the Borrower or owing to a Subsidiary that is a Loan Party (in the case of (iii), other than such Indebtedness that is Indebtedness for borrowed money and has a principal amount of $5,000,000 or more);

(h)subject to Section 11.16(d), any Equity Interests to the extent that a pledge of such Equity Interests would give rise to additional subsidiary reporting requirements under Rule 3-10 or Rule 3-16 of Regulation S-X promulgated under the Exchange Act of 1934;

(i)any Consignment Inventory and any Consignment Proceeds;

(j)any Leased-Department Inventory and any Leased-Department Proceeds;

(k)any leases, licenses, rights or other agreements contained within the Collateral to which any Grantor is a party or any of its rights or interests are subject thereto to the extent and solely to the extent that the proximate result of the grant of such security interest shall be to (1) constitute or result in the abandonment, invalidation or unenforceability of any right, title or interest in such Grantor therein, or (2) create a situation under which such Grantor shall be deemed to have breached or terminated pursuant to the terms of, or defaulted under, any such Collateral; and in each case under

3

clauses (1) and (2) above such abandonment, invalidation, unenforceability, breach, termination or default would not be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles or equity; provided, however, that the Excluded Assets shall not include, and such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation, unenforceability, breach, termination or default shall be remedied and to the extent severable, shall attach immediately to, any portion of such lease, license, right or agreement that does not result in any of the consequences specified in (1) or (2) above; and

(l)assets that are acquired by any Grantor with the proceeds of Indebtedness incurred pursuant to Section 6.01(b)(vi) of the Term Loan Credit Agreement and that are subject to a purchase money Lien in favor of the lenders under such Indebtedness; provided, however, that the aggregate purchase price paid for the acquisition of such assets shall not exceed $75,000,000 in the aggregate.

 “Exhibit” refers to a specific exhibit to this Agreement, unless another document is specifically referenced.

 “Existing Notes Designated Collateral” means (a) any “Principal Property” (as such term is defined in the Existing Notes Indenture) of the Borrower or any Restricted Subsidiary (as defined in the Existing Notes Indenture) and (b) any Equity Interests or indebtedness of any Subsidiary of the Borrower.  For the avoidance of doubt, Existing Notes Designated Collateral does not include (i) any Equity Interests of the Borrower or (ii) any Excluded Assets.

“Existing Notes Event of Default” means any “Event of Default”, as defined in the Existing Notes Indenture.

“Existing Notes Indenture” has the meaning set forth in the Preliminary Statement.

“Existing Notes Obligations” means the 2008 Notes Obligations and the 2028 Debenture Obligations.

“Existing Notes Trustee” means The Bank of New York, in its capacity as trustee under the Existing Notes Indenture.

“Existing Notes Secured Parties” means the 2008 Notes Secured Parties and the 2028 Debentures Secured Parties.

“Fixture” shall have the meaning set forth in Article 9 of the UCC.

“General Intangible” shall have the meaning set forth in Article 9 of the UCC.

“Goods” shall have the meaning set forth in Article 9 of the UCC.

“Grantors” means Holdings, the Borrower and the Subsidiary Parties.

“HSBC Credit Card Receivables Accounts” means the deposit accounts # 001846205 held at HSBC Bank USA, N.A. and # 08806372312 held at JPMorgan Chase Bank, containing proceeds of Specified Credit Card Receivables, which account is owned by the Borrower but

4

controlled by HSBC and the ownership of which is anticipated to be transferred to HSBC in the first or second calendar quarter of 2006.

 “Instrument” shall have the meaning set forth in Article 9 of the UCC.

“Intercreditor Agreement” means the Lien Subordination and Intercreditor Agreement dated as of the date hereof, among Holdings, the Borrower, the Subsidiaries from time to time party thereto, the Revolving Facility Agent and the Agent, as amended, modified or supplemented from time to time.

“Inventory” shall have the meaning set forth in Article 9 of the UCC.

“Investment Property” shall have the meaning set forth in Article 9 of the UCC.

“Leased-Department Inventory” means any Inventory relating to a leased department within one of the Grantors’ retail stores, which Inventory is not owned by a Grantor (and would not be reflected on a consolidated balance sheet of Borrower and its Subsidiaries prepared in accordance with GAAP).

“Leased-Department Proceeds” means any proceeds from the sale of any Leased-Department Inventory, solely to the extent that such proceeds are identifiable proceeds from the sale of Leased-Department Inventory and that the Borrower identifies such proceeds as such through a method of tracing reasonably satisfactory to the Agent.

“Letter-of-Credit Right” shall have the meaning set forth in Article 9 of the UCC.

“Licenses” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to (a) any and all licensing agreements or similar arrangements in and to its owned (1) Patents, (2) Copyrights, or (3) Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.

“Obligations” means the Term Loan Obligations and the Existing Notes Obligations.

“Patents” means, with respect to any Person, all of such Person’s right, title, and interest in and to:  (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements thereof; and (f) all rights corresponding to any of the foregoing throughout the world.

“Perfection Certificate”  means a certificate substantially in the form of Exhibit I completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of the Borrower.

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“Permitted Liens” means the “Permitted Liens” as defined in the Term Loan Credit Agreement.

“Pledged Collateral” means all Instruments, Securities and other Investment Property owned by any Grantor, other than any Instruments, Securities or Investment Property that is an Excluded Asset (for so long and to the extent such exclusion is applicable), whether or not physically delivered to the Agent pursuant to this Agreement.

“Receivables” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments and any other rights or claims to receive money (other than the Specified Credit Card Receivables) that are General Intangibles or that are otherwise included as Collateral.

“Required Secured Parties” means (a) prior to an acceleration of the Term Loan Obligations under the Term Loan Credit Agreement, the “Required Lenders” as defined in the Term Loan Credit Agreement (with any loans under the Term Loan Credit Agreement and unused commitments thereunder held by the Borrower or any of its Affiliates being excluded for such purpose), (b) after an acceleration of the Term Loan Obligations under the Term Loan Credit Agreement but prior to the date upon which the Term Loan Credit Agreement has terminated by its terms and all of the obligations thereunder have been paid in full, Term Loan Lenders holding in the aggregate loans under the Term Loan Credit Agreement representing more than 50% of the Aggregate Term Loan Credit Exposure (with any such loans held by the Borrower or any of its Affiliates being excluded for this purpose), and (c) after the Term Loan Credit Agreement has terminated by its terms and all of the Term Loan Obligations thereunder have been paid in full (whether or not the Term Loan Obligations under the Term Loan Credit Agreement were ever accelerated), Term Loan Lenders holding in the aggregate at least a majority of the aggregate net Secured Hedging Obligations then due and unpaid from the Grantors to the Term Loan Lenders under Hedge Agreements, as determined by the Term Loan Agent in its reasonable discretion.

“Revolving Facility Agent” means Deutsche Bank Trust Company Americas, in its capacity as administrative agent and collateral agent under the Revolving Facility Credit Agreement.

“Revolving Facility Credit Agreement” means the Credit Agreement dated the date hereof among Holdings, the Borrower, the Subsidiary Parties and the Revolving Facility Agent, as amended, restated supplemented or otherwise modified from time to time.

“Revolving Facility First Lien Collateral Transition Date” has the meaning set forth in the Intercreditor Agreement.

“Section” means a numbered section of this Agreement, unless another document is specifically referenced.

“Secured Parties” means the Term Loan Secured Parties and the Existing Notes Secured Parties.

“Security” shall have the meaning set forth in Article 8 of the UCC.

“Specified Credit Card Receivables” means the Accounts, Documents and other rights or claims to receive money which are General Intangibles and that have been or from time to time are

6

sold or otherwise transferred to (i) HSBC pursuant to the HSBC Arrangements or (ii) any third party pursuant to any Permitted Replacement Credit Card Program.

“Specified Credit Card Payments” means any payments by the holder of a private label credit card subject to the HSBC Arrangements or any Permitted Replacement Credit Card Program to the issuer of such credit card that are (i) in the case of the HSBC Arrangements, made to a HSBC Credit Card Receivables Accounts or (ii) in the case of any Permitted Replacement Credit Card Program, made to any account of a Grantor prior to the transition of ownership of such account to the applicable third party in connection with the establishment of the applicable Permitted Replacement Credit Card Program.

“Specified In-Store Credit Card Payments” means any payments made in-person by customers in respect of private label credit cards subject to the HSBC Arrangements or any Permitted Replacement Credit Card Program in one of the Grantors’ retail stores, solely to the extent that such payments are identifiable payments from the holders of such private label credit cards and that the Borrower identifies such payments as such through a method of tracing reasonably satisfactory to the Agent.

 “Stock Rights” means all dividends, instruments or other distributions and any other right or property which any Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Equity Interest constituting Collateral, any right to receive an Equity Interest constituting Collateral and any right to receive earnings, in which such Grantor now has or hereafter acquires any right, issued by an issuer of such Equity Interest.

“Subsidiary Parties” means (a) the Subsidiaries identified on Exhibit J hereto, (b) NM Nevada Trust, a Massachusetts business trust, and (c) each other Domestic Subsidiary that becomes a party to this Agreement as a Subsidiary Party after the date hereof, in accordance with Section 11.14 herein and Section 5.11 of the Term Loan Credit Agreement.

“Supporting Obligation” shall have the meaning set forth in Article 9 of the UCC.

“Term Loan Credit Agreement” has the meaning set forth in the Preliminary Statement.

“Term Loan/Notes Documents” has the meaning set forth in the Intercreditor Agreement.

“Term Loan Lenders” means the “Lenders” under and as defined in the Term Loan Credit Agreement.

“Term Loan Obligations” means (a) the due and punctual payment by the Borrower of (i) the principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, on the loans under the Term Loan Credit Agreement and (ii) all other monetary obligations of the Borrower or any other Grantor to any of the Term Loan Secured Parties under the Term Loan Credit Agreement and each of the Term Loan Security Documents, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or

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otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual performance of all other obligations of the Borrower or any other Grantor to any of the Term Loan Secured Parties under or pursuant to the Term Loan Credit Agreement and each of the Term Loan Security Documents and (c) the due and punctual payment and performance of all the obligations of the Borrower and each other Grantor to any of the Term Loan Secured Parties under this Agreement and each of the Term Loan Security Documents.

“Term Loan Secured Parties” means (a) the Term Loan Lenders, (b) the Agent, (c) each counterparty to any Hedge Agreement with a Loan Party the obligations under which constitute Secured Hedge Obligations, (d) each beneficiary of any indemnification obligation undertaken by the Borrower or any other Grantor under any Term Loan/Notes Document and (e) the successors and assigns of each of the foregoing.

“Term Loan Security Documents” shall have the meaning set forth in the Intercreditor Agreement.

“Trademarks” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:  (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including, without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.

“2008 Notes Obligations” means (a) the due and punctual payment by the Borrower of (i) the principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, on the 2008 Notes (ii) and all other monetary obligations of the Borrower or any other Grantor to any of the 2008 Notes Secured Parties under the Existing Notes Indenture and each of the Term Loan Security Documents related thereto, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual performance of all other obligations of the Borrower or any other Grantor to any of the 2008 Notes Secured Parties under or pursuant to the Existing Notes Indenture and each of the Term Loan Security Documents related thereto and (c) the due and punctual payment and performance of all the obligations of each other Grantor to any of the 2008 Notes Secured Parties under this Agreement and each of the Term Loan Security Documents related thereto.

“2008 Notes Secured Parties” means (a) the holders of the 2008 Notes, (b) each beneficiary of any indemnification obligation undertaken by the Borrower or any other Grantor under any Existing Notes Indenture and (c) the successors and assigns of each of the foregoing.

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“2028 Debentures Obligations” means (a) the due and punctual payment by the Borrower of (i) the principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, on the 2028 Debentures and (ii) all other monetary obligations of the Borrower or any other Grantor to any of the 2028 Debentures Secured Parties under the Existing Notes Indenture and each of the Term Loan Security Documents related thereto, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual performance of all other obligations of the Borrower or any other Grantor to any of the 2028 Debentures Secured Parties under or pursuant to the Existing Notes Indenture and each of the Term Loan Security Documents related thereto and (c) the due and punctual payment and performance of all the obligations of each other Grantor to any of the 2028 Debentures Secured Parties under this Agreement and each of the Term Loan Security Documents related thereto.

“2028 Debentures Secured Parties” means (a) the holders of the 2028 Debentures, (b) each beneficiary of any indemnification obligation undertaken by the Borrower or any other Grantor under any Existing Notes Indenture and (c) the successors and assigns of each of the foregoing.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York.

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II
GRANT OF SECURITY INTEREST

Each Grantor hereby pledges, assigns and grants to the Agent, on behalf of and for the ratable benefit of the Secured Parties, a security interest in all of its right, title and interest in, to and under all personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of such Grantor (including under any trade name or derivations thereof), and regardless of where located (all of which are collectively referred to as the “Collateral”), including:

(i)all Accounts;

(ii)all Chattel Paper;

(iii)all Copyrights, Patents and Trademarks;

(iv)all Documents;

(v)all Equipment;

(vi)all Fixtures;

(vii)all General Intangibles;

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(viii)all Goods;

(ix)all Instruments;

(x)all Inventory;

(xi)all Investment Property;

(xii)all cash or cash equivalents;

(xiii)all letters of credit, Letter-of-Credit Rights and Supporting Obligations;

(xiv)all Deposit Accounts with any bank or other financial institution;

(xv)all Commercial Tort Claims as specified from time to time in Exhibit E; and

(xvi)all accessions to, substitutions for and replacements, proceeds (including Stock Rights), insurance proceeds and products of the foregoing, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto and any General Intangibles at any time evidencing or relating to any of the foregoing;

to secure the prompt and complete payment and performance of the Obligations.

Notwithstanding the foregoing or anything herein to the contrary, in no event shall the “Collateral” include or the security interest attach to any Excluded Asset.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

The Grantors, jointly and severally, represent and warrant to the Agent, for the benefit of the Secured Parties, that:

Section 3.1.Title, Perfection and Priority.  Each Grantor has good and valid rights in, or the power to transfer the Collateral and title to, the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except Permitted Liens, and has full power and authority to grant to the Agent the security interest in such Collateral pursuant hereto.  When financing statements have been filed in the appropriate offices against such Grantor in the locations listed on Exhibit G, the Agent will have a fully perfected first priority security interest in that Collateral in which a security interest may be perfected by filing under the Uniform Commercial Code in effect in the applicable jurisdiction, subject only to Permitted Liens and to the terms of the Intercreditor Agreement.

Section 3.2.Type and Jurisdiction of Organization, Organizational and Identification Numbers.  The type of entity of each Grantor, its jurisdiction of organization, the organizational number issued to it by its jurisdiction of organization and its federal employer identification number are set forth on Exhibit A.

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Section 3.3.Principal Location.  Each Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), is disclosed on Exhibit A.

Section 3.4.Collateral Locations.  Each location where Collateral is located as of the date hereof (except for Inventory in transit) is listed on Exhibit A.  All of said locations are owned by a Grantor except for locations (i) that are leased by a Grantor as lessee and designated in Part III(b) of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part III(c) of Exhibit A.

Section 3.5.Bailees, Warehousemen, Etc.  Exhibit B hereto sets forth a list, as of the date hereof, of each bailee, warehouseman and other third party in possession or control of any Inventory of any Grantor (except for Inventory in transit) and specifies as to each bailee, warehouseman or other third party whether the value of the Inventory, at cost, possessed or controlled by such bailee, warehouseman or other third party exceeds $2,500,000.

Section 3.6.Exact Names.  The name in which each Grantor has executed this Agreement is the exact name as it appears in such Grantor’s organizational documents, as amended, as filed with such Grantor’s jurisdiction of organization.  No Grantor has, during the past five years, been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation (other than, in the case of the Borrower, the Merger) except as disclosed in the Perfection Certificate.

Section 3.7.Letter-of-Credit Rights and Chattel Paper.  Exhibit C lists all Letter-of-Credit Rights and Chattel Paper of each Grantor.  All actions necessary or desirable to protect and perfect the Agent’s Lien under the laws of the United States, on each item listed on Exhibit C (including the delivery of all originals as required hereunder) has been duly taken by each Grantor. The Agent will have a fully perfected first priority security interest in the Collateral listed on Exhibit C, subject only to Permitted Liens and to the terms of the Intercreditor Agreement.

Section 3.8.Accounts and Chattel Paper.  The names of the obligors, amounts owing, due dates and other information with respect to each Grantor’s Accounts and Chattel Paper that are Collateral are and will be correctly stated, at the time furnished, in all records of such Grantor relating thereto and in all invoices furnished to the Agent by such Grantor from time to time.

Section 3.9.Intellectual Property.  No Grantor has any interest in, or title to, any Patent, Trademark or Copyright except as set forth on Exhibit D.  This Agreement is effective to create a valid and continuing Lien under the UCC and the laws of the United States and, upon filing of appropriate financing statements in the offices listed on Exhibit G and this Agreement with the United States Copyright Office and the United States Patent and Trademark Office, fully perfected first priority security interests under the UCC and the laws of the United States (subject to the terms of the Intercreditor Agreement) in favor of the Agent for the ratable benefit of the Secured Parties on the Patents, Trademarks and Copyrights of the Grantors, such perfected security interests are enforceable as such as against any and all creditors of and purchasers from the Grantors; and all action necessary or desirable under the UCC and the laws of the United States to protect and perfect the Agent’s Lien on the Patents, Trademarks or Copyrights of the Grantors shall have been duly taken.

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Section 3.10.No Financing Statements, Security Agreements.  No financing statement or security agreement describing all or any portion of the Collateral that has not lapsed or been terminated naming a Grantor as debtor has been filed or is of record in any jurisdiction except (a) for financing statements or security agreements naming the Agent on behalf of the Secured Parties as the secured party and (b) Permitted Liens.

Section 3.11.Pledged Collateral.

(a)Exhibit F sets forth a complete and accurate list of all of the Pledged Collateral and the percentage of the total issued and outstanding Equity Interests of the issuer represented thereby (except any Equity Interests in respect of which a Grantor owns less than 10% of the Equity Interests of the issuer of such Equity Interests).  Each Grantor is the direct, sole beneficial owner and sole holder of record of the Pledged Collateral listed on Exhibit F as being owned by it, free and clear of any Liens, except for the security interest granted to the Agent for the ratable benefit of the Secured Parties hereunder and Permitted Liens.  Each Grantor further represents and warrants that (i) all Pledged Collateral constituting an Equity Interest has been (to the extent such concepts are relevant with respect to such Pledged Collateral) duly authorized and validly issued by the issuer thereof and are fully paid and non-assessable, (ii) with respect to any certificates delivered to the Agent representing an Equity Interest, either such certificates are Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, such Grantor has so informed the Agent so that the Agent may take steps to perfect its security interest therein as a General Intangible, (iii) it shall have used commercially reasonable efforts to ensure that all Pledged Collateral held by a securities intermediary is covered by a control agreement among the applicable Grantor, the securities intermediary and the Agent pursuant to which the Agent has Control and (iv) all Pledged Collateral that represents Indebtedness owed to any Grantor has been duly authorized, authenticated or issued and delivered by the issuer of such Indebtedness, is the legal, valid and binding obligation of such issuer and such issuer is not in default thereunder.

(b)(i) None of the Pledged Collateral has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject, (ii) none of the Pledged Collateral is or will be subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder, and (iii) no consent, approval, authorization, or other action by, and no giving of notice, filing with, any governmental authority or any other Person is required for the pledge by the Grantors of the Pledged Collateral pursuant to this Agreement or for the execution, delivery and performance of this Agreement by the Grantors, or for the exercise by the Agent of the voting or other rights provided for in this Agreement or for the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally.

(c)Except as set forth on Exhibit F, none of the Pledged Collateral which represents Indebtedness owed to a Grantor is subordinated in right of payment to other Indebtedness or subject to the terms of an indenture.

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Section 3.12.Commercial Tort Claims.  As of the date hereof, no Grantor holds any Commercial Tort Claims having a value in excess of $1,000,000 for which such Grantor has filed a complaint in a court of competent jurisdiction, except as indicated on Exhibit E hereto.

Section 3.13.Perfection Certificate.  The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects as of the date hereof.

ARTICLE IV
COVENANTS

From the date hereof, and thereafter until this Agreement is terminated, each Grantor agrees that:

Section 4.1.General.

(a)Collateral Records.  Each Grantor will maintain complete and accurate books and records as is consistent with its practices as of the date hereof in all material respects with respect to the Collateral, and furnish to the Agent such reports relating to the Collateral as the Agent shall from time to time reasonably request.

(b)Authorization to File Financing Statements; Ratification.  Each Grantor hereby authorizes the Agent to file, and if requested will deliver to the Agent, all financing statements and other documents and take such other actions as may from time to time be requested by the Agent in order to maintain a first priority (subject to the terms of the Intercreditor Agreement) perfected security interest in and, if applicable, Control of, the Collateral.  Any financing statement filed by the Agent may be filed in any filing office in any applicable Uniform Commercial Code jurisdiction and may (i) indicate the Collateral (1) as all assets of the applicable Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of such jurisdiction, or (2) by any other description which reasonably approximates the description contained in this Agreement, and (ii) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether the Grantor is an organization, the type of organization and any organization identification number issued to the Grantor and (B) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates.  Each Grantor also agrees to furnish any such information to the Agent promptly upon request.  Each Grantor also ratifies its authorization for the Agent to have filed in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

(c)Further Assurances.  Each Grantor will, if reasonably requested by the Agent, but not more frequently than once per quarter, furnish to the Agent statements and schedules further identifying and describing the Collateral and such other reports and information in connection with the Collateral as the Agent may reasonably request, all in such detail as the Agent may reasonably specify.  Each Grantor also agrees to take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of the Agent in the Collateral and the priority thereof against any Lien other than Permitted Liens.

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(d)Disposition of Collateral.  No Grantor will sell, lease, transfer or otherwise dispose of the Collateral except for sales, leases, transfers and other dispositions specifically permitted pursuant to the terms of the Term Loan Credit Agreement.

(e)Liens.  No Grantor will create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Agreement and (ii) Permitted Liens.

(f)Other Financing Statements.  No Grantor will authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral, except to cover security interests that are Permitted Liens. Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the UCC.  Without limiting the foregoing, each Grantor shall use its commercially reasonable efforts to ensure that any financing statement filed by any Person with respect to Consignment Inventory shall clearly indicate that such financing statement relates to a consignment transaction with respect to such Consignment Inventory between the applicable Grantor and such Person.

(g)Change of Name, Etc.  Each Grantor agrees to furnish to the Agent prompt written notice of any change in:  (i) such Grantor’s name; (ii) the location of such Grantor’s chief executive office or its principal place of business; (iii) such Grantor’s organizational legal entity designation or jurisdiction of incorporation or formation; (iv) such Grantor’s Federal Taxpayer Identification Number or organizational identification number assigned to it by its jurisdiction of incorporation or formation; or (v) the acquisition by such Grantor of any material property for which additional filings or recordings are necessary to perfect and maintain the Agent’s security interest therein (to the extent perfection of the security interest in such property is required by the terms hereof).  Each Grantor agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or other applicable law that are required in order for the Agent to continue at all times following such change to have a valid, legal and perfected, first priority security interest (subject to the terms of the Intercreditor Agreement and to Permitted Liens that have priority by operation of applicable law) in the Collateral for its benefit and the benefit of the other Secured Parties.

(h)Compliance with Terms.  Each Grantor will perform and comply in all material respects with all obligations in respect of the Collateral and all material agreements relating to the Collateral to which it is a party or by which it is bound.

Section 4.2.Receivables.

(a)Certain Agreements on Receivables.  No Grantor will make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof, except that, prior to the occurrence of an Event of Default, any Grantor may reduce the amount of Accounts, whether from the sale of Inventory or otherwise, in accordance with its present policies and in the ordinary course of business.

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(b)Collection of Receivables.  Except as otherwise provided in this Agreement, each Grantor will collect and enforce, in accordance with its present policies and in the ordinary course of business, all amounts due or hereafter due to such Grantor under the Receivables.

(c)Electronic Chattel Paper.  If any Grantor at any time holds or acquires an interest in any Electronic Chattel Paper or any “transferable record”, as that term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Grantor shall promptly notify the Agent thereof and, at the request of the Agent, shall take such action as the Agent may reasonably request to vest in the Agent Control under UCC Section 9-105 of such Electronic Chattel Paper or control (to the extent the meaning of “control” has not been clearly established under such provisions, “control” in this paragraph (c) to have such meaning as the Agent shall in good faith specify in writing after consultation with the Borrower) under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.  The Agent agrees with such Grantor that the Agent will arrange, pursuant to procedures reasonably satisfactory to the Agent and so long as such procedures will not result in the Agent’s loss of Control or control, as applicable, for the Grantor to make alterations to the Electronic Chattel Paper or transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in Control to allow without loss of Control or control, as applicable, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Grantor with respect to such Electronic Chattel Paper or transferable record.

Section 4.3.Delivery of Instruments, Securities, Chattel Paper and Documents. Each Grantor will (a) deliver to the Agent immediately upon execution of this Agreement the originals of all Chattel Paper, Securities and Instruments constituting Collateral (if any then exist), (b) hold in trust for the Agent upon receipt and promptly thereafter deliver to the Agent any Chattel Paper, Securities and Instruments constituting Collateral received after the date hereof, (c) upon the Agent’s request, deliver to the Agent, and thereafter hold in trust for the Agent upon receipt and promptly deliver to the Agent any Document evidencing or constituting Collateral and (d) upon the Agent’s request, deliver to the Agent a duly executed amendment to this Agreement, in the form of Exhibit H hereto (each, an “Amendment”), pursuant to which such Grantor will pledge any additional Collateral.  Each Grantor hereby authorizes the Agent to attach each Amendment to this Agreement and agrees that all additional collateral set forth in such Amendments shall be considered to be part of the Collateral.

Section 4.4.Uncertificated Pledged Collateral.  The Grantors will permit the Agent from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Pledged Collateral with respect to which a Grantor owns 50% or more of the Equity Interests of the issuer of such Pledged Collateral not represented by certificates to mark their books and records with the numbers and face amounts of all such uncertificated securities or other types of Pledged Collateral not represented by certificates and all rollovers and replacements therefor to reflect the Lien of the Agent granted pursuant to this Agreement.  The Grantors will take any actions reasonably necessary to cause (a) the issuers of uncertificated securities which are Pledged Collateral with respect to which a Grantor owns 50% or more of the Equity Interests of the issuer of such Pledged Collateral, and (b) any securities intermediary which is the holder of any Pledged Collateral, to cause the Agent to have and retain

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Control over such Pledged Collateral.  Without limiting the foregoing, each applicable Grantor will use its commercially reasonable efforts to cause, with respect to Pledged Collateral held with a securities intermediary in an account with an aggregate asset value of $5,000,000 or more, such securities intermediary to enter into a control agreement with the Agent, in form and substance satisfactory to the Agent, giving the Agent Control.

Section 4.5.Pledged Collateral.

(a)Registration in Nominee Name; Denominations.  The Agent, on behalf of the Secured Parties, shall hold certificated Pledged Collateral in the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Agent, but following the occurrence and during the continuance of an Event of Default shall have the right (in its sole and absolute discretion) to hold the Pledged Collateral in its own name as pledgee, or in the name of its nominee (as pledgee or as sub-agent).  Each Grantor will promptly give to the Agent copies of any notices or other communications received by it with respect to Pledged Collateral registered in the name of such Grantor.  Following the occurrence and during the continuance of an Event of Default, the Agent shall at all times have the right to exchange the certificates representing Pledged Collateral for certificates of smaller or larger denominations for any purpose consistent with this Agreement.

(b)Any Indebtedness of any Subsidiary that is not a Loan Party owing to the Borrower or any Subsidiary that is a Loan Party in excess of $5,000,000 shall be or become evidenced by a promissory note or other instrument, and such note or instrument shall be promptly pledged and delivered to the Agent, duly endorsed in a manner satisfactory to the Agent.

(c)Exercise of Rights in Pledged Collateral.

(i)Without in any way limiting the foregoing and subject to clause (ii) below, each Grantor shall have the right to exercise all voting rights or other rights relating to the Pledged Collateral for all purposes not inconsistent with this Agreement and the other Term Loan/Note Documents; provided however, that no vote or other right shall be exercised or action taken which would reasonably be expected to have the effect of materially and adversely impairing the rights of the Agent in respect of the Pledged Collateral.

(ii)Each Grantor will permit the Agent or its nominee at any time after the occurrence and during the continuance of an Event of Default, without notice, to exercise all voting rights or other rights relating to Pledged Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any Equity Interest or Investment Property constituting Pledged Collateral as if it were the absolute owner thereof.

(iii)Each Grantor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Collateral to the extent and only to the extent that such dividends, interest, principal and other distributions are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Term Loan/Note Documents and applicable law; provided, however, that any non-cash dividends, interest, principal or other distributions that would constitute Pledged Collateral, whether resulting from a subdivision, combination or reclassification of the

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outstanding Equity Interests of the issuer of any Pledged Collateral or received in exchange for Pledged Collateral or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the ratable benefit of the Secured Parties and shall be forthwith delivered to the Agent in the same form as so received (with any necessary endorsement or instrument of assignment).  The proviso to the first sentence of this clause (iii) shall not apply to dividends between or among the Grantors only of property subject to a perfected security interest under this Agreement; provided that the Borrower notifies the Agent in writing, specifically referring to this Section 4.5 at the time of such dividend and takes any actions the Agent reasonably specifies to ensure the continuance of its perfected security interest in such property under this Agreement.

Section 4.6.Intellectual Property.

(a)Upon the occurrence and during the continuance of an Event of Default, each Grantor will use its best efforts to obtain all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Agent of any License held by such Grantor and to enforce the security interests granted hereunder.

(b)Each Grantor shall notify the Agent promptly if it knows or reasonably expects that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) material to the conduct of such Grantor’s business may become abandoned or dedicated, or of any material adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding such Grantor’s ownership of any such Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.

(c)In no event shall any Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any material Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving the Agent prompt written notice thereof, and, upon request of the Agent, such Grantor shall execute and deliver any and all security agreements or other instruments as the Agent may reasonably request to evidence the Agent’s security interest in such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby.

(d)Each Grantor shall take all actions necessary or reasonably requested by the Agent to maintain and pursue each material application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing) material to the conduct of such Grantor’s business, except in cases where, in the ordinary course of business consistent with past practice, such Grantor reasonably decides to abandon, allow to lapse or expire any Patent, Trademark or Copyright, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and, if consistent with good business judgment and past practice, to initiate opposition and interference and cancellation proceedings against third parties.

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(e)Consistent with each Grantor’s past practice, each Grantor shall, unless it shall reasonably determine that a Patent, Trademark or Copyright is not material to the conduct of its business, promptly notify the Agent and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution of such Patent, Trademark or Copyright and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as are appropriate under the circumstances to protect such Patent, Trademark or Copyright.

Section 4.7.Commercial Tort Claims.  Each Grantor shall promptly notify the Agent of any Commercial Tort Claim having a value in excess of $1,000,000 acquired by it for which such Grantor has filed a complaint in a court of competent jurisdiction and, unless the Agent otherwise consents, such Grantor shall update Exhibit E to this Agreement, thereby granting to the Agent a first priority security interest in such Commercial Tort Claim (subject to the Intercreditor Agreement).

Section 4.8.Letter-of-Credit Rights.  If any Grantor is or becomes the beneficiary of a letter of credit having a face amount in excess of $1,000,000, such Grantor shall promptly notify the Agent thereof and cause the issuer and/or confirmation bank to consent to the assignment of any Letter-of-Credit Rights to the Agent.

Section 4.9.No Interference.  Each Grantor agrees that it will not interfere with any right, power and remedy of the Agent provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Agent of any one or more of such rights, powers or remedies.

Section 4.10.Insurance.  (a)In the event any Collateral is located in any area that has been designated by the Federal Emergency Management Agency as a “Special Flood Hazard Area”, the applicable Grantor shall purchase and maintain flood insurance on such Collateral (including any personal property which is located on any real property leased by such Loan Party within a “Special Flood Hazard Area”).  The amount of all insurance required by this Section shall at a minimum comply with applicable law, including the Flood Disaster Protection Act of 1973, as amended.  All premiums on such insurance shall be paid when due by such Grantor, and copies of the policies delivered to the Agent.  If any Grantor fails to obtain any insurance as required by this Section, the Agent at the direction of the Required Lenders may obtain such insurance at the Borrower’s expense.  By purchasing such insurance, the Agent shall not be deemed to have waived any default arising from the Grantors’ failure to maintain such insurance or pay any premiums therefor.

(b)All insurance policies required under Section 5.10 of the Term Loan Credit Agreement shall name the Agent (for the benefit of the Secured Parties) as an additional insured or as loss payee, as applicable, and shall contain loss payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to the Agent, which provide that: (i) subject to the Intercreditor Agreement, all proceeds thereunder with respect to any Collateral shall be payable to the Agent; (ii) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy; and (iii) such policy and loss payable or mortgagee clauses may be canceled, amended, or terminated only upon at least thirty (30) days prior written notice given to the Agent.

Section 4.11.Certain Accounts.  Each Grantor shall use commercially reasonable efforts to transfer ownership of (i) the HSBC Credit Card Receivables Accounts by the end of the second

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calendar quarter of 2006 and (ii) any account established in connection with the establishment of the applicable Permitted Replacement Credit Card Program prior to the establishment thereof or as promptly thereafter as is reasonably practicable.

ARTICLE V
REMEDIES

Section 5.1.Remedies.

(a)Upon the occurrence and during the continuance of an Event of Default, the Agent may exercise any or all of the following rights and remedies:

(i)those rights and remedies provided in this Agreement, the Term Loan Credit Agreement, the Existing Notes Indenture or any other Term Loan/Note Document; provided that this Section 5.1(a) shall not be understood to limit any rights available to the Agent, the Term Loan Lenders or the Existing Noteholders prior to an Event of Default;

(ii)those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ Lien) when a debtor is in default under a security agreement;

(iii)give notice of sole control or any other instruction under any securities account control agreement and take any action provided therein with respect to the applicable Collateral;

(iv)without notice (except as specifically provided in Section 11.2 or elsewhere herein), demand or advertisement of any kind to any Grantor or any other Person, enter the premises of any Grantor where any Collateral is located (through self-help and without judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign, grant an option or options to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or any part thereof in one or more parcels at public or private sale or sales (which sales may be adjourned or continued from time to time with or without notice and may take place at such Grantor’s premises or elsewhere), for cash, on credit or for future delivery without assumption of any credit risk, and upon such other terms as the Agent may deem commercially reasonable; and

(v)concurrently with written notice to the Grantors, transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, to exercise the voting and all other rights as a holder with respect thereto, to collect and receive all cash dividends, interest, principal and other distributions made thereon and to otherwise act with respect to the Pledged Collateral as though the Agent was the outright owner thereof.

(b)Each Grantor acknowledges and agrees that the compliance by the Agent, on behalf of the Secured Parties, with any applicable state or federal law requirements in connection with

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a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

(c)The Agent shall have the right upon any public sale or sales and, to the extent permitted by law, upon any private sale or sales, to purchase for the benefit of the Agent and the Secured Parties, the whole or any part of the Collateral so sold, free of any right of equity redemption, which equity redemption each Grantor hereby expressly releases.

(d)Until the Agent is able to effect a sale, lease, transfer or other disposition of Collateral, the Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or the value of the Collateral, or for any other purpose deemed appropriate by the Agent.  The Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the Agent’s remedies (for the benefit of the Agent and Secured Parties), with respect to such appointment without prior notice or hearing as to such appointment.

(e)Notwithstanding the foregoing, neither the Agent nor the Secured Parties shall be required to (i) make any demand upon, or pursue or exhaust any of their rights or remedies against, the Grantors, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the Obligations or to resort to the Collateral or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.

(f)Each Grantor recognizes that the Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof.  Each Grantor also acknowledges that any private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private.  The Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit any Grantor or the issuer of the Pledged Collateral to register such securities for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws, even if any Grantor and the issuer would agree to do so (it being acknowledged and agreed that no Grantor shall have any obligation hereunder to do so).

(g)Notwithstanding the foregoing, any rights and remedies provided in this Section 5.1 shall be subject to the Intercreditor Agreement.

Section 5.2.Grantor’s Obligations Upon Default.  Upon the request of the Agent after the occurrence and during the continuance of an Event of Default, each Grantor will:

(a)assemble and make available to the Agent the Collateral and all books and records relating thereto at any place or places reasonably specified by the Agent, whether at such Grantor’s premises or elsewhere;

(b)permit the Agent, by the Agent’s representatives and agents, to enter, occupy and use any premises where all or any part of the Collateral, or the books and records relating thereto,

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or both, are located, to take possession of all or any part of the Collateral or the books and records relating thereto, or both, to remove all or any part of the Collateral or the books and records relating thereto, or both, and to conduct sales of the Collateral, without any obligation to pay any Grantor for such use and occupancy;

Section 5.3.Grant of Intellectual Property License.  For the purpose of enabling the Agent to exercise the rights and remedies under this Article V at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby (a) grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any intellectual property rights now owned or hereafter acquired by such Grantor, wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof and (b) irrevocably agrees that, at any time and from time to time following the occurrence and during the continuance of an Event of Default, the Agent may sell any Grantor’s Inventory directly to any Person, including without limitation Persons who have previously purchased any Grantor’s Inventory from such Grantor and in connection with any such sale or other enforcement of the Agent’s rights under this Agreement, may (subject to any restrictions contained in applicable third party licenses entered into by a Grantor) sell Inventory which bears any Trademark owned by or licensed to any Grantor and any Inventory that is covered by any Copyright owned by or licensed to such Grantor and the Agent may finish any work in process and affix any relevant Trademark owned by or licensed to any Grantor and sell such Inventory as provided herein.  The use of the license granted pursuant to clause (a) of the preceding sentence by the Agent may be exercised, at the option of the Agent, only upon the occurrence and during the continuance of an Event of Default; provided, however, that any license, sublicense or other transaction entered into by the Agent in accordance herewith shall be binding upon each Grantor notwithstanding any subsequent cure of an Event of Default.

Section 5.4.Application of Proceeds.  Subject to the Intercreditor Agreement, the Agent shall apply the proceeds of any collection, sale, foreclosure or other realization upon any Collateral, as well as any Collateral consisting of cash, as follows:

FIRST, to the payment of all reasonable costs and expenses incurred by the Agent (in its capacity as such hereunder or under any other Term Loan Security Document) in connection with such collection, sale, foreclosure or realization or otherwise in connection with this Agreement, any other Term Loan Security Document or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Agent hereunder or under any other Term Loan Security Document on behalf of any Grantor and any other reasonable costs or expenses incurred by the Agent in connection with the exercise of any remedy hereunder or under any other Term Loan Security Document, if reimbursable pursuant to a Term Loan Security Document;

SECOND, to the payment in full of the Term Loan Obligations and the Existing Notes Obligations, ratably in accordance with the respective amounts thereof on the date of any such distribution; and

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THIRD, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct.

Except as otherwise provided herein, the Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement.  Upon any sale of Collateral by the Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Agent or such officer or be answerable in any way for the misapplication thereof.

ARTICLE VI
CONCERNING THE EXISTING NOTES TRUSTEE AND HOLDERS OF 2028 DEBENTURES AND 2008 NOTES

Section 6.1.Agent’s Consent to Serve.  The Agent has consented to serve as Agent hereunder on the express understanding, and the Existing Notes Trustee and each holder of 2028 Debentures and 2008 Notes, by accepting the benefits of this Agreement, shall be deemed to have agreed, that the Agent shall have no duty and shall owe no obligation or responsibility (fiduciary or otherwise) to the Existing Notes Trustee or such holders, other than the duty to perform its express obligations under this Agreement in accordance with its terms.  Without limiting the foregoing, each of the Existing Notes Trustee and each holder of 2028 Debentures and 2008 Notes, by accepting the benefits of this Agreement, shall be deemed to have waived any right it might have, under applicable law or otherwise, to compel the sale or other disposition of any Collateral, and any obligation the Agent might have, under applicable law or otherwise, to obtain any minimum price for any Collateral upon the sale thereof, it being expressly understood, and the availability of the benefits of this Agreement to the Existing Notes Trustee and each holder of 2028 Debentures and 2008 Notes being conditioned upon the understanding, that the sole right of the holders of the 2028 Debentures and the 2008 Notes shall be to receive their ratable share of any proceeds of Collateral in accordance with and subject to the provisions of this Agreement, the Intercreditor Agreement and the other Term Loan Security Documents.

Section 6.2.Determination of Amounts of Obligations and Existence of Existing Notes Events of Default; Acceleration.  Whenever the Agent is required to determine the existence or amount of any of the Existing Notes Obligations or the existence of any Existing Notes Event of Default for any purposes of this Agreement, it shall request written certification of such existence or amount from the Existing Notes Trustee and shall be entitled to make such determination on the basis of such certification; provided, however, that if, notwithstanding the request of the Agent, the Existing Notes Trustee shall fail or refuse reasonably promptly to certify as to the existence or amount of any Existing Notes Obligation or the existence of any Existing Notes Event of Default, the Agent shall be entitled to determine such existence or amount by such commercially reasonable method as the Agent may, in the exercise of its good faith judgment, determine, including by reliance upon a certificate of the Borrower.  The Agent may rely conclusively, and shall be fully protected in so relying, on any determination made by it in accordance with the provisions of the preceding sentence (or as otherwise directed by a court of competent jurisdiction) and shall have no liability to the Borrower, any other Grantor, any Secured Party or any other Person as a result of such determination or any action taken pursuant thereto except to the extent such liability is determined by a court of competent jurisdiction

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by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of the Agent.  The Existing Notes Trustee shall promptly notify the Agent of any Existing Notes Event of Default of which it shall have been notified by any Existing Notes Secured Party or of which it shall have otherwise become aware or any acceleration of any of the Existing Notes Obligations; provided that failure to give any such notice shall not affect any rights or remedies of the Agent or any Secured Party arising in connection with any such acceleration.

ARTICLE VII

CERTAIN INTERCREDITOR AGREEMENTS

Section 7.1.Priority of Security Interests.  The Agent and each of the Secured Parties hereby agrees that the Liens and security interests granted to the Agent hereunder shall be treated, as among the Secured Parties, as being for the equal and proportionate benefit of all the Secured Parties, without preference, priority, prejudice or distinction as to Lien or security interest of any Secured Party over any other Secured Party (except as expressly provided in Section 5.4), and shall at all times be shared by the Secured Parties as provided herein.

Section 7.2.Notices to Existing Notes Trustee.  The Agent shall promptly notify the Existing Notes Trustee in the event of a Credit Agreement Event of Default or the acceleration of any Term Loan Obligations.

Section 7.3.Actions Under This Agreement.  By acceptance of the benefits of this Agreement, each of the Secured Parties shall be deemed irrevocably to confirm that the Agent shall have the authority to act as the exclusive agent of such Secured Party for enforcement of any provisions of this Agreement against any Grantor and of any other Term Loan Security Document against any “grantor” or “pledgor” thereunder or the exercise of remedies hereunder or under any other Term Loan Security Document and to agree that such Secured Party shall not take any action to enforce any provisions of this Agreement against any Grantor or of any of the other Term Loan Security Documents against any “grantor” or “pledgor” thereunder or to exercise any remedy hereunder or under any other Term Loan Security Document.  The Agent shall not be obligated to take any action under this Agreement except for the performance of such duties as are specifically set forth herein.

Section 7.4.Turnover of Collateral; Sharing of Setoffs.  (a) If any Secured Party acquires custody, control or possession of any Collateral or proceeds therefrom, other than pursuant to the terms of this Agreement, such Secured Party shall promptly cause such Collateral or proceeds to be delivered to or put in the custody, possession or control of the Agent for disposition or distribution in accordance with the provisions hereof.  Until such time as the provisions of the immediately preceding sentence have been complied with, such Secured Party shall be deemed to hold such Collateral and proceeds in trust for the parties entitled thereto hereunder.  Notwithstanding the foregoing, no Secured Party shall be required to deliver to or put in the custody, possession or control of the Agent or to hold in trust as specified in the preceding sentence any amount of any Obligation paid or prepaid by the Borrower to it (and not obtained by it through any sale of or other realization upon Collateral) in accordance with the terms of the Term Loan Credit Agreement or the Existing Notes Indenture, as applicable.

(b) Each Secured Party agrees that if it shall through the exercise of a right of banker’s lien, setoff or counterclaim against the Borrower or any other Grantor, including, without limitation,

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any right of the Term Loan Lenders pursuant to Section 9.08 of the Term Loan Credit Agreement, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Secured Party under any applicable bankruptcy, insolvency or other similar law, obtain payment (voluntary or involuntary) in respect of any Obligations owing to it, it shall promptly purchase from each other Secured Party participations in (or, if and to the extent specified by such Secured Party, direct interests in) the Obligations held by such other Secured Party in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Secured Parties shall share the benefit of such payment (net of any expenses which may be incurred by such benefitted Secured Party in obtaining or preserving such excess payment) pro rata in accordance with the respective principal amounts of the Obligations owing to such Secured Parties.  To such end, all the Secured Parties shall make appropriate adjustments among themselves (by the release of participations sold or otherwise) if such payment is rescinded or must otherwise be restored.  The Borrower and each other Grantor agrees that any Secured Party so purchasing a participation (or direct interest) in the Obligations owing to other Secured Parties may exercise all rights of setoff and similar rights with respect to such participation as fully as if such Secured Party were a direct holder of Obligations in the amount of such participation.

ARTICLE VIII
RELATIONSHIP AMONG SECURED PARTIES

Section 8.1.Restrictions on Actions.  Each Secured Party agrees that, so long as any Term Loan Obligations are outstanding, the provisions of this Agreement shall provide the exclusive method by which any Secured Party may exercise rights and remedies hereunder and under the other Term Loan Security Documents in respect of the Collateral.  Therefore, each Secured Party shall, for the mutual benefit of all Secured Parties, except as otherwise permitted under this Agreement:

(a)refrain from taking or filing any action, judicial or otherwise, to enforce any rights or pursue any remedy hereunder and under any other Term Loan Security Document, except for delivering notices hereunder;

(b)refrain from (i) selling any Obligations to any Grantor or any Affiliate of any Grantor and (ii) accepting any other security for the Obligations from any Grantor or its Affiliates, except for any security granted to the Agent for the benefit of all Secured Parties; and

(c)refrain from exercising any rights or remedies hereunder or under any other Term Loan Security Document that have or may have arisen or which may arise as a result of an Event of Default;

provided, however, that nothing contained in this Section shall prevent any Secured Party from (i) imposing a default rate of interest in accordance with the Term Loan Credit Agreement or the Existing Notes Indenture, as applicable, (ii) accelerating the maturity of any Obligations, (iii) raising any defenses in any action in which it has been made a party defendant or has been joined as a third party, except that the Agent may direct and control any defense directly relating to the Collateral or any one or more of the Term Loan Security Documents, which shall be governed by the provisions of this Agreement or (iv) subject to Section 7.4(b), exercising any right of setoff, recoupment or similar right.

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Section 8.2.Cooperation; Accountings.  Each of the Secured Parties will, upon the reasonable request of the Agent or Existing Notes Trustee, from time to time execute and deliver or cause to be executed and delivered such further instruments, and do and cause to be done such further acts, as may be necessary or proper to carry out more effectively the provisions of this Agreement.  The Secured Parties agree to provide to each other upon reasonable request a statement of all payments received in respect of Obligations.

Section 8.3.Secured Parties; Other Collateral.  The Secured Parties agree that all of the provisions of this Agreement shall apply to any and all properties, assets and rights of the Grantors and their Affiliates in which the Agent at any time acquires a security interest or Lien pursuant hereto or to any other Term Loan Security Document, including, without limitation, real property or rights in, on or over real property, notwithstanding any provision to the contrary in any mortgage, leasehold mortgage or other document purporting to grant or perfect any Lien in favor of the Secured Parties or any of them or the Agent for the benefit of the Secured Parties or any of them.

ARTICLE IX

CONCERNING THE AGENT

Section 9.1.Appointment of Agent.  Each of the Secured Parties appoints Credit Suisse to act, and Credit Suisse agrees to act, as Agent for the Secured Parties pursuant to the terms of this Agreement and the other Term Loan Security Documents and to execute and enter into this Agreement, the Intercreditor Agreement and the other Term Loan Security Documents and all other instruments relating to this Agreement and the other Term Loan Security Documents and (a) to take actions on its behalf that are expressly permitted under the provisions of this Agreement and the other Term Loan Security Documents and all other instruments or agreements relating hereto or thereto and (b) to exercise such powers and perform such duties as are, in each case, expressly delegated to the Agent by the terms hereof and thereof.  By acceptance of the benefits of this Agreement, each Secured Party that is not a party to this Agreement shall be deemed to have consented to the appointment and authorization set forth in the immediately preceding sentence. THE AGENT HAS CONSENTED TO SERVE AS AGENT HEREUNDER ON THE EXPRESS UNDERSTANDING, AND THE SECURED PARTIES, BY ACCEPTING THE BENEFITS OF THIS AGREEMENT, SHALL BE DEEMED TO HAVE AGREED, THAT THE AGENT SHALL HAVE NO DUTY AND SHALL OWE NO OBLIGATION OR RESPONSIBILITY (FIDUCIARY OR OTHERWISE), REGARDLESS OF WHETHER AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, TO THE SECURED PARTIES, OTHER THAN THE DUTY TO PERFORM ITS EXPRESS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER TERM LOAN SECURITY DOCUMENTS IN ACCORDANCE WITH THEIR RESPECTIVE TERMS, SUBJECT IN ALL EVENTS TO THE PROVISIONS OF THIS AGREEMENT LIMITING THE RESPONSIBILITY OR LIABILITY OF THE AGENT HEREUNDER.

Section 9.2.Limitations on Responsibility of Agent.  The Agent shall not be required to ascertain or inquire as to (i) any statement, warranty or representation made herein or in connection herewith or in or in connection with any other Term Loan/Note Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Term Loan/Note Document, (iv) the validity, enforceability, effectiveness or genuineness of any Term Loan/Note Document or any other agreement, instrument or document, or

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(v) the satisfaction of any condition set forth in any Term Loan/Note Document, other than to confirm receipt of items expressly required to be delivered to the Agent.  Neither the Agent nor any officer, agent or representative thereof shall be personally liable for any action taken or omitted to be taken by any such Person in connection with this Agreement except for its own gross negligence or wilful misconduct or, in the case of the Agent, in the case of the loss of any moneys in the possession of the Agent, for the failure of the Agent to accord such moneys the same care as a prudent person in the same or similar circumstances would accord its own assets.  The Agent may execute any of the powers granted to it under this Agreement and perform any duty hereunder either directly or by or through sub-agents or attorneys-in-fact, and shall not be responsible for the negligence (including gross negligence) or misconduct (including wilful misconduct) of any sub-agents or attorneys-in-fact selected by it with the care that a prudent person in similar circumstances would have employed in such selection.  The Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Affiliates.  The exculpatory provisions set forth in this Article IX and in the other Term Loan/Note Documents shall apply to any such sub-agent and to the Affiliates of the Agent and any such sub-agent.

Section 9.3.Reliance by Agent; Indemnity Against Liabilities, etc.

(a)Whenever in the performance of its duties under this Agreement the Agent shall deem it necessary or desirable that a matter be proved or established with respect to the Grantors or any other Person in connection with the taking, suffering or omitting of any action hereunder by the Agent, such matter may be conclusively deemed to be proved or established by a certificate executed by an officer of such Person, and the Agent shall have no liability with respect to any action taken, suffered or omitted in reliance thereon.

(b)The Agent shall be fully protected in relying upon any resolution, statement, certificate, instrument, opinion, report, notice (including any notice of an Event of Default or of the cure or waiver thereof), request, consent, order or other paper or document or oral conversation (including, telephone conversations) which it in good faith believes to be genuine and correct and to have been signed, presented or made by the proper party.  The Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any notice, certificate or opinion furnished to the Agent in connection with this Agreement.

(c)The Agent shall not be deemed to have actual, constructive, direct or indirect notice or knowledge of the occurrence of any Event of Default unless and until the Agent shall have received written notice thereof from any Secured Party or the Borrower or any other Grantor.  The Agent shall have no obligation whatsoever either prior to or after receiving such a notice to inquire whether an Event of Default has, in fact, occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any notice so furnished to it.

Section 9.4.Exercise of Remedies.  The remedies of the Agent hereunder and under the other Term Loan Security Documents shall include, but not be limited to, the disposition of the Collateral by foreclosure or other sale and the exercising of all remedies of a secured lender under the UCC, bankruptcy laws or similar laws of any applicable jurisdiction.

Section 9.5.Cooperation.  To the extent the exercise of the rights, powers and remedies of the Agent in accordance with this Agreement requires that any action be taken by any Secured Party,

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such Secured Party shall take such action and cooperate with the Agent to ensure that the rights, powers and remedies of all Secured Parties are exercised in full.

Section 9.6.Authorized Investments.  Any and all funds held by the Agent in its capacity as Agent, whether pursuant to any provision hereof or of any other Term Loan Security Document or otherwise, shall to the extent reasonably practicable be invested by the Agent within a reasonable time in Cash Equivalents.  Any interest earned on such funds shall be disbursed in accordance with Section 5.4.  The Agent may hold any such funds in a common interest bearing account.  To the extent that the interest rate payable with respect to any such account varies over time, the Agent may use an average interest rate in making the interest allocations among the respective Secured Parties.  The Agent shall have no duty to select investments which provide a maximum return.  In the absence of gross negligence or wilful misconduct, the Agent shall not be responsible for any investment losses in respect of any funds invested in accordance with this Section.

Section 9.7.Bankruptcy Proceedings.  The following provisions shall apply during any Bankruptcy Proceeding of any Grantor:

(a)The Agent shall represent all Secured Parties in connection with all matters directly relating to the Collateral, including, without limitation, any use, sale or lease of Collateral, use of cash collateral, request for relief from the automatic stay and request for adequate protection; provided that the Agent shall not treat the Term Loan Lenders or the Existing Noteholders differently form each other with respect to rights in the Collateral (except differences in respect of rights to receive the proceeds thereof arising from differences in their interests as they may appear based on the relative amount of Obligations of each such class of Secured Parties).

(b)Each Secured Party shall be free to act independently on any issue not affecting the Collateral.  Each Secured Party shall give prior notice to the Agent of any such action that could materially affect the rights or interests of the Agent or the other Secured Parties to the extent that such notice is reasonably practicable.  If such prior notice is not given, such Secured Party shall give prompt notice following any action taken hereunder.

(c)Any proceeds of the Collateral received by any Secured Party as a result of, or during, any Bankruptcy Proceeding will be delivered promptly to the Agent for distribution in accordance with Section 5.4.

ARTICLE X
ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

Section 10.1.Account Verification.  The Agent may at any time and from time to time following the occurrence and during the continuance of an Event of Default, in the Agent’s own name, in the name of a nominee of the Agent, or in the name of any Grantor communicate (by mail, telephone, facsimile or otherwise) with the Account Debtors of such Grantor, parties to contracts with such Grantor and obligors in respect of Instruments of such Grantor to verify with such Persons, to the Agent’s satisfaction, the existence, amount, terms of, and any other matter relating to, Accounts, Instruments, Chattel Paper, payment intangibles and/or other Receivables that are Collateral.

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Section 10.2.Authorization for Secured Party to Take Certain Action.

(a)Each Grantor irrevocably authorizes the Agent and appoints the Agent as its attorney in fact (i) at any time and from time to time in the sole discretion of the Agent (1) to execute on behalf of such Grantor as debtor and to file financing statements necessary or desirable in the Agent’s reasonable discretion to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, (2) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Collateral as a financing statement and to file any other financing statement or amendment of a financing statement (which would not add new collateral or add a debtor) in such offices as the Agent in its reasonable discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, (3) to contact and enter into one or more agreements with the issuers of uncertificated securities which are Pledged Collateral or with securities intermediaries holding Pledged Collateral as may be necessary or advisable to give the Agent Control over such Pledged Collateral, and (4) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for Permitted Liens); (ii) at any time following the occurrence and during the continuance of an Event of Default, (1) to endorse and collect any cash proceeds of the Collateral and to apply the proceeds of any Collateral received by the Agent to the Obligations as provided herein or in any other Term Loan/Note Document, subject to the terms of the Intercreditor Agreement, (2) to demand payment or enforce payment of the Receivables in the name of the Agent or any Grantor and to endorse any and all checks, drafts, and other instruments for the payment of money relating to the Receivables, (3) to sign any Grantor’s name on any invoice or bill of lading relating to the Receivables, drafts against any Account Debtor of such Grantor, assignments and verifications of Receivables, (4) to exercise all of any Grantor’s rights and remedies with respect to the collection of the Receivables and any other Collateral, (5) to settle, adjust, compromise, extend or renew the Receivables (including, without limitation, making, settling and adjusting claims in respect of Collateral under policies of insurance and making all determinations and decisions with respect thereto, subject to the terms of the Intercreditor Agreement), (6) to settle, adjust or compromise any legal proceedings brought to collect Receivables, (7) to prepare, file and sign any Grantor’s name on a proof of claim in bankruptcy or similar document against any Account Debtor of such Grantor, (8) to prepare, file and sign any Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, (9) to change the address for delivery of mail addressed to any Grantor to such address as the Agent may designate and to receive, open and dispose of all mail addressed to such Grantor; and (iii) to do all other acts and things necessary to carry out the terms of this Agreement; and each Grantor agrees to reimburse the Agent on demand for any reasonable payment made or any reasonable documented expense incurred by the Agent in connection with any of the foregoing; provided that this authorization shall not relieve any Grantor of any of its obligations under this Agreement, the Term Loan Credit Agreement or the Existing Notes Indenture.

(b)All acts of said attorney or designee are hereby ratified and approved by the Grantors. The powers conferred on the Agent, for the benefit of the Agent and Secured Parties, under this Section 10.2 are solely to protect the Agent’s interests in the Collateral and shall not impose any duty upon the Agent or any Secured Party to exercise any such powers.

Section 10.3.PROXY. EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE AGENT AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 10.2 ABOVE) WITH RESPECT TO THE PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL,

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THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT.

Section 10.4.NATURE OF APPOINTMENT; LIMITATION OF DUTY.  THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE X IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 11.16. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NEITHER THE AGENT, NOR ANY SECURED PARTY, NOR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT TO THE EXTENT SUCH DAMAGES ARE ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

ARTICLE XI
GENERAL PROVISIONS

Section 11.1.Notice.  All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(a)if to the Agent, to it at Credit Suisse, Eleven Madison Avenue, New York, New York 10010, Attention of Agency Group (Telecopy No. (212) 325-8304);

(b)if to the Existing Notes Trustee, to it at The Bank of New York, Plaza of the Americas, Corporate Trust Division, 600 North Pearl Street, Suite 420, Dallas, Texas 75201, Attention of Patrick Giordano (Telecopy No. (214) 880-8234); and

(c)if to Grantors, at The Neiman Marcus Group, Inc., One Marcus Square, 1618 Main Street, Dallas, Texas 75201, Attention of General Counsel (Telecopy No. (214) 743-7611).

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto (and for this purpose a notice to the Borrower shall be deemed to be a notice to each Grantor).  All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been

29

given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or on the date five (5) Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 11.1 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 11.1.  As agreed to among the parties from time to time, notices and other communications may also be delivered by e-mail to the e-mail address of a representative of the applicable person provided from time to time by such Person.

Section 11.2.Waivers.  Each Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made.  To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to the Grantors, addressed as set forth in Section 11.1, at least ten (10) days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made.  To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against the Agent or any Secured Party arising out of the repossession, retention or sale of the Collateral, except such as arise solely out of the gross negligence or willful misconduct of the Agent or such Secured Party as finally determined by a court of competent jurisdiction. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Agent or any Secured Party, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement, or otherwise.  Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral.

Section 11.3.Limitation on Agent’s and Secured Party’s Duty with Respect to the Collateral. The Agent shall have no obligation to clean-up or otherwise prepare the Collateral for sale. The Agent and each Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control.  Neither the Agent nor any Secured Party shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Agent or such Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent that applicable law imposes duties on the Agent to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it would be commercially reasonable for the Agent (i) to fail to incur expenses deemed significant by the Agent to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as the Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire

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one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Agent against risks of loss, collection or disposition of Collateral or to provide to the Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Agent in the collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of this Section 11.3 is to provide non-exhaustive indications of what actions or omissions by the Agent would be commercially reasonable in the Agent’s exercise of remedies against the Collateral and that other actions or omissions by the Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 11.3.  Without limitation upon the foregoing, nothing contained in this Section 11.3 shall be construed to grant any rights to any Grantor or to impose any duties on the Agent that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section 11.3.

Section 11.4.Compromises and Collection of Collateral.  Each Grantor and the Agent recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable.  In view of the foregoing, each Grantor agrees that the Agent may at any time and from time to time, if an Event of Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Agent in its sole discretion shall determine or abandon any Receivable, and any such action by the Agent shall be commercially reasonable so long as the Agent acts in good faith based on information known to it at the time it takes any such action.

Section 11.5.Secured Party Performance of Debtor Obligations.  Without having any obligation to do so, the Agent may perform or pay any obligation which any Grantor has agreed to perform or pay under this Agreement and the Grantor shall reimburse the Agent for any amounts paid by the Agent pursuant to this Section 11.5.  Each Grantor’s obligation to reimburse the Agent pursuant to the preceding sentence shall be an Obligation payable on demand.

Section 11.6.Specific Performance of Certain Covenants.  The Grantor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1(d), 4.1(e), 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.10, or 5.2, will cause irreparable injury to the Agent and the Secured Parties, that the Agent and the Secured Parties have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Agent or the Secured Parties to seek and obtain specific performance of other obligations of any Grantor contained in this Agreement, that the covenants of such Grantor contained in the Sections referred to in this Section 11.6 shall be specifically enforceable against such Grantor.

Section 11.7.Dispositions Not Authorized.  No Grantor is authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.1(d) and notwithstanding any course of

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dealing between any Grantor and the Agent or other conduct of the Agent, no authorization to sell, lease or transfer or otherwise dispose of the Collateral (except as set forth in Section 4.1(d)) shall be binding upon the Agent or the Secured Parties unless such authorization is in writing signed by the Agent with the consent or at the direction of the Required Secured Parties.

Section 11.8.No Waiver; Amendments; Cumulative Remedies.  No delay or omission of the Agent to exercise any right or remedy granted under this Agreement shall impair such right or remedy or be construed to be a waiver of any default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver, amendment or other variation of the terms, conditions or provisions of this Agreement whatsoever shall be valid unless in writing signed by the Agent with the concurrence or at the direction of the Lenders required under Section 10.02 of the Credit Agreement and then only to the extent in such writing specifically set forth.  All rights and remedies contained in this Agreement or by law afforded shall be cumulative and all shall be available to the Agent and the Secured Parties until the Term Loan Obligations have been paid in full.

Section 11.9.Limitation by Law; Severability of Provisions.  All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Agreement invalid, unenforceable or not entitled to be recorded or registered, in whole or in part.  Any provision in any this Agreement that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Agreement are declared to be severable.

Section 11.10.Reinstatement.  This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of its Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made.  In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

Section 11.11.Benefit of Agreement.  The terms and provisions of this Agreement shall be binding upon and inure to the benefit of each Grantor, the Agent and the Parties and their respective successors and permitted assigns (including all Persons who become bound as a debtor to this Agreement), except that no Grantor shall have the right to assign its rights or delegate its obligations under this Agreement or any interest herein, without the prior written consent of the Agent.  No sales of participations, assignments, transfers, or other dispositions of any agreement governing the Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Agent, for the benefit of the Agent and the Secured Parties, hereunder.

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Section 11.12.  Survival of Representations.  All representations and warranties of each Grantor contained in this Agreement shall survive the execution and delivery of this Agreement.

Section 11.13.  Taxes and Expenses.  Each Grantor jointly and severally agrees to pay any taxes payable or ruled payable by Federal or State authority in respect of this Agreement, together with interest and penalties, if any.  Each Grantor jointly and severally agrees to reimburse the Agent for any and reasonable documented all out-of-pocket expenses paid or incurred by the Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral).  Any and all costs and expenses incurred by any Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by such Grantor.

Section 11.14.  Additional Subsidiaries.  Pursuant to and in accordance with Section 5.11 of the Term Loan Credit Agreement, each Domestic Subsidiary (other than any Unrestricted Subsidiary) of the Borrower that was not in existence or not a Subsidiary on the date hereof is required to enter in this Agreement as a Subsidiary Party promptly upon becoming a Subsidiary.  Upon execution and delivery by the Agent and a Subsidiary of an instrument in the form of Exhibit K hereto, such Subsidiary shall become a Subsidiary Party hereunder with the same force and effect as if originally named as a Subsidiary Party herein.  The execution and delivery of any such instrument shall not require the consent of any other Person.  The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Person as a party to this Agreement.

Section 11.15.  Headings.  The title of and section headings in this Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Agreement.

Section 11.16.  Termination and Release.  (a)  This Agreement shall continue in effect until (i) the Term Loan Credit Agreement has been terminated pursuant to its express terms and (ii) all of the Term Loan Obligations and have been indefeasibly paid and performed in full; provided, however, that no such termination shall be effective at any time when any Existing Notes Obligations remain outstanding unless and until (i) the Borrower shall have notified the Agent in writing whether at such time there is outstanding any debt of any Person that is secured by the Existing Notes Designated Collateral (which notification the Borrower hereby agrees to provide promptly upon the Agent’s request therefor) and (ii) if any such secured debt is outstanding at such time, the Agent shall have taken such actions, at the expense of the Borrower, as the Borrower may reasonably request to transfer all Collateral consisting of Existing Notes Designated Collateral and all related Liens thereon and security interests therein (without any representation or warranties (other than a representation and warranty as to no Liens on the Existing Notes Designated Collateral created by the Agent in its individual capacity)) to the Existing Notes Trustee or such other agent or Person as the Borrower may direct (provided further, however, that if such other secured debt is under the Revolving Facility Credit Agreement, all such Collateral in the form of possessory collateral shall be transferred to the Revolving Facility Agent, notwithstanding anything in the foregoing to the contrary).

(b)A Subsidiary Party shall automatically be released from its obligations hereunder and the security interests created hereunder in the Collateral of such Subsidiary Party shall

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be automatically released upon the consummation of any transaction permitted pursuant to the Term Loan Credit Agreement as a result of which such Subsidiary Party ceases to be a Subsidiary.

(c)Upon any sale, lease, transfer or other disposition by any Grantor of any Collateral that is permitted under Section 4.1(d) to any Person that is not another Grantor or, upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 10.02 of the Term Loan Credit Agreement, the security interest in such Collateral shall be automatically released.

(d)In the event that Rule 3-10 or Rule 3-16 of Regulation S-X of the Exchange Act is amended, modified or interpreted by the SEC or any other relevant Governmental Authority to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other Governmental Authority) of separate financial statements of any Subsidiary of the Borrower due to the fact that the Equity Interests of such Subsidiary are pledged under this Agreement, then the Equity Interests of such Subsidiary shall automatically be deemed not to be part of the Collateral to the extent necessary not to be subject to such requirement.  Notwithstanding anything to the contrary in this Agreement, if Equity Interests of any Subsidiary are not required to be pledged under this Agreement because Rule 3-10 or Rule 3-16 of Regulation S-X of the Exchange Act would require the filing of separate financial statements of such Subsidiary if its Equity Interests were so pledged, in the event that Rule 3-10 or Rule 3-16 of Regulation S-X of the Exchange Act is amended, modified or interpreted by the SEC or any other relevant Governmental Authority to no longer require (or is replaced with another rule or regulation that would not require) the filing of separate financial statements of such Subsidiary if some or all of its Equity Interests are pledged under this Agreement, then such Equity Interests of such Subsidiary shall automatically be deemed part of the Collateral and pledged under this Agreement.

(e)In connection with any termination or release pursuant to paragraph (a), (b), (c) or (d) above, the Agent shall promptly execute and deliver to any Grantor, at such Grantor’s expense, all UCC termination statements and similar documents that such Grantor shall reasonably request to evidence such termination or release.  Any execution and delivery of documents pursuant to this Section 11.16 shall be without recourse to or representation or warranty by the Agent or any Secured Party.  Without limiting the provisions of Section 11.13, the Borrower shall reimburse the Agent upon demand for all reasonable and documented costs and out of pocket expenses, including the fees, charges and expenses of counsel, incurred by it in connection with any action contemplated by this Section 11.16.

Section 11.17.  Entire Agreement.  This Agreement, together with the other Term Loan/Note Documents and the Intercreditor Agreement,  embodies the entire agreement and understanding between each Grantor and the Agent relating to the Collateral and supersedes all prior agreements and understandings between any Grantor and the Agent relating to the Collateral.

Section 11.18.  CHOICE OF LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

Section 11.19.  CONSENT TO JURISDICTION.  EACH GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN THE

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BOROUGH OF MANHATTAN IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TERM LOAN/NOTE DOCUMENT AND THE GRANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY SECURED PARTY TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION.  ANY JUDICIAL PROCEEDING BY ANY GRANTOR AGAINST THE AGENT OR ANY SECURED PARTY OR ANY AFFILIATE OF THE AGENT OR ANY SECURED PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER TERM LOAN/NOTE DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK IN THE BOROUGH OF MANHATTAN.

Section 11.20.  WAIVER OF JURY TRIAL. EACH GRANTOR, THE AGENT AND EACH SECURED PARTY HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

Section 11.21.  Indemnity.  Each Grantor hereby agrees to indemnify the Agent and the Secured Parties, and their respective successors, assigns, agents and employees, from and against any and all losses, claims, damages, penalties, liabilities, and related expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Secured Party is a party thereto) imposed on, incurred by or asserted against the Agent or the Secured Parties, or their respective successors, assigns, agents and employees, in any way relating to or arising out of this Agreement, or the ownership, delivery, lease, possession, use, operation, condition, sale, return or other disposition of any Collateral (including any claim for Patent, Trademark or Copyright infringement).

Section 11.22.  Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart.

Section 11.23.  INTERCREDITOR AGREEMENT GOVERNS. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THIS AGREEMENT, THE LIENS AND SECURITY INTERESTS CREATED HEREBY AND THE RIGHTS, REMEDIES, DUTIES AND OBLIGATIONS PROVIDED FOR HEREIN ARE SUBJECT IN ALL RESPECTS TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND, TO THE EXTENT PROVIDED THEREIN, THE APPLICABLE SENIOR OBLIGATIONS SECURITY DOCUMENTS (AS DEFINED IN THE INTERCREDITOR AGREEMENT). IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THE INTERCREDITOR AGREEMENT

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AND THIS AGREEMENT, THE PROVISIONS OF THE INTERCREDITOR AGREEMENT SHALL CONTROL.

Section 11.24.  Delivery of Collateral.  Prior to the Revolving Facility First Lien Collateral Transition Date, to the extent any Grantor is required hereunder to deliver Collateral to the Agent for purposes of possession and control and is unable to do so as a result of having previously delivered such Collateral to the Revolving Facility Agent in accordance with the terms of the Revolving Facility Security Documents, such Grantor’s obligations hereunder with respect to such delivery shall be deemed satisfied by the delivery to the Revolving Facility Agent, acting as a gratuitous bailee of the Agent.

Section 11.25.  Mortgages.  In the case of a conflict between this Agreement and the Mortgages with respect to Collateral that is real property (including Fixtures), the Mortgages shall govern.  In all other conflicts between this Agreement and the Mortgages, this Agreement shall govern.

[Signature Page Follows]

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IN WITNESS WHEREOF, each Grantor and the Agent have executed this Agreement as of the date first above written.

NEWTON ACQUISITION, INC.,
	By:	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Senior Vice President and General Counsel

NEWTON ACQUISITION MERGER SUB, INC.,
	By:	/s/ Kewsong Lee
	Name:	Kewsong Lee
	Title:	Senior Vice President

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

EACH OF THE SUBSIDIARY PARTIES LISTED ON EXHIBIT J HERETO,
	By:	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Vice President

NM NEVADA TRUST,
	By:	/s/ Nelson A. Bangs
	Name:	Nelson A. Bangs
	Title:	Vice President

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as Agent
	By:	/s/ Robert Hetu
	Name:	Robert Hetu
	Title:	Director

By:	/s/ Vanessa Gomez
Name:	Vanessa Gomez
Title:	Vice President

EXHIBIT A

(See Sections 3.2, 3.3, 3.4 and 3.6 of Agreement)

GRANTORS’ INFORMATION AND COLLATERAL LOCATIONS

I.              Grantor Information

	State of			Federal
	Incorporation or		Organizational	Identification
Name of Grantor	Organization	Type of Entity	Number	Number
Newton Acquisition, Inc.	Delaware	Corporation	3958704	20-3509435
Newton Acquisition Merger Sub, Inc.	Delaware	Corporation	3958709	20-3507754
The Neiman Marcus Group, Inc.	Delaware	Corporation	2128062	95-4119509
Bergdorf Goodman, Inc.	New York	Corporation	NONE	13-0485530
Bergdorf Graphics, Inc.	New York	Corporation	NONE	13-2739271
BergdorfGoodman.com, LLC	Delaware	LLC	3839607	20-1470289
Neiman Marcus Holdings, Inc.	California	Corporation	C0709696	95-2916032
Neiman Marcus Special Events, Inc.	Delaware	Corporation	2553833	04-3290414
NEMA Beverage Corporation	Texas	Corporation	114018600	75-2323412
NEMA Beverage Holding Corporation	Texas	Corporation	155791300	75-2849264
NEMA Beverage Parent Corporation	Texas	Corporation	155791400	75-2849261
NM Financial Services, Inc.	Delaware	Corporation	2731559	86-0862446
NMGP, LLC	Virginia	LLC	S096047-8	06-1701558
NM Kitchens, Inc. (f/k/a Chef’s Catalog, Inc.)	Delaware	Corporation	2829251	04-340-1147
NM Nevada Trust	Massachusetts	Trust	T00560216	04-3343700
Worth Avenue Leasing Company	Florida	Corporation	P98000080098	04-3435996

II.            Place of Business

	Place of Business (if it has only
	one) or Chief Executive Office (if
Name of Grantor	more than one place of business)	Mailing Address
Newton Acquisition, Inc.	Fort Worth, Texas	301 Commerce Street, Suite 3300 Fort Worth, TX 76102
Newton Acquisition Merger Sub, Inc.	Fort Worth, Texas	301 Commerce Street, Suite 3300 Fort Worth, TX 76102

A-1

The Neiman Marcus Group, Inc.	Dallas, Texas	1618 Main Street Dallas, TX 75201
Bergdorf Goodman, Inc.	New York, New York	754 Fifth Avenue New York, NY 10019
Bergdorf Graphics, Inc.	New York, New York	754 Fifth Avenue New York, NY 10019
BergdorfGoodman.com, LLC	Dallas, Texas	5950 Colwell Blvd. Irving, TX 75039
Neiman Marcus Holdings, Inc.	Dallas, Texas	1618 Main Street Dallas, TX 75201
Neiman Marcus Special Events, Inc.	Dallas, Texas	1618 Main Street Dallas, TX 75201
NEMA Beverage Corporation	Dallas, Texas	1618 Main Street Dallas, TX 75201
NEMA Beverage Holding Corporation	Dallas, Texas	1618 Main Street Dallas, TX 75201
NEMA Beverage Parent Corporation	Dallas, Texas	1618 Main Street Dallas, TX 75201
NM Financial Services, Inc.	Dallas, Texas	1618 Main Street Dallas, TX 75201
NMGP, LLC	Dallas, Texas	1618 Main Street Dallas, TX 75201
NM Kitchens, Inc.	Dallas, Texas	1618 Main Street Dallas, TX 75201
NM Nevada Trust	Dallas, Texas	1618 Main Street Dallas, TX 75201
Worth Avenue Leasing Company	Dallas, Texas	1618 Main Street Dallas, TX 75201

III.	Locations of Collateral (other than Place of Business listed above):
(a)	Properties Owned by The Neiman Marcus Group, Inc.:

Type of Property	Address
Full Line Stores
Willow Bend	2201 Dallas Parkway Plano, Texas 75093
Orlando	The Mall at Millenia 4170 Conroy Road Orlando, Florida 32839
Tyson’s	2255 International Dr. McLean, Virginia 22102
San Francisco	150 Stockton St. San Francisco, California 94108
San Antonio	15900 La Cantera Parkway, Suite 14 San Antonio, Texas 78256
Warehouse/Service Center
Longview	2301 Neiman Marcus Parkway Longview, Texas 75602
Las Colinas	5950 Colwell Blvd. Irving, Texas 75039

A-2

(b)           Properties Leased by The Neiman Marcus Group, Inc:

Property	Address	Landlord(s) Name(s)
Full Line Stores
Downtown Dallas	1618 Main Street Dallas, Texas 75201	Trustees of the Estate of James Charles O’Connor Trustee for S.P.Cimiotti Trust Gregg Edwards Cholly Edwards Carolyn Edwards Kazmann Dallas Foundation Trust Trustees for C.C. Slaughter William Slaughter Rogers Nancy MacGregor Rogers O’Neil Richard Slaughter Bauer SunTrust Bank N.A. Pacifico Partners, Ltd.
Downtown Dallas	Commerce St. Dallas, Texas 75201	Dalpark Partners, Ltd.
North Park	400 North Park Center Dallas, Texas 75225	Raymond D. Nasher
Fort Worth	2100 Green Oaks Rd. Fort Worth, Texas 76116	Eversan Limited Partnership (77%) and Susan Sandelman, as Trustee of the Sansteve Trust (23%)
Houston Galleria	2600 S. Post Oak Road Houston, Texas 77056	Galleria Limited, Inc.
Atlanta	3393 Peachtree Rd., NE Atlanta, Georgia 30326	The Retail Property Trust Broad Atlantic Properties Corp.
Bal Harbour	9700 Collins Avenue Bal Harbour, Florida 33154	Bal Harbour Shops, Inc.
Ft. Lauderdale	2442 E. Sunrise Blvd. Ft. Lauderdale, Florida 33304	Keystone-Florida Property Holding Corp.
Palm Beach	151 Worth Avenue Palm Beach, Florida 33480	151 Worth Avenue Partnership, Ltd.
Tampa	2223 Westshore Blvd. Tampa, Florida 33607	Tampa Westshore Associates, LLP
Coral Gables	Village of Merrick Park 390 San Lorenzo Coral Gables, Florida 33146	Rouse-Coral Gables, LLC
Westchester	Maple & Paulding Ave. White Plains, New York 10601	Fashion Mall Partners, LP
Paramus	503 Garden State Plaza Paramus, New Jersey 07652	Westland Garden State Plaza, LP

A-3

Property	Address	Landlord(s) Name(s)
King of Prussia	The Plaza @ King of Prussia, 170 N. Gulph Road King of Prussia, Pennsylvania 19406	King of Prussia Associates
Short Hills	1200 Morris Turnpike Short Hills, New Jersey 7078	Short Hills Associates
Boston	5 Copley Place Boston, Massachusetts 2116	7611- Copley Place Associates, LLC
Washington	5300 Wisconsin Ave., N.W. Washington DC 20015	TIAA-CREF
Troy	2705 W. Big Beaver Troy, Michigan 48048	Somerset Collection Limited Partnership
St. Louis	100 Plaza Frontenac St. Louis, Missouri 63131	BROAD FRONTENAC ASSOC
Minneapolis	505 Nicollet Mall on 5th St. Minneapolis, Minnesota 55402	Brookfield DB Inc.
Michigan Avenue	737 N. Michigan Avenue Chicago, Illinois 60611	M & J Wilkow, Ltd.
Oakbrook	6 Oakbrook Center Oak Brook, Illinois 60523	Urban Investment and Development Company ML Dover Associates
Northbrook	5000 Northbrook Ct. Northbrook, Illinois 60062	General Growth Properties Westcoast Estates
Los Angeles	9700 Wilshire Blvd. Beverly Hills, California 90212	Joan Keller Selznick, Larry Larson, and as Administrator of the Estates of Melissa Oshier and Florence Selznick Howard, Susan Archer and Barbara Selznick Larry Larson Estate of Melissa O shier Larson Barbara Smalley-Selznick Joan Keller-Selznick Larry Larson as Special Administrator Re: the Estate of Florence Selznick Howard
Scottsdale	Scottsdale Fashion Square 6900 E. Camelback Rd. Scottsdale, Arizona 85251	Business Realty of Arizona, Inc. Scottsdale Fashion Square Partnership
Fashion Island	601 Newport Center Dr.  Newport Beach, California 92660	The Irvine Company Retail Properties-Fashion Island
Palo Alto	400 Stanford Shop. Ctr. Palo Alto, California 94304	The Trustees of The Leland Stanford Junior University

A-4

Property	Address	Landlord(s) Name(s)
Ala Moana	1450 Ala Moana Blvd. Honolulu, Hawaii 96814	D/E Hawaii Joint Venture Fujiyama, Duffy & Fujiyama
San Diego	Fashion Valley Center 7027 Friars Road San Diego, California 92108	I.T.C. Fashion Valley Corporation ML Dover Associates
Denver	Cherry Creek Mall 3030 E. 1st Avenue Denver, Colorado 80206	Taubman—Cherry Creek, LP
Boca Raton	5860 Glades Road Boca Raton, Florida 33431	The Town Center at Boca Raton Trust
Outlet Stores
Primm	32100 Las Vegas Blvd. South, Suite 116 Primm, Nevada 89019	Fashion Outlet of Las Vegas Associates
Woodbury	934 Grapevine Court Central Valley, New York 10917	Chelsea GCA Realty Partnership, LP
Jersey Gardens	651 Kapkowski Rd., Suite 0200 Elizabeth, New Jersey 07201	JG Elizabeth, LLC
Austin	4115 Capital of Texas Hwy. S. Austin, Texas 78704	Austin Retail BOA I & II
Tempe	5000 Arizona Mills Cir. Tempe, Arizona 85282	Arizona Mills, LLC
Great Lakes	4030 Baldwin Road Auburn Hills, MI 48326	Taubman Auburn Hills Associates Limited Partnership
Franklin	1634 Franklin Mills Cir. Philadelphia, Pennsylvania 19154	Franklin Mills Associates, L.P.
Sawgrass	12801 W. Sunrise Blvd. Sunrise, Florida 33323	Sawgrass Mills Phase II, LP
Discover	5900 Sugarloaf Parkway Space 235/A4 Lawrenceville, Georgia 30043	Sugarloaf Mills, L.P.
Grapevine	3000 Grapevine Mills Parkway Grapevine Mills, Texas 76051	Grapevine Mills IV Limited Partnership
Colorado	14500 W. Colfax Ave. Lakewood, Colorado 80401	Colorado Mills Limited Partnership
Dolphin	11441 NW 12th St. #D100 Miami, Florida 33172	Taubman-Dolphin Mall Associates, LLC
Katy	5000 Katy Mills Circle Katy, Texas 77494	Katy Mills, Limited Partnership
Las Americas	4061 Camino de la Plaza San Diego, California 92173	PCCP/SB Las Americas, LLC
San Marcos	Prime Outlets @ San Marcos 3939-IH-35 South San Marcos, Texas 78666	Prime Outlets at San Marcos II Limited Partnership
Arundel	7000 Arundel Mills Cir. Hanover, Maryland 21076	Arundel Mills Limited Partnership
Horchow-Mockingbird	3046 Mockingbird Lane Dallas, Texas 75205	Park Cities Village Joint Venture
Horchow-Plano	3400 Preston Rd. Suite 210 Plano, Texas 75093	Thames Financial Services, LTD.

A-5

Property	Address	Landlord(s) Name(s)
Bergdorf Goodman
Main Store	754 5th Avenue New York, New York 10019	754 Fifth Avenue Associates
Men’s Store	745 5th Avenue New York, New York 10022	745 Associates WvF-Paramount 745 Property, LP
Office	625 Madison Avenue New York, New York 10022	625 Madison Avenue Associates, L.P.
Long Island Service Center	43-30 24th Street Long Island City, New York 11101	Leon Levin & Sons, Inc.
Offices
Renaissance Tower	1201 Elm Street Dallas, Texas	Trizechahn Renaissance Tower, LP
1700 Pacific	1700 Pacific Dallas, Texas 75201	Berkeley First City, LP
NY Fashion Office	1450 Broadway New York, New York 10018	1450 Broadway Associates, LLC
Palm Beach	125 Worth Avenue Palm Beach, Florida 33480	125 Worth Ave. Ltd. Partnership
Coral Commercial Center	Space I-2A, 670 Auahi Street Honolulu, Hawaii 96813	Campbell Hawaii Investor, LLC
Los Angeles	9701 Wilshire Blvd. Beverly Hills, California 90212	Lantana Wilshire Associates, LP
NM Online	400 E. Royal Lane, Suite 112 Irving, Texas 75039	Charter DCC Partners
Sharp Street Studio	5044 Sharp Street Dallas, Texas 75247	ProLogis Limited Partnership II
Warehouses/Service Centers
Pinnacle Park	4121 Pinnacle Point Dr.  Dallas, Texas 75211	PDC Properties, Inc. Pinnacle West Land, LP
Southeast Service Center	2784 Executive Way Miramar, Florida 33025	Sunbeam Properties, Inc.
Chicago Service Center	9501 Winona Schiller Park, Illinois 60175	Northern Equities, LLC, Trustee U/T 26-2649-00 Winona Building Account
West Coast Service Center	2500 S. Workman Mill City of Industry Whittier, California 90601	RR&C Development Co.
Garland Alterations	3302 Miller Road, Suite 700 Garland, Texas 75041	Duke-Weeks Realty Limited Partnership
Regal Row	727 Regal Row Dallas, Texas 75247	Charter Asset Management, LP
NJ Alterations	1125 Globe Avenue Mountainside, New Jersey 07092	Jackal Holdings, LLC
Diplomacy Row	8919 Diplomacy Row Dallas, Texas 75247	Cullum-Thomas
Atlanta Storage	3832 Green Industrial Way Chamblee, Georgia 30341	MDM Family, LP
Atlanta Storage-Lenox Square	3393 Peachtree Road NE Atlanta, Georgia 30326	Lenox Square

A-6

Property	Address	Landlord(s) Name(s)
San Francisco Warehouse	3225 Third Street San Francisco, California 94124	William D Spencer Spencer Properties
West Coast Fur Service Center	261 S. Kenmore Avenue Los Angeles, California 90004	Mr. Young Hoon Choi
Ala Moana Service Center	Opakapaka Street Kapolai, Hawaii	Fort Street Investment Corporation
Houston Galleria Storage	2700 Post Oak Houston, Texas 77056	Walton Houston Galleria Office, L.P.
Houston Warehouse	1499 N. Post Oak Houston, Texas 77055	Warehouse Associates
Las Vegas Storage	3585 S. Highland Drive Las Vegas, Nevada 89103	Plaza Vegas Ministorage
Ft. Lauderdale Storage	Storage Room M1 @ Galleria Ft. Lauderdale, Florida 33304	Keystone-Florida Property Holding Corp.
Scottsdale Storage	Storage Space 2137-S @ Scottsdale Fashion Square Scottsdale, Arizona 85251	Scottsdale Fashion Square Partnership

Properties Leased by NM Nevada Trust:

Type of Property	Address	Landlord’s Name
Full Line Store
Las Vegas	3200 Las Vegas Blvd. So. Las Vegas, Nevada 89109	H-S Las Vegas Associates Rouse FS, LLC and Fashion Show Expansion, LLC

A-7

(c)           Public Warehouses or other Locations pursuant to Bailment or Consignment Arrangements:

Name of Grantor	Public warehouses/Locations pursuant to Bailment or Consignment Arrangements	Warehouse operator or other Bailee or Consignee
The Neiman Marcus Group, Inc	East Coast District Center 50 Rte. 46 Gordon Dr.  Totowa, New Jersey 7512	D & R Management Inc.
The Neiman Marcus Group, Inc	New Jersey Fur Service Center 141 Lanza Ave. Garfield, New Jersey 07026	Central Fur and Storage Inc.

A-8

EXHIBIT B

(See Section 3.5 of Agreement)

BAILEES, WAREHOUSEMEN, ETC.(1)

Bailee, Warehouseman, Etc.	Value of Inventory
D & R Management Inc. 50 Route 46, Gordon Drive Totowa, N.J. 07512	Exceeds $2,500,000
David Yurman 24 Vestry St. New York, New York 10013	Does not exceed $2,500,000

(1) All inventory is owned by either The Neiman Marcus Group, Inc. or Bergdorf Goodman, Inc.

B-1

EXHIBIT C

(See Section 3.7 of Agreement)

LETTER OF CREDIT RIGHTS

NONE

CHATTEL PAPER

NONE

C-1

EXHIBIT D

(See Section 3.9 of Agreement)

INTELLECTUAL PROPERTY RIGHTS

Patents, Pending Patent Applications, Trademarks and Pending Trade mark Applications

Intellectual Property(2)

CONFIDENTIAL

US Patents

INVENTION TITLE Inventor	Client Attys	CPH Docket Your Reference Prior Docket No.	Case Type RefCase	SERIAL NO. PATENT NO.	FILED ISSUED	Assignee	STATUS	REMARKS	SCHEDULED ACTIONS
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	47953-USA UNITED STATES	UTL-ORD	10/103172 6607275	03/20/2002 08/19/2003	The Neiman Marcus Group, Inc.	ISSUED	CON TO 50291, Projected publication date 9/25/03	MAINT FEE 3.5 DUE 02/19/2007 MAINT FEE 7.5 DUE 02/19/2011 MAINT FEE 11.5 DUE 02/19/2015
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	48103-USA UNITED STATES	DES-ORD	29/157496 D473074	03/20/2002 04/15/2003	The Neiman Marcus Group, Inc.	ISSUED
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 AW	50291-USA UNITED STATES	UTL-CON Of 47953	10/431091	05/07/2003 12/07/2004	The Neiman Marcus Group, Inc.	ISSUED	Ancestor Case: 47953 Filed 03/20/2002. Pub. No. 2003- 0206275- A1. CON of 47953	MAINT FEE 3.5 DUE 06/07/2008 MAINT FEE 7.5 DUE 06/07/2012 MAINT FEE 11.5 DUE 06/07/2016
VIDEO MENU TBD TBD	N276 AW	51591-USA UNITED STATES	UTL-ORD			Not Assigned	NOT MAILED
VIDEO BACKPACK AND GARMENT SYSTEM AND METHOD OF USING THE SAME Ignaz M. Gorischek	N276 AW	*52312-USA UNITED STATES	UTL-ORD	10/833564	04/28/2004	Not Assigned	PENDING		FILING RECEIPT RCVD 09/07/2004 FU: NEXT PTO ACTION 03/07/2005 PRIOR ART DUE FILE IDS/1449-12 MON 04/28/2005
INCASE WATCH PRESENTATIONS tbd tbd	N276 AW	52428-USA UNITED STATES	UTL-ORD			Not Assigned	NOT MAILED
Jewelry display case tbd tbd	N276 AW	52429-USA UNITED STATES	UTL-ORD			Not Assigned	NOT MAILED

(2) Per the Credit Agreement and Security Agreement, a security interest is to be granted in all of the scheduled Intellectual Property; however, only the U.S. Intellectual Property will be perfected with the filing of UCC financing statements and registration/filing in the USPTO and/or US Copyright Office.

D-1

Foreign Patents

INVENTION TITLE Inventor	Client Attys	CPH Docket Your Reference Prior Docket No.	Case Type RefCase	SERIAL NO. PATENT NO.	FILED ISSUED	Assignee	STATUS	REMARKS	SCHEDULED ACTIONS
MIRROR AND IMAGE DISPLAY SYSTEM Ignaz M. Gorischek	N276 MM/AW	45242-CAN CANADA	UTL-ORD	2420787	02/27/2003	The Neiman Marcus Group, Inc.	PENDING	Filing date obtained from fax of 2/27/03;	INSTRUCTION TO RQST EXAM 02/27/2003 FU: NEXT PTO ACTION ANNUITY DUE
MIRROR AND IMAGE DISPLAY SYSTEM Ignaz M. Gorischek	N276 MM/AW	45242-CAN CANADA	UTL-ORD	09/886806	06/21/2001	The Neiman Marcus Group, Inc.	PUBLISHED	Publ. No. 2002-0196333-A1	OFFICE ACTION [ 3 MON] RESPONSE & EXT DEADLINE 07/03/2005
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	47953-CAN CANADA	UTL-PCT 47953	2479836	03/06/2003	The Neiman Marcus Group, Inc.	PENDING		INSTRUCTION TO RQST EXAM 09/17/2004 FU: NEXT PTO ACTION ANNUITY DUE
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	47953-EPO EUROPEAN	UL-PCT 47953	03716339.1	03/06/2003	The Neiman Marcus Group, Inc.	PENDING		FILING RECEIPT RCVD 09/30/2004 FU: NEXT PTO ACTION 3/30/2005 DEADLINE TO REGISTER IN HKO DEADLINE TO FILE CASE 06/15/2005 ANNUITY DUE 03/06/2006
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	47953-JPN JAPAN	UL-PCT 47953	2003-579006	03/06/2003	The Neiman Marcus Group, Inc.	PENDING
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	47953 PCT PATIENT COOPERA TION TREATY	UTL-ORD	US03/06837	03/06/2003	The Neiman Marcus Group, Inc.	NATIONAL 09/13/2004
MERCHANDISE DISPLAY CASE AND SYSTEM Joseph Cimini et al.	N276 MM/AW	47953-PRC CHINA	UTL-PCT of 47953	03807707.8	03/06/2003	The Neiman Marcus Group, Inc.	PENDING		INSTRUCTION TO RQST EXAM 09/30/2004 FU: NEXT PTO ACTION 09/30/2005

D-2

US Trademarks

		CPH Docket	Mark	SERIAL
	Client	Your	Type	NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
6TH SENSE	N276 MM	46719-USA UNITED STATES	SM 42	74/478245 1882642	01/11/1994 03/07/1995	The Neiman Marcus Group, Inc.	LAPSED 10/09/2001
745 CAFÉ	N276 MM	46759-USA UNITED STATES	SM 42	74/077475 1705974	07/11/1990 08/04/1992	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	08/04/2012
745 COLLECTION	N276 MM	46722-USA UNITED STATES	TM 25	74/293493 1759993	12/16/1991 03/23/1993	The Neiman Marcus Group, Inc.	LAPSED 03/10/2003
AMERICAN ARTFORMS	N276 MM	46730-USA UNITED STATES	SM 42	73/41228 1374401	02-04-1983 12/03/1985	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	12/03/2005
BALE OF COTTON DESIGN	N276 MM	43885-USA UNITED STATES	TM 24	79389 1152461	03/08/1976 04/28/1981	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/28/2011
BERGDORF GOODMAN	N276 MM	45712-USA UNITED STATES	SM 39	72/269394 845203	04/18/1967 02/27/1968	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/27/2008
BERGDORF GOODMAN	N276 MM	46772-USA UNITED STATES	TM 03, 05, 14, 18, 20, 25	72/269376 866011	04/18/1967 03/11/1969	NM Nevada Trust	REGISTERED	RENEWAL DUE	03/11/2009
BERGDORF GOODMAN	N276 MM	46773-USA UNITED STATES	SM 42	72/4661163 992733	08/20/1973 09/03/1974	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/03/2014
BERGDORF GOODMAN (stylized)	N276 MM	43073 USA UNITED STATES	TM 39	72/028482 674632	04/19/1957 02/24/1959	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/24/2009
BERGDORF GOODMAN (stylized)	N276 MM	43073 USA (01)  UNITED STATES	TM/SM 25, 42	74/477798 1902799	01/10/1994 07/04/1995	NM Nevada Trust	REGISTERED	RENEWAL DUE	07/04/2005
BERGDORF MEN	N276 MM	43076-USA UNITED STATES	SM 35	75/203782 2110801	11/25/1996 11/04/1997	NM Nevada Trust	LAPSED 04/16/2004
BIGI	N276 MM	45714-USA UNITED STATES	TM 14, 25	269377 863129	04/18/1967 01/07/1969	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	01/07/2009
CHEF’S CATALOG	N276 MM	46749-USA UNITED STATES	SM 35	75/661211 2316722	03/16/1999 02/08/2000	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	02/08/2006 02/08/2010
CHRISTMAS GLORIES	N276 MM	46725-USA UNITED STATES	SM 42	73/587964 1415381	03/14/1986 10/28/1986	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	10/28/2006
COMPETITIVE EDGE	N276 MM	46779-USA UNITED STATES	TM 25	73/228965 1194022	08/27/1979 04/20/1982	The Neiman Marcus Group, Inc.	LAPSED 03/26/2002
DEI TRE	N276 MM	46737-USA UNITED STATES	TM 25	75/094095 2073589	04/25/1966 06/24/1997	The Neiman Marcus Group, Inc.	LAPSED 04/10/2003
Design (building with fountain)	N276 MM	45715-USA UNITED STATES	TM 03, 05, 14, 20, 25, 18	272135 866012	05/23/1967 03/11/1969	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	03/11/2009
Design (helmet)	N276 MM	45713-USA UNITED STATES	TM 25	290315 860183	02/05/1968 11/12/1968	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	11/12/2008
Design (M made of parallel lines)	N276 MM	46758-USA UNITED STATES	TM 25	74/150565 1720383	03/25/1991 09/29/1992	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/29/2012

D-3

		CPH Docket	Mark	SERIAL
	Client	Your	Type	NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
Design (man eating grapes in circle)	N276 MM	45711-USA UNITED STATES	TM 29	72/239072 834069	02/17/1966 08/22/1967	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	08/22/2007
Design (man eating grapes in circle)	N276 MM	46776-USA UNITED STATES	TM 29, 30	73/256304 1185014	03/31/1980 01/05/1982	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	01/05/2012
Design (walking figures on slanted belt)	N276 MM	46757-USA UNITED STATES	TM 25	73/027822 1084039	07/26/1974 01/31/1978	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DATE	01/31/2008
FAUVE (stylized)	N276 MM	45708-USA UNITED STATES	SM 03	72/150837 747724	07/24/1962 04/02/1963	The Neiman Marcus Group, Inc.	LAPSED 03/24/2003
FIRST CALL	N276 MM	46732-USA UNITED STATES	SM 42	73/578333 1417026	01/21/1986 11/11/1986	NM Nevada Trust	REGISTERED	RENEWAL DUE	11/11/2006
GRAND FINALE	N276 MM	44464-USA UNITED STATES	SM 42	73/769815 1558578	12/16/1988 09/26/1989	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/26/2009
GRAND FINALE and design (in circle with wavy lines)	N276 MM	46712-USA UNITED STATES	SM 42	73/347135 1228792	01/25/1982 02/22/1983	The Neiman Marcus Group, Inc.	LAPSED 02/07/2003
GRAND FINALE and design (in circle with wavy liines)	N276 MM	46713-USA UNITED STATES	TM 16	73/347134 1224237	01/25/1982 01/18/1983	The Neiman Marcus Group, Inc.	LAPSED 01/23/2003
HOLIDAY GLORIES	N276 MM	49567-USA UNITED STATES	SM 35	78/198064 2857879	12/26/2002 06/29/2004	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	06/29/2010 06/29/2014
HORCHOW	N276 MM	44466-USA UNITED STATES	SM 42	74/099076 1673768	09/21/1990 01/28/1992	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/28/2012
HORCHOW	N276 MM	44466-USA (01) UNITED STATES	TM 25	74/098916 1651562	09/20/1990 07/23/1991	NM Nevada Trust	REGISTERED	RENEWAL DUE	07/23/2011
HORCHOW	N276 MM	44466-USA (02) UNITED STATES	TM 16	74/098906 1656242	09/20/1990 09/10/1991	NM Nevada Trust	LAPSED 09/10/2001
HORCHOW and design (in circle)	N276 MM	46714-USA UNITED STATES	SM 42	73/347133 1249400	01/25/1982 08/23/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	08/23/2013
HORCHOW and design (in circle)	N276 MM	46715-USA UNITED STATES	TM 16	73/347132 1262784	01/25/1982 01/03/1984	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/03/2014
HORCHOW FINALE	N276 MM	47949-USA UNITED STATES	SM 35	76/390251 2688395	04/03/2002 02/18/2003	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DATE	02/18/2009 02/18/2013
HORCHOW HSTUDIO	N276 MM	43881-USA UNITED STATES	SM 42	74/505050 1891498	03/25/1994 04/25/1995	NM Nevada Trust	LAPSED 05/09/2001
IN CIRCLE ENTRÉE (stylized)	N276 MM	46745-USA UNITED STATES	TM 16	75/606548 2302197	12/16/1998 12/21/1999	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	12/21/2005 12/21/2009
IN CIRCLE IN and design (circle around IN)	N276 MM	46727-USA UNITED STATES	SM 36	73/509882 1337166	11/21/1984 05/21/1985	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	05/21/2005
INCIRCLE	N276 MM	46755-USA UNITED STATES	SM 36	74/166662 1680589	05/15/1991 03/24/1992	The Neiman Marcus Group, Inc.	LAPSED 09/20/2002

D-4

		CPH Docket	Mark	SERIAL
	Client	Your	Type	NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
INCIRCLE REWARDS	N276 MM	44810-USA UNITED STATES	SM 35, 36	76/044420 2442806	05/09/2000 04/10/2001	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	04/10/2007 04/10/2011
INGENUITY	N276 MM	44278-USA UNITED STATES	SM 35	76/139148 2616789	10/02/2000 09/10/2002	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	09/10/2008 09/10/2012
LAST CALL	N276 MM	46731-USA UNIED STATES	SM 42	74/311238 1774545	09/04/1992 06/01/1993	NM Nevada Trust	REGISTERED	RENEWAL DUE	06/01/2013
LE BOULEVARD PARIS	N276 MM	43027-USA UNIED STATES	TM 08, 21	76/100520	07/31/2000 ITU	The Neiman Marcus Group, Inc.	ABANDONED 08/24/2001
MAISONETTE	N276 MM/AW	43133-USA UNITED STATES	TM 25	168947 775411	05/15/1963 08/18/1964	The Neiman Marcus Group, Inc.	CANCELLED 01/08/2001
MARCUS	N276 MM	42674-USA UNITED STATES	TM 25	75/465968 2404570	04/10/1998 11/14/2000	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	11/14/2006 11/14/2010
MARCUS	N276 MM	46762-USA UNITED STATES	TM 25	74/150535 1671225	03/25/1991 1671225	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/07/2012
MARIPOSA	N276 MM	46741-USA UNITED STATES	SM 42	75/339782 2164159	08/12/1997 06/09/1998	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/09/2008
MISS BERGDORF	N276 MM	46724-USA UNITED STATES	TM 18, 25	269380 863351	04/18/1967 01/14/1969	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/14/2009
N-M SUPPLY COMPANY	N276 MM	43911-USA UNITED STATES	TM 25	73/2208959 1154962	08/27/1979 05/19/1981	NM Nevada Trust	LAPSED 05/24/2001
N-M’s FRESH MARKET	N276 MM	45699-USA UNITED STATES	SM 42	140602 1098406	09/09/1977 06/01/1978	NM Nevada Trust	ABANDONED 05/11/1999
NEIMAN MARCUS	N276 MM	43026-USA UNITED STATES	TM 30	73/756014 1593195	10/05/1988 04/24/1990	NM Nevada Trust	REGISTERED	RENEWAL DUE	04/24/2010
NEIMAN MARCUS	N276 MM	43682 USA UNITED STATES	SM 36	75/433896 2209260	02/13/1998 12/08/1998	NM NEVADA TRUST	REGISTERED	RENEWAL DUE	12/08/2008
NEIMAN MARCUS	N276 MM	45697-USA UNITED STATES	SM 42	72/377875 934177	12/04/1970 05/16/1972	NM Nevada Trust	REGISTERED	RENEWAL DUE	05/16/2012
NEIMAN MARCUS	N276 MM	51235-USA UNITED STATES	TM/SM 29, 30, 31, 32, 35	78/374184	02/25/2004	NM Nevada Trust	PENDING
NEIMAN MARCUS (stylized)	N276 MM	46761-USA UNITED STATES	TM/SM 25, 42	74/216290 1733202	10/25/1991 11/17/1992	NM Nevada Trust	REGISTERED	RENEWAL DUE	11/17/2012
NEIMAN-MARCUS	N276 MM	43910-USA UNITED STATES	TM 25	73/196302 1154006	12/11/1978 05/12/1981	NM Nevada Trust	REGISTERED	RENEWAL DUE	05/2/2011
NEIMAN-MARCUS (script)	N276 MM	45704-USA UNITED STATES	TM 25	71/664021 601375	04/06/1954 01/25/1955	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/25/2005
NEIMAN-MARCUS (script)	N276 MM	45706-USA UNITED STATES	TM 14	71/666680 601864	05/19/1954 02/08/1955	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/08/2005
NEIMAN-MARCUS (stylized)	N276 MM	45705-USA UNITED STATES	TM 25	71/666681 601723	05/19/1954 02/01/1955	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/01/2005

D-5

		CPH Docket	Mark	SERIAL
	Client	Your	Type	NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
NEIMAN-MARCUS YACHT CLUB and design (whale)	N276 MM	46734-USA UNITED STATES	TM 21, 24	73/380855 1281618	08/20/1982 06/12/1984	NM Nevada Trust	LAPSED 06/16/2004
NEIMINTS	N276 MM	46736-USA UNITED STATES	TM 30	75/045582 2080204	01/18/1996 07/15/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	07/15/2007
NEW LEVEL OF BEAUTY	N276 MM	46742-USA UNITED STATES	SM 35	75/834236 2541276	10/28/1999 02/19/2002	The Neiman Marcus Group, Inc.	REGISTERED	Sections 8 & 15 Due RENEWAL DUE	02/19/2008 02/19/2012
NM	N276 MM	46726-USA UNITED STATES	SM 42	73/777452 1558605	01/30/1989 09/26/1989	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/26/2009
NM	N276 MM	46756-USA UNITED STATES	TM 21	74/465575 1867040	12/02/1993 12/13/1994	NM Nevada Trust	LAPSED 12/14/2001
NM	N276 MM	48177-USA UNITED STATES	TM 14	76/415449 2758362	05/30/2002 09/02/2003	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	09/02/2009 09/02/2013
NM and design (in circle)	N276 MM	46768-					DOCKETED 08/13/2001
NM and design (letters in reverse and mirror image)	N276 MM	45716-USA UNITED STATES	TM 18	72/406310 969900	10/29/1971 10/09/1973	NM Nevada Trust	LAPSED 04/10/2003
NM BABY	N276 MM	45244-USA UNITED STATES	TM 24, 25	76/259329 2848030	05/18/2001 06/01/2004	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	06/01/2010 06/01/2014
NM BUTTERFLY GIFT CARD	N276 MM	50900-					DOCKETED 08/08/2003
NM CLUB and design (in circle with playing card club)	N276 MM	46770-USA UNITED STATES	TM 25	73/344389 1232018	01/04/1982 03/22/1983	NM Nevada Trust	LAPSED 03/26/2003
NM EDITS	N276 MM	46720-USA UNITED STATES	SM 42	73/722662 1516027	04/18/1988 12/06/1988	NM Nevada Trust	REGISTERED	RENEWAL DUE	12/06/2008
NM ESPRESSO BAR	N276 MM	46740-USA UNITED STATES	SM 35	75/329151 2162193	07/23/1997 06/02/1998	NM Nevada Trust	REGISTERED	RENEWAL DUE	06/02/2008
NM EXPRESS CARD	N276 MM	46716-USA UNITED STATES	SM 36	74/694087 1981044	06/26/1995 06/18/1996	NM Nevada Trust	LAPSED 05/31/2002
NM GIFT CARD	N276 MM	46738-USA UNITED STATES	SM 36	75/279273 2137494	04/22/1997 02/17/1998	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/17/2008
NM TO GO (stylized)	N276 MM	46746-USA UNITED STATES	SM 42	75/568610 2289047	10/13/1998 10/26/1999	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	10/26/2005 10/26/2009
ON 5IVE	N276 MM	46754-USA UNITED STATES	SM 42	74/321399 1793077	10/09/1992 09/14/1993	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/14/2013
OPTIMUM SELLING	N276 MM	44272-USA UNITED STATES	TM 35	75/203781 2101646	11/25/1996 09/30/1997	The Neiman Marcus Group, Inc.	LAPSED 10/03/2003
PIGTAILS AND FROGLEGS	N276 MM	46760-USA UNITED STATES	TM 14, 18, 21, 25	74/385178 1875185	04/23/1993 01/24/1995	The Neiman Marcus Group, Inc.	CANCELLED 01/16/2001
PLATINUM PREFERENCE REWARDS	N276 MM	52341-USA UNITED STATES	SM 35	78/420272	05/17/2004	The Neiman Marcus Group, Inc.	PENDING

D-6

		CPH Docket	Mark	SERIAL
	Client	Your	Type	NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
PLAZA	N276 MM	46771-USA UNITED STATES	TM 25	73/309336 1232831	05/08/1981 03/29/1983	The Neiman Marcus Group, Inc.	LAPSED 03/21/2003
PLAZA COLLECTIONS	N276 MM	46775-USA UNITED STATES	SM 42	73/263304 1173731	05/23/1980 10/13/1981	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	10/13/2011
PLAZAPAPERS	N276 MM	46733-USA UNITED STATES	TM 25	73/373101 1239854	07/06/1982 05/24/1983	The Neiman Marcus Group, Inc.	LAPSED 05/30/2003
R ROOM	N276 MM	44088-USA UNITED STATES	SM 42	75/838524	11/03/1999 ITU	The Neiman Marcus Group, Inc.	ABANDONED 03/27/2001
R.S.V.P. (stylized)	N276 MM	45710-USA UNITED STATES	TM 18	72/239168 819689	02/18/1966 12/06/1966	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	12/06/2006
RED RIVER	N276 MM	45707-USA UNITED STATES	TM 24	72/116948 725408	03/31/1961 12/19/1961	The Neiman Marcus Group, Inc.	LAPSED 12/17/2001
RED RIVER (stylized in the color red)	N276 MM	46778-USA UNITED STATES	TM 25	73/167545 1193657	05/25/1978 04/13/1982	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/13/2012
RED RIVER and design (backwards R and bull head in box)	N276 MM	46735-USA UNITED STATES	TM 29, 30	73/396230 1288052	09/30/1982 07/31/1984	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	07/31/2014
RED RIVER and design (backwards R and bull head in box)	N276 MM	46743-USA UNITED STATES	TM 29, 30, 31 32	75/415889 2209125	01/09/1998 12/08/1998	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	12/08/2008
RED RIVER and design (backwards R and bull head in box)	N276 MM	46774-USA UNITED STATES	TM 29	73/256306 1208730	03/31/1980 09/14/1982	The Neiman Marcus Group, Inc.	LAPSED 04/22/2002
RED RIVER and design (backwards R and bull head in box)	N276 MM	46777-USA UNITED STATES	TM 25	73/173106 1191732	06/05/1978 03/09/1982	The Neiman Marcus Group, Inc.	LAPSED 03/04/2002
SETTEBELLO	N276 MM	45709-USA UNITED STATES	TM 25	72/168212 765581	05/06/1963 02/25/1964	The Neiman Marcus Group, Inc.	LAPSED 002/26/2004
SGF	N276 MM	46711-USA UNITED STATES	SM 42	73/469716 1314040	03/12/1984 01/08/1985	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	01/08/2005
SILVER KEY CLUB	N276 MM	46728-USA UNITED STATES	SM 42	73/471750 1341641	03/23/1984 06/11/1985	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/11/2005
SILVER KEY SERVICES	N276 MM	4629-USA UNITED STATES	SM 42	73/471809 1345248	03/23/1984 06/25/1985	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/25/2005
SWEET IMITATIONS	N276 MM	46718-USA UNITED STATES	TM 30	73/342762 1926605	12/27/1992 10/10/1995	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	10/10/2005
SWEET PEPPERS	N276 MM	46753-USA UNITED STATES	TM 30	74/308816 1766092	08/2/1992 04/20/1993	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/20/2013
THE ADDITION	N276 MM	53426-USA UNITED STATES	SM 35	78/510213	11/02/2004	The Neiman Marcus Group, Inc.	PENDING
THE ART OF FASHION	N276 MM	46739-USA UNITED STATES	SM 35	75/377610 2277234	10/22/1997 09/14/1999	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	09/14/2005 09/14/2009
THE BOOK	N276 MM	44829-USA UNITED STATES	SM 35	75/606549 2317384	12/16/1998 02/08/2000	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	02/08/2006 02/08/2010

D-7

		CPH Docket	Mark	SERIAL
	Client	Your	Type	NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
THE BOOK	N276 MM	48461-USA UNITED STATES	SM 35	76/417927 2697746	06/05/2002 03/18/2003	The Neiman Marcus Group, Inc.	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	03/18/2009 03/18/2013
THE BRIDAL GIFTKEEPER	N276 MM	46723-USA UNITED STATES	SM 42	73/529226 1384856	03/28/1985 02/25/1986	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/25/2006
THE BRIEF	N276 MM	46742-USA UNITED STATES	TM 16	75/316288 2185192	06/27/1997 08/25/1998	The Neiman Marcus Group, Inc.	LAPSED 08/30/2004
THE CHEF’S CATALOG	N276 MM	46747-USA UNITED STATES	SM 42	73/206464 1277563	03/08/1979 05/08/1984	NM Nevada Trust	REGISTERED	RENEWAL DUE	05/08/2014
THE COOKERY	N276 MM	45698-USA UNITED STATES	SM 42	72/459299 1003549	06/04/1973 01/28/1975	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	01/28/2005
THE FRESHMARKET	N276 MM	46721-USA UNITED STATES	SM 42	74/225486 1804890	11/24/1991 11/16/1993	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	11/16/2013
THE GALLERIES OF NEIMAN MARCUS	N276 MM	46744-USA UNITED STATES	SM 35	75/402445 2255093	12/06/1997 06/22/1999	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	06/22/2005 06/22/2009
THE MERMAID BAR	N276 MM	4460-USA UNITED STATES	SM 42	74/225488 1726520	11/26/1991 10/20/1992	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	10/20/2012
THE NM CAFE	N276 MM	44462-USA UNITED STATES	SM 42	74/212602 1726506	10/11/1991 10/20/1992	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/20/2012
THE ZODIAC	N276 MM	46769-USA UNITED STATES	SM 42	72/355186 1218744	03/18/1982 11/30/1982	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	11/30/2012
TRIFLES	N276 MM	46710-USA UNITED STATES	SM 42	73/769793 1557360	12/16/1988 09/19/1989	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/19/2009
TRIFLES and design	N276 MM	44465-USA UNITED STATES	TM 16	73/154394 1108630	01/06/1978 12/12/1978	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	12/12/2008
VERY BERGDORF	N276 MM	50600-USA UNITED STATES	SM 35	78/270175 2856065	07/03/2003 06/22/2004	NM Nevada Trust	REGISTERED	SECTIONS 8 & 15 DUE RENEWAL DUE	06/22/2010 06/22/2014

Foreign Trademarks

		CPH Docket	Mark
	Client	Your	Type	SERIAL NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
BERGDORF GOODMAN	N276 MM	44461-BEN BENELUX	TM 25	708867 443575	12/23/1987 12/23/1987	NM Nevada Trust	REGISTERED	RENEWAL DUE	12/23/2007
BERGDORF GOODMAN	N276 MM	44461-BEN (01) BENELUX	SM 35, 39	709299 157422	12/23/1985 12/23/1987	NM Nevada Trust	REGISTERED	RENEWAL DUE	12/23/2005
BERGDORF GOODMAN	N276 MM	44461-COL COLOMBIA	TM 35	244452 121107	05/09/1985 04/21/1988	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/20/2013
BERGDORF GOODMAN	N276 MM	44461-ECM EUROPEAN COMMUNITY	TM 03, 14, 18, 21, 25, 28, 29, 30	176628 176628	04/01/1996 02/22/1999	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/01/2006

D-8

		CPH Docket	Mark
	Client	Your	Type	SERIAL NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
BERGDORF GOODMAN	N276 MM	44461-FRA FRANCE	TM 03, 14, 18, 25	1387741	02/20/1967 02/20/1967	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	01/05/2007
BERGDORF GOODMAN	N276 MM	44461-GER GERMANY	TM 03, 14, 18, 25	854715	02/15/1967 02/15/1967	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/28/2007
BERGDORF GOODMAN	N276 MM	44461-ITA ITALY	TM 03, 14, 18, 25	10799C/67 780098	03/01/1967 03/01/1967	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	03/01/2007
BERGDORF GOODMAN	N276 MM	44461-JPN JAPAN	TM 20, 24, 25	129598/73 1648446	08/13/1973 01/26/1984	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/26/2014
BERGDORF GOODMAN	N276 MM	44461-PAR PARAGUAY	TM 25	87/915	02/12/1987	NM Nevada Trust	PENDING
BERGDORF GOODMAN	N276 MM	44461-PAR (01) PARAGUAY	TM 28	87/916	02/12/1987	NM Nevada Trust	PENDING
BERGDORF GOODMAN	N276 MM	44461-PAR (02) PARAGUAY	SM 35	87/917	02/12/1987	NM Nevada Trust	PENDING
BERGDORF GOODMAN	N276 MM	44461-PRC CHINA	TM 28	3013771 3013771	11/08/2001 01/28/2003	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/27/2013
BERGDORF GOODMAN (stylized)	N276 MM	43073-CAN CANADA	TM 03, 14, 18, 20, 25	307862 165467	09/22/1967 10/03/1969	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/03/2014
BERGDORF GOODMAN (stylized)	N276MM	43073-CAN (01) CANADA	SM	371945 213031	01/25/1974 04/02/1976	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/02/2006
BERGDORF GOODMAN (stylized)	N276 MM	43073-CAN (02) CANADA	TM	307860 165316	09/22/1967 09/26/1969	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/26/2014
BERGDORF GOODMAN AND DESIGN (building)	N276 MM	46751-AUS AUSTRALIA	TM 25	A279186 A279186	06/12/1974 10/13/1975	NM Nevada Trust	REGISTERED	RENEWAL DUE	06/12/2009
BERGDORF GOODMAN AND DESIGN (building)	N276 MM	46751-ENG UNITED KINGDOM	TM 25	1024846 1024846	02/12/1974 02/12/1974	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/12/2005
Design (helmet)	N276 MM	45713-ENG UNITED KINGDOM	TM 25	987680 987680	02/18/1972 02/18/1972	NM Nevada Trust	REGISTERED	RENEWAL DUE	02/18/2007
Design (M made of parallel lines)	N276 MM	46758-FRA FRANCE	TM 03, 09, 11, 14, 16, 18, 20, 21, 24, 25, 28, 34	1487041	10/31/1968	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/06/2008
GRAND FINALE	N276 MM	44464-CAN CANADA	TM/SM	632619 381151	05/24/1989 03/08/1991	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	03/08/2006
HORCHOW	N276 MM	44466-CAN CANADA	TM	632621 379980	05/24/1989 02/15/1991	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/15/2006
HORCHOW	N276 MM	44466-JPN JAPAN	TM 20	92117/95 4071160	09/08/1995 10/17/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/17/2007
HORCHOW	N276 MM	44466-JPN (01) JAPAN	TM 21	6708/95 4071160	01/30/1995 06/13/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	06/13/2007
HORCHOW	N276 MM	44466-JPN (02) JAPAN	TM 24	92118/95 3350113	09/08/1995 10/03/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/03/2007

D-9

		CPH Docket	Mark
	Client	Your	Type	SERIAL NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
HORCHOW	N276 MM	44466-JPN (03) JAPAN	TM 25	92119/95 3354442	09/08/1995 10/24/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/24/2007
HORCHOW and design (in circle)	N276 MM	46715-CAN CANADA	TM/SM	632607 379978	05/24/1989 02/15/1991	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/15/2006
MISS BERGDORF	N276 MM	44456-AUS AUSTRALIA	TM 25	A281891 A281891	09/19/1974 09/19/1974	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	09/19/2009
MISS BERGDORF	N276 MM	44456-CAN CANADA	TM 03	380529 212712	11/14/1974 03/12/1976	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	03/12/2006
MISS BERGDORF	N276 MM	44456-ENG UNITED KINGDOM	TM 25	1061201 1061201	04/05/1976 04/05/1976	NM Nevada Trust	REGISTERED	RENEWAL DUE	04/05/2007
N-M IN SQUARE and design	N276 MM	44459-FRA FRANCE	TM 03, 09, 11, 14, 16, 18, 20, 21, 24, 25, 28, 34	71093	08/03/1968 10/31/1968	NM Nevada Trust	REGISTERED	RENEWAL DUE	08/03/2008
N.M.	N276 MM	46750-MON MONACO	TM 03, 05, 21	96-17210	06/27/1966 06/27/1966	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/27/2006
NEIMAN MARCUS	N276 MM	42673-ARG ARGENTINA	SM 35	2091144 1869241	07/10/1997 04/29/2002	NM Nevada Trust	REGISTERED	RENEWAL DUE	04/29/2012
NEIMAN MARCUS	N276 MM	42673-BRA BRAZIL	TM 25.10, 25.20, 25.30	818619490 818619490	06/30/1995 10/14/19997	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	10/14/2007
NEIMAN MARCUS	N276 MM	42673-CHI CHILE	TM 25	123417 604763	12/16/1988 05/17/1991	NM NEVADA TRUST	REGISTERED	RENEWAL DUE	10/04/2011
NEIMAN MARCUS	N276 MM	42673-ECM EUROPEAN COMMUNITY	TM 03, 14, 18, 21, 25, 28, 29, 30	176560 176560	04/01/1996 11/25/1998	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/01/2006
NEIMAN MARCUS	N276 MM	42673-ENG UNITED KINGDOM	TM 25	1522317 1522317	12/24/1992 11/25/1994	NM Nevada Trust	REGISTERED	RENEWAL DUE	12/24/2009
NEIMAN MARCUS	N276 MM	42673-HKO HONG KONG	SM 42	92/09614 6034/94	04/01/1992 10/14/1994	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/01/2013
NEIMAN MARCUS	N276 MM	42673-JPN JAPAN	TM 03, 06, 08, 10, 14, 18, 21, 25, 26	78627/88 2297503	07/11/1988 01/31/1991	NM Nevada Trust	REGISTERED	RENEWAL DUE	01/31/2011
NEIMAN MARCUS	N276 MM	42673-JPN (01) JAPAN	TM 21	92121/95 4064383	09/08/1995 10/03/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/03/2007
NEIMAN MARCUS	N276 MM	42673 JPN (02) JAPAN	TM 20	92120/95 4071161	09/08/1995 10/17/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/17/2007
NEIMAN MARCUS	N276 MM	42673-JPN (03) JAPAN	TM 24	92122/95 4002773	09/08/1995 05/23/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	05/23/2007
NEIMAN MARCUS	N276 MM	42673-KOR KOREA	SM 25, 35, 42	98-11 343	03/02/1998 08/25/1999	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	08/25/2009
NEIMAN MARCUS	N276 MM	42673-PER PERU	TM 25	215588 1825	02/04/1993 10/12/1993	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/12/2013

D-10

		CPH Docket	Mark
	Client	Your	Type	SERIAL NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
NEIMAN MARCUS	N276 MM	42673-SAU SAUDI ARABIA	TM 25	8631 212/97	03/19/1989 03/19/1989	NM Nevada Trust	REGISTERED	RENEWAL DUE	08/12/2008
NEIMAN MARCUS	N276 MM	42673-TUR TURKEY	TM/SM 25, 35	2000/13063 2000/13063	06/29/2000 06/29/2000	NM NEVADA TRUST	REGISTERED	RENEWAL DUE	06/29/2010
NEIMAN MARCUS	N276 MM	44995-PRC CHINA	TM 25	3280328	08/20/2002	NM Nevada Trust	PENDING
NEIMAN MARCUS	N276 MM	49101-INO INDONESIA	TM 25	0179501821	01/24/2003	NM Nevada Trust	PENDING
NEIMAN-MARCUS	N276 MM	43910-BEN BENELUX	TM 25	708866 443574	12/23/1987 12/23/1987	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	12/23/2007
NEIMAN-MARCUS	N276 MM	43910-BEN (01) BENELUX	SM 35, 39	709298 157421	12/23/1989 12/23/1987	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	12/23/2009
NEIMAN-MARCUS	N276 MM	43910-CAN CANADA	TM/SM	353942 191255	06/02/1972 05/25/1973	NM Nevada Trust	REGISTERED	RENEWAL DUE	05/25/2018
NEIMAN-MARCUS	N276 MM	43910-CHI CHILE	SM 35, 39	71103 479530	05/26/1986 12/30/1986	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/12/2007
NEIMAN-MARCUS	N276 MM	43910-INO INDONESIA	TM 03, 14	279988	01/27/1990 09/17/1992	NM Nevada Trust	LAPSED 09/12/2002
NEIMAN-MARCUS	N276 MM	43910-JPN JAPAN	TM 25	120033/72 1166438	08/31/1972 10/27/1975	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	10/27/2005
NEIMAN-MARCUS	N276 MM	43910-MEX MEXICO	TM 25	205219 328936	08/31/1982 07/14/1987	NM Nevada Trust	REGISTERED	RENEWAL DUE	08/31/2012
NEIMAN-MARCUS	N276 MM	43910-MEX (01) MEXICO	TM 21	295388	09/19/1983 09/19/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/19/2013
NEIMAN-MARCUS	N276 MM	43910-MEX (02) MEXICO	TM 21	295389	09/19/1983 09/19/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/19/2013
NEIMAN-MARCUS	N276 MM	43910-MEX (03) MEXICO	TM 03	295390	09/19/1983 09/19/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/19/2013
NEIMAN-MARCUS	N276 MM	43910-MEX (04) MEXICO	TM 14	295387	09/19/1983 09/19/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/19/2013
NEIMAN-MARCUS	N276 MM	43910-MEX (05) MEXICO	TM 18	295386	09/19/1983 09/19/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/19/2013
NEIMAN-MARCUS	N276 MM	43910-MEX (06) MEXICO	SM 42	150590 230608	08/21/1979 08/21/1979	NM Nevada Trust	REGISTERED	RENEWAL DUE	08/21/2014
NEIMAN-MARCUS	N276 MM	43910-MON MONACO	TM 03, 05, 21	96-17209	06/27/1966 06/27/1966	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/27/2006
NEIMAN-MARCUS (script)	N276 MM	42715-URU URUGUAY	TM 25	191339 179567	01/13/1984 03/21/1985	NM NEVADA TRUST	REGISTERED	RENEWAL DUE	03/21/2005
NEIMAN-MARCUS (stylized)	N276 MM	44463-FRA FRANCE	TM 03, 09, 11, 14, 16, 18, 20, 21, 24, 25, 28, 34	71092	10/31/1968 10/31/1968	NM Nevada Trust	REGISTERED	RENEWAL DUE	08/03/2008
NEIMAN-MARCUS and design (helmet)	N276 MM	44457-AUS AUSTRALIA	TM 25	279185 B279185	06/12/1974 06/12/1974	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/12/2009

D-11

		CPH Docket	Mark
	Client	Your	Type	SERIAL NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
NEIMAN-MARCUS and design (helmet)	N276 MM	44457-HKO HONG KONG	TM 25	2119/79 69/81	09/24/1979 09/24/1979	NM Nevada Trust	REGISTERED	RENEWAL DUE	06/24/2014
NEIMAN-MARCUS and Katakana	N276 MM	44458-JPN (01) JAPAN	TM 18, 21, 25, 26	86432/79 1607515	11/14/1979 07/28/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	0728/2013
NEIMAN-MARCUS and Katakana	N276 MM	44458-JPN (01) JAPAN	TM 04	14915/79 1618015	03/05/1979 09/29/1983	NM Nevada Trust	REGISTERED	RENEWAL DUE	09/29/2013
NEIMAN-MARCUS and Katakana	N276 MM	44458-JPN (02) JAPAN	TM 24	86434/79 1758188	11/14/1979 04/03/1985	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/03/2005
NEIMAN-MARCUS and Katakana	N276 MM	44458-JPN (03) JAPAN	TM 25	31809/73 1194625	02/21/1973 04/12/1976	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	04/12/2006
NEIMAN-MARCUS and Katakana	N276 MM	44458-JPN (04) JAPAN	TM 09, 14	86433/79 1586076	11/14/1979 05/26/1983	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	05/26/2013
NM DIRECT	N276 MM	46766-MEX MEXICO	SM 42	189493 500754	08/15/1994 08/11/1995	NM Nevada Trust	LAPSED 03/26/2003
NM NEIMAN MARCUS	N276 MM	46752-JPN JAPAN	TM 20	92124/95 4071162	09/08/1995 10/17/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/17/2007
NM NEIMAN MARCUS	N276 MM	46752-JPN (01) JAPAN	TM 21	92125/95 4064384	09/08/1995 10/03/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	10/03/2007
NM NEIMAN MARCUS	N276 MM	46752-UPN (02) JAPAN	TM 24	92126/95 4002774	09/08/1995 05/23/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	05/23/2007
NM NEIMAN MARCUS	N276 MM	46752-JPN (03) JAPAN	TM 25	92127/95 4009125	09/08/1995 06/06/1997	NM Nevada Trust	REGISTERED	RENEWAL DUE	06/06/2007
PASTILLE	N276 MM	46767-MEX MEXICO	TM 25	163055 436573	03/16/1993 06/29/1993	The Neiman Marcus Group, Inc.	LAPSED 02/26/2003
PASTILLE	N276 MM	46767-MEX (01) MEXICO	SM 42	163056 437051	03/16/1993 07/08/1993	The Neiman Marcus Group, Inc.	LAPSED 10/10/2002
PASTILLE	N276 MM	46767-PRI PUERTO RICO	TM 25	8044 8044	10/13/1992 10/13/1992	NM Nevada Trust	LAPSED 10/10/2002
PASTILLE	N276 MM	46767-PRI PUERTO RICO	SM 42	7967 7967	10/13/1992 10/13/1992	The Neiman Marcus Group, Inc.	LAPSED 10/10/2002
RED RIVER and design (backwards R and bull head in box)	N276 MM	46743-JPN JAPAN	TM 30	179891/97 4258331	11/27/1997 04/02/1999	The Neiman Marcus Group, Inc.	REGISTERED	REGISTERED	04/02/2009
RED RIVER and design (backwards R and bull head in box)	N276 MM	46735-JPN(01) JAPAN	TM 29	92123/95 4034705	09/08/1995 07/25/1997	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	07/25/2007
ROBERTO VIANNI	N276 MM	46764-ITA ITALY	TM 25	M192C006062 64939	08/31/1992 05/05/1995	The Neiman Marcus Group, Inc.	LAPSED 05/31/2002
SGF	N276 MM	46711-CAN CANADA	SM	632618 379979	0524/1989 02/15/1991	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/15/2006
TRIFLES	N276 MM	49710-CAN CANADA	TM/SM	632620 380755	05/24/1989 03/01/1991	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	03/01/2006
CAFE VIENNA	N276 MM	46765-NY NEW YORK	SM 42	S-12667	07/15/1991 08/13/1991	The Neiman Marcus Group, Inc.	LAPSED 08/24/2001

D-12

		CPH Docket	Mark
	Client	Your	Type	SERIAL NO.	FILED	Owner/		SCHEDULED
MARK	Attys	Reference	Class	REG. NO.	ISSUED	Registrant	STATUS	ACTIONS
ON 5IVE CAFÉ	N276 MM	49680-NY NEW YORK	SM 42	S-13375	01/21/1993 01/22/1993	The Neiman Marcus Group, Inc.	LAPSED 02/13/2003
ON 5IVE CAFÉ	N276 MM	49748-NY NEW YORK	TM 42	S-18253	02/11/2003	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	02/11/2013
THE ROTUNDA	N276 MM	46763-CA CALIFORNIA	SM 42	40588	06/19/1992	The Neiman Marcus Group, Inc.	REGISTERED	RENEWAL DUE	06/19/2012

Copyrights

			Regisration	Effective Date Of
Author	Copyright Description	NMG Id	No.	Registration
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Jeweled Tiger	NM 20001	VA 1-172-404	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Tiger Print	NM20002	VA 1-172-405	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Amber Crystal Turtle	NM20003	VA 1-172-407	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Mahogany Egg	NM20004	VA 1-172-406	1/21/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Amber Scallops	NM2006	VA 1-172-409	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Jungle Harlequin	NM20008	VA 1-172-408	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Jungle Florentine	NM20009	VA 1-172-440	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Amber Jeweled Egg	NM20010	VA 1-172-439	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Green Jeweled Egg	NM20011	VA 1-172-438	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Jeweled Egg	NM20012	VA 1-172-437	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Small Golden Finial	NM20016	VA 1-172-412	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Large Plum Finial	NM20018	VA 1-172-410	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Large Topaz Finial	NM20019	VA 1-172-395	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Large Red Finial	NM20020	VA 1-172-394	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Bejeweled Butterfly	NM20021	VA 1-172-431	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Salamander Egg	NM20024	VA 1-172-430	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Dragon Fly Egg	NM20025	VA 1-172-435	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Starburst Heart	NM20026	VA 1-172-434	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Jeweled Heart	NM20027	VA 1-172-433	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Plum Ball	NM20028	VA 1-172-432	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Crystal Ball	NM20029	VA 1-172-445	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Plum Ball	NM20030	VA 1-172-444	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Gold Moons/Stars	NM20033	VA 1-172-443	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Amber Daisy	NM20034	VA 1-172-442	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Daisy	NM20035	VA 1-172-441	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Plum Swirls	NM20036	VA 1-172-416	1/31/2003

D-13

			Regisration	Effective Date Of
Author	Copyright Description	NMG Id	No.	Registration
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Swirls	NM20037	VA 1-172-415	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Glass Heart	NM20038	VA 1-172-414	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Jeweled Ball	NM20039	VA 1-172-413	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Jeweled Gift	NM20040	VA 1-172-436	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Bow Egg	NM20041	VA 1-172-398	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Scallop	NM20042	VA 1-172-397	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Phoenix Egg	NM20043	VA 1-172-396	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Scroll Egg	NM20045	VA 1-172-425	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Plum Lattice Heart	NM20046	VA 1-172-424	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Frog Egg	NM20047	VA 1-172-423	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Green Frog Egg	NM20048	VA 1-172-417	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Turtle Egg	NM20049	VA 1-172-402	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Green Turtle Egg	NM20050	VA 1-172-401	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Butterfly Egg	NM20051	VA 1-172-400	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Green Butterfly Egg	NM20052	VA 1-172-399	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Florentine Star	NM20053	VA 1-172-422	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Baby’s First	NM20054	VA 1-172-421	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Florentine Egg	NM20056	VA 1-172-420	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Purple Moons/Stars	NM20057	VA 1-172-419	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Moon/Stars	NM20058	VA 1-172-418	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Salamander Egg	NM20059	VA 1-172-429	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Dark Amber/Florentine	NM20060	VA 1-172-428	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Plum Florentine Star	NM20061	VA 1-172-427	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Plum Daisy	NM20062	VA 1-172-426	1/31/2003
The Neiman Marcus Group, Inc.	Jay Strongwater Christmas Ornament: Red Scroll Egg	NM20066	VA 1-172-403	1/31/2003

D-14

EXHIBIT E
(See Article II and Section 3.12 of Agreement)

COMMERCIAL TORT CLAIMS

1.The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., and NM Nevada Trust, are Plaintiffs in a civil litigation filed against Manila Industries, Inc. and Munish Krishan. The case is presently pending in the United States District Court, Central District of California (Case No. 2:05-CV-04781-JSL-MANx). The Complaint seeks statutory damages, actual damages and attorneys’ fees in excess of $1 million, as well as permanent injunctive relief.

E-1

EXHIBIT F
(See Section 3.11 of Agreement and Definition of “Pledged Collateral”)

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT
PROPERTY

Grantor	Interest Issued	Record and Beneficial Owner	Percentage
Newton Acquisition Merger Sub, Inc.	900 shares of Common Stock$0.01 par value	Newton Acquisition, Inc.	100	%
The Neiman Marcus Group, Inc.	900 shares of Common Stock $0.01 par value (3)	Newton Acquisition, Inc. (3)	100	%
Bergdorf Goodman, Inc.	1,000 shares of Common Stock $1.00 par value	Neiman Marcus Holdings, Inc.	100	%
Bergdorf Graphics, Inc.	1,000 shares of Common Stock $0.01 par value	Bergdorf Goodman, Inc.	100	%
BergdorfGoodman. com, LLC	Membership interests	The Neiman Marcus Group, Inc.	100	%
Neiman Marcus Holdings, Inc.	100 shares of Common Stock $1.00 par value	The Neiman Marcus Group, Inc.	100	%
Neiman Marcus Special Events, Inc.	10 shares of Common Stock No par value	The Neiman Marcus Group, Inc.	100	%
NEMA Beverage Corporation	100 shares of Common Stock$1.00 par value	NEMA Beverage HoldingCorporation	100	%
NEMA Beverage Holding Corporation	100 shares of Common Stock$1.00 par value	NEMA Beverage Parent Corporation	100	%
NEMA Beverage Parent Corporation	100 shares of Common Stock$1.00 par value	The Neiman Marcus Group, Inc.	100	%

(3) As of October 6, 2005.

F-1

NM Financial Services, Inc.	10 shares of Common Stock No par value	The Neiman Marcus Group, Inc.	100	%
NM Nevada Trust	100 shares No par value	1. The Neiman Marcus Group, Inc. 2. Bergdorf Goodman, Inc.	1. 90 2. 10	% %
NMGP, LLC	Membership interests	The Neiman Marcus Group, Inc.	100	%
NM Kitchens, Inc.	10 shares of Common Stock No par value	The Neiman Marcus Group, Inc.	100	%
Worth Avenue Leasing Company	10 shares of Common Stock $1.00 par value	The Neiman Marcus Group, Inc.	100	%
Neiman Marcus Funding Corp.	10 shares of Common Stock no par value	The Neiman Marcus Group, Inc.	100	%
Quality Call Care Solutions Inc.	1 share of Common Stock no par value	The Neiman Marcus Group, Inc.	65	%

Securities Investment Accounts

Securities Intermediary	Address	Fund Family	Account #
Total Tax-Exempt
JP Morgan Chase Bank	Mail Code TX1-2421 1717 Main Street, LL1 Dallas, TX 75201	Fidelity Institutional Tax Exempt Class I (Fund #56)	6211-8298
Wells Fargo Bank N.A.	MAC T5303-028 1445 Ross Avenue 2nd Floor Dallas, TX 75202	Federated Municipal Obligations Fund	841096ffc 12713798

F-2

Securities Intermediary	Address	Fund Family	Account #
Union Bank of California	475 Sansome Street 15th Fl.San Francisco, CA 94111	Blackrock MuniCash (Fund #48)	6731012500
Taxable
JP Morgan Chase Bank	Mail Code TX1-2421 1717 Main Street, LL1 Dallas, TX 75201	JPM Prime Money Market Capital(Fund #3605)	6211-8298

F-3

EXHIBIT G
(See Sections 3.1 and 3.9 of Agreement)

OFFICES IN WHICH FINANCING STATEMENTS
(AND, FOR INTELLECTUAL PROPERTY FILINGS, SECURITY AGREEMENTS) HAVE
BEEN FILED

UCC Filings and Filing Offices

Jurisdiction	Grantor
New York	Bergdorf Goodman, Inc. Bergdorf Graphics, Inc.
Delaware	Newton Acquisition, Inc. Newton Acquisition Merger Sub, Inc. BergdorfGoodman.com, LLC Neiman Marcus Special Events, Inc. NM Financial Services, Inc. NM Kitchens, Inc. The Neiman Marcus Group, Inc.
California	Neiman Marcus Holdings, Inc.
Texas	NEMA Beverage Corporation NEMA Beverage Holding Corporation NEMA Beverage Parent Corporation
Massachusetts	NM Nevada Trust
Virginia	NMGP, LLC
Florida	Worth Avenue Leasing Company

Intellectual Property Filings and Filing Offices

Jurisdiction	Grantor
Unites States Patent and Trademark Office	The Neiman Marcus Group, Inc. NM Nevada Trust
United States Copyright Office	The Neiman Marcus Group, Inc.

G-1

EXHIBIT H
(See Section 4.3 of Agreement)

AMENDMENT

This Amendment, dated                               ,        is delivered pursuant to Section 4.3 of the Agreement as defined below. All defined terms herein shall have the meanings ascribed thereto or incorporated by reference in the Agreement. The undersigned hereby certifies that the representations and warranties in Article III of the Agreement are and continue to be true and correct. The undersigned further agrees that this Amendment may be attached to that certain Pledge and Security and Intercreidtor Agreement, dated October 6, 2005, between the undersigned, as the Grantors, and Credit Suisse, as the Agent, (the “Agreement”) and that the Collateral listed on Schedule I to this Amendment shall be and become a part of the Collateral referred to in said Agreement and shall secure all Obligations referred to in said Agreement.

By:

Name:

Title:

10

SCHEDULE I TO AMENDMENT

STOCKS

Holder Issuer Certificate
Number(s) Number of
Shares Class of
Stock Percentage
of
Outstanding
Shares

BONDS

Holder Issuer Number Face
Amount Coupon Rate Maturity

GOVERNMENT SECURITIES

Holder Issuer Number Type Face
Amount Coupon
Rate Maturity

OTHER SECURITIES OR OTHER INVESTMENT PROPERTY
(CERTIFICATED AND UNCERTIFICATED)

Holder Issuer Description of
Collateral Percentage
Ownership Interest

[Add description of custody accounts or arrangements with securities intermediary, if applicable]

11

COMMERCIAL TORT CLAIMS

Description of Claim Parties Case Number; Name of
Court where Case was Filed

12

EXHIBIT I

Form of Perfection Certificate

I-1

EXHIBIT J

Subsidiary Parties

Bergdorf Goodman, Inc.

Bergdorf Graphics, Inc.

BergdorfGoodman.com, LLC

Neiman Marcus Holdings, Inc.

Neiman Marcus Special Events, Inc.

NEMA Beverage Corporation

NEMA Beverage Holding Corporation

NEMA Beverage Parent Corporation

NM Financial Services, Inc.

NMGP, LLC

NM Kitchens, Inc.

Worth Avenue Leasing Company

EXHIBIT K

SUPPLEMENT NO. [·] dated as of [·] (this “Supplement”), to the Pledge and Security and Intercreditor Agreement dated as of October 6, 2005 (the “Agreement”), among Newton Acquisition, Inc., a Delaware corporation (the “Holdings”), Newton Acquisition Merger Sub, Inc,, a Delaware corporation (“Merger Sub” and, prior to the Merger, the “Borrower”), The Neiman Marcus Group, Inc., a Delaware corporation (“Neiman Marcus” and, after the Merger, the “Borrower”), each Subsidiary of the Borrower party from time to time thereto (each such subsidiary individually a “Subsidiary Party” and collectively, the “Subsidiary Parties”; the Subsidiary Parties, Holdings and the Borrower are referred to collectively herein as the “Grantors”), and Credit Suisse, as administrative agent and collateral agent for the Secured Parties (the “Agent”).

A.    Reference is hereby made to (a) the Credit Agreement dated as of October 6, 2005 providing for a term loan facility in an aggregate principal amount of $1,975,000,000 (as amended, restated supplemented or otherwise modified from time to time, the “Term Loan Credit Agreement”), among Holdings, the Borrower, the Subsidiary Parties and Credit Suisse, as administrative agent and collateral agent, and (b) the Indenture dated as of May 27, 1998 (as amended, restated supplemented or otherwise modified from time to time, the “Existing Notes Indenture”), between Neiman Marcus and The Bank of New York, as trustee (in such capacity, the “Existing Notes Trustee”), pursuant to which the Borrower’s 7.125% Debentures due 2028 in an initial aggregate principal amount of $125,000,000 (the “2028 Debentures”) and the Borrower’s 6.65% Senior Notes due 2008 in an aggregate principal amount of $125,000,000 (the “2008 Notes”) were issued.

B.    Pursuant to the Term Loan Credit Agreement, the Grantors entered into the Agreement in order to induce the Lenders to enter into and extend credit to the Borrower under the Term Loan Credit Agreement and to secure the Term Loan Obligations.

C.    Pursuant to the Existing Notes Indenture, the Borrower may not secure the Term Loan Obligations unless the Borrower shall have made effective provision to secure the 2028 Debentures and the 2008 Notes equally and ratably with the Term Loan Obligations for as long as such obligations are secured by any Existing Notes Designated Collateral.

E.     Capitalized term used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Term Loan Credit Agreement and the Agreement.

F.     Section 11.14 of the Agreement and Section 5.11 of the Term Loan Credit Agreement provide that additional Domestic Subsidiaries of the Borrower may become Subsidiary Parties under the Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Term Loan/Note Documents to become a Subsidiary Party under the Agreement.

Accordingly, the Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 11.14 of the Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party and a Grantor under the Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations, does hereby create and grant to the Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and Lien on all of the New Subsidiary’s right, title and interest in and to the Collateral of the New Subsidiary. Each reference to a “Grantor” in the Agreement shall be deemed to include the New Subsidiary. The Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and the Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary, (b) set forth on Schedule II attached hereto is a true and correct schedule of all the Pledged Collateral of the New Subsidiary, (c) set forth on Schedule III attached hereto is a true and correct schedule of all Patents, Trademarks and Copyrights of the New Subsidiary and (d) set forth under its signature hereto, is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

2

SECTION 5.   Except as expressly supplemented hereby, the Pledge and Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 11.1 of the Agreement.

SECTION 9. The New Subsidiary agrees to reimburse the Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Agent.

3

IN WITNESS WHEREOF, the New Subsidiary and the Agent have duly executed this Supplement to the Agreement as of the day and year first above written.

[NAME OF NEW SUBSIDIARY]
by
	Name:
	Title:
	Legal Name:
	Jurisdiction of Formation:
	Location of Chief Executive office:

CREDIT SUISSE, CAYMAN ISLANDS
BRANCH, as Agent
by
	Name:
	Title:

4

Schedule I

to the Supplement No   to the

 Pledge and Security Agreement

LOCATION OF COLLATERAL

Description Location

Schedule II

to the Supplement No   to the

Pledge and Security Agreement

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT
PROPERTY

STOCKS

Holder Issuer Certificate
Number(s) Number of
Shares Class of
Stock Percentage
of
Outstanding
Shares

BONDS

Holder Issuer Number Face
Amount Coupon Rate Maturity

GOVERNMENT SECURITIES

Holder Issuer Number Type Face
Amount Coupon
Rate Maturity

OTHER SECURITIES OR OTHER INVESTMENT PROPERTY
(CERTIFICATED AND UNCERTIFICATED)

Holder Issuer Description of
Collateral Percentage
Ownership Interest

[Add description of custody accounts or arrangements with securities intermediary, if applicable]

2

Schedule III

to the Supplement No   to the

 Pledge and Security Agreement

INTELLECTUAL PROPERTY RIGHTS

PATENT REGISTRATIONS

Patent Description Patent Number Issue Date

PATENT APPLICATIONS

Patent Application Application Filing Date Application Serial Number

TRADEMARK REGISTRATIONS

Trademark Registration Date Registration Number

TRADEMARK APPLICATIONS

Trademark Application Application Filing Date Application Serial Number

COPYRIGHT REGISTRATIONS

Copyright Registration Date Registration Number

COPYRIGHT APPLICATIONS

Copyright Application Application Filing Date Application Serial Number

EX-10.30

EXHIBIT 10.30

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

CREDIT CARD PROGRAM AGREEMENT

by and among

THE NEIMAN MARCUS GROUP, INC.

BERGDORF GOODMAN, INC.

HSBC BANK NEVADA, N.A.

and

HOUSEHOLD CORPORATION

Dated as of June 8, 2005

Table of Contents

		Page
ARTICLE I DEFINITIONS		1
1.1	Generally	1
1.2	Miscellaneous	13
ARTICLE II ESTABLISHMENT OF THE PROGRAM		14
2.1	Credit Program	14
2.2	Exclusivity.	14
ARTICLE III PROGRAM MANAGEMENT AND ADMINISTRATION		16
3.1	Program Objectives	16
3.2	Management Committee	17
3.3	Program Relationship Managers; Program Team	21
ARTICLE IV PROGRAM OPERATIONS		22
4.1	Operation of the Program	22
4.2	Certain Responsibilities of the NMG Companies	22
4.3	Certain Responsibilities of Bank	24
4.4	Ownership of Accounts; Account Documentation	24
4.5	Branding of Accounts/Credit Cards/Cardholder Documentation/Solicitation Materials	26
4.6	Underwriting and Risk Management	26
4.7	Cardholder Terms.	27
4.8	Internet Services.	27
4.9	Sales Taxes	28
4.10	Participation in Reversals	29
4.11	Interest Free Accounts	29
ARTICLE V MARKETING		30
5.1	Promotion of Program	30
5.2	Marketing Commitment	30
5.3	Communications with Cardholders.	31
5.4	Additional Marketing Support.	31
5.5	Approved Ancillary Products	33
5.6	Marketing Plan.	33
ARTICLE VI CARDHOLDER INFORMATION		34
6.1	Customer Information	34
6.2	Cardholder Data	35
6.3	NMG Shopper Data; NMG Prospect Data	38

ARTICLE VII OPERATING STANDARDS		41
7.1	Reports	41
7.2	Servicing	41
7.3	Service Level Standards	43
7.4	Credit Systems	43
7.5	Systems Interface; Technical Support	44
7.6	Customer Management Systems	45
ARTICLE VIII MERCHANT SERVICES		45
8.1	Transmittal and Authorization of NMG Charge Transaction Data	45
8.2	POS Terminals	46
8.3	In-Store Payments	46
8.4	Settlement Procedures	46
8.5	Bank’s Right to Charge Back	47
8.6	Exercise of Chargeback	48
8.7	No Merchant Discount	48
ARTICLE IX PROGRAM ECONOMICS		48
9.1	NMG Compensation	48
9.2	Dispute Resolution	49
ARTICLE X INTELLECTUAL PROPERTY		49
10.1	The NMG Licensed Marks	49
10.2	The Bank Licensed Marks	50
10.3	Intellectual Property	51
ARTICLE XI REPRESENTATIONS, WARRANTIES AND COVENANTS		52
11.1	General Representations and Warranties of NMG	52
11.2	General Representations and Warranties of the Bank Companies	54
11.3	No other Representations or Warranties	57
11.4	General Covenants of the NMG Companies.	57
11.5	General Covenants of the Bank Companies.	58
ARTICLE XII ACCESS, AUDIT AND DISPUTE RESOLUTION		59
12.1	Access Rights	59
12.2	Audit Rights	60
12.3	Accounting Dispute Resolution.	60
12.4	Dispute Resolution	62
ARTICLE XIII CONFIDENTIALITY		63
13.1	General Confidentiality.	63
13.2	Use and Disclosure of Confidential Information.	64
13.3	Unauthorized Use or Disclosure of Confidential Information	65
13.4	Return or Destruction of Confidential Information	65
ARTICLE XIV RETAIL PORTFOLIO ACQUISITIONS		65
14.1	Retailer that Operates a Credit Card Business	65
14.2	Retailer that has a Credit Card with another Issuer	66

ii

14.3	Retailer that has a Credit Card with Bank	66
14.4	Co-Branded Credit Card	66
14.5	Conversion of Purchased Accounts	67
14.6	No Other NMG Obligations	67
ARTICLE XV EVENTS OF DEFAULT; RIGHTS AND REMEDIES		68
15.1	Events of Default	68
15.2	Defaults by Bank	68
15.3	Defaults by the NMG Companies	69
15.4	Remedies for Events of Default	70
ARTICLE XVI TERM/TERMINATION		70
16.1	Term	70
16.2	Termination by NMG Prior to the End of the Initial Term or a Renewal Term	70
16.3	Termination by Bank Prior to the End of the Initial Term or a Renewal Term	71
16.4	Automatic Termination	71
ARTICLE XVII EFFECTS OF TERMINATION		72
17.1	General Effects.	72
17.2	The NMG Companies’ Option to Purchase the Program Assets.	72
17.3	Fair Market Value	73
17.4	Dedicated Program Personnel	74
17.5	Rights of Bank if Purchase Option Not Exercised.	74
ARTICLE XVIII INDEMNIFICATION		75
18.1	NMG Indemnification of Bank	75
18.2	Bank Companies’ Indemnification of the NMG Companies	76
18.3	Procedures.	77
18.4	Notice and Additional Rights and Limitations.	78
ARTICLE XIX MISCELLANEOUS		78
19.1	Precautionary Security Interest	78
19.2	Securitization, Participation or Pledge of Cardholder Indebtedness.	78
19.3	Assignment	79
19.4	Sale or Transfer of Accounts	79
19.5	Subcontracting	79
19.6	Sales and Use Tax	79
19.7	Amendment	79
19.8	Non-Waiver	80
19.9	Severability	80
19.10	Waiver of Jury Trial and Venue	80
19.11	Governing Law; Compliance with Law.	80
19.12	Specific Performance	80
19.13	Captions	81
19.14	Notices	81

iii

19.15	Coordination of Consents and Approvals	81
19.16	Further Assurances	82
19.17	No Joint Venture	82
19.18	Press Releases	82
19.19	No Set-Off	82
19.20	Conflict of Interest	82
19.21	Third Parties	83
19.22	Force Majeure	83
19.23	Entire Agreement	83
19.24	Binding Effect	83
19.25	Counterparts/Facsimiles	84
19.26	Survival	84

iv

CREDIT CARD PROGRAM AGREEMENT

This Credit Card Program Agreement is made as of the 8th day of June, 2005, by and among The Neiman Marcus Group, Inc., a Delaware corporation (“NMG”), Bergdorf Goodman, Inc., a New York corporation (“BG, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and Household Corporation, a Delaware corporation (“Primary Servicer”).

WITNESSETH:

WHEREAS, the NMG Companies are engaged in, among other activities, operating retail department stores and the Credit Card Business (as hereinafter defined);

WHEREAS, concurrently with the execution of this Agreement, the NMG Companies, Bank and Bank Parent (as hereinafter defined) are entering a purchase and sale agreement (the “Purchase Agreement”) pursuant to which Bank shall purchase specified assets related to the NMG Companies’ Credit Card Business, including certain Credit Card and payment plan accounts and associated receivables (“Purchased Accounts”);

WHEREAS, the NMG Companies have requested that Bank establish a program pursuant to which, following the Effective Date of this Agreement, Bank shall issue NMG Credit Cards (as hereinafter defined) and Non-Card Payment Plans (as hereinafter defined) to be serviced, marketed and promoted in accordance with the terms hereof; and

WHEREAS, the Parties hereto agree that the goodwill associated with the NMG Licensed Marks (as hereinafter defined) contemplated for use hereunder are of substantial value that is dependent upon the maintenance of high quality services and appropriate use of the trademarks pursuant to this Agreement;

NOW, THEREFORE, in consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 Generally. The following terms shall have the following meanings when used in this Agreement:

“Account” means any account (including any Private Label Account, Non-Store Account or Non-Card Payment Plan account) under which a purchase, cash advance, convenience check or balance transfer transaction may be or has been made by or to a Person (or any Person authorized by such Person) pursuant to a Cardholder Agreement established pursuant to the terms of this Agreement or acquired pursuant to the Purchase Agreement. For the avoidance of doubt, the term Account shall include the Purchased Accounts.

“Account Documentation” means, with respect to an Account, any and all documentation relating to that Account, including Cardholder Documentation, checks or other forms of payment with respect to an Account, notices to Cardholders, adverse action notices, change of terms notices, other notices, correspondence, memoranda, documents, stubs, instruments, certificates, agreements, magnetic tapes, disks, hard copy formats or other computer-readable data transmissions, any microfilm, electronic or other copy of any of the foregoing, and any other written, electronic or other records or materials of whatever form or nature, including tangible and intangible information, arising from or relating or pertaining to any of the foregoing to the extent related to the Program; provided that Account Documentation shall not include NMG’s or any of its Affiliates’ register tapes, invoices, sales or shipping slips, delivery or other receipts or other indicia of the sale of NMG Goods and Services, any reports, analyses or other documentation prepared by any of the NMG Companies or their Affiliates for use in the retail business operated by the NMG Companies and their Affiliates regardless of whether derived in whole or in part from the Account Documentation or any other document not directly related to the Credit Card Business.

“Accountants” has the meaning set forth in Section 12.3 hereof.

“Affiliate” means, with respect to any Person, each Person that controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” means this Program Agreement, together with all of its schedules and exhibits, as modified, altered, supplemented, amended and/or restated from time to time.

“Applicable Law” means all applicable federal, state and local laws (including common law), statutes, regulations, written regulatory guidance, orders or directives, as may be amended and in effect from time to time during the Term, including (i) the Truth in Lending Act and Regulation Z; (ii) the Equal Credit Opportunity Act and Regulation B; (iii) the Fair Debt Collection Practices Act; (iv) the Fair Credit Reporting Act; (v) the Gramm-Leach-Bliley Act; (vii) the USA PATRIOT Act; and (vii) the Unfair and Deceptive Trade Practices Act, and, in each case, any implementing regulations or interpretations issued thereunder.

“Applicable Order” means, with respect to any Person, a judgment, injunction, writ, decree or order of any Governmental Authority, in each case legally binding on that Person or on any material amount of its property.

“Application” means the credit application that must be completed and submitted in order to establish an Account (including any such application submitted at the POS, by phone or via the Internet).

“Approved Ancillary Products” means any Credit Card enhancement and other products (other than the NMG Credit Cards and the Non-Card Payment Plans) approved by the Management Committee for offering under the Program from time to time.

2

“Average Interest Free Receivables” means, for any Fiscal Year, the average for each Fiscal Month occurring in such Fiscal Year of the Fiscal Month-end Billed Cardholder Debt under Private Label Accounts that do not bear interest (other than CCCS Accounts and Accounts for which a payment plan was instituted in connection with the servicing and collection thereof).

“Average Private Label Receivables” means, for any Fiscal Year, the average for each Fiscal Month occurring in such Fiscal Year of the Fiscal Month-end Billed Cardholder Debt under Private Label Accounts.

“Bank” has the meaning set forth in the preamble hereof.

“Bank Companies” means, collectively, Bank and Primary Servicer.

“Bank Event of Default” means the occurrence of any one of the events listed in Section 15.2 hereof or an Event of Default where a Bank Company is the defaulting Party.

“Bank Guaranty” means the Guaranty by Bank Parent of Bank’s and Primary Servicer’s obligations under this Agreement and the Servicing Agreement.

“Bank Licensed Marks” means the trademarks, tradenames, service marks, logos and other proprietary designations of Bank listed on Schedule 1.1(a) and licensed to the NMG Companies under Section 10.2 hereof.

“Bank Matters” has the meaning set forth in Section 3.2(g) hereof.

“Bank Parent” means HSBC Finance Corporation, a Delaware corporation.

“Bank Systems” means Systems owned, leased or licensed by and operated by or on behalf of Bank or any of its Affiliates.

“Bankruptcy Code” means Title 11 of the United States Code, as amended, or any other applicable state or federal bankruptcy, insolvency, moratorium or other similar law and all laws relating thereto.

“BG” has the meaning set forth in the preamble hereof.

“Billed Cardholder Debt” means (i) all amounts charged and owing to Bank by Cardholders that were billed with respect to the Private Label Accounts (including principal balances from outstanding charges, charges for Approved Ancillary Products, finance charges, NSF fees, late charges, pay-by-phone fees and any other fees and charges), less (ii) the amount of any credit balances owing by Bank to such Cardholders, including in respect of any payments and any credits associated with returns of NMG Goods and Services and other credits and adjustments, in each case, that were reflected in the Billing Statement with respect to the Account.

“Billing Cycle” means the interval of time between regular periodic Billing Dates for an Account.

3

“Billing Date” means, for any Account, the day as of when the Account is billed.

“Billing Statement” means a summary of Account credit and debit transactions for a Billing Cycle including a descriptive statement covering purchases, charges, past due account information and Loyalty Program information.

“Business Day” means any day, other than (i) a Saturday or Sunday, or (ii) a day on which financial institutions in New York or Texas are authorized by law to close; provided that for purposes of Sections 8.4 and 9.1, “Business Day” shall exclude any day on which the Fedwire system is closed.

“Card Association” means American Express, Visa International Inc., Visa U.S.A., Inc. or MasterCard International Inc., or any other payment system that is generally acceptable to sellers of goods and services.

“Cardholder” means any Person who has been issued an NMG Credit Card or Non-Card Payment Plan (including any guarantor of the Account related to such NMG Credit Card) and includes authorized user(s).

“Cardholder Agreement” means the agreement between Bank and a Cardholder (and any replacement of such agreement), governing the use of an Account, together with any amendments, modifications or supplements that now or hereafter may be made to such Cardholder Agreement (and any replacement of such agreement).

“Cardholder Data” means all personally identifiable information about a Cardholder (A) received by or on behalf of Bank (including by NMG Servicer in its capacity as such) in connection with the Cardholder’s application for use of an NMG Credit Card, Non-Card Payment Plan or Account or (B) otherwise obtained by or on behalf of Bank (including information obtained by NMG Servicer in its capacity as such) for inclusion in its database of Cardholder information (including information about a Cardholder purchased by Bank), including all transaction and experience information collected by or on behalf of Bank (including by NMG Servicer in its capacity as such) with regard to each purchase charged by a Cardholder using his or her NMG Credit Card, Non-Card Payment Plan or Account (including NMG Charge Transaction Data with respect to charges on Private Label Accounts and transaction and experience information with respect to charges on Non-Store Accounts).

“Cardholder Documentation” means, with respect to the Accounts, all Applications, Cardholder Agreements, NMG Credit Cards, Loyalty Cards and Billing Statements relating to such Accounts.

“Cardholder Indebtedness” means all amounts charged and owing to Bank by Cardholders with respect to Accounts (including principal balances from outstanding charges, charges for Approved Ancillary Products, finance charges, NSF fees, late charges, pay-by-phone fees and any other fees and charges), whether or not billed, less the amount of any credit balances owing by Bank to Cardholders, including in respect of any payments and any credits associated with returns of goods and/or services and other credits and adjustments, whether or not billed.

4

“Cardholder List” means any list (whether in hardcopy, magnetic tape, electronic or other form) that identifies Cardholders, including any such listing that sets forth the names, addresses, email addresses (as available), telephone numbers or social security numbers of any or all Cardholders.

“Change of Control” means, with respect to NMG or Bank, as the case may be, (the “subject Person”), (i) a Person or group becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (except that a Person or group shall be deemed to own all securities it has the right to acquire)), directly or indirectly, of more than fifty percent (50%) of the total voting power of the subject Person, (ii) such subject Person merges, consolidates, acquires, is acquired by, or otherwise combines with any other Person in a transaction in which the subject Person is not the surviving entity or which constitutes a “merger of equals”, it being understood that a subject Person shall not be considered the “surviving entity” of a transaction if either (A) the members of the Board of Directors of the subject Person immediately prior to the transaction constitute less than a majority of the members of the Board of Directors of the ultimate parent entity of the entity surviving or resulting from the transaction or (B) the Persons who were beneficial owners of the outstanding voting securities of the subject Person immediately prior to the transaction beneficially own less than fifty percent (50%) of the total voting power of the ultimate parent entity of the entity surviving or resulting from the transaction, or (iii) the subject Person sells all or substantially all of its assets to a Person that is not an Affiliate of the subject Person.

“Closing” has the meaning set forth in the Purchase Agreement.

“Co-Branded Credit Card” means a Credit Card that bears a NMG Licensed Mark and the trademarks, tradenames, service marks, logos and other proprietary designations of a Card Association, including any Dual-Line Credit Card.

“Comparable Partner Programs” means from time to time other major Credit Card programs of Bank designated annually by the Management Committee that are comparable to the Program in terms of program size, public profile and brand image. As of the date hereof, the “Comparable Partner Programs” include those listed on Schedule 1.1(b).

“Competing Retail Programs” means from time to time major retailer Credit Card programs other than the Program, whether or not Bank or any of its Affiliates participate in such other programs.

“Competitive” with respect to any feature or aspect of the Program, means that such feature or aspect is both (i) no less favorable to the NMG Companies than comparable aspects and features of the Comparable Partner Programs and (ii) consistent and competitive with the comparable aspects and features of the Competing Retail Programs (to the extent publicly known in the case of Competing Retail Programs in which neither of the Parties or their respective Affiliates are participants).

“Confidential Information” has the meaning set forth in Section 13.1 hereof.

5

“CPI” means the Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items, as published by the United States Department of Labor Bureau of Labor Statistics, or any successor organization.

“Credit Card” means a credit card pursuant to which the cardholder or authorized user may purchase goods and services, obtain cash advances or convenience checks, and transfer balances through open-end revolving credit, commonly known as a credit or charge card; provided that the term does not include: (i) any gift card; (ii) any debit card, stored value card, electronic or digital cash card or any other card that does not provide the holder thereof with the ability to obtain credit other than through an overdraft line or similar feature; or (iii) any card issued to the holder of a securities brokerage account that allows the holder to obtain credit through a margin account.

“Credit Card Business” means the business relating to the ownership, administration and management of the Accounts and Receivables (including the extension of credit to Cardholders, the processing of transactions under the Accounts and the servicing of the Accounts) and, following the Effective Date, includes all activities relating to the Program established pursuant to this Agreement.

“Credit Card Production Services” has the meaning set forth in the Servicing Agreement.

“Customer Management System” means the Systems developed by the Bank with the features set forth on Schedule 7.6.

“Development Period” has the meaning set forth in Section C of Schedule 2.2(c)(i).

“Disclosing Party” has the meaning set forth in Section 13.1(d) hereof.

“Documentation Services” has the meaning set forth in the Servicing Agreement.

“Documentation Services Transition Date” has the meaning set forth in Section 7.2(d) hereof.

“Dual-Line Card Deadline” has the meaning set forth in Section C of Schedule 2.2(c)(i)..

“Dual-Line Credit Card” means a Credit Card that (i) bears a NMG Licensed Mark and the trademarks, tradenames, service marks, logos and other proprietary designations of a Card Association and (ii) is linked to a Non-Store Account and a Private Label Account.

“Dual-Line Testing Date” has the meaning set forth in Section C of Schedule 2.2(c)(i).

“Effective Date” means the Closing Date as the term is defined in the Purchase Agreement.

“Event of Default” means the occurrence of any one of the events listed in Section 15.1 hereof.

“Fair Market Value” has the meaning set forth in Section 17.3 hereof.

6

“Federal Funds Rate” means the offered rate as reported in The Wall Street Journal in the “Money Rates” section for reserves traded among commercial banks for overnight use in amounts of one million dollars or more or, if no such rate is published for a day, the rate published for the preceding Business Day, calculated on a daily basis based on a 365 day year.

“Finance Charge Reversal Percentage” means, with respect to any Fiscal Year, an amount, expressed as a percentage, equal to (i) the aggregate amount of all finance charges that had been assessed on the Accounts and then reversed by NMG during such Fiscal Year, divided by (ii) the aggregate amount of all finance charges assessed on the Accounts during such Fiscal Year; provided, however, that, for purposes of arriving at the foregoing percentage, the finance charges assessed and reversed on any Accounts that have undergone any change in any of the terms set forth in Schedule 4.7 in such Fiscal Year shall be excluded from both the numerator and denominator during the period of one hundred twenty (120) days after the effective date of such terms change.

“Fiscal Month” means each four (4) or five (5) week period designated as such in the calendar published by the National Retail Federation for retailers on a Fiscal Year-reporting basis; provided that the Fiscal Month in which the Effective Date occurs shall be deemed to begin on the Effective Date.

“Fiscal Quarter” means each three (3) Fiscal Month period set forth in the calendar published by the National Retail Federation for retailers on a Fiscal Year-reporting basis; provided that the Fiscal Quarter in which the Effective Date occurs shall be deemed to begin on the Effective Date.

“Fiscal Year” means the fiscal year set forth in the calendar published by the National Retail Federation setting forth the fiscal year for retailers on a 52/53 week fiscal year ending on the Saturday closest to July 31; provided that the first Fiscal Year under this Program shall be the period beginning on the Effective Date and ending on the Saturday closest to July 31, 2006.

“Force Majeure Event” has the meaning set forth in Section 19.22 hereof.

“Future Subcontractors” has the meaning set forth in Section 6.2(g)(i) hereof.

“GAAP” means United States generally accepted accounting principles, consistently applied.

“Governmental Authority” means any federal, state or local domestic, foreign or supranational governmental, regulatory or self-regulatory authority, agency, court, tribunal, commission or other governmental, regulatory or self-regulatory entity.

“Gross Receivables” means amounts owing (net of credit balances) from cardholders with respect to accounts in a Credit Card portfolio (including outstanding loans, cash advances and other extensions of credit; billed or unbilled finance charges and late charges; and any other billed or unbilled fees, charges and interest assessed on such accounts).

“High Collar” has the meaning set forth on Schedule 1.1(f) hereto

7

“Indemnified Party” has the meaning set forth in Section 18.3 hereof.

“Indemnifying Party” has the meaning set forth in Section 18.3 hereof.

“Initial Term” has the meaning set forth in Section 16.1 hereof.

“Inserts” has the meaning set forth in Section 5.3 hereof.

“In-Store Payment” means any payment on an Account made in a retail store owned or operated by NMG or any of its Subsidiaries by a Cardholder or a person acting on behalf of a Cardholder.

“Intellectual Property” means, on a worldwide basis, all intellectual property, including (i) rights associated with works of authorship, including copyrights, moral rights and mask-works; (ii) trademarks, service marks and other source indicators and the goodwill associated therewith; (iii) trade secret rights; (iv) patents, designs, algorithms and other industrial property rights; (v) other intellectual and industrial property rights of every kind and nature, however designated, whether arising by operation of law, contract, license or otherwise; and (vi) applications, registrations, renewals, extensions, continuations, divisions or reissues thereof now or hereafter in force (including any rights in any of the foregoing).

“Interchange Fees” means the interchange fees or interchange reimbursement fees paid or payable to Bank (i) by the Card Association with respect to the Accounts or (ii) in connection with Cardholder usage of the Accounts.

“Internet Services” has the meaning set forth in Section 4.8.

“Joint Marketing Fund” has the meaning set forth in Section 5.2(d) hereof.

“Joint Marketing Commitment” means the obligation of the Bank to fund the amount per Fiscal Year set forth on Section B of Schedule 5.2 for the purposes set forth in Section 5.2(d).

“Knowledge” means, with respect to any of the NMG Companies or Bank Companies, the actual knowledge of the executive officers of the organization who have managerial responsibility for the Program, after reasonable inquiry.

“Late Fee Reversal Percentage” means, with respect to any Fiscal Year, an amount equal to (i) the aggregate amount of all late fees that had been assessed on the Accounts and then reversed by NMG or its Subsidiaries during such Fiscal Year, divided by (ii) the aggregate amount of all late fees assessed on the Accounts during such Fiscal Year; provided, however, that, for purposes of arriving at the foregoing percentage, the late fees assessed and reversed on any Accounts that have undergone any change in any of the terms set forth on Schedule 4.7 in such Fiscal Year shall be excluded from both the numerator and denominator during the period of one hundred twenty (120) days after the effective date of such terms change.

“Legal Opinion” means a written opinion of counsel to a Party in form and substance reasonably acceptable to the other Party and given by counsel (which, subject to the proviso below may be internal counsel) selected by the Party obtaining the opinion and reasonably

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acceptable to the other Party; provided that the Party receiving any such opinion may require (and it shall be deemed reasonable to so require) any opinion rendered pursuant to this Agreement to be rendered by outside counsel selected by the Party obtaining the opinion and reasonably acceptable to the Party receiving the opinion.

“Licensee” means any Person authorized by NMG or any of its Subsidiaries to operate in and sell NMG Goods and Services from the NMG Channels under the NMG Licensed Marks, solely with respect to such Person’s or any of its Subsidiaries’ operation in and sale of NMG Goods and Services from the NMG Channels or under the NMG Licensed Marks.

“Low Collar” has the meaning set forth on Schedule 1.1(f) hereto.

“Loyalty Card” means a card issued for the Program pursuant to any Loyalty Program providing for access to an Account, including the Loyalty Cards listed in Section B of Schedule 1.1(c) hereto.

“Loyalty Programs” means a points-based system that rewards Credit Card usage or customer spending with points that may be redeemed for goods and/or services.

“Management Committee” has the meaning set forth in Section 3.2 hereof.

“Manager” has the meaning set forth in Section 3.3(a) hereof.

“Marketing Plan” means the document that outlines the objectives, strategies and tactics of new account solicitation, usage and awareness programs for the applicable Fiscal Year.

“Merchant Discount” means a discount rate generally applied against settlements due to merchants for transactions with respect to the use of a Credit Card, which includes the Interchange Fees as well as any other transaction fees.

“Monthly Settlement Sheet” has the meaning set forth in Section 7.1(b) hereof.

“Net Credit Sales” means, (i) for any Business Day, an amount equal to (A) gross credit sales on Accounts (including gift card sales, sales tax, delivery charges, Licensee sales and any other amount included in the full amount charged by Cardholders) reflected in the NMG Charge Transaction Data since the preceding Business Day, minus (B) the sum of credits for returned goods and cancelled services and other credits (such as concessions, discounts and adjustments) on Accounts reflected in the NMG Charge Transaction Data since the preceding Business Day and (ii) for any Fiscal Year, an amount equal to (A) gross credit sales on Accounts (including gift card sales, sales tax, delivery charges, Licensee sales and any other amount included in the full amount charged by Cardholders) reflected in the NMG Charge Transaction Data since the preceding Fiscal Year, minus (B) the sum of credits for returned goods and cancelled services and other credits (such as concessions, discounts and adjustments) on Accounts reflected in the NMG Charge Transaction Data since the preceding Fiscal Year.

“Net Yield” means, with respect to any Fiscal Year, the dollar amount equal to (a) the sum of assessed finance charges and late fees under the Program during such Fiscal Year, minus (b) the sum of all concessions, reversals and write-offs of such finance charges and late fees

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during such Fiscal Year minus (c) the aggregate amount of all other Billed Cardholder Debt (other than that referred to in clause (b)) written-off during such Fiscal Year, net of all recoveries of Billed Cardholder Debt during such Fiscal Year.

“New Bank Mark” has the meaning set forth in Section 10.2(b) hereof.

“New NMG Mark” has the meaning set forth in Section 10.1(b) hereof.

“New Portfolio” has the meaning set forth in Section 14.1 hereof

“NMG” has the meaning set forth in the preamble hereof.

“NMG Channels” means (i) all retail establishments owned or operated by NMG or its Affiliates (including Licensee departments therein), (ii) all websites owned or operated by NMG or its Affiliates or their Licensees, and (iii) all mail order, catalog and other direct access media that are owned or operated by NMG or its Affiliates or their Licensees.

“NMG Charge Transaction Data” means the transaction information (in the form of electronic information) with regard to a charge on an Account with respect to each purchase of NMG Goods and Services or Approved Ancillary Products by a Cardholder on credit and each return of NMG Goods and Services or Approved Ancillary Products for credit.

“NMG Companies” has the meaning set forth in the preamble hereof.

“NMG Credit Card” means a (i) Private Label Credit Card or (ii) Dual-Line Credit Card after Dual-Line Credit Cards are offered pursuant to the terms of this Agreement;

“NMG Event of Default” means the occurrence of any one of the events listed in Section 15.3 hereof or an Event of Default where an NMG Company is the defaulting Party.

“NMG Goods and Services” means the products and services sold, charged or offered by or through NMG Channels, including for personal, household, or business purposes, and including accessories, delivery services, protection agreements, gift cards, shipping and handling, and work or labor to be performed for the benefit of customers of the NMG Channels.

“NMG Licensed Marks” means the trademarks, tradenames, service marks, logos and other proprietary designations of the NMG Companies listed on Schedule 1.1(d) and licensed to Bank by the NMG Companies under Section 10.1 hereof.

“NMG Marketing Commitment” means the obligation of the Bank to fund the amount per Fiscal Year set forth in Section B of Schedule 5.2 for the purposes set forth in Section 5.2(b).

“NMG Marketing Fund” means an accounting entry on the books of Bank representing the unused portion of the NMG Marketing Commitment, as set forth in Section 5.2(a).

“NMG Matters” has the meaning set forth in Section 3.2(f) hereof.

“NMG Prospect List” has the meaning set forth in Section 6.3(b) hereof.

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“NMG Servicer” means NMG or such of its Affiliates responsible for performing the Services referred to in the Servicing Agreement.

“NMG Shopper” means any Person who makes purchases of NMG Goods and Services or otherwise uses or accesses NMG Channels.

“NMG Shopper Data” means all personally identifiable information regarding an NMG Shopper that is obtained by (or on behalf of) NMG or any of its Affiliates at any time (including prior to the date hereof), including personally identifiable information obtained in connection with such NMG Shopper making a purchase of NMG Goods and Services.

“NMG Systems” means Systems owned, leased or licensed by and operated by, or on behalf of, NMG or its Affiliates.

“NMG Transaction” means any purchase, exchange or return of NMG Goods and Services by a Cardholder using an Account.

“Nominated Purchaser” has the meaning set forth in Section 17.2(a) hereof.

“Non-Card Payment Plan” means the payment plans referred to in Section A of Schedule 1.1(e) and such other payment plans not associated with a Credit Card as may be offered by NMG pursuant to which the obligor thereunder may purchase NMG Goods and Services through revolving credit or pursuant to a retail installment sale arrangement.

“Non-Store Account” means an Account linked to any Dual-Line Credit Card and usable solely for the purpose of financing purchases (and all fees and charges relating thereto) of goods and services through sellers or channels other than the NMG Channels.

“Operating Procedures” means the operating procedures for the Program in effect from time to time in accordance with Section 4.1(b) hereof.

“Parties” means the collective reference to the NMG Companies and the Bank Companies; and unless the context otherwise requires, “Party” means either the collective reference to the NMG Companies, on the one hand, or the Bank Companies, on the other hand.

“Person” means any individual, corporation, business trust, partnership, association, limited liability company or similar organization, or any Governmental Authority.

“POS” means point of sale.

“Previously Disclosed” has the meaning set forth in the Purchase Agreement.

“Privacy Policy” means the privacy policy and associated disclosures to be provided by Bank to Cardholders in connection with the Program.

“Private Label Accounts” means (i) the Accounts linked to Private Label Credit Cards and (ii) Accounts linked to Dual-Line Credit Cards solely for the purpose of financing the purchase of NMG Goods and Services (and all fees and charges relating thereto) through any NMG Channel.

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“Private Label Credit Card” means a Credit Card that bears an NMG Licensed Mark and may be used solely to finance purchases of NMG Goods and Services through any NMG Channel, including the Private Label Credit Cards listed in Section B of Schedule 1.1(e). Each Private Label Credit Card is linked to solely a Private Label Account (and not a Non-Store Account).

“Program” means the program established pursuant to this Agreement.

“Program Assets” means the Accounts, Account Documentation, Cardholder Data, Solicitation Materials and all Cardholder Indebtedness (whether held by Bank or a third party).

“Program Fee Percentage” has the meaning set forth on Schedule 9.1(a)(i) hereof.

“Program Loyalty Program” means the InCircle Rewards Program and the Bergdorf Goodman Rewards Program described in Section A of Schedule 1.1(c) or any other annual points-based loyalty program implemented pursuant to Article III from time to time and tied to the NMG Credit Cards.

“Program Objectives” has the meaning set forth in Section 3.1 hereof.

“Program Purchase Date” has the meaning set forth in Section 17.2(c) hereof.

“Program Website” has the meaning set forth in Section 4.8(a) hereof.

“Purchase Agreement” has the meaning set forth in the recitals hereof.

“Receiving Party” has the meaning set forth in Section 13.1(d) hereof.

“Renewal Term” has the meaning set forth in Section 16.1 hereof.

“Retail Merchants” has the meaning set forth in Section 8.1 hereof.

“Risk Management Policies” means the underwriting and risk management policies, procedures and practices applicable to the Program and adopted in accordance with the terms of this Agreement, including policies, procedures and practices for credit and Account openings, transaction authorization, collections, credit line assignment, increases and decreases, over-limit decisions, Account closures, payment crediting and charge-offs.

“Sales Tax Refunds” means refunds, rebates, credits or deductions of sales and use tax by any taxing authority in respect of an Account, and all allowable interest relating thereto.

“Second-Look Credit Card Program” has the meaning set forth in Section 2.2(b) hereof.

“Services” means the services required to be performed by NMG pursuant to the Servicing Agreement or the Primary Servicer pursuant to Article VII hereof.

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“Servicing Agreement” means the Servicing Agreement, dated as of the Effective Date, between NMG and Bank, in the form set forth as Annex E to the Purchase Agreement.

“SLA” means each individual performance standard set forth on Schedule 7.3(a) and Schedule 2.04(a) of the Servicing Agreement.

“Solicitation Materials” means documentation, materials, artwork and copy, in any format or media (including television and radio), used to promote or identify the Program to Cardholders and potential Cardholders, including direct mail solicitation materials and coupons.

“Special Discounts” means non-POS discounts that are given to the customers specified in Schedule 1.1(g).

“Subsidiary” when used with respect to any Person, means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or similar governing body (or if there are not such voting interests, more than fifty percent (50%) of the equity interest of which) is owned directly or indirectly by such first Person or by another Subsidiary of such Person.

“Systems” means software, databases, computers, systems and networks.

“Systems Transition Date” has the meaning set forth in Section 7.4(a) hereof.

“Term” means the Initial Term and each Renewal Term.

“Termination Period” means the period beginning on the earlier of the date of expiration of this Agreement or the date of any notice of termination pursuant to Article XV and ending on either (i) the date the Program Assets are repurchased pursuant to Section 17.2, if NMG or a Nominated Purchaser purchases the Program Assets, or (ii) the date that either (A) the NMG Companies deliver written notice to Bank of their election not to purchase the Program Assets or (B) the right of the NMG Companies to purchase the Program Assets expires in accordance with the terms of this Agreement.

“Trademark Style Guide” means any rules governing the manner of usage of trademarks, tradenames, service marks, logos and other proprietary designations.

“Unapproved Matter” has the meaning set forth in Section 3.2(e)(ii)(B) hereof.

“Yearly Settlement Sheet” has the meaning set forth in Section 7.1(c) hereof.

1.2 Miscellaneous. As used herein: (a) all references to the plural number shall include the singular number (and vice versa); (b) all references to “herein,” “hereunder,” “hereof” or like words shall refer to this Agreement as a whole and not to any particular section, subsection or clause contained in this Agreement; (c) all references to “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”; (d) unless specified as Business Days or Fiscal Months, all references to days or months shall be deemed references to calendar days or months; and (e) all references to “$” or “dollars” shall be deemed references to United States dollars.

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ARTICLE II

ESTABLISHMENT OF THE PROGRAM

2.1 Credit Program.

(a) General. Beginning as of the Effective Date, Bank shall offer the NMG Credit Cards and the Non-Card Payment Plans. Bank shall promptly open a new Account and issue a new NMG Credit Card and/or Non-Card Payment Plan with respect to each Application approved in accordance with the Risk Management Policies. Following the issuance of Dual-Line Credit Cards by Bank and NMG under the Program, Bank shall promptly open a new Account and issue a new Dual-Line Credit Card with respect to each Application approved in accordance with the Risk Management Policies. To the extent approved in accordance with the terms of this Agreement, the Program shall include and the Bank shall offer such other Approved Ancillary Products and other payment products as shall be incorporated in the Program in the future.

(b) Notice to Cardholders. Substantially concurrently with the Effective Date, Bank and NMG shall prepare jointly a form or forms of notices to each Cardholder to the effect that such Cardholder’s Account has been acquired by Bank and, if applicable, also containing any change of terms notices with respect to any change of terms that the Parties mutually agree to implement. Such notice shall be in the form approved by both Parties, which approval will not be unreasonably withheld or delayed, and will comply with all requirements of Applicable Law. Bank shall issue new Private Label Credit Cards in accordance with Schedule 2.1(b) and shall maintain existing Account numbers on the Accounts. The costs of preparation and mailings of such notices and new Private Label Credit Cards shall be borne by Bank. The mailings shall be made in such manner and at such time as Bank and NMG may mutually agree.

2.2 Exclusivity.

(a) General. Except as otherwise provided in this Section 2.2 and without limiting NMG’s right to arrange the purchase of the Program Assets by a Nominated Purchaser pursuant to Section 17.2, during the Term, each of the NMG Companies agrees that it shall not, by itself or in conjunction with or pursuant to agreements with any bank or other Credit Card issuer, offer or market in the United States (i) a Private Label Credit Card, (ii) a Co-Branded Credit Card or (iii) a Non-Card Payment Plan, in each case, other than through the Program.

(b) Second-Look Credit Card Program. Notwithstanding Section 2.2(a), NMG and its Affiliates shall have the right at any time during the Term to establish a program (a “Second-Look Credit Card Program”) for (i) issuing Credit Cards, including Private Label Credit Cards and Dual-Line Credit Cards, using the NMG Licensed Marks, or (ii) opening Non-Card Payment Plans, in each case, to customers whose Applications have been declined by Bank; provided, however, that Bank shall have a right of first offer to develop the Second-Look Credit Card Program as follows. NMG shall provide notice to Bank indicating the intention of NMG or its applicable Affiliate(s) to establish the Second-Look Credit Card Program. Not later than the 20th day following receipt of the notice by Bank, Bank may make an offer to NMG with respect to the establishment of the Second-Look Credit Card Program, which offer shall remain open for a

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period of not less than forty-five (45) days. NMG shall be under no obligation to accept such offer or to provide Bank with any right to match any offer received by NMG from any third party. NMG may elect to (A) accept the offer made by Bank, (B) establish the Second-Look Credit Card Program directly or through any of its Affiliates, or (C) enter into an arrangement with any third party Credit Card issuer providing for the establishment of a Second-Look Credit Card Program to be issued by such issuer; provided that NMG may not enter into any such arrangement with any such third party Credit Card issuer unless the financial terms and conditions offered to NMG by such Credit Card issuer are substantially more favorable to NMG in the aggregate to the terms and conditions offered to NMG by Bank. If NMG elects to establish a Second-Look Credit Card Program pursuant to clause (B) or (C) above, upon the request of any NMG Company, Bank shall forward to the NMG Companies or a provider of secondary financing the Applications received by Bank with respect to such customers and shall cooperate in good faith with the NMG Companies in order to facilitate the issuance of Credit Cards or Non-Card Payment Plans, as applicable, to such customers pursuant to such program.

(c) Dual-Line/Co-Branded Program.

(i) Beginning as of the Effective Date, Bank, at its own expense, shall perform the product design and consumer research set forth in Section A of Schedule 2.2(c)(i) of Dual-Line Credit Card products designated in such schedule or otherwise approved by the Management Committee. Bank shall use its best efforts to ensure that the personnel used to conduct such product design and consumer research has relevant experience in the department store industry, comparable customer demographics and loyalty programs and that the other resources (including Systems and other technology resources) used to conduct such research are Competitive. Bank shall complete the product design and consumer research testing set forth in Section A of Schedule 2.2(c)(i) by the Dual-Line Testing Date.

(ii) In the event that NMG decides to test Dual-Line Credit Cards following such consumer research, NMG shall provide Bank notice of such desire. Within the Development Period, Bank shall commence the testing set forth in Section B of Schedule 2.2(c)(i) of Dual-Line Credit Cards having the terms set forth in Schedule 2.2(c)(ii) and such other and/or additional terms as may be approved by the Management Committee. In the event that Bank fails to commence offering Dual-Line Credit Cards on the terms set forth in Schedule 2.2(c)(ii) by the Dual-Line Card Deadline or otherwise breaches any of its obligations pursuant to this Section 2.2, NMG shall be free to issue Co-Branded Credit Cards itself or through an Affiliate or enter into an arrangement with any third party to issue Co-Branded Credit Cards. Upon such an event, the restrictions of Section 2.2(a) shall not apply to any such issuance of Co-Branded Credit Cards.

(d) Acceptance of Non-NMG Credit Cards. The NMG Companies’ right to accept Credit Cards other than NMG Credit Cards shall be limited as set forth in Section A of Schedule 2.2(d).

(e) Retail Portfolio Acquisition. Notwithstanding Section 2.2(a), Bank’s sole rights with respect to Credit Card portfolios acquired by NMG during the Term are set forth in Article XIV hereof.

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(f) Other Products. Except to the extent expressly set forth in this Section 2.2, NMG and its Affiliates shall not be restricted in any way with respect to any activities or payment products. For the avoidance of doubt, NMG and its Affiliates shall be free to do any of the following at any time:

(i) issue, offer or market any payment products not expressly covered in this Section 2.2 (e.g., NMG and its Affiliates shall not be restricted from issuing, accepting or otherwise taking action with respect to (A) gift cards, pre-paid cards or stored value cards, or (B) debit cards, in each case, whether or not bearing an NMG Licensed Mark);

(ii) participate in rewards programs and promotions by card associations or for cards not branded with any of the NMG Licensed Marks (e.g., American Express Membership Rewards); or

(iii) offer its customers rewards or promotional programs or other value propositions, including Loyalty Programs, of any type; provided that, except to the extent approved by a majority of the members constituting the full Management Committee (including any vacancies), (A) the Program Loyalty Programs shall remain the primary Loyalty Programs for the NMG Channels and any changes to the Program Loyalty Programs shall be made in accordance with Article III, and (B) except to the extent set forth in Section B of Schedule 2.2(d), no Loyalty Program other than the Program Loyalty Programs shall (x) award points based on the participant’s choice of tender or payment method or (y) provide awards on an annual basis upon reaching specific spending tiers.

ARTICLE III

PROGRAM MANAGEMENT AND ADMINISTRATION

3.1 Program Objectives. In performing its responsibilities with respect to the management and administration of the Program, each Party shall be guided by the following Program objectives (the “Program Objectives”):

(a)to enhance the experience of NMG Shoppers;

(b)to increase retail sales of the NMG Companies;

(c)to maintain or improve customer insight through data acquisition and analysis;

(d)to maximize Program economics while minimizing operational costs or complexity; and

(e)to leverage the Program to identify existing and potential NMG Shoppers, develop and deepen relationships with NMG Shoppers and finance retail sales growth.

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3.2 Management Committee.

(a) Establishment of the Management Committee. NMG, on behalf of the NMG Companies, and Bank hereby establish a committee (the “Management Committee”) to oversee and review the conduct of the Program pursuant to this Agreement and to perform any other action that, pursuant to any express provision of this Agreement, requires its action.

(b) Subcommittees of the Management Committee. The Management Committee may designate additional committees (which may include persons who are not members of the Management Committee) with responsibility for overseeing and administering specified aspects of the Program (e.g., marketing, underwriting and risk management); provided, however, that approval of any matter expressly required by this Agreement to be approved by the Management Committee shall not be delegated to any subcommittee or other body.

(c) Composition of the Management Committee. The Management Committee shall consist of eight (8) members, of whom four (4) members shall be nominated by NMG (the “NMG Designees”) and four (4) members shall be nominated by Bank (the “Bank Designees”). The initial NMG Designees and Bank Designees will be designated prior to the Effective Date. Each Party shall designate its Managers to serve as one of its designees on the Management Committee. Each Party shall at all times have as one of its designees the Person with overall responsibility for the performance of the Program within his or her respective corporate organization, which in the case of Bank, shall be the Chief Financial Officer or Chief Operating Officer of the private label Credit Card business of Bank. NMG shall designate among its designees to the Management Committee the senior executive of NMG responsible for the Program Loyalty Programs and at least one executive officer of NMG. Bank and NMG may each substitute its designees to the Management Committee from time to time so long as their designees continue to satisfy the above requirements, provided that each Party shall provide the other Party with as much prior notice of any such substitution as is reasonably practicable under the circumstances.

(d) Functions of the Management Committee. The Management Committee shall:

(i)	oversee Program marketing activities, including review and approval of the Marketing Plan;
(ii)	review collection strategies and collection metrics;
(iii)	monitor activities of competitive programs and identify implications of market trends;
(iv)	approve the use of any third party (e.g., subcontractor or outsourced service provider), other than any Affiliate of NMG or Bank, as the case may be, to perform any of the obligations to be performed by Bank or the NMG Companies under the Program, in each case, except to the extent (x) subcontracted or outsourced as of the Effective Date or (y) such subcontracted or outsourced service would not involve direct contact between such third party and any Cardholder (i.e., in person, via telephone or in writing) it being agreed and understood that the subcontracting or outsourcing of such services (which may include print shops and mail vendors) would be within the sole discretion of the respective Party who elects to subcontract or outsource such service;

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(v)	evaluate and approve changes to any of the following:
	(A)	offering of new Credit Cards or Approved Ancillary Products, including Co-Branded Credit Cards, Non-Card Payment Plans or other payment products;
	(B)	changes in Account terms, including any of the terms set forth on Schedule 4.7;
	(C)	changes to the Risk Management Policies (which shall be submitted to the Management Committee together with the expected pro forma effects of such changes on the Program);
	(D)	changes to the Operating Procedures; and
	(E)	changes to the SLAs applicable to the Program;
(vi)	approve the design of Cardholder Documentation and any changes thereto;
(vii)	review customer service, collections and other servicing performance and reporting aspects of the Program against SLAs and other requirements of this Agreement;
(viii)	oversee compliance with Applicable Law, the Risk Management Policies, Operating Procedures and other Program operations and procedures;
(ix)	carry out such other tasks as are assigned to it by this Agreement or jointly by the Parties; and
(x)	pursuant to Section 12.4(b)(i)(B), resolve disputes that arise among the Parties with regard to the Program from time to time.

(e)Proceedings of the Management Committee.

(i) Meetings and Procedural Matters. The Management Committee shall meet (in person or telephonically) not less frequently than monthly, provided that unless otherwise agreed by all Management Committee members, not less than one meeting per quarter shall be in person. In addition, any member of the Management Committee may call a special meeting by delivery of at least five (5) Business Days’ prior notice to all of the other members of the Management Committee, which notice shall specify the purpose for such meeting. Except to the extent expressly provided in this Agreement, the Management Committee (and any subcommittee formed by it) shall determine the frequency, place (in the case of meetings in person) and agenda for its meetings, the manner in which meetings shall be called and all procedural matters relating to the conduct of meetings and the approval of matters thereat.

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(ii) Actions.

(A) Management Committee and subcommittee action shall be taken by majority vote of the committee members constituting the full committee (including any vacancies).

(B) If a majority of the Management Committee members constituting the full Management Committee (including any vacancies) fail to agree on any matter of significance to the Program (an “Unapproved Matter”) within ten (10) Business Days after the relevant initial vote (and in the case of a subcommittee vote, the Management Committee has attempted to resolve such matter for at least ten (10) Business Days after the relevant subcommittee vote and has failed to so), then initially the Chief Executive Officer of HSBC Retail Services and Senior Vice President, General Counsel and Secretary of NMG (or any other similarly ranking officer of Bank or NMG, as the case may be, who is not a Management Committee member and shall have been designated in writing by NMG or Bank, as applicable, to the other Party) shall in good faith attempt to resolve the matter. Any such resolution by such senior officers shall be deemed to be the action and approval of the Management Committee for purposes of this Agreement. If after ten (10) Business Days, the Unapproved Matter remains unresolved by such senior officers of NMG and Bank, the failure to agree shall constitute a deadlock. In the event of a deadlock, the final decision shall rest with NMG in the case of NMG Matters and with Bank in the case of Bank Matters, each of which shall, except as otherwise provided herein, exercise its discretion reasonably and in good faith. If a deadlock should occur with respect to a matter that is neither an NMG Matter nor a Bank Matter, the matter shall be deemed rejected by the Management Committee.

(C) Notwithstanding the foregoing, no changes to the Account terms or any other Program terms described in Section 3.2(d)(v) shall be made before the first anniversary of the Effective Date without the approval by majority vote of the committee members constituting the full Management Committee (including any vacancies); provided, however, that (i) if a Party concludes that such a change is required by Applicable Law (as evidenced by a Legal Opinion), such Party may make such change without regard to this clause (C) if such Party would have final decision-making authority with respect to such change following the first anniversary of the Effective Date and (ii) at the request of NMG, Bank shall make the changes referred to in Schedule 3.2(e).

(D) Notwithstanding anything to the contrary contained herein, Bank shall not override any vote of the NMG Designees in a way that would result in any aspect of the Program being more onerous or less beneficial to the Cardholders or the NMG Companies than Comparable Partner Programs unless (i) Bank’s position on the issue is required by Applicable Law and (ii) Bank adopts, and certifies to the NMG Companies that it has adopted, the same position with respect to each of its other Comparable Partner Programs that are similarly impacted by such Applicable Law or to which such Applicable Law could similarly be applied.

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(iii) Customer Service Disputes. If at any time there shall be a material change in customer dispute patterns or volume, as evidenced by the monitoring procedures set forth in the Dispute Resolution and Service Profile Report Process section of the Operating Procedures, (A) NMG shall call, and the Parties shall attend, one or more Management Committee meetings to consider and vote upon a plan to remediate such customer service or other disputes, (B) the Parties shall negotiate in good faith for a period ending not less than ten (10) days following the date of such meeting, to arrive at a mutually agreeable remediation plan (or a shorter period if such a remediation plan is agreed to prior to the 10th day), and (C) in the event such remediation plan is voted upon and approved, the Parties shall promptly implement such plan; provided, that in the event that such customer service or other disputes arise from a change in Account terms, NMG may request that any such Account terms be restored to the terms in effect prior to such customer service or other disputes and Bank shall implement such change in Account terms to the extent permitted by Applicable Law. If such changes in Account terms are implemented, the amount payable by Bank to NMG under Section 9.1(a)(i) shall be adjusted to reinstate the amounts previously payable pursuant to this Agreement in connection with such reinstated terms. If such customer service or other disputes remain uncured on the tenth (10th) day following the implementation of such Management Committee-approved remediation plan or such other date determined by the Management Committee as reasonably required to implement such remediation plan, NMG shall call, and the Parties shall attend, one or more Management Committee meetings to consider and vote upon an alternative plan to remediate such customer service or other disputes. In the event that the Management Committee is unable to agree to a plan to remediate such customer service or other disputes within the ten (10) days following any meeting called by NMG pursuant to this Section 3.2(e)(iii), it shall be considered an Unapproved Matter.

(f) NMG Matters. In accordance with and subject to this Section 3.2, NMG shall have the ultimate decision making authority with respect to any Unapproved Matters in respect of the following matters (the “NMG Matters”):

(i) design of the Cardholder Documentation and collateral aesthetics; provided that changes to the design or content of Cardholder Documentation (other than Billing Statements) that require a material increase in production costs beyond the per unit cost in effect as of January 1, 2005 (as adjusted by CPI) shall not be adopted as an NMG Matter but shall require the approval of the Management Committee pursuant to Section 3.2(e)(ii)(A) unless NMG agrees to pay the cost of such increase;

(ii) look, feel and content of Billing Statements, except for content that is dictated by legal or regulatory requirements, as evidenced by a Legal Opinion;

(iii) the Marketing Plan and marketing and promotion of the Program;

(iv) any maintenance of, and improvements to, the NMG Systems used in connection with the Program, including any conversion to any Bank systems and any capital expenditures of NMG and its Affiliates for maintenance of, and improvements to, the NMG Systems used in connection with the Program;

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(v) the approval (in the sole discretion of NMG) of any new Credit Card products, including Co-Branded Credit Cards, Approved Ancillary Products, Non-Card Payment Plans or other products and services proposed to be offered to Cardholders and, in each case, the approval of any compensation payable to the NMG Companies in respect thereof; provided, that the economic terms and compensation arrangements related to such new products or services shall be acceptable to both Parties;

(vi) the design, implementation, modification or any changes to any terms of any Program Loyalty Program; provided that NMG shall continue to offer one or more Program Loyalty Programs to Cardholders throughout the Term and unless approved by majority vote of the full Management Committee (including any vacancies), such Program Loyalty Programs shall be the primary Loyalty Programs for the NMG Channels; and

(vii) communications and/or contacts with Cardholders (other than as required to service the Accounts, comply with Applicable Law or as otherwise provided in this Agreement), including use of telemarketing techniques by Bank.

(g) Bank Matters. In accordance with and subject to this Section 3.2, Bank shall have the ultimate decision making authority with respect to any Unapproved Matters in respect of the following matters (the “Bank Matters”):

(i) changes to Risk Management Policies (A) to the extent required by Applicable Law or safety and soundness considerations, in each case, as evidenced by a Legal Opinion or (B) in response to changes in the credit profiles for Account applicants from the profile specified in Schedule 3.2(g)(i);

(ii) changes to Account terms required by Applicable Law as evidenced by a Legal Opinion;

(iii) capital expenditures for maintenance of, and improvements to, the Bank Systems used in connection with the Program; and

(iv) content of Cardholder Documentation and Solicitation Materials that is dictated by Applicable Law, as evidenced by a Legal Opinion.

3.3 Program Relationship Managers; Program Team.

(a) The NMG Companies and Bank shall each appoint one Program relationship manager (each, a “Manager”). The Managers shall exercise day-to-day operational oversight of the Program, subject to the actions and decisions of the Management Committee, and coordinate the partnership efforts between the NMG Companies and Bank, shall report to the designees on the Management Committee of the Party appointing such Manager and shall conduct their Program responsibilities in accordance with the actions and decisions of the Management Committee. The NMG Companies and Bank shall endeavor to provide stability and continuity in the Manager positions and each Party’s other Program personnel.

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(b) The initial Manager of the NMG Companies is set forth in Schedule 3.3.

(c) The initial Manager of Bank is set forth in Schedule 3.3. The Bank’s Manager shall report directly to the Bank’s Managing Director-Client Relations. The Bank’s Manager’s performance-based compensation shall be based upon the Program Objectives and other specific annual targets and objectives set by the Management Committee, including Program profitability targets. The appointment of a new Manager by Bank is subject to the prior approval of NMG. With respect to future Bank Manager candidates, Bank shall seek to propose candidates with substantial Program relevant experience, including experience with the department store industry, comparable customer demographics and loyalty programs.

(d) Bank shall maintain a Program team having Competitive expertise and experience and meeting the requirements and specifications set forth in Schedule 3.3. No member of the Bank’s Program team shall be reassigned to any program operated by Bank or any of its Affiliates pursuant to any agreement or arrangement with any retail store competitor designated annually by the Management Committee, including those listed in Schedule 3.3(d), without the approval of NMG.

ARTICLE IV

PROGRAM OPERATIONS

4.1 Operation of the Program.

(a) Each of the Parties hereto shall perform its obligations under this Agreement (i) in compliance with the terms and conditions of this Agreement, the Risk Management Policies, the Operating Procedures and any other policies, procedures and practices adopted pursuant to this Agreement, (ii) in good faith, (iii) in accordance with Applicable Law, and (iv) in a manner consistent with the Program Objectives.

(b) The initial Operating Procedures applicable to various aspects of the operation of the Program shall be the operating procedures adopted by NMG, its Affiliates and the Licensees prior to the Effective Date (which operating procedures are attached hereto as Schedule 4.1(b)). Changes to such Operating Procedures shall only be made with the approval of the Management Committee; provided that changes to the Risk Management Policies may be made in accordance with Section 4.6 and Article III.

(c) Except as expressly provided otherwise in this Agreement, Bank shall use commercially reasonable efforts to ensure that the personnel and other resources (including Systems and other technology resources) devoted by Bank to the Program shall be Competitive.

4.2 Certain Responsibilities of the NMG Companies.

(a) In addition to its other obligations set forth elsewhere in this Agreement, NMG agrees that during the Term it shall, either itself or through the Affiliate(s) to which it subcontracts the relevant functions:

(i) as provided in the Servicing Agreement, in its capacity as NMG Servicer, maintain a System to process Applications, using the underwriting and credit limit assignment policy set forth in the Risk Management Policies and the Operating Procedures, as maintained by NMG in effect as of January 1, 2005;

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(ii) as provided in the Servicing Agreement, in its capacity as NMG Servicer, maintain call centers to respond to inquiries from Cardholders and to deal with billing related claims and adjustments (including by making finance charge and late fee reversals), establish new Accounts or Account types, authorize transactions, and assign, increase and decrease credit lines, all in accordance with the Risk Management Policies and the Operating Procedures, in each case, as performed by NMG prior to January 1, 2005;

(iii) as provided in the Servicing Agreement, in its capacity as NMG Servicer, provide Account monitoring services, including identifying delinquencies, identifying collection efforts required, implementing credit-line adjustments, over limit authorizations and Account deactivation or cancellation;

(iv) as provided in the Servicing Agreement, in its capacity as NMG Servicer, handle collection and recovery efforts in respect of Accounts;

(v) solicit new Accounts through in-store instant credit procedures (in accordance with this Agreement) and display of Solicitation Materials (or Applications) in the NMG Channels pursuant to the Marketing Plan;

(vi) implement and administer the Marketing Plan in accordance with this Agreement;

(vii) receive In-Store Payments in accordance with procedures that comply with Applicable Law, subject to reimbursement from Bank for the processing of such payments as provided in this Agreement;

(viii) pay sales associate compensation relating to the solicitation of new Accounts;

(ix) continue to make available a Program Loyalty Program;

(x) as provided in the Servicing Agreement, in its capacity as NMG Servicer, process remittances from Cardholders;

(xi) until the Documentation Services Transition Date, as provided in the Servicing Agreement, in its capacity as NMG Servicer, prepare, process and mail Cardholder Billing Statements, Inserts, privacy policy notices, change in terms notices and other communications to Cardholders; and

(xii) as provided in the Servicing Agreement, in its capacity as NMG Servicer, produce and issue all new, replacement and reissued credit card plates related to the NMG Credit Cards and the Loyalty Cards.

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4.3 Certain Responsibilities of Bank.

(a) In addition to its other obligations set forth elsewhere in this Agreement, Bank agrees that during the Term it shall:

(i) extend credit (or cause one of its Affiliates to extend credit) on newly originated and existing Accounts in accordance with the Risk Management Policies and Operating Procedures;

(ii) comply (and cause its applicable Affiliates to comply) with the terms of the Cardholder Agreements, the Program Privacy Policies and all Cardholder opt-outs;

(iii) after the Systems Transition Date, provide any Account information required for the NMG Companies’ administration of any Loyalty Program;

(iv) in accordance with Section 7.2, after the Documentation Services Transition Date, prepare, process and mail Cardholder Billing Statements, Inserts, privacy policy notices, change in terms notices and other communications to Cardholders and perform any other Services required to be performed pursuant to this Agreement from time to time;

(v) provide training with respect to Program operations, including training of POS personnel and NMG Servicer personnel in the Bank’s policies and procedures with respect to the Program and in the use of any Bank Systems utilized in the Program;

(vi) to the fullest extent permitted by Applicable Law and Bank’s or its Affiliate’s agreements with third parties, as requested from time to time by NMG, provide transaction and experience information about cardholders of Bank’s and its Affiliates’ other Credit Card programs and customers of Bank’s and its Affiliates’ other consumer loan programs and assist the NMG Companies and their Affiliates in using such information to develop marketing plans for their businesses; and

(vii) to the fullest extent permitted by Applicable Law and Bank’s or its Affiliate’s agreements with third parties, as requested from time to time by NMG, permit the NMG Companies to solicit or offer NMG Goods and Services to cardholders of Bank’s and its Affiliates’ other Credit Card programs and customers of Bank’s and its Affiliates’ other consumer loan programs.

4.4 Ownership of Accounts; Account Documentation.

(a) Except to the extent of the NMG Companies’ ownership of the NMG Licensed Marks, Bank shall be the sole and exclusive owner of all Accounts and Account Documentation and shall have all rights, powers, and privileges with respect thereto as such owner; provided that Bank shall exercise such rights consistent with the provisions of this Agreement and Applicable Law. All purchases of NMG Goods and Services in connection with the Accounts and the Cardholder Indebtedness shall create the relationship of debtor and creditor between the relevant Cardholder and Bank, respectively. The NMG Companies acknowledge and agree that (i) they have no right, title or interest (except for their right, title and interest in the NMG Licensed Marks and their option to purchase the Program Assets under Section 17.2) in or to, any of the Accounts or Account Documentation or any proceeds of the foregoing, and (ii) Bank extends credit directly to Cardholders.

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(b) Except as expressly provided herein, Bank shall be entitled to (i) receive all payments made by Cardholders on Accounts and (ii) retain for its account all Cardholder Indebtedness and all other fees and income authorized by the Cardholder Agreements and collected with respect to the Accounts and Cardholder Indebtedness. Bank shall retain for its account any income from selling Approved Ancillary Products as shall have been approved by the Management Committee in connection with the approval of the offering of such Approved Ancillary Products.

(c) Bank shall fund all Cardholder Indebtedness on the Accounts.

(d) Bank shall have the exclusive right to effect collection of Cardholder Indebtedness, except as set forth in the Servicing Agreement, and shall notify Cardholders to make payment directly to it in accordance with its instructions; provided, however, that Bank at its option may make all collections for its account using a Program name which includes the name of NMG and, if Bank so elects, the name of Bank, and may direct all checks to be made payable to “NMG” or, with NMG approval, another name combined with the name NMG. NMG grants to Bank a limited power of attorney (coupled with an interest) to sign and endorse NMG’s name upon any form of payment that may have been issued in NMG’s name in respect of any Account.

(e) Notwithstanding the foregoing, the NMG Companies shall accept payments made with respect to an Account (i) in an NMG Store as provided in Section 8.3, (ii) by telephone through the ACH Pay by Phone system and (iii) online through the NMG Companies’ websites.

(f) With respect to all Account Documentation, and notwithstanding the purchase of such Account Documentation by Bank as of the Effective Date, NMG Servicer, shall continue to hold and retain the Account Documentation following the Effective Date as bailee for the sole benefit of Bank.

(i) From time to time following the Effective Date, NMG Servicer shall deliver such Account Documentation as requested by Bank. NMG Servicer will use reasonable efforts to accommodate Bank’s shorter requested time frames, but in any event such deliveries will be made no later than the following time frames: (i) for statements, 15 days; (ii) for non-cash payment information, 10 days; (iii) for cash payment information, 5 Business Days, (iv) for application information, 20 days; (v) for sales slips, 20 days; and (vi) for all other Account Documentation, 30 days. NMG Servicer shall effect delivery of the requested Account Documentation at its sole cost and expense, unless otherwise determined by the Management Committee; provided, that in connection with any litigation, all Account Documentation shall be provided within fifteen (15) days rather than the timeframes set forth above.

(ii) In discharging its bailment duties hereunder, NMG Servicer agrees to utilize such document storage, safekeeping and security methods in accordance with Applicable Law. All Account Documentation shall be housed at NMG Servicer’s operations centers or other facilities designated by NMG Servicer. Without limiting any of their obligations under this Agreement, NMG agrees to maintain the Account Documentation for a period that complies with the document retention policy set forth in Schedule 4.4(f).

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4.5 Branding of Accounts/Credit Cards/Cardholder Documentation/Solicitation Materials.

(a) The Cardholder Documentation and the Solicitation Materials shall be in the design and format proposed by the NMG Companies and approved by the Management Committee; provided that Bank shall be responsible for ensuring that the Cardholder Documentation and the Solicitation Materials comply with Applicable Law and for ensuring that the Solicitation Materials comply with the Cardholder Documentation.

(b) Bank shall be responsible for, and bear the cost of the design, development and delivery (other than delivery at NMG Channels) of the Cardholder Documentation; provided that, to the extent that changes to the design or format of Cardholder Documentation results in the per unit cost of such Cardholder Documentation being materially greater than (i) in the case of Cardholder Documentation other than Billing Statements, the cost in effect as of January 1, 2005 (as adjusted by CPI), and (ii) in the case of Billing Statements, the greater of such cost and the cost of producing statements having the specifications set forth in Schedule 7.3(a), the Management Committee shall allocate the increased costs resulting from such changes in Cardholder Documentation between the Parties.

(c) Bank shall issue a renewal NMG Credit Card and/or Loyalty Card to each Cardholder in accordance with the terms of any Loyalty Program at each scheduled NMG Credit Card and/or Loyalty Card renewal date (or earlier, at the direction of any NMG Company, if the Cardholder qualifies for an upgrade in any Loyalty Program).

(d) NMG Licensed Marks shall appear prominently on the face of the NMG Credit Cards. The NMG Credit Cards shall not bear Bank’s Licensed Marks except, in the case of a Dual-Line Credit Card, as required by the applicable Card Association; provided, however, the Bank’s name will appear on the back of the card in order to identify Bank as the credit provider under the Program, together with any other disclosures required by Applicable Law, and in the case of a Dual-Line Credit Card, as required by the applicable Card Association.

4.6 Underwriting and Risk Management.

(a) Bank shall accept or reject any Application based solely upon application of the then-current Risk Management Policies applicable to the relevant channel. Upon satisfaction of the applicable credit criteria set forth in the Risk Management Policies, Bank shall promptly establish a Private Label Credit Account, a Non-Store Account and/or a Non-Card Payment Plan, as applicable. The procedures for determining what type(s) of NMG Credit Cards and Accounts shall be issued upon receipt of each Application are set forth in the Risk Management Policies. Bank shall have the right, power and privilege to review periodically the creditworthiness of Cardholders to determine the range of credit limits to be made available to an individual Cardholder and whether or not to suspend or terminate credit privileges of such Cardholder; provided, however, that Bank shall only decrease credit limits or suspend or terminate credit privileges on an individual, case-by-case basis consistent with the then-current Risk Management Policies and Operating Procedures and in no event in a manner less favorable, in the aggregate, than its exercise of similar rights in connection with the Comparable Partner Programs.

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(b) The initial Risk Management Policies to be in effect as of the Effective Date are contained in the initial Operating Procedures. Each Party may propose modifications of any aspect of the Risk Management Policies, which modifications shall be made only upon approval in accordance with Article III.

(c) If the approval rate targets and other metrics referred to in Schedule 4.6(c) are not met and the credit profile of Account applicants has not adversely changed from that specified in Schedule 4.6(c), then Bank shall have thirty (30) days to modify the Risk Management Policies or otherwise adjust its practices to achieve such targets. If Bank does not make any such adjustments, or if such adjustments fail to result in all approval rate targets and other metrics once again being met by the 90th day after the implementation of such adjustments, the NMG Companies shall have the right to terminate this Agreement pursuant to Section 15.2(h).

(d) The Parties shall each perform all commercially reasonable security functions in accordance with the Risk Management Policies to minimize fraud in the Program due to lost, stolen or counterfeit cards and fraudulent applications. The Parties each agree to use commercially reasonable efforts to cooperate with each other in such functions.

4.7 Cardholder Terms.

(a) The terms and conditions of all Purchased Accounts shall be the terms and conditions applicable to the Account type immediately prior to the Effective Date, including the terms and conditions set forth on Schedule 4.7, provided that, at the request of NMG, the Parties shall take such actions in accordance with this Agreement as may be required to convert the Accounts specified in Schedule 4.7 to the new terms and conditions specified in Schedule 3.2(e). Additional changes to the terms and conditions of the Accounts may be made only in accordance with Article III.

(b) The account numbers and BINs of all Purchased Accounts shall remain the same after the Effective Date.

4.8 Internet Services.

(a) Cardholder Website. Bank shall develop and maintain an NMG-branded website for Cardholders and potential Cardholders to be effective as of the Systems Transition Date, with the look and feel consistent with the NMG Companies’ websites (“Program Website”). The Program Website shall be accessed solely by means of links from the NMG Companies’ websites and shall contain or otherwise be associated with only such material and links as shall be agreed by the Management Committee from time to time. The NMG Companies will provide such links on (i) their home pages, (ii) their check-out pages, and (iii) such other pages as the Management Committee shall determine from time to time. The Program Website shall also include links back to the NMG Companies’ websites, on the Program Website home page and such other pages as the Management Committee shall determine from time to time. The Program Website shall include the following functions, and such other functions as may be approved by the Management Committee from time to time (the Program Website and such functionality, collectively, the “Internet Services”).

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(i) Applications. The Program Website shall permit potential Cardholders to access an Application, to complete and submit the Application online and receive real-time approvals or denials of such Application in accordance with the Risk Management Policies and Operating Procedures. Without limiting the foregoing, the Application function on the Program Website shall have at a minimum all features and functionality available on any NMG Company’s website prior to the Effective Date.

(ii) Cardholder Customer Service. The Program Website shall permit Cardholders to (A) view the Cardholder’s Account information and Billing Statements (including any Loyalty Program information, NMG Transaction information, and all other information contained in such Billing Statement); (B) to the extent requested by, and provided to the Bank by, NMG, view electronic copies of sales slips or other documents or data relating to the Cardholder’s NMG transactions, including the Cardholder’s signature; and (C) make payments on the Cardholder’s Account via automated clearing house transfer or other payment mechanism.

(b) Performance Standards. Bank shall provide the Internet Services consistent with the SLAs set forth on Schedule 4.8(b) and in accordance with industry standards.

(c) Customer Privacy. Bank shall ensure that the Privacy Policy is clearly and prominently posted on the pages of the Program Website.

(d) Internet Services Representations and Warranties. Bank represents and warrants as of the Systems Transition Date and during the Term of this Agreement that:

(i) the Program Website is solely under Bank’s control (subject to the NMG Companies’ rights under this Agreement); and

(ii) Bank has the license, right or privilege to use the hardware, software and content acquired from third parties for use in the Internet Services, and that it is the owner of all other hardware, software and content used in the Internet Services and that neither the Internet Services as a whole, nor any part thereof, infringes upon or violates any patent, copyright, trade secret, trademark, invention, proprietary information, nondisclosure or other rights of any third party.

4.9 Sales Taxes. NMG and its Subsidiaries shall pay when due any sales taxes relating to the sale of NMG Goods and Services. To the extent permitted by the Applicable Law of the relevant states, NMG shall use commercially reasonable efforts to recover sales taxes charged to any Account that has been written off by Bank. Bank shall notify the NMG Companies of any amounts written-off on Accounts by Bank, identified by Account, and shall sign such forms and provide any such other information as requested by NMG to enable the NMG Companies to pursue any such recoveries. NMG shall pay to Bank an amount equal to recovered sales taxes. To the extent Bank is permitted by Applicable Law to directly recover sales taxes charged to any Account written off by Bank, the NMG Companies shall sign such forms and provide any such other information as reasonably requested by Bank to enable Bank

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to pursue any such recoveries. In the event NMG is audited or assessed by a state, and as a result any amount of sales tax previously recovered is repaid to the state, Bank shall repay such amount to NMG. NMG shall use commercially reasonable efforts to negotiate such audit or assessment. Bank also shall fully cooperate in any such audit or assessment and shall pay the costs and expenses of NMG incurred in connection with negotiating any tax audit or assessment or analyzing or pursuing any bad debt claims.

4.10 Participation in Reversals.

(a) Reporting of Reversals. Each Year-End Settlement Statement shall set forth a calculation of the applicable Finance Charge Reversal Percentage and Late Fee Reversal Percentage for the preceding Fiscal Year and such other calculations as are necessary to calculate the payment in respect thereof to be made by the Parties pursuant to this Section 4.10. All amounts payable pursuant to this Section shall be netted against each other so that only a single payment shall be made pursuant to this Section.

(b) Finance Charge Reversals. If the Finance Charge Reversal Percentage with respect to the Private Label Accounts reflected in the Year-End Settlement Statement with respect to the preceding Fiscal Year is greater than the applicable High Collar, the NMG Companies shall pay Bank an amount equal to (A) the Finance Charge Reversal Percentage with respect to the Private Label Accounts minus the applicable High Collar, multiplied by (B) the aggregate amount of all finance charges assessed on the Private Label Accounts during such preceding Fiscal Year. If the Finance Charge Reversal Percentage with respect to the Private Label Accounts for such Fiscal Year is less than the applicable Low Collar, Bank shall pay the NMG Companies an amount equal to (A) the applicable Low Collar minus the Finance Charge Reversal Percentage with respect to the Private Label Accounts, multiplied by (B) the aggregate amount of all finance charges assessed on the Private Label Accounts during such preceding Fiscal Year.

(c) Late Fee Reversals. If the Late Fee Reversal Percentage with respect to the Private Label Accounts reflected in the Year-End Settlement Sheet with respect to the preceding Fiscal Year is greater than the applicable High Collar, the NMG Companies shall pay Bank an amount equal to (A) the Late Fee Reversal Percentage with respect to the Private Label Accounts minus the applicable High Collar, multiplied by (B) the aggregate amount of all late fees assessed on the Private Label Accounts during such preceding Fiscal Year. If the Late Fee Reversal Percentage with respect to the Private Label Accounts for such Fiscal Year is less than the applicable Low Collar, Bank shall pay the NMG Companies an amount equal to (A) the applicable Low Collar minus the Late Fee Reversal Percentage with respect to the Private Label Accounts, multiplied by (B) the aggregate amount of all late fees assessed on the Private Label Accounts during such preceding Fiscal Year.

4.11 Interest Free Accounts. Bank shall offer and support interest free Accounts in accordance with this Agreement and, subject to the limitations set forth in this Section 4.11, the cost of maintaining such interest free Accounts shall be borne by Bank. The Year-End Settlement Sheet for each Fiscal Year shall set forth, (i) Average Private Label Receivables, (ii) Average Interest Free Receivables and (iii) the Net Yield for such Fiscal Year calculated on all Billed Cardholder Debt. If the dollar amount of Average Interest Free Receivables as a

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percentage of Average Private Label Receivables for such Fiscal Year exceeds the applicable High Collar, there shall be included on the Year-End Settlement Sheet for such Fiscal Year (and the NMG Companies shall pay to Bank) an amount equal to (A) Net Yield, divided by (B) the Average Private Label Receivables less Average Interest Free Receivables for such Fiscal Year, multiplied by (C) the dollar amount by which Average Interest Free Receivables for such Fiscal Year exceeded the High Collar. If the dollar amount of Average Interest Free Receivables as a percentage of Average Private Label Receivables for such Fiscal Year is less than the Applicable Low Collar, there shall be included on the Year-End Settlement Sheet (and Bank shall pay to the NMG Companies) an amount equal to (A) Net Yield, divided by (B) the Average Private Label Receivables less Average Interest Free Receivables for such Fiscal Year, multiplied by (C) the dollar amount by which Average Interest Free Receivables for such Fiscal Year was less than the Low Collar.

ARTICLE V

MARKETING

5.1 Promotion of Program. In accordance with the Marketing Plan, the NMG Companies and Bank shall cooperate with each other and actively support and promote the Program to both existing and potential Cardholders.

5.2 Marketing Commitment.

(a) On the Effective Date and no later than the first (1st) Business Day of each subsequent Fiscal Year, Bank shall pay to NMG an amount equal to the NMG Marketing Commitment for such Fiscal Year, which amount shall be deposited into a marketing fund maintained by NMG (the “NMG Marketing Fund”).

(b) The NMG Marketing Fund shall be used by NMG and its Affiliates in the sole discretion of NMG for such incremental marketing of the Program and the Credit Card Business as NMG and its Affiliates shall undertake from time to time.

(c) Each Monthly Settlement Sheet shall set forth an accounting of the costs incurred, if any, by NMG and its Affiliates in the prior Fiscal Month which were paid out of the NMG Marketing Fund. To the extent that the expenditures of the NMG Marketing Commitment by NMG and its Affiliates in any Fiscal Year exceed the amount in the NMG Marketing Fund, the NMG Companies shall be entitled to reimbursement from the NMG Marketing Fund for the following Fiscal Year but not in excess of 10% of such Fiscal Year’s NMG Marketing Fund. Any amount in the NMG Marketing Fund for a given Fiscal Year that is not spent in that Fiscal Year shall remain available for use during the Term.

(d) Bank hereby agrees to credit a joint marketing fund maintained by Bank (the “Joint Marketing Fund”), no later than the first (1st) Business Day of each Fiscal Year, with an amount equal to the Joint Marketing Commitment. The Joint Marketing Commitment shall be used as set forth in the Marketing Plan and as otherwise directed by the Management Committee from time to time. The NMG Companies and Bank shall each provide to the other for inclusion in the Monthly Settlement Sheet, an accounting of such Party’s and its Affiliates’ use of the Joint

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Marketing Commitment in the prior Fiscal Month, and Bank shall reimburse the NMG Companies for such amounts used by NMG and its Affiliates, and shall reduce the amount remaining in the Joint Marketing Fund by the amounts used by Bank and its Affiliates. Any amount in the Joint Marketing Fund for a given Fiscal Year that is not spent in that Fiscal Year shall remain available for use at the direction of the Management Committee during the Term.

5.3 Communications with Cardholders.

(a) NMG Inserts. NMG and its Affiliates shall have the exclusive right to communicate with Cardholders, except for any message required by Applicable Law, through use of inserts, fillers and bangtails (which shall be included on all billing envelopes) (collectively, “Inserts”), including Inserts selectively targeted for particular segments of Cardholders, in any and all Billing Statements (including electronic Billing Statements) and envelopes, subject to production requirements contained in the Operating Procedures and Applicable Law. Except as otherwise provided in the Marketing Plan, and except for Inserts required by Applicable Law (which shall be paid for by Bank), the NMG Companies shall be responsible for the content of, and the cost of preparing and printing, any such Inserts. If the insertion of Inserts in particular Billing Statements would increase the postage costs for such Billing Statements, the NMG Companies agree to either pay for the incremental postage cost or prioritize the use of Inserts to avoid postage cost over-runs. The NMG Companies shall retain all revenues they receive from all Inserts (other than any Inserts promoting the NMG Credit Cards or Approved Ancillary Products that the NMG Companies may permit to be produced and distributed in accordance with the Marketing Plan). Subject to NMG’s prior written approval, which shall not be unreasonably withheld, Bank may communicate with Cardholders in the Inserts about the Program as necessary for Bank to comply with its obligations under this Agreement.

(b) Billing Statement Messages. NMG and its Affiliates shall have the exclusive right to use Billing Statement (including electronic Billing Statement) messages and Billing Statement envelope (or electronic mail) messages in each Billing Cycle to communicate with Cardholders, subject to production requirements contained in the Operating Procedures and Applicable Law. Such messages shall be included at no cost to the NMG Companies. Notwithstanding the foregoing, any message required by Applicable Law shall take precedence over NMG’s and its Affiliates’ messages. Subject to NMG’s prior written approval, which shall not be unreasonably withheld, Bank may communicate with Cardholders about the Program in the Billing Statements as necessary for Bank to comply with its obligations under this Agreement.

5.4 Additional Marketing Support.

(a) Upon the request of NMG from time to time, Bank shall perform the following marketing functions at no cost or expense to the NMG Companies:

(i) subject to Applicable Law and any contractual prohibitions to which Bank or its Affiliates are subject:

(A) use Bank’s and its Affiliates’ databases, analytic tools and market research and Bank’s marketing support services to assist NMG and its Affiliates in their promotion of the NMG Channels, or the marketing and promotion of NMG Goods and Services, the NMG Credit Cards or the Non-Card Payment Plans;

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(B) conduct mailings and other related marketing efforts on behalf of NMG and its Affiliates, which may include marketing materials promoting the Program, the NMG Credit Cards and Non-Card Payment Plans, the NMG Channels and/or the NMG Goods and Services at NMG’s option, based upon the customer databases and customer database analysis tools maintained by Bank and its Affiliates, including nonpersonally identifiable transaction and experience data from Bank’s and its Affiliates’ Credit Card, other consumer loan portfolio and other customer databases; provided that (unless such amounts are paid out of the NMG Marketing Fund or are paid out of the Joint Marketing Fund pursuant to the Marketing Plan) the NMG Companies shall be responsible for all out-of-pocket expenses of all marketing materials and mailing services at cost;

(ii) provide such reasonable assistance to NMG and its Affiliates as NMG may request in connection with the training of personnel of NMG and its Affiliates regarding the Program, including providing training materials developed by Bank and approved by the Management Committee;

(iii) collaborate with the NMG Companies to identify and test marketing initiatives (using Bank’s resources); provided that (unless such amounts are paid out of the NMG Marketing Fund or are paid out of the Joint Marketing Fund pursuant to the Marketing Plan) the NMG Companies shall be responsible for all out-of-pocket expenses of test marketing at cost requested in connection with the Program; and

(iv) provide models and modeling support, which may include Cardholder attrition models, prospect marketing models and other tools designed to improve Program performance.

(b) Following the Effective Date, Bank shall, at its sole expense, retain a mutually agreed upon third party to conduct surveys of Cardholder perception and satisfaction on a regular, periodic basis regarding the NMG Credit Cards and the Program but in no event less frequently than annually. Such surveys shall be in a form and employ reasonable methodologies developed in consultation with the NMG Companies and shall provide for a level of information reasonably acceptable to NMG. Bank shall make available to the NMG Companies the results of such surveys as well as all associated work papers promptly following completion thereof.

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5.5 Approved Ancillary Products. Except for the Approved Ancillary Products, the NMG Credit Cards and the Non-Card Payment Plans, Bank and its Affiliates shall not offer (except as directed by NMG) any goods or services to Cardholders or through the Program. From time to time, Bank may propose to solicit Cardholders for products or services other than the foregoing. If the NMG Companies, in their sole and absolute discretion, agree to permit such solicitation, such solicitation shall only be permitted on the terms (including terms relating to the compensation of the NMG Companies with respect thereto) agreed by the NMG Companies.

5.6 Marketing Plan.

(a) Following the date hereof NMG, in consultation with Bank, shall develop a proposed Marketing Plan for the first Fiscal Year. Within thirty (30) days after the Effective Date, the Management Committee shall approve such Marketing Plan for the first Fiscal Year. For each Fiscal Year following the first Fiscal Year, the NMG Companies shall develop, in consultation with Bank, and on or before ninetieth (90th) day prior to the commencement of such Fiscal Year, the Marketing Committee shall approve a Marketing Plan for such Fiscal Year.

(b) At least once per calendar year, the Management Committee shall consider (to the extent such terms and conditions are publicly known or otherwise known and not subject to any confidentiality obligations on the part of either Party) features, terms, conditions and other aspects of other Comparable Partner Programs and Competing Partner Programs in order to identify marketplace developments for possible inclusion in the Program to ensure that the Program remains Competitive. If the Management Committee determines that a change to the Program may be required, Bank shall develop a plan with respect to implementation of such change, including the impact the proposed change would have, if any, on the revenue share, and shall present such plan to the Management Committee for its review and decision. The Management Committee shall decide whether to test or launch any such Program changes for Cardholders or potential Cardholders.

(c) Each Marketing Plan shall outline, for each NMG Channel, all programs, to the extent established and mutually agreed upon by the NMG Companies and Bank, and shall include at least the following information for each program:

(i) description of offer(s), cost per unit, expected response rate and other performance projections with respect thereto;

(ii) description of target audience;

(iii) planned budget, specifying Bank’s share and the NMG Companies’ share, if any;

(iv) distribution among the NMG Channels and types of Accounts; and

(v) target implementation date (e.g., mailing dates, calling dates, delivery dates).

(d) Each Marketing Plan shall address development of Solicitation Materials and Account Documentation; new Account acquisition strategies, including direct mailing;

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preparation of unique collateral materials for the NMG Companies’ employees; activation, retention and usage; statement design and messaging; advertising of the Program; and such other marketing matters as the Parties shall agree to.

(e) Each Marketing Plan shall specify which Party is responsible for each Marketing Plan item and shall contain a budget specifying the Parties’ financial responsibilities during the applicable Fiscal Year.

(f) Any Marketing Plan may be modified or supplemented by the Parties from time to time upon mutual agreement, provided such modifications or supplements, as the case may be, are approved by the Management Committee.

(g) To the extent practicable, all significant marketing initiatives developed under this Agreement shall contain unique marketing source codes to facilitate post-marketing research and analysis.

ARTICLE VI

CARDHOLDER INFORMATION

6.1 Customer Information.

(a) All sharing, use and disclosure of Cardholder Data and NMG Shopper Data under this Agreement shall be subject to the provisions of this Article VI. The Parties acknowledge that the same or similar information may be contained in the Cardholder Data, the NMG Shopper Data, and other data and that each such pool of data shall therefore be considered separate information subject to the specific provisions applicable to that data hereunder.

(b) NMG and Bank shall each maintain an information security program that is designed to meet all requirements of Applicable Law, including, at a minimum, maintenance of an information security program that is designed to: (i) ensure the security and confidentiality of the Cardholder Data and the NMG Shopper Data; (ii) protect against any anticipated threats or hazards to the security or integrity of the Cardholder Data and the NMG Shopper Data; (iii) protect against unauthorized access to or use of the Cardholder Data and the NMG Shopper Data; and (iv) ensure the proper disposal of Cardholder Data and NMG Shopper Data. Additionally, such security measures shall meet current industry standards and shall be at least as protective as those used by each Party to protect its other confidential customer information. Each Party shall use the same degree of care in protecting the Cardholder Data and the NMG Shopper Data against unauthorized disclosure as it accords to its own confidential customer information, but in no event less than a reasonable standard of care. In particular, Bank shall treat NMG Shopper Data as if it were “customer information” for purposes of the regulations above. In the event a Party becomes aware of any unauthorized use of or access to Cardholder Data, such Party shall immediately notify the other Party and shall cooperate with such other Party, as it deems necessary or as required by Applicable Law, (x) to assess the nature and scope of such incident, (y) to contain and control such incident to prevent further unauthorized access to or use of Cardholder Data, and (z) to provide prompt notice to affected Cardholders to the extent required by Applicable Law or otherwise with the approval of the Management

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Committee. In the event Bank becomes aware of any unauthorized use of or access to NMG Shopper Data, Bank shall immediately notify the NMG Companies and shall cooperate with them, as they deem necessary or as required by Applicable Law, (x) to assess the nature and scope of such incident, (y) to contain and control such incident to prevent further unauthorized access to or use of NMG Shopper Data, and (z) to provide prompt notice to affected NMG Shoppers to the extent required by Applicable Law or otherwise with the approval of the Management Committee. The cost and expenses of any such notice shall be borne solely by the Party that experienced the unauthorized use of or access to Cardholder Data or NMG Shopper Data.

(c) The NMG Companies shall, subject to Applicable Law, promptly provide to Bank a complete list of any Persons who (i) after the Effective Date, have requested to be on the NMG Companies’ “do not call” list and/or (ii) have requested to be on “do not mail” lists (or other similar lists), and Bank shall promptly comply with such requests with respect to its solicitation of NMG Credit Cards and Approved Ancillary Products. Bank shall, subject to Applicable Law, promptly provide to the NMG Companies a complete list of any Cardholders who (i) after the Effective Date, have requested to be on Bank’s “do not call” list and/or (ii) have requested to be on “do not mail” lists (or other similar lists) in connection with their Cardholder relationship with Bank and the NMG Companies shall promptly comply with such requests with respect to its solicitations.

6.2 Cardholder Data.

(a) As among the Parties hereto, the Cardholder Data shall be the property of and exclusively owned by Bank.

(b) The Program Privacy Policy applicable to the Cardholder Data is attached as Schedule 6.2 hereto. Any modifications to the Program Privacy Policy shall be approved by the Management Committee, provided that the Program Privacy Policy shall comply with Applicable Law at all times.

(c) Bank shall not use, or permit to be used, the Cardholder Data, except as provided in this Section 6.2. Bank may use the Cardholder Data in compliance with Applicable Law and the Program Privacy Policy solely (i) for purposes of soliciting or marketing (in each case, solely as directed by the NMG Companies or the Management Committee) or servicing customers listed in the Cardholder Data for NMG Credit Cards, Approved Ancillary Products, and any other products and services approved by the Management Committee, (ii) as otherwise necessary to carry out its obligations or exercise its rights hereunder, or (iii) as required by Applicable Law. Bank has no rights to use the Cardholder Data for marketing purposes except as expressly provided herein.

(d) Bank shall not disclose, or permit to be disclosed, the Cardholder Data, except as provided in this Section 6.2. Bank shall not, directly or indirectly, sell or otherwise transfer any right in or to the Cardholder Data other than to NMG or any of its Affiliates. Bank may disclose the Cardholder Data in compliance with Applicable Law and the Program Privacy Policy solely:

(i) to its authorized subcontractors in connection with a permitted use of such

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Cardholder Data under this Section 6.2, provided that each such authorized subcontractor agrees in a written agreement satisfactory to NMG and Bank to maintain all such Cardholder Data as strictly confidential and not to use or disclose such information to any Person other than Bank or an NMG Company, except as required by Applicable Law or any Governmental Authority (after giving Bank and the NMG Companies prior notice and an opportunity to defend against such disclosure); provided, further, that each such authorized subcontractor maintains, and agrees in writing to maintain, an information security program that is designed to meet all requirements of Applicable Law, including, at a minimum, maintenance of an information security program that is designed to: (w) ensure the security and confidentiality of the Cardholder Data; (x) protect against any anticipated threats or hazards to the security or integrity of the Cardholder Data; (y) protect against unauthorized access to or use of the Cardholder Data; and (z) ensure the proper disposal of Cardholder Data; and provided, further, that each such authorized subcontractor agrees to notify promptly Bank and the NMG Companies of any unauthorized disclosure, use, or disposal of, or access to, Cardholder Data and to cooperate with Bank and the NMG Companies in any investigation thereof and remedial action with respect thereto;

(ii) to its Affiliates, and its and such Affiliates’ employees, attorneys and accountants with a need to know such Cardholder Data in connection with a permitted use of such Cardholder Data under this Section 6.2; provided that (A) any such Person is bound by terms substantially similar to this Section 6.2 as a condition of employment or of access to Cardholder Data or by professional obligations imposing comparable terms; and (B) Bank shall be responsible for the compliance by each such Person with the terms of this Section 6.2;

(iii) to any Governmental Authority with authority over Bank (A) in connection with an examination of Bank; or (B) pursuant to a specific requirement to provide such Cardholder Data by such Governmental Authority or pursuant to compulsory legal process; provided that Bank seeks the full protection of confidential treatment for any disclosed Cardholder Data to the extent available under Applicable Law governing such disclosure, and with respect to clause (B), to the extent permitted by Applicable Law, Bank (1) provides at least ten (10) Business Days’ prior notice of such proposed disclosure to NMG if reasonably possible under the circumstances, and (2) seeks to redact the Cardholder Data to the fullest extent possible under Applicable Law governing such disclosure; or

(iv) to the extent permitted in the Risk Management Policies and Operating Procedures, to any consumer reporting agency in accordance with the federal Fair Credit Reporting Act.

(e) To the extent Bank has access to the following information in accordance with the provisions of this Agreement and subject to Applicable Law and the Program Privacy Policy, Bank shall transmit to the NMG Companies at such times as may be requested by NMG and in formats agreed to by the Parties in advance from time to time:

(i) for any customer who has applied for an NMG Credit Card, regardless of the marketing channel of such application: (A) the customer’s name, address, email address, telephone number, social security number and all other information supplied on the application or prescreened response submitted by the customer; (B) an indication of whether or not the customer has been approved for an NMG Credit Card; and (C) if the customer has been approved for an NMG Credit Card or Non-Card Payment Plan, the NMG Credit Card or Non-Card Payment Plan issued (or to be issued) to such customer;

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(ii) for each Cardholder, joint-Cardholder and authorized buyer, (1) such person’s name, address, email address, telephone number, social security number and Account number; (2) any reported change to any of the foregoing information; (3) transaction and experience data; and (4) any such other Cardholder Data as the NMG Companies may reasonably request;

(iii) the Cardholder’s name and account number for any Account that is delinquent;

(iv) the Cardholder’s name and account number for any Account that has been closed; and

(v) the Cardholder Data for all categories of information available on the NMG Companies’ credit Systems as of the date hereof.

Notwithstanding the foregoing, no Party hereto shall be required to provide any information on a personally identifiable basis if the provision of such personally identifiable information would cause such Party to be considered a “consumer reporting agency” for purposes of the Fair Credit Reporting Act.

(f) Bank shall cooperate with the NMG Companies to provide NMG and its Affiliates with the maximum ability permissible under Applicable Law and the Program Privacy Policy to receive, use and disclose the Cardholder Data, including, as necessary or appropriate, through use of consents or opt-out provisions, in each case as directed by the NMG Companies. Without limiting the foregoing, NMG and each of its Affiliates may receive, use and disclose the Cardholder Data in compliance with Applicable Law and the Program Privacy Policy (i) for purposes of promoting the Program or promoting NMG Goods and Services, (ii) as otherwise necessary to carry out its obligations under this Agreement, and (iii) as otherwise permitted by Applicable Law.

(g) The NMG Companies may use the Cardholder Data in compliance with Applicable Law and the Program Privacy Policy. Each of the NMG Companies may disclose the Cardholder Data in compliance with Applicable Law and the Program Privacy Policy solely:

(i) to its existing subcontractors as of the Effective Date and to authorized subcontractors that enter into agreements with an NMG Company after the Effective Date (“Future Subcontractors”) in connection with a permitted use of such Cardholder Data under this Section 6.2, provided that each such existing subcontractor and Future Subcontractor agrees in a written agreement satisfactory to NMG and Bank to maintain all such Cardholder Data as strictly confidential in perpetuity and not to use or disclose such information to any Person other than an NMG Company or Bank, except as required by Applicable Law or any Governmental Authority (after giving the NMG Companies prior notice and an opportunity to defend against such disclosure); provided, further, that each such existing subcontractor and Future Subcontractor maintains, and agrees in writing to maintain, an information security program that is designed to meet all requirements of Applicable Law, including, at a minimum, maintenance of an

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information security program that is designed to: (w) ensure the security and confidentiality of the Cardholder Data; (x) protect against any anticipated threats or hazards to the security or integrity of the Cardholder Data; (y) protect against unauthorized access to or use of the Cardholder Data; and (z) ensure the proper disposal of Cardholder Data; and provided, further, that each such existing subcontractor and Future Subcontractor agrees to notify promptly Bank and the NMG Companies of any unauthorized disclosure, use, or disposal of, or access to, Cardholder Data and to cooperate with Bank and the NMG Companies in any investigation thereof and remedial action with respect thereto;

(ii) to its Affiliates, and its and such Affiliates’ employees, attorneys and accountants with a need to know such Cardholder Data in connection with a permitted use of such Cardholder Data under this Section 6.2; provided that (A) any such Person is bound by terms substantially similar to this Section 6.2 as a condition of employment or of access to Cardholder Data or by professional obligations imposing comparable terms; and (B) the NMG Companies shall be responsible for the compliance by each such Person with the terms of this Section 6.2; or

(iii) to any Governmental Authority with authority over such NMG Company (A) in connection with an examination of such NMG Company; or (B) pursuant to a specific requirement to provide such Cardholder Data by such Governmental Authority or pursuant to compulsory legal process; provided that such NMG Company seeks the full protection of confidential treatment for any disclosed Cardholder Data to the extent available under Applicable Law governing such disclosure, and with respect to clause (B), to the extent permitted by Applicable Law, such NMG Company (1) provides at least ten (10) Business Days’ prior notice of such proposed disclosure to Bank if reasonably possible under the circumstances, and (2) seeks to redact the Cardholder Data to the fullest extent possible under Applicable Law governing such disclosure.

(h) With respect to the sharing, use and disclosure of the Cardholder Data following the termination of this Agreement:

(i) the rights and obligations of the Parties under this Section 6.2 shall continue through any Termination Period;

(ii) if NMG exercises its rights under Section 17.2, Bank shall transfer its right, title and interest in the Cardholder Data to NMG or its Nominated Purchaser as part of such transaction, and Bank’s right to use and disclose the Cardholder Data shall terminate upon the termination of the Termination Period; and

(iii) if NMG provides notice that it shall not exercise its rights under Section 17.2, NMG and its Affiliates’ right to use and disclose the Cardholder Data hereunder shall terminate upon the termination of the Termination Period.

6.3 NMG Shopper Data; NMG Prospect Data.

(a) Bank acknowledges that the NMG Companies gather information about purchasers of NMG Goods and Services and that NMG and its Affiliates have rights to use and disclose such information independent of whether such information also constitutes Cardholder

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Data. As between the NMG Companies and Bank, all the NMG Shopper Data shall be owned exclusively by the NMG Companies. Bank acknowledges and agrees that it has no proprietary interest in the NMG Shopper Data. To the extent Bank is the direct recipient of such data, it shall provide such data to the NMG Companies in such format and at such times as shall be specified by NMG. Bank shall cooperate in the maintenance of the NMG Shopper Data and other data, including by incorporating in the Application and Cardholder Agreement provisions mutually agreed to by the Parties pursuant to which applicants and Cardholders shall agree that they are providing their identifying information and all updates thereto and all transaction data from NMG Channels to both Bank and NMG and its Affiliates. For the avoidance of doubt, the following information shall be deemed NMG Shopper Data:

(i) for any customer who has applied for an NMG Credit Card, regardless of the channel through which such application was completed or submitted (1) the customer’s name, address, email address, telephone number, social security number and all other commercially reasonable information supplied on the application or prescreened response submitted by the customer; and (2) an indication of whether or not the customer has been approved for an NMG Credit Card; and

(ii) for any Cardholder, (1) the Cardholder’s name, address, email address, telephone number, social security number and Account number; (2) any reported change to any of the foregoing information; and (3) Cardholder transaction and experience data in the NMG Channels at a detailed, line-item and SKU level that provides all detail provided to NMG and its Affiliates prior to the Effective Time.

(b) Subject to compliance with Applicable Law, NMG’s privacy policies, the Marketing Plan and such criteria (including format) as may be mutually agreed to from time to time, the NMG Companies shall make available to Bank, free of charge, a list of customers of NMG and its Subsidiaries who the NMG Companies have determined are available to be solicited for Accounts under the Program (the “NMG Prospect List”). As between the NMG Companies and Bank, the NMG Prospect List shall be owned exclusively by the NMG Companies. Bank acknowledges and agrees that it has no proprietary interest in the NMG Prospect List.

(c) Bank shall not use, or permit to be used, directly or indirectly, the NMG Shopper Data, except to transfer such data to the NMG Companies to the extent received by Bank. Bank shall not use, or permit to be used, the NMG Prospect List except as provided in this Section 6.3(c). Bank may use the NMG Prospect List in compliance with Applicable Law solely for purposes of soliciting customers listed in the NMG Prospect List for Accounts or as required by Applicable Law.

(d) Bank shall not disclose, or permit to be disclosed, the NMG Shopper Data or the NMG Prospect List, except as provided in this Section 6.3. Bank shall not, directly or indirectly, sell or otherwise transfer any right in or to the NMG Shopper Data or the NMG Prospect List (all such rights belonging exclusively to the NMG Companies). Bank may disclose the NMG Shopper Data and the NMG Prospect List in compliance with Applicable Law solely:

(i) to its authorized subcontractors in connection with a permitted use of such

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NMG Shopper Data or NMG Prospect List under this Section 6.3, provided that each such authorized subcontractor agrees in writing to maintain all such NMG Shopper Data or NMG Prospect List as strictly confidential in a manner satisfactory to NMG and not to use or disclose such information to any Person other than Bank or an NMG Company, except as required by Applicable Law or any Governmental Authority (after giving Bank and the NMG Companies prior notice and an opportunity to defend against such disclosure); provided, further, that each such authorized subcontractor maintains, and agrees in writing to maintain, an information security program that is designed to meet all requirements of Applicable Law, including, at a minimum, maintenance of an information security program that is designed to: (w) ensure the security and confidentiality of the NMG Shopper Data and NMG Prospect List; (x) protect against any anticipated threats or hazards to the security or integrity of the NMG Shopper Data and NMG Prospect List; (y) protect against unauthorized access to or use of the NMG Shopper Data and the NMG Prospect List; and (z) ensure the proper disposal of NMG Shopper Data and the NMG Prospect List; and provided, further, that each such authorized subcontractor agrees to notify promptly Bank and the NMG Companies of any unauthorized disclosure, use, or disposal of, or access to, NMG Shopper Data or the NMG Prospect List and to cooperate with the Bank and the NMG Companies in any investigation thereof and remedial action with respect thereto;

(ii) to its Affiliates, and its and such Affiliates’ employees, attorneys and accountants, with a need to know the NMG Shopper Data or NMG Prospect List in connection with a permitted use of the NMG Shopper Data or NMG Prospect List under this Section 6.3; provided that (A) any such Person is bound by terms substantially similar to this Section 6.3 as a condition of employment, of access to the NMG Shopper Data or NMG Prospect List or by professional obligations imposing comparable terms; and (B) Bank shall be responsible for the compliance by each such Person with the terms of this Section 6.3; or

(iii) to any Governmental Authority with authority over Bank (A) in connection with an examination of Bank; or (B) pursuant to a specific requirement to provide the NMG Shopper Data or NMG Prospect List by such Governmental Authority or pursuant to compulsory legal process; provided that Bank seeks the full protection of confidential treatment for any disclosed NMG Shopper Data or NMG Prospect List, as the case may be, to the extent available under Applicable Law governing such disclosure, and with respect to clause (B), to the extent permitted by Applicable Law, Bank (1) provides at least ten (10) Business Days’ prior notice of such proposed disclosure to NMG if reasonably possible under the circumstances, and (2) seeks to redact the NMG Shopper Data or NMG Prospect List to the fullest extent possible under Applicable Law governing such disclosure.

(e) Upon the termination of this Agreement, without limiting Bank’s rights and obligations with respect to the Cardholder Data pursuant to Section 17.5, Bank’s rights to use and disclose the NMG Shopper Data and NMG Prospect List shall terminate. Promptly following such termination, Bank shall return or destroy all the NMG Shopper Data and NMG Prospect Lists and shall certify such return or destruction to the NMG Companies upon request.

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ARTICLE VII

OPERATING STANDARDS

7.1 Reports.

(a) Within fifteen (15) days after the end of each Fiscal Month or such other time as may be agreed by the Parties with respect to particular reports, Bank shall provide to the Management Committee and NMG the reports specified in Schedule 7.1(a)(i) (which reports shall be reported on a Fiscal Month, calendar month or cycles-basis, as agreed upon by the parties), and such other reports as are mutually agreed to by the Parties from time to time. Within fifteen (15) days after the end of each Fiscal Month or such other time as may be agreed by the Parties with respect to particular reports, NMG shall provide to the Management Committee and Bank the reports specified in Schedule 7.1(a)(ii) (which reports shall be reported on a Fiscal Month, calendar month or cycles-basis, as agreed upon by the parties), and such other reports as are mutually agreed to by the Parties from time to time.

(b) Within fifteen (15) days after the end of each Fiscal Month other than the last Fiscal Month of each Fiscal Year, NMG Servicer shall deliver to Bank a statement, in the form set forth on Schedule 7.1(b), setting forth all information required to determine the payments to be made by the Parties pursuant to this Agreement in respect of such Fiscal Month. Each such statement shall be known as a “Monthly Settlement Sheet.”

(c) Within thirty (30) days after the end of each Fiscal Year, NMG Servicer shall deliver to Bank a statement, in the form set forth on Schedule 7.1(c), setting forth all information required to determine the payments to be made by the parties pursuant to this Agreement in respect of the last Fiscal Month of such Fiscal Year and any annual payments to be made in respect of such Fiscal Year. Each such statement shall be known as a “Year-End Settlement Sheet”.

7.2 Servicing.

(a) As Services are transferred by NMG to Primary Servicer pursuant to the Servicing Agreement, Primary Servicer shall perform such transferred Services in accordance with the terms and conditions of this Agreement, the Risk Management Policies and the Operating Procedures. Without limiting the foregoing, Primary Servicer shall service the Accounts in compliance with Applicable Law, in such a way as to not disparage or embarrass the NMG Companies or their names, with a level of service to Cardholders and with no less care and diligence than the degree of care and diligence employed by NMG prior to the Effective Date. In addition, without limiting the foregoing, with respect to the Services to be performed by Primary Servicer, Primary Servicer agrees that it shall perform such functions with no less care and diligence than that degree of care and diligence employed by it in servicing the Comparable Partner Programs.

(b) Upon transfer by NMG of any services pursuant to the Servicing Agreement, the Primary Servicer shall accept appointment as servicer with respect to such Services and shall be required to meet the SLAs applicable to Primary Servicer for such Services set forth in Schedule

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7.3(a) (as such SLAs may be amended from time to time in accordance with this Agreement). Upon the date of the foregoing transfer, NMG shall be released from any further obligation with respect to the performance of such Services. In the event that customer service is transferred to Primary Servicer as a transferred Service in accordance with the Servicing Agreement and this Section 7.2(b), Primary Servicer shall continue to monitor the customer disputes in substantially the same manner as is described in the Dispute Resolution and Service Profile Report Process section of the Operating Procedures.

(c) Upon transfer of any of the Services to Primary Servicer in accordance with Section 2.03(b) of the Servicing Agreement and Section 7.2(b), the amount payable to Servicer set forth in Schedule 9.1(a)(i) shall be adjusted as set forth in Schedule 9.1(a)(i) in order to reflect the reduction of Services being performed by Servicer and the assumption of the performance of such Services by Primary Servicer, which transferred Services shall be performed at the sole cost and expense of the Primary Servicer.

(d) Notwithstanding Section 7.2(b), Primary Servicer and NMG agree that the Documentation Services shall be transferred to Primary Servicer as soon as practicable after the date hereof (the date of such transfer, the “Documentation Services Transition Date”) and, upon such transfer, Primary Servicer shall be required to meet the SLAs applicable to the Documentation Services set forth in Schedule 7.3(a).

(e) Primary Servicer shall maintain records relating to its performance of the Services in accordance with the record retention policies set forth on Schedule 4.4(f). Records may be kept in either paper or electronic form. Primary Servicer shall retrieve, reproduce and deliver to NMG any records reasonably requested from time to time by NMG for the purpose of providing customer assistance or resolving customer disputes, and NMG shall compensate Primary Servicer on demand for the reasonable costs and expenses associated with such retrieval, reproduction and delivery.

(f) Primary Servicer shall have the right to perform any portion of the Services through one or more subservicers; provided that (i) any subservicer that is not an Affiliate of Primary Servicer shall be subject to approval pursuant to Article III and (ii) Primary Servicer shall remain fully responsible to NMG for the portion of the Services performed by any subservicer(s) (including its Affiliates). Notwithstanding the foregoing, to the extent Primary Servicer subcontracts or outsources to any third party any Services as of the date hereof, Primary Servicer may continue to subcontract or outsource such Services to such third party (and Primary Servicer shall be fully responsible for the performance of such subcontracted or outsourced Services).

(g) Notwithstanding any arrangement whereby Bank provides any Services through an Affiliate (or third party as permitted under Section 7.2(f)), Bank shall remain obligated and liable to the NMG Companies for the provision of such Services without diminution of such obligation or liability by virtue of such arrangement.

(h) This Section 7.2, Section 7.3 and the Servicing Agreement shall only apply to the servicing of all Accounts other than the Non-Store Accounts.

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7.3 Service Level Standards.

(a) Primary Servicer shall perform the applicable Services in accordance with the SLAs set forth on Schedule 7.3(a).

(b) Primary Servicer shall report to the NMG Companies monthly, in a mutually agreed upon format and on a calendar month basis, Primary Servicer’s performance under each of the SLAs set forth on Schedule 7.3(a). If Primary Servicer fails to meet any SLA, Primary Servicer shall (i) immediately report to the Management Committee the reasons for the SLA failure(s); and (ii) promptly take any action reasonably necessary to correct and prevent recurrence of such failure(s).

(c) With respect to any SLA set forth on Schedule 7.3(a), the provisions set forth in Schedule 7.3(c) shall apply.

(d) Throughout the Term, Primary Servicer shall maintain a disaster recovery and business continuity plan that complies with Applicable Law and is consistent with plans maintained for its Comparable Partner Programs. Primary Servicer shall be prepared to and have the ability to implement such plan if necessary. Primary Servicer shall provide NMG with access to review such plan upon request. Primary Servicer shall test the plan annually and shall promptly implement such plan upon the occurrence of a disaster or business interruption. Primary Servicer shall be excused from its failure to meet any applicable SLAs that result directly from the failure of any of the NMG Systems.

7.4 Credit Systems.

(a) The NMG Companies and Bank shall work together (including through a subcommittee of the Management Committee formed for this purpose) to develop a mutually agreeable plan relating to the Credit Systems, which may include a conversion plan designed to convert such data to the Bank Systems. Subject to the satisfaction of each of the requirements set forth in Section 7.4(b), at such time, if any, when both NMG and Bank are satisfied with the terms of such conversion plan and have concluded that such conversion will further the Program Objectives and provide cost efficiencies and features and functionality superior to those available on the NMG Systems without an unacceptable level of Program disruption, such conversion shall be implemented (the date of any such conversion the “Systems Transition Date”). Bank shall bear all out-of-pocket costs and expenses associated with the Systems conversion (whether incurred by Bank or any of its Affiliates or NMG or any of its Affiliates).

(b) The Parties acknowledge and agree that no Systems conversion shall occur pursuant to Section 7.4(a) in absence of satisfaction of each of the following requirements:

(i) Bank shall ensure that all identified features and functionality available on the NMG Systems prior to the Systems Transition Date (including data gathering, interface capabilities with the NMG Companies’ other Systems, Loyalty Program support and core systems/customer service functionality) are available on the Bank Systems as of the Systems Transition Date to the extent the NMG Systems are to be converted to the Bank Systems;

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(ii) Bank shall ensure that all features and functionality set forth in Schedule 7.4(b) are available on the Bank Systems as of the Systems Transition Date;

(iii) all existing credit data feeds used by NMG or any of its Affiliates in connection with the Credit Card Business or otherwise prior to the Effective Date shall have been replicated on the Bank Systems prior to the Systems Transition Date; and all data feeds necessary to provide NMG with the information necessary to prepare the Monthly Settlement Sheets and Yearly Settlement Sheets pursuant to Section 7.1 shall have been created prior to the Systems Transition Date;

(iv) Bank shall provide and the Bank Systems shall support the Internet Services described in Section 4.8;

(v) Bank shall keep the same structure of Account numbers;

(vi) without limiting the foregoing, the Bank Systems shall interface with the NMG Systems that are not converted to Bank Systems in a manner reasonably acceptable to NMG;

(vii) Bank shall have a disaster recovery and business continuity plan applicable to the Bank Systems as set forth in Section 7.3(d) and the Bank shall be prepared to and have the ability to implement such plan if necessary;

(viii) Bank shall have identified and implemented all hardware and other Systems changes necessary to ensure that the Bank Systems will be compatible with those NMG Systems that will interface with the Bank Systems, including the POS Systems of NMG and its Affiliates; and

(ix) Bank shall provide training to all employees of NMG, its Subsidiaries and its Licensees who use the Bank Systems.

(c) Prior to the Systems Transition Date, the Parties shall agree on a statement of work covering the development and testing of, and conversion to, the Bank Systems.

(d) Neither Party shall make any change to any of its Systems that would render them incompatible in any way with the other Party’s or its Affiliates’ Systems or require the other Party or its Affiliates (or the Retail Merchants) to make any change to any of their Systems (including any POS terminals) or reduce or restrict interfacing or System feeds, in any such case without the prior approval of the Management Committee. Neither Party will make any material change to its Systems with respect to the Program without the prior approval of the Management Committee.

7.5 Systems Interface; Technical Support.

(a) Required Interfaces.

(i) The NMG Companies and Bank shall identify, prior to the Effective Date, the Systems interfaces required to be sustained among the NMG Companies and Bank. The

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NMG Companies and Bank shall maintain such interfaces and cooperate in good faith with each other in connection with any modifications to such interfaces as may be requested by either Party from time to time.

(ii) Each of the NMG Companies and Bank agrees to maintain at its own expense its respective Systems interfaces so that the operation of the Systems as a whole is at all times no less functional than prior to the Effective Date. Bank agrees to provide sufficient personnel to support the Systems interfaces required to be sustained among the NMG Companies and Bank.

(b) Additional Interfaces; Interface Modifications. All requests for new interfaces, modifications to existing interfaces and terminations of existing interfaces shall be presented to the Management Committee for approval. Upon approval, the Parties shall work in good faith to establish the requested interfaces or modify or terminate the existing interfaces, as applicable, on a timely basis. Except as otherwise provided herein (including in Section 7.4), all costs and expenses with respect to any new interface or interface modification or termination shall be borne by the requesting Party unless otherwise determined by the Management Committee.

(c) Secure Protocols. The Parties shall use secure protocols for the transmission of data from Bank and its Affiliates, on the one hand, to NMG and its Affiliates, on the other hand, and vice versa.

7.6 Customer Management Systems. Bank hereby agrees to establish the Customer Management System with the features set forth in Schedule 7.6 by the dates specified in such schedule. The Customer Management System shall be established and maintained by Bank at its own expense in order to support NMG in the marketing of the Program and the Credit Card Business.

ARTICLE VIII

MERCHANT SERVICES

8.1 Transmittal and Authorization of NMG Charge Transaction Data. NMG shall, and shall cause its Subsidiaries and Licensees (such Subsidiaries and Licensees, together with NMG, the “Retail Merchants”) to, accept the NMG Credit Cards or Non-Card Payment Plans for NMG Goods and Services. The Retail Merchants shall transmit NMG Charge Transaction Data for authorization of NMG Transactions to Bank as provided in the Operating Procedures. NMG Servicer, on Bank’s behalf, shall authorize or decline NMG Transactions on a real time basis as provided in the Operating Procedures, including transactions involving split-tender (i.e., a portion of the total transaction amount is billed to an NMG Credit Card or Non-Card Payment Plan and the remainder is paid through one or more other forms of payment), transactions over the phone, on-line or hand keyed, as applicable, or down-payments on NMG Goods and Services for later delivery. If any Retail Merchant is unable to obtain authorizations for NMG Transactions for any reason, such Retail Merchant may complete such NMG Transactions without receipt of further authorization as provided in the Operating Procedures.

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8.2 POS Terminals. The Retail Merchants shall maintain POS terminals capable of processing NMG Credit Card, Non-Card Payment Plan and Account transactions as handled as of the Effective Date. To the extent that the Retail Merchants are required to make changes to any POS terminal (including hardware and software) in order to process NMG Transactions and transmit NMG Charge Transaction Data under this Agreement as a result of any System conversion contemplated by Section 7.4 or any other change or modification to any Bank System or a new Bank System approved by the Management Committee, Bank shall pay the costs and expenses associated with such changes.

8.3 In-Store Payments. The Retail Merchants may accept In-Store Payments from Cardholders on their Accounts in accordance with the Operating Procedures, the Risk Management Policies and any procedures required under Applicable Law. The Retail Merchants shall, as necessary, provide proper endorsements on such items. If the Retail Merchants receive any In-Store Payments, NMG shall, directly or through its Affiliates, be deemed to hold such In-Store Payments in trust for Bank until such Payments are either delivered to Bank or applied to reduce amounts payable by Bank to NMG pursuant to Section 8.4(b). Bank hereby grants to each of the NMG Companies and the Retail Merchants a limited power of attorney (coupled with an interest) to sign and endorse Bank’s name upon any form of payment that may have been issued in Bank’s name in respect of any Account. The NMG Companies and Bank shall jointly develop procedures in the Operating Procedures with respect to the manner in which such In-Store Payments shall be processed (it being understood that such procedures shall provide for immediate credit toward the applicable open-to-buy limits of the respective Account upon receipt of an In-Store Payment). The NMG Companies, on behalf of the Retail Merchants, shall notify Bank upon receipt of In-Store Payments and Bank shall include the NMG Charge Transaction Data related to such In-Store Payments in the net settlement in respect of the day immediately following such receipt on the same basis as other NMG Charge Transaction Data. The Retail Merchants shall issue receipts for such payments in compliance with Applicable Law.

8.4 Settlement Procedures.

(a) NMG shall transmit NMG Charge Transaction Data to Bank in accordance with the Operating Procedures on each day on which such Retail Merchants are open for business, other than Sunday. If NMG Charge Transaction Data is received by Bank’s processing center on or before 6:00 am (Central time) on any Business Day on which Bank is open for business, Bank shall process the NMG Charge Transaction Data and initiate a wire transfer of the payment in respect thereof before 1:00 pm (Central time) on the same Business Day. If the NMG Charge Transaction Data is received after 6:00 am (Central time) on any day a Retail Merchant is open, or at any time on a day other than a Business Day, Bank shall process the NMG Charge Transaction Data for payment by 1:00 pm (Central time) on the following Business Day.

(b) Bank shall remit to NMG, for itself and the Retail Merchants, an amount equal to (i) the total amount of charges identified in all NMG Charge Transaction Data not yet paid in accordance with Section 8.4(a) less (ii) the sum of (A) the total amount of any credits included in such NMG Charge Transaction Data, plus (B) the total amount of In-Store Payments (if any), plus (C) any amounts charged back to such Retail Merchants pursuant to Section 8.5. The total amount of charges reflected in the NMG Charge Transaction Data shall include the amount of all Special Discounts such that upon daily settlement of such NMG Charge Transaction Data in

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accordance with this Section 8.4(b), Bank shall pay NMG the price of the NMG Goods and Services without giving effect to such discount(s). NMG shall reimburse Bank for the amount of such discounts on a monthly basis as set forth in Section 8.4(c).

(c) Not more than five (5) days after the end of each Fiscal Month, NMG Servicer shall deliver or cause to be delivered to Bank a report for such preceding Fiscal Month of all Special Discounts reflected in the NMG Charge Transaction Data and paid for by Bank in such preceding Fiscal Month (and, in the case of NMG Charge Transaction Data for a credit to an Account, all reversals of Special Discounts reflected in the credits included in such NMG Charge Transaction Data). The sum of (i) the net amount of Special Discounts paid by Bank with respect to such Special Discounts during such Fiscal Month, as reflected on such report (after deducting any Special Discounts reversed in respect of NMG Goods and Services for which a credit was issued), plus (ii) an amount equal to the product of such net amount of Special Discounts and the Program Fee Percentage shall be paid by NMG to Bank within three (3) Business Days of such report.

(d) NMG shall be responsible for allocating such remittances among the Retail Merchants as appropriate and Bank shall have no responsibility or liability in connection therewith (it being agreed that Bank has no obligation to accept NMG Charge Transaction Data directly from, or make remittances to, any person other than NMG).

8.5 Bank’s Right to Charge Back. Bank shall have the right to charge back to NMG the amount of any Cardholder Indebtedness, including Cardholder Indebtedness incurred prior to the Effective Date with respect to Purchased Accounts, relating to NMG Charge Transaction Data if with respect to the related NMG Transaction:

(a) The Cardholder refuses to pay the charge based on a dispute regarding the quality or delivery of NMG Goods and Services representing a valid defense to payment consistent with Applicable Law; provided that any such refusal constitutes a bona fide claim presented by the Cardholder in good faith in the reasonable opinion of NMG, after consultation with Bank;

(b) The Cardholder refuses to pay the charge based on a claim of unauthorized use of the NMG Credit Card at a Retail Merchant; provided that any such refusal constitutes a bona fide claim presented by the Cardholder in good faith in the reasonable opinion of NMG, after consultation with Bank;

(c) The charge was not for a bona fide sale or delivery of NMG Goods and Services by or through a NMG Channel;

(d) The charge slip is a duplicate of a charge slip previously paid;

(e) The price of NMG Goods and Services shown on the charge slip differs from the amount shown on the Cardholder’s copy of the charge slip;

(f) The charge or Account arose from fraud of any employee or agent in a Retail Merchant; or

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(g) The Cardholder refuses to pay the charge based on a dispute regarding accuracy of the material NMG Charge Transaction Data or the charge slip is illegible with respect to such NMG Charge Transaction Data or is missing information in any material respect.

8.6 Exercise of Chargeback. If Bank exercises its right of chargeback, Bank may set off all amounts charged back against any sums due to the NMG Companies under this Agreement, or Bank may demand payment from NMG for the full amount of such chargeback. In the event of a chargeback pursuant to this Article VIII, upon payment in full of the related amount by NMG, Bank shall immediately assign to NMG or the relevant Retail Merchant, without any representation, warranty or recourse, (i) all right to payments of amounts charged back in connection with such Cardholder charge, and (ii) any security interest granted by the NMG Companies under Section 19.1. Bank shall cooperate fully in any effort by the NMG Companies to collect the chargeback amount, including by executing and delivering any document necessary or useful to such collection efforts.

8.7 No Merchant Discount. None of NMG, its Affiliates or the Retail Merchants shall be required to pay any Merchant Discount on any NMG Transaction. Bank shall directly process the NMG Transactions such that the Retail Merchants do not incur any merchant acquirer/processor or similar fees.

ARTICLE IX

PROGRAM ECONOMICS

9.1 NMG Compensation.

(a) Payments.

(i) Not later than 1:00 pm (Central time) on each Business Day, Bank shall pay to NMG an amount equal to the amount set forth on Schedule 9.1(a)(i) with respect to the Accounts other than the Non-Store Accounts.

(ii) Not later than 1:00 pm (Central time) on the tenth (10th) Business Day after the end of each Fiscal Month, Bank shall pay NMG the amounts determined in accordance with Schedule 9.1(a)(ii) with respect to the Accounts other than the Non-Store Accounts.

(iii) Not later than 1:00 pm (Central time) on the tenth (10th) Business Day following the receipt of the Year-End Settlement Sheet, each Party shall pay to the other Party the amounts, if any, determined in accordance with such Year-End Settlement Sheet.

(iv) On the dates and times agreed to by the Parties with respect to the Dual-Line Credit Cards pursuant to Section 2.2(c)(ii), Bank shall pay to NMG the amounts payable with respect to such Dual-Line Credit Cards.

(v) Such amounts shall be paid to NMG or Bank, as the case may be, regardless of whether any amounts are disputed by Bank or NMG. For the avoidance of doubt, any such payment shall not be deemed a waiver of, or in any other way limit, a Party’s right to pursue any dispute with respect to such payment in accordance with the terms of this Agreement and each of Bank or NMG may invoke the dispute resolution procedures set forth herein following payment of such amounts.

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(b) Form of Payment. All payments pursuant to this Section 9.1 shall be made by wire transfer of immediately available funds to an account designated in writing by NMG or Bank, as the case may be, unless otherwise agreed upon by the Parties in writing.

9.2 Dispute Resolution. Any disputes regarding the amounts owed under this Agreement shall be resolved in accordance with Section 12.3.

ARTICLE X

INTELLECTUAL PROPERTY

10.1 The NMG Licensed Marks.

(a) Grant of License to Use the NMG Licensed Marks. Subject to the terms and conditions of this Agreement, NMG hereby grants to Bank a non-exclusive, royalty-free, non-transferable right and license to use the NMG Licensed Marks (i) with respect to the Program in the United States in connection with the creation, establishment, marketing and administration of, and the provision of services related to, the Program and (ii) in connection with any sale permitted by this Agreement of the Accounts and Cardholder Indebtedness to third parties for liquidation. All use of the NMG Licensed Marks shall be in accordance with this Agreement and any Trademark Style Guide delivered by NMG to Bank from time to time (which NMG shall so deliver). All uses of the NMG Licensed Marks shall require the prior written approval of NMG. To the extent Bank delegates any of its rights or obligations hereunder to any authorized Affiliate and/or authorized third party in accordance with the terms and conditions of this Agreement, Bank may sublicense its rights in the NMG Licensed Marks hereunder to such authorized Person; provided that such Person shall agree to comply with all of the terms and conditions of the use of the NMG Licensed Marks hereunder and Bank shall remain liable for such Person’s failure to so comply. Except as expressly set forth in this Section 10.1, the rights granted pursuant to this Section 10.1 are solely for use of Bank and may not be sublicensed without the prior written approval of NMG.

(b) New NMG Marks. If NMG or any of its Subsidiaries adopts a trademark, service mark or other source indicator that is a successor to an NMG Licensed Mark or that NMG has otherwise elected to use in connection with the Program but which is not listed on Schedule 1.1(d) hereto (a “New NMG Mark”), Bank may request that NMG add such New NMG Mark to Schedule 1.1(d) hereto and license its use hereunder; NMG shall not unreasonably fail to do so, and upon NMG’s written approval of the addition of such New NMG Mark, such New NMG Mark shall be deemed added to Schedule 1.1(d).

(c) Termination of License. Except to the extent otherwise provided in Section 17.5, the license granted in this Section 10.1 shall terminate upon the termination or expiration of this Agreement or, if the purchase option under Section 17.2 is exercised, the Program Purchase Date. Upon termination of the license granted in this Section 10.1, all rights in the NMG Licensed Marks granted hereunder shall revert to NMG and Bank shall: (i) discontinue

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immediately all use of the NMG Licensed Marks, or any of them, and any colorable imitation thereof; and (ii) destroy all unused NMG Credit Cards, Applications, Account Documentation, Solicitation Materials, periodic statements, materials, displays, advertising and sales literature and any other items bearing any of the NMG Licensed Marks; provided that if the purchase option under Section 17.2 is exercised, at NMG’s election, such items shall constitute Program Assets and will be transferred and delivered to NMG or its Nominated Purchaser pursuant to Section 17.2.

(d) Ownership of the NMG Licensed Marks. Bank acknowledges that (i) the NMG Licensed Marks, all rights therein, and the goodwill associated therewith, are, and shall remain, the exclusive property of NMG, (ii) it shall take no action which shall adversely affect NMG’s exclusive ownership of the NMG Licensed Marks, or the goodwill associated with the NMG Licensed Marks (it being understood that the collection of Accounts, adverse action letters, and changes in terms of Accounts as required by Applicable Law do not adversely affect goodwill, if done in accordance with the terms of this Agreement), and (iii) any and all goodwill arising from use of the NMG Licensed Marks by Bank shall inure to the benefit of NMG. Nothing herein shall give Bank any proprietary interest in or to the NMG Licensed Marks, except the right to use the NMG Licensed Marks in accordance with this Agreement, and Bank shall not contest NMG’s title in and to the NMG Licensed Marks.

(e) Infringement by Third Parties. Bank shall use reasonable efforts to notify NMG, in writing, promptly upon acquiring Knowledge of any infringing use of any of the NMG Licensed Marks by any third party. If any of the NMG Licensed Marks is infringed, NMG alone has the right, in its sole discretion, to take whatever action it deems necessary to prevent such infringing use; provided, however, that if NMG fails to take reasonable steps to prevent infringement of the NMG Licensed Marks and such infringement has an adverse effect upon the Program or the rights of Bank hereunder, Bank may request that NMG take action necessary to alleviate such adverse impact. Bank shall reasonably cooperate with and assist NMG, at NMG’s expense, in the prosecution of those actions that NMG determines, in its sole discretion, are necessary or desirable to prevent the infringing use of any of the NMG Licensed Marks.

10.2 The Bank Licensed Marks.

(a) Grant of License to Use the Bank Licensed Marks. Subject to the terms and conditions of this Agreement, Bank hereby grants to the NMG Companies a non-exclusive, royalty-free, non-transferable right and license to use the Bank Licensed Marks in the United States in connection with the creation, establishment, marketing and administration of, and the provision of services related to, the Program. All uses of the Bank Licensed Marks shall be in accordance with this Agreement and any Trademark Style Guide delivered by Bank to NMG from time to time (which Bank shall so deliver). All uses of the Bank Licensed Marks shall require the prior written approval of Bank. To the extent the NMG Companies delegate any of their rights or obligations hereunder to any authorized Affiliate and/or authorized third party in accordance with the terms and conditions of this Agreement, the NMG Companies may sublicense their rights in the Bank Licensed Marks hereunder to such authorized Person; provided that such Person shall agree to comply with all of the terms and conditions of the use of the Bank Licensed Marks hereunder and the NMG Companies shall remain liable for such Person’s failure to so comply. Except as expressly set forth in this Section 10.2, the rights granted pursuant to this Section 10.2 are solely for use of the NMG Companies and may not be sublicensed without the prior written approval of Bank.

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(b) New Bank Marks. If Bank adopts a trademark, service mark or other source indicator that is not listed on Schedule 1.1(a) hereto (for purposes of this Section 10.2, a “New Bank Mark”), NMG may request that Bank add such New Bank Mark to Schedule 1.1(a) hereto and license its use hereunder; Bank shall not unreasonably fail to do so, and upon Bank’s written approval of the addition of such New Bank Mark, such New Bank Mark shall be deemed added to Schedule 1.1(a).

(c) Termination of License. The license granted in this Section 10.2 shall terminate upon the termination or expiration of this Agreement or, if the purchase option under Section 17.2 is exercised, six (6) months after the Program Purchase Date. Upon the termination of the license granted in this Section 10.2, all rights in the Bank Licensed Marks granted hereunder shall revert to Bank and the NMG Companies shall: (i) discontinue immediately all use of the Bank Licensed Marks, or any of them, and any colorable imitation thereof; and (ii) destroy all unused NMG Credit Cards, Applications, Account Documentation, Solicitation Materials, periodic statements, materials, displays, advertising and sales literature and any other items, in each case, bearing any of the Bank Licensed Marks.

(d) Ownership of the Bank Licensed Marks. Each of the NMG Companies acknowledges that (i) the Bank Licensed Marks, all rights therein, and the goodwill associated therewith, are, and shall remain, the exclusive property of Bank, (ii) it shall take no action which shall adversely affect Bank’s exclusive ownership of the Bank Licensed Marks or the goodwill associated with the Bank Licensed Marks, and (iii) any and all goodwill arising from use of the Bank Licensed Marks by the NMG Companies shall inure to the benefit of Bank. Nothing herein shall give the NMG Companies any proprietary interest in or to the Bank Licensed Marks, except the right to use the Bank Licensed Marks in accordance with this Agreement, and the NMG Companies shall not contest Bank’s title in and to the Bank Licensed Marks.

(e) Infringement by Third Parties. Each of the NMG Companies shall use reasonable efforts to notify Bank, in writing, promptly upon acquiring Knowledge of any infringing use of any of the Bank Licensed Marks by any third party. If any of the Bank Licensed Marks is infringed, Bank alone has the right, in its sole discretion, to take whatever action it deems necessary to prevent such infringing use; provided, however, that if Bank fails to take reasonable steps to prevent infringement of the Bank Licensed Marks and such infringement has an adverse effect upon the Program or the rights of the NMG Companies hereunder, the NMG Companies may request that Bank take action necessary to alleviate such adverse impact. The NMG Companies shall reasonably cooperate with and assist Bank, at Bank’s expense, in the prosecution of those actions that Bank determines, in its sole discretion, are necessary or desirable to prevent the infringing use of any of the Bank Licensed Marks.

10.3 Intellectual Property.

(a) Independently-Owned Intellectual Property. Each Party shall continue to own all of its Intellectual Property that existed as of the Effective Date. Each Party also shall own all right, title and interest in the Intellectual Property it develops or creates independently of the other Party during the Term.

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(b) Joint Intellectual Property. Each Party shall have the right to use, license and otherwise exploit jointly owned Intellectual Property without any restriction or obligation to account to the other Party; provided, however, that no such jointly owned Intellectual Property shall be used by Bank in connection with any Comparable Partner Program or Competing Retail Program without the prior written consent of NMG. Patents and patentable inventions shall be deemed to be owned jointly, as between the Parties, only if the respective personnel of each Party are deemed co-inventors under the patent law, and (ii) software and other works of authorship and associated copyrights shall be deemed to be jointly owned only if the Parties are deemed co-authors or co-owners of such software or other work of authorship under the copyright law. Any other Intellectual Property developed by a substantially equal investment of time, human, intellectual and financial resources by each Party during the Term of this Agreement shall be owned jointly by the Parties. By way of example and not of limitation, a Party shall not be a joint owner of any such Intellectual Property if its contribution thereto consists solely of data, unless that is the only contribution of the other Party. Otherwise, all patents, patentable inventions, software, other works of authorship and related copyrights and all other Intellectual Property (and any improvements thereto) shall be deemed to be owned solely by one Party. Thus, to the extent that a work created by one Party is based on or incorporates Intellectual Property of the other Party, but the Parties are not joint owners as set forth above, then one Party shall be the sole owner of the Intellectual Property in the underlying work and the other Party shall be the sole owner of the Intellectual Property in the new work. Any information or data provided by or on behalf of one Party to the other Party remains, as between the Parties, the sole property of the providing Party, and if applicable, shall be considered “Confidential Information” under Section 13.1. Any Intellectual Property, systems or networks of a Party used to process, store or analyze information or data of the other Party remain, as between the Parties, the sole property of the first Party.

(c) During and after the Term of this Agreement, each Party may use, license or otherwise exploit (or permit others to do so) any jointly owned Intellectual Property referenced herein solely at its own risk.

ARTICLE XI

REPRESENTATIONS, WARRANTIES AND COVENANTS

11.1 General Representations and Warranties of NMG. Except as Previously Disclosed, NMG makes the following representations and warranties to the Bank Companies as of the date hereof and as of the Effective Date:

(a) Corporate Existence. Each NMG Company: (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities in which it is engaged makes such licensing or qualification necessary, except to the extent that its non-compliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the

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NMG Companies’ ability to perform their obligations hereunder; and (iii) has all necessary licenses, permits, consents or approvals from or by, and has made all necessary filings and registrations with, all governmental authorities having jurisdiction, to the extent required for the ownership, lease or conduct and operation of its business, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to make such filings or registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the NMG Companies, the Program, the Accounts, Cardholder Indebtedness or the NMG Companies’ ability to perform their obligations under this Agreement.

(b) Capacity; Authorization; Validity. Each NMG Company has all necessary corporate power and authority to (i) execute and enter into this Agreement, and (ii) perform the obligations required of such NMG Company hereunder and the other documents, instruments and agreements relating to the Program and this Agreement executed by such NMG Company pursuant hereto. The execution and delivery by the NMG Companies of this Agreement and all documents, instruments and agreements executed and delivered by the NMG Companies pursuant hereto, and the consummation by the NMG Companies of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate actions of the NMG Companies. This Agreement (i) has been duly executed and delivered by the NMG Companies, (ii) constitutes the valid and legally binding obligation of the NMG Companies, and (iii) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).

(c) Conflicts; Defaults; Etc. Subject to receipt of any licenses and qualifications required for NMG to perform its servicing obligations under the Servicing Agreement, the execution, delivery and performance of this Agreement by each of the NMG Companies, their compliance with the terms hereof, and consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which NMG or any of its Subsidiaries is a party or by which they are bound, or to which any of the assets of NMG or any of its Subsidiaries are subject; (ii) conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document(s), of the NMG Companies; (iii) breach or violate any Applicable Law or Applicable Order, in each case, applicable to the NMG Companies; (iv) require the consent or approval of any other party to any contract, instrument or commitment to which any NMG Company is a party or by which it is bound; or (v) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any Governmental Authority, except, in the cases of clauses (i) and (iii)-(v), for such conflicts, breaches, defaults, violations or failures to obtain such consents or approvals or make or obtain such filings, notices, consents and approvals as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the NMG Companies, the Program, the Accounts, Cardholder Indebtedness or the NMG Companies’ ability to perform their obligations under this Agreement.

(d) No Litigation. No action, claim, litigation, proceeding, arbitration or investigation is pending or, to the Knowledge of NMG, threatened against NMG or any of its Subsidiaries, at law, in equity or otherwise, by or before any Governmental Authority, to which

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NMG or any of its Subsidiaries is a party, which would reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the NMG Companies, the Program, the Accounts, Cardholder Indebtedness or the NMG Companies’ ability to perform their obligations under this Agreement.

(e) Compliance with Laws. Except to the extent that any of the following would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the Program or the ability of the NMG Companies to perform their obligations under this Agreement, the NMG Companies are in compliance with all requirements of Applicable Law relating to the Credit Card Business and neither of the NMG Companies nor any of their Affiliates is subject to any order, directive or restriction of any kind issued by any Governmental Authority that restricts in any respect its ability to perform its obligations under the Program.

(f) Servicing Qualifications. NMG is or will be at the Effective Date licensed and qualified in all jurisdictions necessary to service the Accounts in accordance with all Applicable Laws, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of NMG to perform its obligations under this Agreement.

(g) Books and Records. All books and records of the NMG Companies related to the Credit Card Business have been maintained accurately and in accordance with all requirements of Applicable Law applicable to the NMG Companies and the Credit Card Business, except for any instances of inaccuracy or noncompliance that would not reasonably be expected to have a material adverse effect on the ability of the NMG Companies to perform their obligations under this Agreement.

(h) Insurance. The NMG Companies maintain insurance policies with respect to their properties under such terms and conditions as are (i) commercially reasonable and available from time to time and (ii) customary for similarly situated Persons engaged in similar business, except in each case for insurance which a failure to maintain would not reasonable be expected to have a material adverse effect on the ability of the NMG Companies to perform their obligations under this Agreement.

(i) The NMG Licensed Marks. NMG has the right, power and authority to grant the rights to use the NMG Licensed Marks expressly granted herein.

11.2 General Representations and Warranties of the Bank Companies. Except as Previously Disclosed, the Bank Companies hereby make the following representations and warranties to the NMG Companies as of the date hereof and as of the Effective Date:

(a) Corporate Existence. Each Bank Company: (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; and (ii) is duly licensed or qualified to do business and is in good standing as a foreign entity in all jurisdictions in which the conduct of the its business or the activities in which it is engaged, or proposes to engage pursuant to this Agreement, makes such licensing or qualification necessary, except to the extent that its non-compliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the Bank Companies, the Program, the Accounts,

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Cardholder Indebtedness or the Bank Companies’ ability to perform their obligations under this Agreement. The Bank Companies have all necessary licenses, permits, consents or approvals from or by, and have made all necessary filings and registrations with, all governmental authorities having jurisdiction, to the extent required for the ownership, lease or conduct and operation of their businesses and the Credit Card Business pursuant to this Agreement, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to make such filings or registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the Bank Companies, the Program, the Accounts, Cardholder Indebtedness or the Bank Companies’ ability to perform their obligations under this Agreement.

(b) Capacity; Authorization; Validity. Each Bank Company has all necessary corporate or similar power and authority to (i) execute and enter into this Agreement, and (ii) perform the obligations required of such Bank Company hereunder and the other documents, instruments and agreements relating to the Program and this Agreement executed by such Bank Company pursuant hereto. The execution and delivery by the Bank Companies of this Agreement and all documents, instruments and agreements executed and delivered by the Bank Companies pursuant hereto, and the consummation by the Bank Companies of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate or similar actions of the Bank Companies. This Agreement (i) has been duly executed and delivered by the Bank Companies, (ii) constitutes the valid and legally binding obligation of the Bank Companies, and (iii) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).

(c) Conflicts; Defaults; Etc. The execution, delivery and performance of this Agreement by each of the Bank Companies, their compliance with the terms hereof, and the consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which any of Bank Parent or any of its Subsidiaries is a Party or by which they are bound, or to which any of the assets of Bank Parent or any of its Subsidiaries are subject; (ii) conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document(s), of the Bank Companies; (iii) breach or violate any Applicable Law or Applicable Order, in each case, applicable to the Bank Companies; (iv) require the consent or approval of any other Party to any contract, instrument or commitment to which any Bank Company is a Party or by which it is bound; or (v) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any Governmental Authority, except, in the cases of clauses (i) and (iii)-(v), for such conflicts, breaches, defaults, violations or failures to obtain such consents or approvals or make or obtain such filings, notices, consents and approvals as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the Bank Companies, the Program, the Accounts, Cardholder Indebtedness or the ability of the Bank Companies to perform their obligations under this Agreement.

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(d) No Litigation. No action, claim, litigation, proceeding, arbitration or investigation is pending or, to the Knowledge of Bank, threatened against Bank Parent or any of its Subsidiaries, at law, in equity or otherwise, by or before any Governmental Authority, to which Bank Parent or any of its Subsidiaries is a Party, which would reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the Bank Companies, the Program, the Accounts, Cardholder Indebtedness or the ability of the Bank Companies to perform their obligations under this Agreement.

(e) Compliance with Laws.

(i) Except to the extent that any of the following would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the Program or the ability of the Bank Companies to perform their obligations under this Agreement,

(A) the Bank Companies are in compliance with all requirements of Applicable Law relating to their Credit Card business; and

(B) none of the Bank Companies or any of their Affiliates is subject to any capital plan or supervisory agreement, cease-and-desist or similar order or directive or memorandum of understanding between it and any Governmental Authority or issued by any Governmental Authority, nor has any of them adopted any board resolutions at the request of any Governmental Authority.

(ii) None of the Bank Companies or any of their Affiliates is subject to any order, directive or restriction of any kind issued by any Governmental Authority that restricts in any respect its operation of their Credit Card business; and the Bank Companies are not aware of any fact or circumstance that would in any way delay or impede their ability to perform all of their obligations under the Program.

(f) Servicing Qualifications. The Bank Companies are licensed and qualified in all jurisdictions necessary to service the Accounts in accordance with all Applicable Laws, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of the Bank Companies to perform their obligations under this Agreement. Primary Servicer has all necessary facilities, equipment, supplies and such other resources as are reasonably necessary to provide any Services required to be provided by it pursuant to Section 7.2.

(g) Bank Licensed Marks. Bank has the right, power and authority to grant the rights to use the Bank Licensed Marks expressly granted herein.

(h) Books and Records. All books and records of the Bank Companies and their Affiliates related to their Credit Card business have been maintained accurately and in accordance with all requirements of Applicable Law applicable to Bank and its Credit Card business, except for any instances of inaccuracy or noncompliance that would not reasonably be expected to have a material adverse effect on the ability of the Bank Companies to perform their obligations under this Agreement.

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(i) Insurance. The Bank Companies maintain insurance policies with respect to their properties under such terms and conditions as are (i) commercially reasonable and available from time to time and (ii) customary for similarly situated Persons engaged in similar business, except in each case for insurance which a failure to maintain would not reasonable be expected to have a material adverse effect on the ability of the Bank Companies to perform their obligations under this Agreement.

11.3 No other Representations or Warranties. Except as expressly set forth in Sections 11.1 and 11.2, neither Bank nor NMG has made or makes any other express or implied representations, or any express or implied warranty, either written or oral, with respect to the Credit Card Business, the Program, the Bank Companies or the NMG Companies, or as to any other matter whatsoever.

11.4 General Covenants of the NMG Companies.

(a) Litigation. Each of the NMG Companies promptly shall notify Bank in writing if it receives written notice of any litigation that, if adversely determined, would reasonably be expected to have a material adverse effect on the Program, the Accounts in the aggregate or the NMG Companies’ ability to perform their obligations hereunder.

(b) Reports and Notices. Each of the NMG Companies shall provide Bank with a facsimile notice specifying the nature of any NMG Event of Default, or any event which, with the giving of notice or passage of time or both, would constitute an NMG Event of Default, or any development or other information which is likely to have a material adverse effect on the Program, the Accounts, Cardholder Indebtedness or the NMG Companies’ ability to perform their obligations pursuant to this Agreement. Notices pursuant to this Section 11.4(b) relating to NMG Events of Default shall be provided within two (2) Business Days after any of the NMG Companies has Knowledge of the existence of such default. Notices relating to all other events or developments described in this Section 11.4(b) shall be provided (i) promptly after any of the NMG Companies has Knowledge of the existence of such event or development if such event or development has already occurred, and (ii) with respect to events or developments that have yet to occur, as early as reasonably practicable under the circumstances. Any notice provided under this Section shall be confirmed in writing to Bank within five (5) Business Days after the transmission of the initial notice.

(c) Applicable Law/Operating Procedures. The NMG Companies shall at all times during the Term comply in all material respects with Applicable Law affecting their obligations under this Agreement and the Operating Procedures.

(d) Servicing Qualifications. NMG shall at all times during the Term remain licensed and qualified in all jurisdictions necessary to service the Accounts in accordance with all Applicable Laws, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of NMG to perform its obligations under this Agreement.

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(e) Disputes with Cardholders. The NMG Companies shall cooperate with Bank in a timely manner (but in no event less promptly than required by Applicable Law) to resolve all disputes with Cardholders.

(f) Financial Statements. If at any time during the Term, NMG does not publicly file periodic reports with the Securities and Exchange Commission, NMG shall provide to Bank (i) its audited consolidated annual financial statements within 90 days of the end of each Fiscal Year, and (ii) its unaudited consolidated quarterly financial statements within 60 days of the end of each Fiscal Quarter. Such statements shall include the consolidated balance sheet, income statement and statement of cash flows and financial position, all prepared in accordance with GAAP applied on a consistent basis (except for normal year end adjustments and the absence of footnotes on the quarterly statements).

(g) Books and Records. NMG shall keep adequate records and books of account with respect to the Accounts and Cardholder Indebtedness in which proper entries, reflecting all of NMG’s financial transactions relating to the Program, are made in accordance with GAAP and the requirements of this Agreement. NMG shall keep adequate records and books of account with respect to its activities in connection with the Program, in which proper entries reflecting all of NMG’s financial transactions are made in accordance with GAAP.

(h) Program Support. NMG shall not take any action that Bank reasonably concludes is materially inconsistent with the Program Objectives or otherwise materially adversely affects the Program or Bank’s private label Credit Card business.

11.5 General Covenants of the Bank Companies.

(a) Litigation. Bank shall notify NMG in writing if it receives written notice of any litigation that, if adversely determined, would reasonably be expected to have a material adverse effect on the Program, the Accounts in the aggregate or any Bank Company’s ability to perform its obligations hereunder.

(b) Reports and Notices. Bank shall provide NMG with a facsimile notice specifying the nature of any Bank Event of Default, or any event which, with the giving of notice or passage of time or both, would constitute a Bank Event of Default, or any development or other information which is likely to have a material adverse effect on the Program, the Accounts or Bank’s ability to perform its obligations pursuant to this Agreement. Notice pursuant to this Section 11.5(b) relating to Bank Events of Default shall be provided within two (2) Business Days after any Bank Company has Knowledge of the existence of such default. Notices relating to all other events or developments described in this Section 11.5(b) shall be provided (i) promptly after any Bank Company obtains Knowledge of the existence of such event or development if such event or development has already occurred, and (ii) with respect to events or developments that have yet to occur, as early as reasonably practicable under the circumstances. Any notice produced under this section shall be confirmed in writing to NMG within five (5) Business Days after transmission of the initial notice.

(c) Applicable Law/Operating Procedures. The Bank Companies shall at all times during the Term comply in all material respects with Applicable Law affecting their obligations

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under this Agreement and the Operating Procedures. Bank shall at all times during the Term maintain a federal bank charter and continue its existence as a bank under the laws of the United States.

(d) Books and Records. The Bank Companies shall keep adequate records and books of account with respect to the Accounts and Cardholder Indebtedness in which proper entries, reflecting all of the financial transactions relating to the Program, are made in accordance with GAAP and the requirements of this Agreement. The Bank Companies shall keep adequate records and books of account with respect to their activities, in which proper entries reflecting all of the financial transactions are made in accordance with GAAP.

(e) Servicing Qualifications. The Bank Companies shall at all times during the Term remain licensed and qualified in all jurisdictions necessary to service the Accounts in accordance with all Applicable Laws, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of the Bank Companies to perform their obligations under this Agreement. Primary Servicer shall at all times during the Term maintain the necessary facilities, equipment, supplies and such other resources in good working order as are reasonably necessary to provide any Services required to be provided by it pursuant to Section 7.2 in accordance with the SLAs set forth in Schedule 7.3(a).

(f) Program Support. The Bank Companies shall not take any action that NMG reasonably concludes is materially inconsistent with the Program Objectives or otherwise materially adversely affects the Program or NMG’s retail business or relations with its customers in any material respect.

(g) Disputes with Cardholders. The Bank Companies shall cooperate with the NMG Companies in a timely manner (but in no event less promptly than required by Applicable Law) to resolve all disputes with Cardholders.

(h) Card Association. From and after the issuance of a Dual-Line Credit Card between NMG and Bank, Bank shall be a member in good standing of the relevant Card Association on the Dual-Line Credit Card throughout the Term.

ARTICLE XII

ACCESS, AUDIT AND DISPUTE RESOLUTION

12.1 Access Rights. Each Party shall permit the other Party and its representatives and regulators to visit its facilities related to the Program during normal business hours with reasonable advance notice. The reviewing Party shall employ such reasonable procedures and methods as are necessary and appropriate in the circumstances, minimizing interference to the extent practicable with the reviewed Party’s normal business operations. The reviewed Party shall use commercially reasonable efforts to facilitate the reviewing Party’s review, including making reasonably available such personnel of the reviewed Party and its service providers to assist the reviewing Party and its representatives as reasonably requested. Each Party shall also permit the other Party and its representatives and regulators to review (during normal business

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hours) and obtain copies of the books and records relating to the Program; provided that neither Party shall be required to provide access to records to the extent that (a) such access is prohibited by Applicable Law, (b) such records are legally privileged, (c) such records are company planning documents of such Party or any of its Affiliates, operating budgets, management reviews or employee records, (d) such records relate to other customers of, or credit programs operated by, Bank or the NMG Companies (except as may be necessary or appropriate in connection with any consideration of the terms and conditions of Comparable Partner Programs and Competing Retail Programs as contemplated by this Agreement to the extent such terms and conditions are publicly known or otherwise known and not subject to any confidentiality obligations on the part of either Party) or (e) such records relate to other customers or operations of such Party other than the Program or to personnel records not normally disclosed in connection with audits.

12.2 Audit Rights. Twice per year or at any time that a Party disputes the amount of any monies owed by either Party to the other hereunder, such Party, at its sole cost and expense and upon five (5) days’ prior notice to the other Party, may conduct an audit of those of the other Party’s financial and operational records that are under the control and/or direction of the audited Party and relate to the Program or can be reasonably segregated. Such audit shall be conducted during normal business hours in accordance with generally accepted auditing standards and the auditing Party shall employ such reasonable procedures and methods as are necessary and appropriate in the circumstances, minimizing interference to the extent practicable with the audited Party’s normal business operations. The audited Party shall use commercially reasonable efforts to facilitate the auditing Party’s review, including making reasonably available such personnel of the audited Party and its service providers to assist the auditing Party and its representatives as reasonably requested. The audited Party shall deliver any document or instrument necessary for the auditing Party to obtain such records from any Person maintaining records for the audited Party and shall maintain records pursuant to its regular record retention policies. For purposes of this provision, the audited Party also shall be required to provide records relating to the Program held by Persons performing services in connection with the Program at the auditing Party’s request. Notwithstanding the generality of the foregoing, the audited Party shall not be required to provide access to records to the extent that (a) such access is prohibited by Applicable Law, (b) such records are legally privileged, (c) such records are company planning documents of such Party or any of its Affiliates, operating budgets, management reviews or employee records, (d) such records relate to other customers of, or credit programs operated by, Bank or the NMG Companies (except as may be necessary or appropriate in connection with any consideration of the terms and conditions of Comparable Partner Programs and Competing Retail Programs as contemplated by this Agreement to the extent such terms and conditions are publicly known or otherwise known and not subject to any confidentiality obligations on the part of either Party) or (e) such records relate to other customers or operations of such Party other than the Program or to personnel records not normally disclosed in connection with audits.

12.3 Accounting Dispute Resolution.

(a) Any dispute with respect to amounts of $1 million or less due or payable under this Agreement or other calculations hereunder of amounts of $1 million or less between the Parties arising out of or relating to this Agreement shall be resolved as provided in this Section 12.3.

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The Parties agree to attempt in good faith to resolve any such disputes. Except with respect to any indemnification claim arising under Article XVII, which shall not be subject to the procedures of this Section 12.3, in the event the Parties are unable to resolve any such dispute, after negotiating in good faith for a period of not less than ten (10) Business Days, either Party may request a nationally recognized firm of independent accountants mutually agreeable to the Parties (the “Accountants”) to reconcile any amounts in dispute; provided, however, that the Accountants’ determination shall be limited to the amount disputed by the Parties and in no event shall such determination provide for a payment to any Party higher than the amount claimed by the Party to be owed to such Party. Any such request shall be in writing and shall specify with particularity the disputed amounts being submitted for determination. Each Party agrees to promptly and in good faith take all necessary action to designate the Accountants no later than ten (10) Business Days after a request that such a designation be made. The Parties shall cooperate fully in assisting the Accountants in their review, including by providing the Accountants full access to all files, books and records (including work papers of internal and independent accountants of the Parties) relevant thereto and providing such other information as the Accountants may reasonably request in connection with any such review. Notwithstanding the generality of the foregoing, the Parties shall not be required to provide the Accountants with access to records to the extent that (i) such access is prohibited by Applicable Law, (ii) such records are legally privileged or (iii) such records relate to other customers of, or credit programs operated by, the Party (except as may be necessary or appropriate in connection with any consideration of the terms and conditions of Comparable Partner Programs and Competing Retail Programs as contemplated by this Agreement to the extent such terms and conditions are publicly known or otherwise known and not subject to any confidentiality obligations on the part of either Party). In the event the determination made by the Accountants requires either Party to make payment to the other Party of any additional amount, such Party shall make such payment no later than five (5) Business Days following receipt from the Accountants of written notice to the Parties of such determination plus interest at the Federal Funds Rate on any such amount due computed from and including the date such amount should have been paid through and excluding the date of payment. The fees and expenses of such Accountants arising out of such reviews shall be borne by the Parties in proportion to the relative difference between their respective claims regarding the amount in dispute and the amount determined by the Accountants. The determination of the Accountants shall be final and binding on the Parties subject to the correction of obvious errors.

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12.4 Dispute Resolution.

(a) Generally. Any dispute among the Parties arising out of or relating to this Agreement, including with respect to the interpretation of any provision of this Agreement and with respect to the performance by NMG or Bank hereunder that is not otherwise required to be submitted for resolution under Section 12.3 shall be resolved as provided in this Section 12.4; provided, however, that this provision shall not limit either Party’s right to obtain any provisional or other remedy, including, without limitation, specific performance or injunctive relief from any court of competent jurisdiction, as may be necessary, in the aggrieved Party’s sole discretion, to protect its rights under this Agreement. This Section 12.4 does not apply to disputes among the Management Committee members with respect to decisions expressly allocated to the Management Committee pursuant to this Agreement (other than matters submitted to the Management Committee pursuant to the dispute resolution procedure referred to in Section 12.4(b)(i)(B)). Such disputes shall be resolved in accordance with Section 3.2.

(b) Informal Dispute Resolution.

(i) Prior to the initiation of formal dispute resolution procedures, the Parties shall first attempt to resolve their dispute informally, as follows:

(A) Managers. Upon the written request of either Party containing a short statement as to the nature of the dispute and the requesting Party’s position with respect thereto, the Managers shall meet for the purpose of negotiating in good faith to seek resolution of such dispute.

(B) Management Committee. If, after a period of five (5) Business Days, the Managers are unable to resolve the dispute to the satisfaction of NMG and Bank, the dispute shall be brought before the Management Committee in accordance with Section 3.2(e); provided, however, if the Management Committee cannot resolve the dispute within five (5) days, the dispute shall not be considered an Unapproved Matter.

(C) Appointment of Representatives. If, after a period of five (5) Business Days, the Management Committee is unable to resolve the dispute to the satisfaction of both the NMG Companies and Bank, each Party shall appoint a designated knowledgeable, responsible representative who is one of the top five highest executives in the Credit Card division of Bank and one of the top five executives of NMG and who does not devote substantially all of his or her time to performance under this Agreement, whose task it will be to meet for the purpose of negotiating in good faith to seek resolution of the dispute.

With respect to clauses (A), (B) and (C) above, discussions, documents and correspondence exchanged among the Managers and representatives, or submitted to the Management Committee for purposes of these negotiations, shall be treated as Confidential Information developed for purposes of settlement, exempt from discovery and production, which shall not be admissible in any lawsuit without the concurrence of the Parties. Documents identified in or provided with such communications, which were not prepared for the purposes of the negotiations, are not so exempted and may, if otherwise admissible, be admitted in evidence in any lawsuit.

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(ii) Formal proceedings for the resolution of the dispute shall not be commenced until the earlier of:

(A) either of the designated representatives concludes in good faith that amicable resolution through continued negotiation of the dispute does not appear likely and so states in a notice to the other designated representative or in a joint declaration signed by each of them; or

(B) twenty (20) Business Days after the appointment of designated representatives pursuant to Section 12.4(b)(i)(C) above (it being understood that this period shall be deemed to run notwithstanding any claim that the process described in this Section 12.4 was not followed or completed).

(iii) This Section 12.4 shall not be construed to prevent a Party from instituting, and a Party is authorized to institute, formal proceedings earlier than provided in clause (ii) above, to avoid the expiration of any applicable limitations period or to preserve a superior position with respect to other creditors.

ARTICLE XIII

CONFIDENTIALITY

13.1 General Confidentiality.

(a) For purposes of this Agreement, “Confidential Information” means any of the following: (i) information that is provided by or on behalf of either NMG or Bank to the other Party or its agents in connection with the Program (including information provided prior to the date hereof or the Effective Date); (ii) information about NMG or Bank or their Affiliates, or their respective businesses or employees, that is otherwise obtained by the other Party in connection with the Program, in each case including: (A) information concerning marketing plans, objectives and financial results; (B) information regarding business systems, methods, processes, financing data, programs and products; (C) information regarding any products offered or proposed to be offered under the Program or the manner of offering of any such products; (D) information unrelated to the Program obtained by NMG or Bank in connection with this Agreement, including by accessing or being present at the business location of the other Party; and (E) proprietary technical information, including source codes, or other proprietary information developed in connection with the Program; (iii) the terms and conditions of this Agreement; and (iv) the Marketing Plan. The provisions of this Article XIII governing Confidential Information shall not govern Cardholder Data, NMG Shopper Data or NMG Prospect Data, which shall be governed by the provisions of Article VI.

(b) The restrictions on disclosure of Confidential Information under this Article XIII shall not apply to information received or obtained by NMG or Bank, as the case may be, that: (i) is or becomes generally available to the public other than as a result of disclosure in breach of this Agreement or any other confidentiality obligations; (ii) is lawfully received on a non-confidential basis from a third party authorized to disclose such information without restriction and without breach of this Agreement; (iii) is contained in, or is capable of being discovered

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through examination of, publicly available records or products; (iv) is required to be disclosed by Applicable Law; provided that the Party subject to such Applicable Law shall use reasonable efforts to avoid such disclosure and notify the other Party of any such use or requirement prior to disclosure of any Confidential Information obtained from the other Party in order to afford such other Party an opportunity to seek a protective order to prevent or limit disclosure of the Confidential Information to third Parties; provided, further, that such information shall be disclosed only to the extent required by such Applicable Law and shall otherwise remain Confidential Information; or (v) is developed by NMG or Bank, as the case may be, without the use or knowledge of any proprietary, non-public information provided by the other Party under, or otherwise made available to such Party as a result of, this Agreement. Nothing herein shall be construed to permit the Receiving Party (as defined below) to disclose to any third party any Confidential Information that the Receiving Party is required to keep confidential under Applicable Law.

(c) The terms and conditions of this Agreement and the Marketing Plan and all of the items referred to in clauses (A) through (B) of Section 13.1(a) shall each be the Confidential Information of NMG and Bank and each of the Parties to this Agreement shall be deemed to be a Receiving Party of each of them; provided, however, that the terms of this Agreement may be filed by either Party with any Governmental Authority (including public filings with the Securities and Exchange Commission) to the extent required by Applicable Law.

(d) If the NMG Companies, on the one hand, or Bank, on the other hand, receives Confidential Information of the other Party (“Receiving Party”), the Receiving Party shall do the following with respect to the Confidential Information of the other Party (“Disclosing Party”): (i) keep the Confidential Information of the Disclosing Party secure and confidential; (ii) treat all Confidential Information of the Disclosing Party with the same degree of care as it accords its own Confidential Information, but in no event less than a reasonable degree of care; and (iii) implement and maintain commercially reasonable physical, electronic, administrative and procedural security measures, including commercially reasonable authentication, access controls, virus protection and intrusion detection practices and procedures.

13.2 Use and Disclosure of Confidential Information.

(a) Each Receiving Party shall use and disclose the Confidential Information of the Disclosing Party only for the purpose of performing its obligations or enforcing its rights with respect to the Program or as otherwise expressly permitted by this Agreement, and shall not accumulate in any way or make use of such Confidential Information for any other purpose.

(b) Each Receiving Party shall: (i) limit access to the Disclosing Party’s Confidential Information to those employees, authorized agents, vendors, consultants, service providers, accountants, advisors and subcontractors who have a reasonable need to access such Confidential Information in connection with the Program, the sale of Program Assets or other assets of NMG and its Affiliates or the establishment of a new Credit Card or other program or arrangement for an NMG Company, in each case in accordance with the terms of this Agreement, and (ii) ensure that any Person with access to the Disclosing Party’s Confidential Information agrees to be bound by a confidentiality agreement containing the restrictions set forth in this Article XIII.

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13.3 Unauthorized Use or Disclosure of Confidential Information. Each Receiving Party agrees that any unauthorized use or disclosure of Confidential Information of the Disclosing Party might cause immediate and irreparable harm to the Disclosing Party for which money damages might not constitute an adequate remedy. In that event, the Receiving Party agrees that injunctive relief may be warranted in addition to any other remedies the Disclosing Party may have. In addition, the Receiving Party agrees promptly to advise the Disclosing Party by telephone and in writing via facsimile of any security breach that may have compromised any Confidential Information or of any unauthorized misappropriation, disclosure or use by any Person of the Confidential Information of the Disclosing Party which may come to its attention, and to take all steps at its own expense reasonably requested by the Disclosing Party to limit, stop or otherwise remedy such breach, misappropriation, disclosure or use.

13.4 Return or Destruction of Confidential Information. Upon the termination or expiration of this Agreement, the Receiving Party shall comply with the Disclosing Party’s reasonable instructions regarding the disposition of the Disclosing Party’s Confidential Information, which may include return of any and all the Disclosing Party’s Confidential Information (including any electronic or paper copies, reproductions, extracts or summaries thereof); provided, however, that the Receiving Party in possession of tangible property containing the Disclosing Party’s Confidential Information may retain one archived copy of such material, subject to the terms of this Agreement, which may be used solely for regulatory purposes and may not be used for any other purpose. Such compliance shall be certified in writing, including a statement that no copies of Confidential Information have been kept, except as necessary for regulatory purposes.

ARTICLE XIV

RETAIL PORTFOLIO ACQUISITIONS

14.1 Retailer that Operates a Credit Card Business. If NMG or any of its Subsidiaries acquires or otherwise combines with (including by merger, consolidation or other business combination) a retail department store business that directly or through an Affiliate issues a Credit Card in the United States, unless such transaction is one giving right to a termination by NMG pursuant to Section 16.2(c) and as to which NMG has exercised such right, Bank shall have a right of first offer to acquire the related Credit Card business offered for sale by such retailer in connection with NMG’s or its Subsidiary’s acquisition of the retail department store business (such Credit Card business accounts, the “New Portfolio”) as follows. Prior to or promptly following the consummation of the acquisition, NMG shall provide notice to Bank indicating its intention to engage in, or the consummation of, as the case may be, such acquisition and shall provide Bank with a reasonable opportunity to conduct due diligence, and for this purpose NMG shall provide Bank and its representatives with reasonable access to the records and accounts (including the master file) relating to such New Portfolio, subject to the execution of a confidentiality agreement reasonably satisfactory to NMG. Not later than the 20th day following receipt by Bank of due diligence information reasonably requested by Bank and available to NMG, Bank may make an offer to NMG with respect to the purchase of such New Portfolio, which offer shall be required to remain open for a period of not less than forty-five (45) days. NMG shall be under no obligation to accept such offer or to provide Bank with any right to match any offer received by NMG from any third party. NMG may elect to (A) accept

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the offer made by Bank, (B) keep such New Portfolio or (C) offer such New Portfolio for sale to a third party; provided that NMG shall not sell such New Portfolio to a third party unless such third party makes an offer having financial terms and conditions (including terms relating to the manner in which the conversion costs relating to the contemplated transaction are to be allocated among the Parties) substantially more favorable in the aggregate than the terms and conditions offered by Bank. If NMG does not sell such New Portfolio to Bank (whether because NMG elects to keep such New Portfolio or sell it to a third party), the restrictions of Section 2.2 shall not apply to the Credit Card business associated with such New Portfolio, including any growth thereof.

14.2 Retailer that has a Credit Card with another Issuer. If NMG or any of its Subsidiaries acquires or otherwise combines with (including by merger, consolidation or other business combination) a retail department store business that through an unaffiliated Person (other than Bank or any of its Affiliates) issues a Credit Card in the United States, unless such transaction is one giving right to a termination by NMG pursuant to Section 16.2(c) and as to which NMG has exercised such right, Bank agrees that it shall negotiate in good faith for the purchase of the retailer’s Credit Card portfolio from such unaffiliated issuer associated with the retail assets being acquired. Prior to or promptly following the consummation of the acquisition, NMG shall provide notice to Bank indicating its intention to engage in, or the consummation of, as the case may be, such acquisition and shall cooperate to the extent practicable to provide Bank with a reasonable opportunity to conduct due diligence. In the event that Bank is unsuccessful in its bid for the Credit Card portfolio, NMG may offer the Credit Card program of such unaffiliated issuer until the expiration of the agreement governing such program, and Bank shall negotiate in good faith for the purchase of the Credit Card portfolio at that time; provided, however, that if Bank is unable to agree to the terms of the purchase of such Credit Card portfolio prior to the time that notice of termination or election to extend the term, as applicable, is due under such program agreement, NMG shall have the right to continue to operate such Credit Card portfolio under the existing program agreement or to purchase and operate such retailer’s Credit Card business itself or to engage a third party to do so; provided, however, that NMG shall not engage a third party other than Bank unless the financial terms and conditions (including terms relating to the manner in which the conversion costs relating to the contemplated transaction are to be allocated among the Parties) pursuant to which such third party is to operate such Credit Card business are substantially more favorable in the aggregate to NMG than the terms and conditions offered by Bank. If NMG or any of its Subsidiaries, directly or with a third Person, acquires the Credit Card business of another retailer pursuant to this provision and this Agreement remains in effect, Section 2.2 shall not apply to such acquired Credit Card business or to the associated acquired retail operations, including any growth thereof.

14.3 Retailer that has a Credit Card with Bank. If NMG or any of its Subsidiaries acquires (including by merger, consolidation or other business combination) a retail department store business that through Bank or any of its Affiliates issues a Credit Card in the United States, Bank and NMG shall assess and mutually agree whether to integrate such Credit Card portfolio with the Program or operate such portfolio separately as provided in Section 14.5 below.

14.4 Co-Branded Credit Card. Except as provided in Section 14.5, neither Bank nor NMG shall have any obligation under this Article XIV with respect to any co-branded Credit

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Card unless (i) Bank is already providing a Dual-Line Credit Card program for the NMG Companies at the time of the proposed acquisition or (ii) NMG has already given notice to Bank of its desire to issue a Dual-Line Credit Card pursuant to Section 2.2(c)(ii) and Bank is fully committed to issuing, and able to issue, such Dual-Line Credit Card within the Development Period.

14.5 Conversion of Purchased Accounts.

(a) If Bank acquires any Credit Card portfolio pursuant to Section 14.1 or 14.2, or operates a Credit Card portfolio as set forth in Section 14.3, NMG and Bank shall negotiate in good faith in order to arrive at mutually agreeable terms pursuant to which the acquired Credit Card portfolio would be integrated into the Program, it being understood that, absent unique characteristics of the accounts acquired or impediments under Applicable Law or the cardholder agreements applicable to the acquired accounts, it is the mutual intent of the Parties that the acquired accounts be integrated as follows; provided, however, that if based on the foregoing principles and pursuant to such good faith negotiations the Parties determine that the terms of this Agreement should not apply to such acquired assets, the acquired accounts shall be governed by such other and/or additional terms as the Parties shall agree; provided that accounts in any portfolio operated by Bank and acquired pursuant to Section 14.3 shall continue to be governed by the agreement then in effect with respect to such accounts. Subject to the foregoing:

(i) Private label Credit Card accounts shall be converted to Accounts established under the Program, which converted Accounts shall be subject to the same terms and conditions as the Accounts and to this Agreement, and participate in the Program, as if they were originated under this Agreement.

(ii) If the NMG Companies have a Dual-Line Credit Card program with Bank at the time of such purchase, purchased co-branded Credit Card accounts shall be converted to Non-Store Accounts to the extent permitted by Card Association rules, which converted accounts shall be subject to the same terms and conditions and participate in such program as if they were originated under this Agreement.

(iii) If the NMG Companies do not have a Dual-Line Credit Card program with Bank at the time of such purchase, purchased co-branded Credit Card accounts shall continue under the same terms and conditions being offered to the purchased retailer’s customers, or such other terms and conditions upon which NMG and Bank shall mutually agree.

(b) Bank shall cover all costs related to conversions pursuant to this Section 14.5, including replacement of Credit Cards, notices to Cardholders and complying with other requirements of Applicable Law.

14.6 No Other NMG Obligations. Except as set forth in this Article XIV, the NMG Companies shall have no obligation to include in the Program any Credit Card portfolios acquired in connection with any merger, consolidation, acquisition or other transaction or otherwise cause them to be transferred to the NMG Companies or otherwise transfer any such program to Bank. Except to the extent included in the Program, an acquired portfolio may be operated free of the exclusivity restrictions set forth in this Agreement.

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ARTICLE XV

EVENTS OF DEFAULT; RIGHTS AND REMEDIES

15.1 Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an Event of Default by a Party hereunder:

(a) Such Party shall fail to perform, satisfy or comply with any obligation, condition, covenant or other provision contained in this Agreement (other than failure to comply with any SLAs), and (i) such failure shall remain unremedied for a period of thirty (30) days after the other Party shall have given written notice thereof specifying the nature of such failure in reasonable detail, provided that if such failure cannot be cured in a commercially reasonable manner within such time, such failure shall not constitute an Event of Default if the defaulting Party shall have initiated and diligently pursued a cure within such time and such cure is completed within ninety (90) days from the date of written notice regarding such failure, and (ii) such failure shall either have a material adverse effect on the licensed marks of the non-defaulting Party, or materially diminish the economic value of the Program to the non-defaulting Party.

(b) Any representation or warranty by such Party contained in this Agreement shall not be true and correct in any respect as of the date when made, and (i) the Party making such representation or warranty shall fail to cure the event giving rise to such breach within thirty (30) days after the other Party shall have given written notice thereof specifying the nature of such breach in reasonable detail, provided that if such failure cannot be cured in a commercially reasonable manner within such time, such breach shall not constitute an Event of Default if the defaulting Party shall have initiated a cure within such time and such cure is completed within ninety (90) days from the date of written notice regarding such breach, and (ii) such failure shall either have a material adverse effect on the Program or the licensed marks of the non-defaulting Party or materially diminish the economic value of the Program to the non-defaulting Party.

15.2 Defaults by Bank. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an event of default by Bank hereunder:

(a) Bank shall fail to settle NMG Charge Transaction Data and make payment in full therefor within two (2) Business Days after such settlement payment is due pursuant to Section 8.4.

(b) Bank shall fail to make payment in full of any amount set forth on a Monthly Settlement Sheet or Yearly Settlement Sheet when due and payable.

(c) Bank shall fail to make payment in full of any amount due to NMG pursuant to Schedule 7.3(c) within two (2) Business Days after such payment is due pursuant to Schedule 7.3(c).

(d) Bank Parent shall fail to make payment in full of any amount owed under the Bank Guarantee to one or more of the NMG Companies when due and payable.

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(e) Any Bank Company or Bank Parent shall no longer be solvent or shall fail generally to pay its debts as they become due or there shall be a substantial cessation of such Bank Company’s or Bank Parent’s regular course of business.

(f) Any regulatory authority having jurisdiction over a Bank Company or Bank Parent shall order the appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of such Bank Company or Bank Parent, as the case may be, or of any substantial part of its properties, or order the winding-up or liquidation of the affairs of any Bank Company or Bank Parent, and such order shall not be vacated, discharged, stayed or bonded within sixty (60) days from the date of entry thereof.

(g) Any Bank Company or Bank Parent shall (i) consent to the institution of proceedings specified in paragraph (f) above or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of such entity or of any substantial part of its properties, or (ii) take corporate or similar action in furtherance of any such action.

(h) Bank shall fail to meet the approval rate targets and other metrics set forth in Schedule 4.6(c) and such failure shall have resulted in a termination right pursuant to the terms of Section 4.6(c).

(i) Primary Servicer shall fail to meet one or more SLAs expressly giving rise to the right to terminate hereunder in accordance with Section 7.3 and Schedule 7.3(c).

(j) As a result of the regulatory status of a Bank Company or Bank Parent or any constraints imposed on a Bank Company or Bank Parent by any Governmental Authority, the benefits of the Program to the NMG Companies are materially diminished or the NMG Companies experience a material decline in customer satisfaction, unless such constraint, diminishment or decline would be incapable of being eliminated or mitigated if NMG were to terminate this Agreement and/or repurchase the Program Assets (either for itself and its Affiliates or in order to enter into alternative program arrangements with a third party other than Bank).

(k) The Bank Guaranty shall expire or terminate or otherwise fail to be in full force and effect or Bank Parent shall disaffirm, disclaim, repudiate or reject, in whole or in part, or challenge the validity, enforceability or effectiveness of, the Bank Guaranty.

15.3 Defaults by the NMG Companies. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an event of default by the NMG Companies hereunder:

(a) NMG shall fail to make payment in full of any amount set forth on a Monthly Settlement Sheet or Yearly Settlement Sheet when due and payable.

(b) A petition under the U.S. Bankruptcy Code or similar law shall be filed against NMG and not be dismissed within sixty (60) days.

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(c) A decree or order by a court having jurisdiction (i) for relief in respect of NMG pursuant to the Bankruptcy Code or any other applicable bankruptcy or other similar law, (ii) for appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of NMG or of any substantial part of its properties, or (iii) ordering the winding-up or liquidation of the affairs of NMG shall, in any such case be entered, and shall not be vacated, discharged, stayed or bonded within sixty (60) days from the date of entry thereof.

(d) NMG shall (i) file a petition seeking relief pursuant to the Bankruptcy Code or any other applicable bankruptcy or other similar law, (ii) consent to the institution of proceedings pursuant thereto or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of NMG or any substantial part of its properties, or (iii) take corporate or similar action in furtherance of any such action.

(e) NMG shall fail to meet one or more SLAs expressly giving rise to the right to terminate hereunder in accordance with Section 5.02 of the Servicing Agreement.

15.4 Remedies for Events of Default. In addition to any other rights or remedies available to the Parties at law or in equity, upon the occurrence of an Event of Default pursuant to Section 15.1, 15.2 or 15.3, the non-defaulting Party shall be entitled to collect from the defaulting Party any amount indisputably in default plus interest based on the Federal Funds Rate.

ARTICLE XVI

TERM/TERMINATION

16.1 Term. This Agreement shall continue in full force and effect for five (5) years from the Effective Date (the “Initial Term”). The Agreement shall be renewed by mutual agreement of the Parties for successive three (3) year terms (each, a “Renewal Term”) at least six (6) months prior to the expiration of the Initial Term or current Renewal Term, as the case may be. If the Parties do not agree to renew the Agreement at least six (6) months prior to the expiration of the Initial Term or the current Renewal Term, as the case may be, the Agreement shall automatically terminate at the end of the Initial Term or current Renewal Term, as the case may be.

16.2 Termination by NMG Prior to the End of the Initial Term or a Renewal Term. NMG, on behalf of the NMG Companies, may terminate this Agreement upon written notice prior to the end of the Initial Term or any Renewal Term:

(a) after the occurrence of a Bank Event of Default;

(b) upon thirty (30) days’ prior written notice if (i) there is a Change of Control of Bank Parent or (ii) one or more Persons that is not an Affiliate of Bank on the date of this Agreement acquires a direct or indirect controlling interest in Bank or any other Person conducting a substantial part of the Credit Card business conducted within the corporate group of Bank Parent or such corporate group otherwise disposes of or terminates a substantial part of such Credit Card business;

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(c) upon thirty (30) days’ prior written notice following a Change of Control of NMG if the other Party to the business combination transaction which resulted in or constituted such Change of Control issues, offers or otherwise provides (either itself or through Affiliates) or is Party to any contractual arrangement with any other Person to issue, offer or otherwise provide, any Credit Card in the United States; provided, that if this Agreement is terminated pursuant to this Section 16.2(c), NMG shall pay Bank the amount set forth in Schedule 16.2(c).

(d) upon thirty (30) days’ prior written notice if there is a change in Applicable Law which reduces or could reasonably be expected to reduce in any material respect the ability of NMG or any of its Subsidiaries to gain access to, or to use, any Cardholder Data, NMG Shopper Data or NMG Charge Transaction Data below the level of access and use permitted under Applicable Law immediately prior to the date of this Agreement, unless such reduction in access would be incapable of being eliminated or mitigated if NMG were to terminate this Agreement and/or repurchase the Program Assets (either for itself and its Affiliates or in order to enter into alternative program arrangements with a third party other than Bank); provided, however, that prior to delivering a notice of termination pursuant to this Section 16.2, NMG shall engage in good faith negotiations with Bank to modify the Program in a way that would preserve at least the same level of access and use of such data for the benefit of NMG and its Affiliates following the relevant change in Applicable Law as was permissible prior to the date of this Agreement, such negotiations not to terminate (in the absence of an agreement between the Parties on any modification) earlier than thirty (30) days after the earlier of (i) the date on which one of the Parties delivers a notice to the other that the relevant change in Applicable Law is likely to occur or (ii) the date on which the relevant change in Applicable Law takes effect; or

(e) upon thirty (30) days’ prior written notice if there have been more than three (3) Unapproved Matters within the last twelve (12) Fiscal Months; provided that if the Management Committee votes on an identical matter more than one time and fails to reach agreement on such identical matter without any change in the circumstances surrounding such matter, for purposes of this Section 16.2(e), such matter will only count as one (1) Unapproved Matter.

16.3 Termination by Bank Prior to the End of the Initial Term or a Renewal Term. Bank may terminate this Agreement upon written notice prior to the end of the Initial Term or any Renewal Term:

(a) after the occurrence of an NMG Event of Default; or

(b) upon six (6) months’ prior written notice following the end of a Fiscal Year, if during such Fiscal Year, NMG has not maintained the retail store square footage set forth on Schedule 16.3(b).

16.4 Automatic Termination. Upon termination of the Purchase Agreement without the occurrence of the Closing, this Agreement shall automatically terminate and shall be null and void.

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ARTICLE XVII

EFFECTS OF TERMINATION

17.1 General Effects.

(a) All solicitations, marketing and advertising of the Program, other than acceptance of applications through NMG Channels in the ordinary course of business consistent with past practice, shall cease upon the expiration or termination of this Agreement, except as the Parties may otherwise mutually agree, provided that the Parties shall continue to operate the Program in accordance with the terms of this Agreement and service the Accounts in good faith and in the ordinary course of their respective businesses, subject to the terms of this Agreement, until the provisions of Section 17.2 are satisfied. The Parties shall cooperate to ensure the orderly wind-down or transfer of the Program.

(b) Upon the satisfaction of the provisions of Section 17.2, all obligations of the Parties under this Agreement shall cease, except that the provisions specified in Section 19.26 shall survive.

17.2 The NMG Companies’ Option to Purchase the Program Assets.

(a) If this Agreement expires or is terminated by either Party for whatever reason, NMG has the option to purchase, or arrange the purchase by a third party nominated by NMG (a “Nominated Purchaser”), of the Program Assets from Bank.

(b) The purchase option given by Section 17.2(a) is exercisable by NMG or the Nominated Purchaser serving notice on Bank no later than sixty (60) days after the receipt of the information with respect to the Program Assets required to be delivered by Bank pursuant to Section 17.2(e); provided, however, that NMG shall request such information with respect to the Program Assets within ten (10) days following either (i) the date on which the Parties’ right to agree to renew the Agreement pursuant to Section 16.1 has expired without such renewal having occurred or (ii) the date any Party receives written notice of the exercise of the other Party’s termination rights pursuant to Article XVI.

(c) If such purchase option is exercised, NMG or the Nominated Purchaser must complete the purchase of the Program Assets within one hundred eighty (180) days after the notice has been given pursuant to Section 17.2(b); provided, that if, in connection with the purchase of the Program Assets by a Nominated Purchaser, any required regulatory approvals or rating agency consents are not received within one hundred eighty (180) days after notice has been given pursuant to Section 17.2(b), NMG shall complete the purchase of the Program Assets on behalf of the Nominated Purchaser within two hundred seventy (270) days after notice has been given pursuant to Section 17.2(b). The date of the completion of any purchase under this Section 17.2(c) shall be the “Program Purchase Date.”

(d) The purchase price for the Program Assets purchased, payable on the Program Purchase Date, shall be equal to the sum of (i) the par value of the Cardholder Indebtedness related to the Private Label Accounts and Non-Card Payment Plans at the time of repurchase excluding written-off Cardholder Indebtedness (in accordance with the write-off policy then

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applicable to the Program) plus (ii) the Fair Market Value of the Non-Store Accounts, except that if the repurchase right arises as a result of (A) an early termination of this Agreement by Bank for an NMG Event of Default pursuant to Section 16.3 or (B) an early termination by the NMG Companies pursuant to Section 16.2(c), then such purchase price for the Program Assets shall be an amount equal to the sum of (x) the par value of the Cardholder Indebtedness related to the Private Label Accounts and Non-Card Payment Plans at the time of repurchase excluding written-off Cardholder Indebtedness (in accordance with the write-off policy then applicable to the Program), plus (y) the Fair Market Value of the Cardholder Indebtedness related to the Non-Store Accounts plus (z) de-conversion costs of the Bank in an amount not to exceed $1 million.

(e) The Parties shall use commercially reasonable efforts to minimize transaction costs and Bank shall provide NMG and the Nominated Purchaser and their respective representatives reasonable access to the records and accounts relating to the Program Assets for the purpose of conducting due diligence investigations to determine whether they wish to purchase the Program Assets and shall provide as soon as reasonably practicable (but in no event more than fifteen (15) days) following a request therefor from NMG or its Nominated Purchaser a master file of the Accounts (which shall include data for at least the twelve (12) month period preceding the month in which the master file is requested and shall be updated upon request of NMG); provided, however, that Bank shall be entitled to require any Nominated Purchaser to enter into customary confidentiality arrangements before providing it with such access. The Parties shall promptly negotiate in good faith and execute a purchase agreement for the Program Assets to be repurchased, which shall contain terms and conditions substantially similar to those in the Purchase Agreement (if applicable). Bank shall provide reasonable assistance in connection with the conversion of the Program Assets to the Systems of NMG or the Nominated Purchaser, including provision of interim services in accordance with the provisions of this Agreement until such conversion occurs; provided, however, that Bank shall not be obligated to provide such interim services for more than (i) two hundred seventy (270) days after notice has been given pursuant to Section 17.2(b) in connection with a purchase of the Program Assets by a Nominated Purchaser or (ii) one year after the execution date of the purchase agreement with respect to the repurchase of the Program Assets by NMG subject to a reasonable servicing fee. The Parties shall not unreasonably withhold or delay execution of such purchase agreement or any other documents necessary to effectuate such sale. The Parties shall use reasonable efforts to ensure that the Program Purchase Date occurs as promptly as reasonably practicable following the execution of such purchase agreement.

17.3 Fair Market Value. In the event that this Agreement terminates and, if NMG notifies Bank that it shall purchase the Program Assets, Bank and NMG (or its Nominated Purchaser) shall attempt to mutually determine the fair market value of the Non-Store Accounts (“Fair Market Value”). If the Parties cannot reach such agreement, each Party shall nominate an investment banker who together shall select a third investment banker to value the Non-Store Accounts. In determining the Fair Market Value of the Non-Store Accounts, the investment bankers shall assume that (a) the terms and conditions of this Agreement, including all financial terms and conditions, Bank’s right to use the NMG Licensed Marks in accordance with this Agreement and all other material elements of the transactions contemplated by this Agreement, shall continue in respect of the Non-Store Accounts being purchased during the period of valuation and (b) the Non-Store Accounts being purchased shall continue to operate on an ongoing basis in accordance with past practice. In such case, the Fair Market Value shall be the

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average of the two closest valuations provided by the investment bankers; provided, however, if the median valuation is within plus or minus twenty (20) percent of the mean of the three valuations, the Fair Market Value shall be the mean. NMG may in its sole discretion select any purchaser to purchase the Non-Store Accounts, provided that the Bank shall receive an amount equal to the purchase price as determined above.

17.4 Dedicated Program Personnel. Upon termination or expiration of the Program for any reason and until the date that is ninety (90) days after Bank ceases to provide any services hereunder, NMG shall have the right to offer employment to employees and independent contractors of Bank and any of Bank’s Affiliates that perform all or substantially all of their work for Bank or its Affiliates in connection with the Program.

17.5 Rights of Bank if Purchase Option Not Exercised.

(a) If this Agreement expires or is terminated and the NMG Companies give written notice that they shall not exercise their option referred to in Section 17.2 or otherwise fail to exercise their option within the time period specified in Section 17.2, the NMG Companies shall have no further rights whatsoever in the Program Assets. In such event, Bank shall have the right in its sole discretion on or after the expiration or termination of this Agreement to:

(i) issue to Cardholders a replacement or substitute Credit Card (which card must not bear any NMG Licensed Marks or any other trademarks or source indicators confusingly similar thereto) with such characteristics as Bank considers appropriate (the cost of card re-design and re-issue being borne by Bank); provided that the replacement or substitute Credit Card shall not be issued in cooperation with any retailer; provided, further, that the NMG Companies shall be permitted to add an enclosure to the last two (2) Billing Statements to the effect that the Program has been terminated;

(ii) subject to Applicable Law, notify Cardholders that Bank shall cease providing credit under the Accounts and require repayment of all amounts outstanding on all Accounts until all associated receivables have been repaid;

(iii) sell the Accounts and associated receivables to a third party purchaser, other than a competitor of NMG and its Affiliates selected by Bank at a price agreed between Bank and the purchaser; or

(iv) any combination of (i), (ii) and (iii).

(b) Notwithstanding the foregoing, in no event shall Bank use or disclose or permit any of its Affiliates to use or disclose the Cardholder Data to market or promote a Credit Card or ancillary product together with any retailer.

(c) If this Agreement expires or is terminated and the NMG Companies give written notice that they shall not exercise their option referred to in Section 17.2 or otherwise fail to exercise their option within the time period specified in Section 17.2, the NMG Companies shall provide reasonable assistance in connection with the conversion of any Program Assets resident on NMG Systems to the Bank Systems, including provision of interim services in accordance with the provisions of this Agreement until such conversion occurs, which shall not be later than

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one hundred eighty (180) days after the NMG Companies give written notice that they shall not exercise their option referred to in Section 17.2 or after the time period for the NMG Companies to exercise such option shall have expired. Bank shall bear all costs and expenses of any such conversion and the transitioning of services performed by the NMG Companies to the Bank.

(d) Within sixty (60) days (or one hundred twenty (120) days in the case of Dual-Line Cards) after the NMG Companies give written notice that they shall not exercise their option referred to in Section 17.2 or after the time period for the NMG Companies to exercise such option shall have expired, Bank shall no longer use any of the NMG Licensed Marks (or any other trademarks or source indicators confusingly similar thereto) and must rebrand the NMG Credit Cards; provided that thereafter Bank may continue to use the NMG Licensed Marks solely to the extent necessary to identify the Accounts in connection with the billing and collection thereof and as otherwise required by Applicable Law.

ARTICLE XVIII

INDEMNIFICATION

18.1 NMG Indemnification of Bank. From and after the Effective Date, the NMG Companies shall indemnify and hold harmless Bank, its Affiliates, and their respective officers, directors and employees from and against and in respect of any and all losses, liabilities, damages, costs and expenses of whatever nature, including reasonable attorneys’ fees and expenses, which are caused or incurred by, result from, arise out of or relate to:

(a) any Retail Merchant’s negligence or recklessness or willful misconduct (including acts and omissions) relating to the Program;

(b) any breach by an NMG Company of any of the material terms, covenants, representations, warranties or other provisions contained in this Agreement;

(c) any actions or omissions by Bank taken or not taken at an NMG Company’s written request or direction pursuant to this Agreement except where Bank would have been otherwise required to take such action (or refrain from acting) absent the request or direction of the NMG Companies;

(d) dishonest or fraudulent acts by a Retail Merchant, or any of its agents or employees, in connection with the Program (except to the extent of any amount charged back pursuant to Section 8.5);

(e) any failure by the Retail Merchants to satisfy any of their obligations to third parties with respect to the sale by them to such third parties of NMG Goods and Services;

(f) any Solicitation Materials distributed by an NMG Company and not (i) approved by the Management Committee or (ii) provided by Bank;

(g) any claim, suit or proceeding by any third party arising out of the failure of a Retail Merchant to comply with Applicable Law in connection with the Program or the Operating Procedures, unless such failure was the result of any action taken or not taken by such Retail Merchant at the written request or direction of Bank;

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(h) the NMG Companies’ Inserts or Billing Statement messages; and

(i) allegations by a third party that the use of the NMG Licensed Marks constitutes infringement of any Intellectual Property right of such third party.

18.2 Bank Companies’ Indemnification of the NMG Companies. From and after the Effective Date, the Bank Companies’ shall indemnify and hold harmless NMG, its Affiliates and their respective officers, directors and employees from and against and in respect of any and all losses, liabilities, damages, costs and expenses of whatever nature, including reasonable attorneys’ fees and expenses, which are caused or incurred by, result from, arise out of or relate to:

(a) Bank’s or its Affiliate’s negligence or recklessness or willful misconduct (including acts and omissions) relating to the Program;

(b) any breach by Bank or any of its Affiliates, employees or agents of any of the material terms, covenants, representations, warranties or other provisions contained in this Agreement or any Cardholder Agreement;

(c) any actions or omissions by any of the NMG Companies taken or not taken at the Bank Companies’ written request or direction pursuant to this Agreement, except where the NMG Companies would have been otherwise required to take such action (or refrain from acting) absent the request or direction of any Bank Company;

(d) dishonest or fraudulent acts by Bank, or any of its Affiliates, agents or employees, in connection with the Program;

(e) any failure by the Bank Companies to satisfy any of their obligations to (i) Cardholders with respect to the Program or the Accounts, whether pursuant to the Cardholder Agreements or otherwise or (ii) any other third parties in connection with its provision of other products and services to such third parties;

(f) any Account Documentation and Solicitation Materials approved by the Management Committee and used by any of the NMG Companies in that form and in accordance with Bank’s instructions and/or the Operating Procedures that fails to comply with Applicable Law, other than any content in the Solicitation Materials that primarily relates to Loyalty Programs and was included in the Solicitation Materials in the form provided by NMG without any input from Bank with respect to Applicable Law;

(g) any claim, suit or proceeding by any third party arising out of the failure of the Bank Companies to comply with Applicable Law in connection with the Program or the Operating Procedures unless such failure was the result of any action taken or not taken by the Bank Companies at the specific written request or direction of the NMG Companies;

(h) Bank’s Inserts or Billing Statement messages; and

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(i) allegations by a third party that the use of the Bank Licensed Marks constitutes infringement of any Intellectual Property right of such third party.

18.3 Procedures.

(a) In case any claim is made, or any suit or action is commenced, against a Party (the “Indemnified Party”) in respect of which indemnification may be sought by it under this Article XVIII, the Indemnified Party shall promptly give the other Party (the “Indemnifying Party”) notice thereof and the Indemnifying Party shall be entitled to participate in the defense thereof and, with prior written notice to the Indemnified Party given not later than twenty (20) days after the delivery of the applicable notice from the Indemnified Party, to assume, at the Indemnifying Party’s expense, the defense thereof, with counsel reasonably satisfactory to such Indemnified Party. After notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, except as set forth in Section 18.3(b), the Indemnifying Party shall not be liable to such Indemnified Party under this Section for any attorneys’ fees or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof, other than reasonable costs of investigation.

(b) The Indemnified Party shall have the right to employ its own counsel if the Indemnifying Party elects to assume such defense, but the fees and expenses of such counsel shall be at the Indemnified Party’s expense, unless (i) the employment of such counsel has been authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party has not employed counsel to take charge of the defense within twenty (20) days after delivery of the applicable notice or, having elected to assume such defense, thereafter ceases its defense of such action, or (iii) the Indemnified Party has reasonably concluded that there may be defenses available to it which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified Party), in any of which events the attorneys’ fees and expenses of counsel to the Indemnified Party shall be borne by the Indemnifying Party.

(c) The Indemnifying Party shall promptly notify the Indemnified Party if the Indemnifying Party desires not to assume, or participate in, the defense of any such claim, suit or action.

(d) The Indemnified Party or Indemnifying Party may at any time notify the other of its intention to settle or compromise any claim, suit or action against the Indemnified Party in respect of which payments may be sought by the Indemnified Party hereunder, and (i) the Indemnifying Party may settle or compromise any such claim, suit or action solely for the payment of money damages for which the Indemnified Party will be fully indemnified hereunder, but shall not agree to any other settlement or compromise without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld (it being agreed that any failure of an Indemnified Party to consent to any settlement or compromise involving relief other than monetary damages shall not be deemed to be unreasonably withheld), and (ii) the Indemnified Party may settle or compromise any such claim, suit or action solely for an amount not exceeding One Thousand Dollars ($1,000), but shall not settle or compromise any other matter without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld.

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18.4 Notice and Additional Rights and Limitations.

(a) If an Indemnified Party fails to give prompt notice of any claim being made or any suit or action being commenced in respect of which indemnification under this Article XVIII may be sought, such failure shall not limit the liability of the Indemnifying Party; provided, however, that this provision shall not be deemed to limit the Indemnifying Party’s rights to recover from the Indemnified Party for any loss, cost or expense which it can establish resulted from such failure to give prompt notice.

(b) This Article XVIII shall govern the obligations of the Parties with respect to the subject matter hereof but shall not be deemed to limit the rights that either Party might otherwise have at law or in equity.

(c) Notwithstanding anything to the contrary in this Agreement, no Party shall be liable to the other for punitive or exemplary damages relating to or arising out of this Agreement, any breach hereof or any of the transactions provided for therein, unless the Indemnified Party shall have become liable to a third party for such amounts.

ARTICLE XIX

MISCELLANEOUS

19.1 Precautionary Security Interest. The NMG Companies and Bank agree that this Agreement contemplates the extension of credit by Bank to Cardholders and that the NMG Companies’ submission of NMG Charge Transaction Data to Bank shall constitute assignment by the NMG Companies of any and all right, title and interest in such NMG Charge Transaction Data and the Cardholder Indebtedness reflected therein. However, as a precaution in the unlikely event that any person asserts that Article 9 of the UCC applies or may apply to the transactions contemplated hereby, and to secure the NMG Companies’ payment of and performance of all obligations of the NMG Companies to Bank, the NMG Companies hereby grant to Bank a first priority present and continuing security interest in and to the following, whether now existing or hereafter created or acquired: (i) all Accounts, Cardholder Indebtedness, Account Documentation and NMG Charge Transaction Data, (ii) all deposits, credit balances and reserves on the Bank’s books relating to the Program, and (iii) all proceeds of the Cardholder Indebtedness. In addition, the NMG Companies agree to take any reasonable action requested by Bank, at Bank’s expense, to establish the first lien and perfected status of such security interest. Upon the termination or expiration of this Agreement, Bank shall execute such releases and file such notices as the NMG Companies may request to evidence the termination of the security interest provided for in this Section 19.1.

19.2 Securitization, Participation or Pledge of Cardholder Indebtedness.

(a) Bank shall have the right to securitize, participate or pledge the Cardholder Indebtedness or any part thereof by itself or as part of a larger offering at any time, in such a manner that allows Bank to obtain cash flows representing all or most of the economic benefits of owning such Cardholder Indebtedness. Such securitization, participation or pledge shall not affect the NMG Companies’ rights or Bank’s obligations hereunder. Bank shall not securitize,

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participate or pledge the Cardholder Indebtedness in any manner that may encumber any of the NMG Companies’ rights hereunder to purchase Program Assets. All uses of the NMG Licensed Marks in any securitization document shall be made in accordance with Section 10.1 and with the prior written approval of NMG.

(b) In the event the NMG Companies elect to purchase the Program Assets pursuant to Section 17.2 and Bank has securitized, participated or pledged any of the Cardholder Indebtedness included in the Program Assets, the Parties will cooperate to transfer such assets, or Bank’s interest in and servicing rights with respect to such assets, to NMG or its Nominated Purchaser on reasonable terms pursuant to instruments in form and substance satisfactory to the Parties, and the purchase price set forth in Section 17.2(d) shall be reduced by the outstanding principal balance of such obligations on the Program Purchase Date.

19.3 Assignment. None of the NMG Companies, on the one hand, and the Bank Companies, on the other hand, shall assign this Agreement or any of its rights hereunder without the prior written consent of the other Party, except to the extent (i) the Cardholder Indebtedness is securitized as permitted pursuant to Section 19.2 or (ii) otherwise permitted under the Servicing Agreement.

19.4 Sale or Transfer of Accounts. Bank shall not sell or transfer in whole or in part any Accounts; provided, however, that this Section 19.4 shall not restrict the ability of Bank to securitize, participate or pledge the Cardholder Indebtedness pursuant to Section 19.2. Bank may from time to time propose to NMG the terms under which it desires to sell any NMG Accounts that have been written-off in accordance with the Risk Management Policies, including the payments proposed to be made to NMG and Bank in connection with any such sale. NMG shall consider any such proposal in good faith but shall be entitled to accept or reject any such proposal in its sole discretion.

19.5 Subcontracting. Except as approved by the Management Committee, it is understood and agreed that, in fulfilling its obligations under this Agreement, no Person other than a Party hereto or its Affiliates may perform such Party’s functions; provided that, to the extent a Party is not required to obtain Management Committee approval under Section 3.2(d)(iv) to outsource or subcontract a service, the Parties and their Affiliates may subcontract or outsource such service to such third party. Each Party hereto shall be responsible for functions performed by such Affiliates or other Persons to the same extent the Party would be responsible if it performed such functions itself.

19.6 Sales and Use Tax. This Agreement is intended to be a tax included contract for Texas sales and use taxes due on the taxable Texas portion of the Services performed by NMG that benefit Bank in Texas. Bank shall provide to NMG a multi-state benefit exemption certificate and a letter instructing NMG to pay directly to the State of Texas the Texas sales and use tax due under this Agreement.

19.7 Amendment. Except as provided herein, this Agreement may not be amended except by a written instrument signed by each of the Bank Companies and each of the NMG Companies.

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19.8 Non-Waiver. No delay by a Party hereto in exercising any of its rights hereunder, or partial or single exercise of such rights, shall operate as a waiver of that or any other right. The exercise of one or more of a Party’s rights hereunder shall not be a waiver of, or preclude the exercise of, any rights or remedies available to such Party under this Agreement or in law or at equity.

19.9 Severability. In case any one or more of the provisions contained herein shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, and this Agreement shall be reformed, construed and enforced as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein and there had been contained herein instead such valid, legal and enforceable provisions as would most nearly accomplish the intent and purpose of such invalid, illegal or unenforceable provision.

19.10 Waiver of Jury Trial and Venue.

(a) Each Party hereby waives all right to trial by jury in any action or proceeding to enforce or defend any rights under this Agreement.

(b) Each Party hereby irrevocably submits to the jurisdiction of the United States District Court for the State of Delaware or, if such federal jurisdiction is unavailable, in the state courts of the State of Delaware over any action arising out of this Agreement, and each Party hereby irrevocably waives any objection which such Party may now or hereafter have to the laying of improper venue or forum non conveniens. Each Party agrees that a judgment in any such action or proceeding may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Any and all service of process and any other notice in any such suit, action or proceeding with respect to this Agreement shall be effective against a Party if given as provided herein.

19.11 Governing Law; Compliance with Law.

(a) This Agreement and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made to be performed within such State and applicable federal law.

(b) Each Party shall comply in all material respects with Applicable Law in connection with its activities and the exercise of its rights and performance of its obligations hereunder.

19.12 Specific Performance. The Parties agree that money damages would not be a sufficient remedy for any breach of Article VI, X or XIII or the failure of a Party to perform any of its material obligations hereunder, and that, in addition to all other remedies, each Party will be entitled to seek specific performance and to seek injunctive or other equitable relief as a remedy for any such breach or failure to perform its material obligations hereunder. Each Party waives any requirements for the securing or posting of any bond in connection with such remedy.

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19.13 Captions. Captions of the articles and sections of this Agreement are for convenient reference only and are not intended as a summary of such articles or sections and do not affect, limit, modify or construe the contents thereof.

19.14 Notices. Any notice, approval, acceptance or consent required or permitted under this Agreement shall be in writing to the other Party and shall be deemed to have been duly given when delivered in person or, if sent by United States registered or certified mail, with postage prepaid, or by a nationally recognized overnight delivery service, when received, addressed as follows:

If to the NMG Companies:	c/o The Neiman Marcus Group, Inc.One Marcus Square1618 Main StreetDallas, Texas 75201Attention: General CounselFacsimile: (214) 573-5354
	c/o The Neiman Marcus Group, Inc.One Marcus Square1618 Main StreetDallas, Texas 75201Attention: Credit Card Program ManagerFacsimile: (214) 743-7646
With a copy to:	Simpson Thacher & Bartlett LLP425 Lexington AvenueNew York, New York 10017Attention: Maripat Alpuche, Esq.Facsimile: (212) 455-2502
If to the Bank Companies:	c/o HSBC Bank Nevada, N.A.2700 Sanders RoadProspect Heights, Illinois 60070Attention: Managing Director -Client Relations, HSBC Retail ServicesFacsimile: (908) 203-4217
With a copy to:	HSBC Retail Services2700 Sanders RoadProspect Heights, Illinois 60070Attention: General Counsel, Retail Services DivisionFacsimile: (847) 205-7417

19.15 Coordination of Consents and Approvals. With respect to any consent or approval to be given by the NMG Companies, NMG may give consents or approvals on behalf of the other NMG Company and Bank shall be entitled to rely on any such consent or approval of NMG acting on behalf of any or all of the NMG Companies.

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19.16 Further Assurances. The NMG Companies and Bank agree to produce or execute such other documents or agreements as may be necessary or desirable for the execution and implementation of this Agreement and the consummation of the transactions specified herein and to take all such further action as the other Party may reasonably request in order to give evidence to the consummation of the transactions specified herein.

19.17 No Joint Venture. Nothing contained in this Agreement shall be deemed or construed by the Parties or any third party to create the relationship of principal and agent, partnership, joint venture or of any association between the NMG Companies and the Bank Companies, and no act of either Party shall be deemed to create any such relationship. The NMG Companies and the Bank Companies each agree to such further actions as the other may request to evidence and affirm the non-existence of any such relationship.

19.18 Press Releases. The NMG Companies, on the one hand, and the Bank Companies, on the other hand, each shall obtain the prior written approval of the other Party with regard to the substance and timing of any press releases which announce the execution of this Agreement or the transactions specified herein, which prior approval shall not unreasonably be withheld. At all times thereafter, the NMG Companies and the Bank Companies, prior to issuing any press releases concerning this Agreement or the transactions specified herein, shall consult with each other concerning the proposed substance and timing of such releases and give due consideration to the comments of the other Party relating thereto. The foregoing notwithstanding, it is understood that neither Party shall be required to obtain any prior consent, but shall consult with each other to the extent practicable, with regard to (a) filings, press releases and other announcements as may be required by Applicable Law or the applicable rules and regulations of any governmental agency or stock exchange and (b) publications prepared solely by and for employees of any of the NMG Companies or the Bank Companies, or their respective Affiliates.

19.19 No Set-Off. The NMG Companies and the Bank Companies agree that each Party has waived any right to set-off, combine, consolidate or otherwise appropriate and apply (i) any assets of the other Party held by the Party or (ii) any indebtedness or other liabilities at any time owing by the Party to the other Party, as the case may be, against or on account of any obligations owed by the other Party under this Agreement, except as expressly set forth herein.

19.20 Conflict of Interest. Each Party hereto, in performing it obligations hereunder, shall establish and maintain appropriate business standards, procedures and controls designed to ensure that such Party shall perform and conduct its operations in a manner consistent with the Program Objectives and in such a way as not to disparage or embarrass or otherwise adversely affect the other Party and its Affiliates. Each Party shall review such standards, procedures and controls with reasonable frequency during the Term including those related to the activities of its employees and agents in their relations with the employees, agents and representatives of the other Party hereto and with other third parties.

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19.21 Third Parties . There are no third-party beneficiaries to this Agreement. Except for the Indemnified Parties with respect to indemnity claims pursuant to Article XVII, the Parties do not intend: (i) the benefits of this Agreement to inure to any third party; or (ii) any rights, claims or causes of action against a Party to be created in favor of any person or entity other than the other Party.

19.22 Force Majeure. If performance of any service or obligation under this Agreement is prevented, restricted, delayed or interfered with by reason of labor disputes, strikes, acts of God, floods, lightning, severe weather, shortages of materials, rationing, utility or communication failures, earthquakes, war, revolution, civil commotion, acts of public enemies, terrorist attacks, blockade, embargo or any law, order, proclamation, regulation, ordinance, demand or requirement having legal effect of any government or any judicial authority or representative of any such government, or any other act whatsoever, whether similar or dissimilar to those referred to in this clause, which are beyond the reasonable control of a Party and could not have been prevented by reasonable precautions, (each, a “Force Majeure Event”) then such Party shall be excused from such performance to the extent of and during the period of such Force Majeure Event. A Party excused from performance pursuant to this Section 19.22 shall exercise all reasonable efforts to continue to perform its obligations hereunder, including by implementing its disaster recovery and business continuity plan as provided in Section 7.3(d), and shall thereafter continue with reasonable due diligence and good faith to remedy its inability to so perform except that nothing herein shall obligate either Party to settle a strike or other labor dispute when it does not wish to do so. Notwithstanding the foregoing, if a condition constituting a Force Majeure Event with respect to the Bank Companies, on the one hand, or the NMG Companies, on the other hand, exists for more than thirty (30) consecutive days (or five (5) days in the case of any payment obligation) and such Party is unable to perform a material obligation (which shall be deemed to include any payment obligation pursuant to Article VIII or Article IX) under this Agreement due to such Force Majeure Event, then the other Party shall have the right to terminate this Agreement upon written notice to the Party subject to such Force Majeure Event; provided, however, that (i) prior to delivering written notice of termination in respect of such Force Majeure Event, the Party seeking to terminate this Agreement shall call, and the Parties shall attend one or more Management Committee to consider and vote upon a plan to outsource the material obligation that such Party is unable to perform and (ii) in the event such outsourcing arrangement is agreed to, the Parties shall promptly implement such arrangement and this Agreement may not be terminated unless such Force Majeure Event continues on the fifteenth (15th) day following approval of such outsourcing arrangement.

19.23 Entire Agreement. This Agreement, together with the Schedules hereto which are expressly incorporated herein by reference, supersedes any other agreement, whether written or oral, that may have been made or entered into by the NMG Companies and Bank (or by any officer or employee of any such Parties) relating to the matters specified herein, and constitutes the entire agreement by the Parties related to the matters specified herein or therein.

19.24 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. This Agreement is the product of negotiation by the Parties having the assistance of counsel and other advisers. It is the intention of the Parties that this Agreement not be construed more strictly with regard to one Party than with regard to the other.

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19.25 Counterparts/Facsimiles. This Agreement may be executed in any number of counterparts, all of which together shall constitute one and the same instrument, but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. Any facsimile of an executed counterpart shall be deemed an original.

19.26 Survival. Upon the expiration or termination of this Agreement, the Parties shall have the rights and remedies described herein. Upon such expiration or termination, all obligations of the Parties under this Agreement shall cease, except that the obligations of the Parties pursuant to Article VI (Cardholder Information), Section 8.5 (Bank Right to Charge Back), Article X (Intellectual Property), Article XII (Access, Audit and Dispute Resolution), Article XIII (Confidentiality), Article XVII (Effects of Termination), Article XVIII (Indemnification), Section 19.1 (Precautionary Security Interest), Section 19.6 (Sales and Use Tax), Section 19.10 (Waiver of Jury Trial and Venue) and Section 19.11 (Governing Law; Compliance with Law) shall survive the expiration or termination of this Agreement.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed as of the date first above written.

THE NEIMAN MARCUS GROUP, INC.
By:	/s/ Steven P. Dennis
Name:	Steven P. Dennis
Title:	Senior Vice President, Strategy, Business Development and Multichannel Marketing
BERGDORF GOODMAN, INC.
By:	/s/ Nelson A. Bangs
Name:	Nelson A. Bangs
Title:	Senior Vice President
HSBC BANK NEVADA, N.A.
By:	/s/ Joseph W. Hoff
Name:	Joseph W. Hoff
Title:	Executive Vice President
HOUSEHOLD CORPORATION
By:	/s/ Joseph W. Hoff
Name:	Joseph W. Hoff
Title:	President

SCHEDULE 1.1(a)

Bank Licensed Marks

Mark	Serial/Registration Number
HSBC Card Services	[***]
HSBC Bank Nevada	[***]
HSBC Finance Corporation	[***]
HSBC Retail Services	[***]
HSBC
	[***]

SCHEDULE 1.1(b)

Comparable Partner Programs

Saks Incorporated

Domain

Helzberg Diamonds

Liz Claiborne

SCHEDULE 1.1(c)

Program Loyalty Program and Loyalty Cards

Section A: Description of Current Program Loyalty Programs

Neiman Marcus InCircle Rewards Program

The Neiman Marcus InCircle Rewards program has successfully driven the use of the NM Card and has stimulated ongoing retail sales for over 20 years. The Neiman Marcus InCircle Rewards Program applies automatically to any NM Card (in limited cases, InCircle Rewards can be awarded to select AMEX cards enrolled in the program by a customer). Under the current InCircle Rewards Program, each time a customer uses the NM Card, the customer earns one point for each dollar spent. Once a customer accumulates 5,000 points during an annual period, the customer automatically becomes a member of the InCircle Rewards program and receives an InCircle Rewards card.

With membership come certain special privileges, as determined by NMG. In the past those privileges have included the following, subject to changes made by NMG from time to time: two publications and a newsletter, complimentary gift packaging on purchases over $25, Hertz double upgrade/discount, double InCircle Reward points on the customer’s birthday and $25 dinner certificate for Smith & Wollensky restaurant. Also cardholders receive advance notice of sales and special events at Neiman Marcus. NMG will periodically have double-point days at Neiman Marcus stores when cardholders can earn two points for every dollar spent on the card, driving more customer traffic into the stores.

Once a customer earns 100,000 InCircle Rewards points within the annual program period, the customer becomes a Platinum Preference Award member and receives unlimited double InCircle Rewards points on all NM Card purchases for that annual period. The customer also receives special privileges, as determined by NMG. In the past, these privileges have included the following, subject to changes made by NMG from time to time: customer selected rewards for redemption, 1,000 InCircle Reward points on the customer’s birthday, complimentary subscriptions, memberships to Latitude global services, MEDJET ASSISTANCE, bottle of champagne, cruise gift certificate and $100 dinner gift certificate to Smith & Wollensky restaurant. If the customer reaches 1,500,000 InCircle Rewards points, the customer becomes a member of the Chairman’s Circle and the special privileges become even more exceptional.

A member’s account must be in good standing and at the current point level for thirty days to be eligible to redeem points for rewards. Merchandise returns and other financial adjustments are deducted from the InCircle Rewards account points. Corporate and employee accounts are not eligible to participate in the InCircle Rewards programs.

All point redemptions for InCircle Rewards must be made during the annual program period (which lasts for fourteen months from January to the following March 1st). After March 1st, 25% of unredeemed InCircle Rewards points (up to a maximum of 5,000 points) will be carried over into the next annual program period. Points are not earned on sales tax, beauty salons, delivery and processing, alterations, gift packaging charges or NM Gift Cards®. Points are not

convertible to cash or payment on Neiman Marcus accounts. Customers are responsible for all federal, state, and local taxes; for delivery, processing, and handling fees; and for insurance. NMG also offers special privileges determined by NMG from time to time (such as personal shopper services, invitations to exclusive events, free consultations and private shopping hours) as well as InCircle Rewards points to AMEX Centurion (“Black”) and Platinum cardholders.

The InCircle Rewards program also permits point owners to convert points from InCircle Rewards points to points for other programs, including United and American Airlines (point for point). The InCircle Program has relationships with third parties where InCircle points are rewarded to customers of those third parties in connection with the purchase of certain goods and services from such parties. In addition, the InCircle Program rewards points to couples who have registered at NMG for items purchased off their wedding registry regardless of tender type.

Bergdorf Goodman Card Rewards Program

The Bergdorf Goodman Rewards program currently operates differently than the Neiman Marcus InCircle Rewards program. Beginning in January 2005, the Bergdorf Goodman Rewards program permits select AMEX cards (Centurion and Platinum cardholders only) to be enrolled in the Bergdorf Goodman Rewards program. Every Bergdorf Goodman card account is automatically enrolled in the program. A Bergdorf Goodman card receives Bergdorf Goodman Rewards points if it is used at either Bergdorf Goodman or a Neiman Marcus store (but not a Neiman Marcus Clearance Center) on a one point per dollar basis. Beginning in January 2006, the Bergdorf Goodman Rewards program will be rolled into the InCircle Rewards program.

Section B: Loyalty Cards

InCircle Rewards Card

InCircle Platinum Rewards Card

Bergdorf Goodman Rewards Card

SCHEDULE 1.1(d)

NMG Licensed Marks

	Serial/Registration	Applicable Retail
Mark	Number	Division/NMG Channel
BERGDORF GOODMAN	1902799
BERGDORF GOODMAN	0992733
IN CIRCLE IN and Design (Circle around IN)	1337166
INCIRCLE REWARDS	2442806
NEIMAN MARCUS	2209260
NEIMAN MARCUS	0934177
NEIMAN MARCUS	SN 78/374184
NEIMAN MARCUS (stylized)	1733202
NEIMAN-MARCUS	1154006
NM	1558605
PLATINUM PREFERENCE REWARDS	SN 78/420272

SCHEDULE 1.1(e)

Non-Card Payment Plans and Private Label Credit Cards

Section A: Non-Card Payment Plans

Signature Accounts

Commercial or Corporate Accounts

Studio Accounts

Club Accounts

Section B: Private Label Credit Cards

Neiman Marcus

Neiman Marcus Card

Neiman Marcus Gold Card

Bergdorf Goodman

Bergdorf Goodman Card

SCHEDULE 1.1(f)

“High Collar” means (i) with respect to the Finance Charge Reversal Percentage applicable to the Private Label Accounts, [***], (ii) with respect to the Late Fee Reversal Percentage applicable to the Private Label Accounts, [***], (iii) with respect to the dollar amount of Average Interest Free Receivables as a percentage of Average Private Label Receivables, [***]%, or, in each case, such other level as may from time to time be set by the Management Committee.

“Low Collar” means (i) with respect to the Finance Charge Reversal Percentage applicable to the Private Label Accounts, [***], (ii) with respect to the Late Fee Reversal Percentage applicable to the Private Label Accounts, [***], (iii) with respect to the dollar amount of Average Interest Free Receivables as a percentage of Average Private Label Receivables, [***], or, in each case, such other level as may from time to time be set by the Management Committee.

SCHEDULE 1.1(g)

Special Discounts

[***]

SCHEDULE 2.1(b)

Private-Label Credit Card Re-issuance

For the initial Private Label Credit Card re-issuance, preliminary and on-going meetings between Bank and NMG must take place to discuss the criteria for Cardholders receiving the re-issued Private Label Credit Card mailing. During the initial meetings, timeframes must be reviewed in order to avoid a significant increase in customer service call volume. At a minimum, the Private Label Credit Card re-issuance shall (i) take place in separate mailings across a 90-120 day minimum timeframe based on account status and (ii) be structured such that active cardholders receive the re-issued Credit Cards first followed by in-active Cardholders in equally-staged mailings. In addition to defining the testing and project plan to be implemented in connection with this re-issuance, other considerations to be addressed by the Management Committee include a potential account purge of some inactive Accounts, the development of fraud prevention steps and the coding for Credit Card activation at the POS (or through the IVR/VRU). In accordance with the design of the Cardholder Documentation associated with the re-issuance pursuant to Section 4.5, Bank will be responsible for the production, mailing, audit reporting and communication of the appropriate loyalty-level Private Label charge cards and related materials to all cardholders. In addition to the staged mailing process, Bank must work with NMG to ensure that the Private Label Credit Cards and related materials meet NMG standards in order to address the customer service impact of the re-issuance. Prior to any mailing of re-issued Private Label Credit Cards, Bank and NMG must discuss and agree upon the maximum daily mailing volumes in this staged process.

SCHEDULE 2.2(c)(i)

Dual-Line Credit Card Testing

Section A: Dual-Line Credit Card Development and Product Design

Bank shall perform consumer research and product design including initial design and proposal of Cardholder terms and conditions, Account acquisition and activation value proposition, integration with current Private Label program, and integration with current Program Loyalty Program, all subject to review and approval by NMG. Bank and NMG will jointly develop the Dual-Line/Co-Brand Risk Management Policies, Marketing Plan, implementation schedule, look and feel of the Solicitation Material, including Dual-Line/Co-Brand program collateral (i.e., cards, welcome kit, applications), and Cardholder and store communications.

Section B: Dual-Line Credit Card Testing

Bank and NMG will jointly develop and the Management Committee will approve a live test plan, such plan to include channel, geographic and customer segmentation strategies, (if applicable), and which may include, among other items, direct mail to existing Private Label Cardholders and/or placing Dual-Line/Co-Brand applications in select test stores. The Management Committee will approve the live test plan, including identifying, setting and reporting of the metrics used to measure the success of the test, as well as the length of time of the test period; provided, that such test period will commence no later than the Dual-Line Card Deadline and after conversion to the Bank Systems.

Section C: Dual-Line Credit Card Definitions

“Development Period” means the period beginning on the day that NMG provides notice of its desire to test Dual-Line Cards pursuant to Section 2.2(c)(ii) and ending on the ninetieth (90th) day following such notice.

“Dual-Line Card Deadline” means June 30, 2006, as may be extended in NMG’s sole discretion.

“Dual-Line Testing Date” means December 31, 2005.

SCHEDULE 2.2(c)(ii)

Dual-Line Credit Card Terms

[***] branded

[***] general-purpose credit line

No Merchant Discount in the Retail Merchants

Tied to a Program Loyalty Program

Economics to be agreed between NMG and Bank, including compensation for Program Loyalty Program points with respect to all spending and marketing outside of the NMG Channels

Servicing and service level standards to be mutually agreed upon by NMG and Bank

SCHEDULE 2.2(d)

Section A: Non-NMG Credit Cards

The NMG Companies shall have the right to accept Credit Cards other than NMG Credit Cards except that, with respect to the Neiman Marcus store line (excluding NM Direct, NM Online, Last Call and Bergdorf Goodman stores), only the NMG Credit Cards and American Express Credit Cards shall be accepted, except that any or all Credit Cards may be accepted in (i) [***], (ii) [***] and (iii) [***].

Section B: Permitted Loyalty Program Arrangements

[***]

SCHEDULE 3.2(e)

Initial Program Changes

Annual Fee	No annual fee, except for $50 NM Gold Card program membership fee.
Late Payment or Late Fee (at cycle)	Based upon two prior month’s statement balance:
	·$20-$49 Balance = $5
	·$50-$149 Balance = $15
	·$150-$299 Balance = $20
	·$300+ Balance = $29
Returned Check Fees (BG to be standardized as NM)	$25 per returned check
Minimum Payment Amount (BG to be standardized as NM)	10% of billed balance (but at least $25 and, for closing balances of $250 or more, rounded up to the nearest $10).
Minimum Finance Charge	$.50
Standard APR	21.0% APR for all residents (or at NMG’s election, all residents other than 1,500 VIP Accounts plus up to 5,000 other Accounts) except in two states to be agreed upon; [TBD%] plus Prime variable APR for two states to be agreed upon.
Grace Period for the Repayment of Purchases	27 days
Method of Computing the Balance for Purchases	Average Daily Balance (including new purchases)

SCHEDULE 3.2(g)(i)

Private Label Account Profiles

Bank may make changes to the Risk Management Policies with respect to a channel in response to changes in the credit profiles for Account applicants in such channel if the Population Stability Index (PSI) based on the Fair, Isaac Score indicates a change in excess of [***] in such channel for two consecutive months

·For purposes of determining the PSI benchmark: NMG will send to Equifax the through-the-door (TTD) application population for the most recent quarter

·Equifax will access both NMG’s and Bank’s current scoring methodology and develop a cross-talk table to translate NMG’s current scores to Bank’s scores

·The scores will be used to develop the PSI

The objective of the Population Stability Index (PSI) is to answer the question ‘Is the current application population scoring differently from a Benchmark population’. The PSI is designed to indicate the level of change in the applicant population. The Index can be interpreted as follows:

[***]

The NMG application file will be used to benchmark the PSI by Next Gen, FICO Score and New Account Scorecard Score if contractually allowed by FICO. The historical approval rates for NMG for the past 12 months will be used to indicate the seasonal trend in credit quality and approval experience by NMG. The information would be segmented by channel and monitored on a monthly basis.

The PSI would be developed jointly over the first six months following the Effective Date with the Risk Management Policies remaining unchanged during this time.

Attached is an example of a PSI.

SCHEDULE 3.3

Program Relationship Managers; Partner Program Team

1.Initial Manager of NMG: Steven Dennis

2.Initial Manager of Bank: To be determined by the Parties prior to Closing.

3.Bank’s Program Team Requirements and Specifications

(a)Fully-Dedicated Team Members: Bank shall ensure that the following full-time employees, in each case having the experience and skills referred to below shall devote 100% of their work efforts to the Program:

(i) Two (2) marketing strategists with cumulative experience in the credit card or retail marketing industry of at least 15 years, or such other experience acceptable to NMG; and

(ii) Two (2) fully-trained data mining analysts

The foregoing dedicated employees shall devote substantially all of their efforts to performing Bank’s obligations pursuant to Section 5.4.

(b) Other Program team requirements:

Each Program team member would have a minimum of five (5) years of relevant experience working with similar programs.

Upon mutual agreement of NMG and Bank, two (2) of the team members, including one of the marketing strategists, would be located at the NMG offices in Dallas.

Bank will identify and assign a lead technology and a lead risk management representative to work with the Program team members. Each lead representative will be the functional subject matter expert relative to the Program and will be assigned for a period of time to provide consistency in knowledge and experience to the Program team members.

SCHEDULE 3.3(d)

List of Retailers

Saks

Nordstrom

Barney’s

Coach

Jeffrey

Tiffany

Holt Renfrew

Fred Segal

Stanley Korshak

Scoop

LVMH

Prada Group

PPR Group

Federated

SCHEDULE 4.1(b)

Operating Procedures

Schedule 4.1(b)

Risk Management Policies and

Operating Procedures

New Account

Risk Management Policies and
Operating Procedures

A-1

[***]

Multiple PaySys CDM Screen Prints showing full
application flow will be attached.

B-1

[***]

Authorizations

Risk Management Policies and
Operating Procedures

C-1

[***]

Multiple PaySys Custom Rescore Screen Prints
showing rescore matrixes and parameters
will be attached.

D-1

[***]

Customer Service/InCircle
Risk Management Policies and
Operating Procedures

E-1

[***]

Collections
Risk Management Policies and
Operating Procedures

F-1

POPULATION STABILITY COMPARISON

Benchmark vs Current Month Application Data

[***]

SCHEDULE 4.4(f)

Document Retention Policy

Beginning as of the Effective Date, NMG shall comply with the following document retention policy:

Title	Description	Retention
Regulatory Complaints	Complaint resolutions resulting from complaints to any regulatory agency.	[***]
Customer Application & Agreement Forms	Samples of forms used for customers applying for credit. Forms include two parts: 1) Application form and 2) cardholder agreement and disclosures	[***]
General Customer Correspondence	Retention of customer correspondence that is currently required in writing, including name changes, FTC dispute letters, bankruptcy filings and deceased notifications. Other customer correspondence including address changes, credit limit change requests and financial adjustment requests are not retained since these requests can be accepted verbally today.	[***]
Sales Slips (Signature Slips)	Signature slips that show the transaction total, tender information and customer signature but not the transaction detail.	[***]
GI.B Privacy Opt Outs	Opt-out code will be retained on-line for [***] months and opt-out reply notices will be retained on paper for [***] months	[***] Months (on-line opt-out code) and [***] Months (opt-out reply notices)
Completed Approved Applications	All new applications that are signed by the applicant	60 Months
Customer Inquiry Decline Reason Response	After applicant receives initial new account decline letter, decline reason response generally handled via phone but follow-up letters mailed explaining specifics are not retained although noted on the application on-line for [***] months. Existing cardholders inquiry as to a declined authorization is also handled verbally in most cases with follow-up letters, if necessary, not retained although noted on the account.	[***] Months for new account declined application signed by applicants, [***] Months for other customer inquiry decline reason responses
Adverse Action Letters	On-line letter code notations on the declined application or existing account that had a declined sale, declined application or their account closed, and the template of the adverse action letter.	[***] Months
Approvals - Credit Line Increase Request	The date implemented and the revised credit guideline is retained on-line	[***] Months
Overlimit Report	Retained on-line through current SystemWare RDS platform but not stored on paper	[***] Months

Resolved Disputes On-line history of each Adjustment Jacket dispute including resolution stored in Forms Database [***] Months

Title	Description	Retention
Credit Bureau Change Request/Correction	Currently do not keep any paperwork but the electronic consumer dispute verification (CDV) is stored on-line for [***] days from date of submission	[***] Months
Currency Transaction Report	Currently stored within each Store Cash Office but transitioning to centralized filing process	[***] Months
Suspicious ActivityReports	Currently not done but will be instituting process similar to Currency Transaction Report with a centralizing filing and reporting control	[***] Months
OFAC Reporting	Foreign OFAC reporting currently in place but new reporting to be developed for all new applicants going forward	[***] Months
USA Patriot Act Customer Identification Information	Account opening information such as: Name, Date of Birth, Social Security Number and Physical Address are stored on-line but not all information is necessarily required to open new account	[***] Months after the account is closed (on-line)
USA Patriot Act Customer Identification Information	Pass/fail indicators of each new account reason is stored on the on-line application record although no specific beyond this indicator except any notes made by Universal Agent are retained.	[***] Months after account opening (on-line)
Customer Identification Program Reporting	Exception reports to identify customer program reporting is not existing at this time other than an internal fraud file that can refer a new application for manual intervention. NM Direct channel has additional fraud prevention capabilities.	TBD
Cash Payment Reporting	See above Currency Transaction Report	[***] Months
Performance Reports	Various daily, weekly, monthly or cycle reports used to measure performance in various credit department functions that are retained on-line through SystemWare XNET or RDS platform	[***] Months

SCHEDULE 4.6(c)

Risk Management Policies Targets

[***]

SCHEDULE 4.7

Cardholder Terms

[***]

SCHEDULE 4.8(b)

Internet Services

All Internet-based system functionality provided and maintained by the Bank must be available to cardholders 24 hours a day, 7 days a week with a minimum [***] system availability. Scheduled system maintenance not exceeding 4 hours is allowed per month during the hours of 12 am and 6 am CST. Internet functionality shall include:

·Real-Time Application Processing with Fraud Authentication – Provided Bank product offers extended application functionality beyond NM Online real-time application process (to be implemented in June 2005), Bank application processing product must be submitted through CDM or comparable system and completely processed back to Internet within 45-second window. Authentication product is a necessity to release new account number immediately back to Internet applicant. Authentication product must give NMG the ability to influence question weighting structure and type of demographic or credit bureau-related questions asked. Detailed fraud reporting and if available, the ability for Universal Agents to quickly view applicant’s category questions whenever necessary are other requirements. In the event that fraud expenses increase for 2 consecutive months compared to fraud expenses from Fiscal Year 2004 as a result of authentication changes by moving from the NMG to the Bank authentication and system platform, formal discussion with the Management Committee must be held to discuss alternatives and implement new fraud strategies to either enhance or replace current authentication tools. The authentication tools would also be beneficial in other application arenas if available.

·Real-Time Authorization Processing (on NM/BG revolving/option accounts) - Direct communication to and from NM Direct/On-line CMOS system with a less than 2-second response time per authorization request is a requirement. Current or comparable system over-limit percentage parameters and rescore tier I and II matrix guideline increase processes must be in place to eliminate as much manual intervention as reasonably possible. Authorization processing through this channel must be done from a line or ticket-level authorization prior to the item being shipped instead of at order time or as a total authorization request. If items including drop ship or back-ordered items are not shipped within 30 days of the authorization request, the item must be re-sent through the systemic authorization processes for re-authorization. All authorizations not able to be approved systemically will require a batch or queue-related decision process with NMG Credit Services to manually decision pending transactions. If approved manually by the Universal Agent on the same day as the sale date, an immediate release of that order within the CMOS system must occur as it does today.

·Signature Account (SIG600) Functionality – On furniture and Home Décor items, upon NMG’s request, Bank shall offer NM On-line customers a 6-month, no finance charge Signature Account tender option for those purchases over $600 dollars. The real-time authorization processing for these Accounts must allow for these requests to be sent to NMG Credit Services for manual intervention. SIG600 accounts are setup to bill 1/6th of the billed balance to ensure that 6 equal payments exist for each item based on item ship date. The Signature Account Agreement and terms letter following a Signature Account approval must be automated within the respective credit systems. SIG600 denials will automatically receive appropriate adverse action letter. If the Bank system can support a signature sale

initiated as a secondary plan on the option/revolving account, this option will be used instead of a secondary account upon mutual agreement by Bank and NMG in writing. Should this one-account option be used, no further Signature Account Agreement forms or terms letter will be required for NM On-line customers.

·New Account Prescreening or Prospecting – In coordination with NM On-line personnel, new account and existing account prescreening options on the web will be discussed by NMG and Bank The Parties intend to encourage creditworthy third party customers, either during the check-out process or afterwards through an e-mail confirmation, to open an NM or BG charge account with or without a promotion (i.e. bonus InCircle points or free shipping). Other prospecting options to encourage existing NM or BG cardholders to use their charge card to shop will also be discussed by NMG and Bank with input from NM On-line personnel with respect to specifications and design of such options.

·E-Pay Functionality – Electronic payment functionality must give the cardholder the ability to pay their bill on-line, even on their closing or due date, until 7 p.m. CST if not later and be posted with this same date by the next business day. The MOD-10 check-digit routine and other NMG account number logic (i.e. account must begin with 04 or 05, be 12-digits) must be part of initial process to eliminate “account not found” transactions. Should an on-line customer request to change or cancel their payment on the same day, Universal Agents must have an ability to correct these payments. Daily transmissions of these electronic payments will be submitted through TRAMS or comparable receivable system to post payments regularly. Returned payment transmission or reporting must be given to NMG daily to immediately reverse payment transaction. Initial ACH Authorization Form requirements to initiate an e-pay request must be explored further between Bank and NMG. Recurring payment functionality with this e-pay product would also be included if Bank has such capability. As a note, NMG currently utilizes several ACH vendors through the IVR including Harbor Payments (Bank of New York) that can be used for this e-pay process fairly easily.

·E-Bill Functionality - On-line bill presentment must be readily available to cardholders within 24 hours of each cycle close and should contain at a minimum all data that is currently printed on the NM or BG monthly billing statement. Billing functionality should allow cardholders to view up to 12 months of their billing statements on-line. The Parties will cooperate to implement the ability to display sub-total amounts per item in addition to selective marketing and InCircle loyalty messages and displays. Universal Agents must have ability to view and discuss on-line e-bill functionality with cardholders whenever necessary.

·E-Service Functionality – The Parties will also cooperate to provide real-time memo and cycle-to-date balance information as well as customer address maintenance and credit card re-ordering capabilities provided these on-line requests do not immediately update cardholder credit system data. Instead, a security question (i.e. last four digits of SSN) will be asked of cardholder at time of entry and updated data sent to a credit queue for manual approval before actually updating the credit system. Upon such time, if any. review would be required until NMG Credit Services is comfortable with customer-initiated updates received from the on-line channel and manual control could be eliminated.

SCHEDULE 5.2

Marketing Commitments

Section A: NMG Marketing Commitment

The NMG Marketing Commitment for each Fiscal Year shall be equal to (i) [***], plus (ii) in the case of any Fiscal Year following the first Fiscal Year, [***] multiplied by the applicable Program Growth Percentage for such Fiscal Year.

The “Program Growth Percentage” is, for each Fiscal Year after the first Fiscal Year of the Program, the percentage by which Net Credit Sales for such Fiscal Year exceed Net Credit Sales for NMG’s Fiscal Year ended July 31, 2005.

Section B: Joint Marketing Commitment

The Joint Marketing Commitment for each Fiscal Year shall be equal to (i) [***], plus (ii) in the case of any Fiscal Year following the first Fiscal Year, [***] multiplied by the applicable Program Growth Percentage for such Fiscal Year.

The “Program Growth Percentage” is, for each Fiscal Year after the first Fiscal Year of the Program, the percentage by which Net Credit Sales for such Fiscal Year exceed Net Credit Sales for NMG’s Fiscal Year ended July 31, 2005.

SCHEDULE 6.2

Program Privacy Policy

HSBC Bank Nevada, N.A.

A Privacy Statement for Neiman Marcus and Bergdorf Goodman Cardholders

Introduction – Our Commitment to You

HSBC Bank Nevada, N.A. (“HSBC”) is proud to be the issuer of the Neiman Marcus and the Bergdorf Goodman private label credit card, each of which allows you to charge purchases from The Neiman Marcus Group, Inc. (“Neiman Marcus Group”), which includes Bergdorf Goodman, Inc., and their various affiliated companies. This Privacy Statement describes the collection, use, and protection of information about you and your Neiman Marcus and/or Bergdorf Goodman credit card account. This policy has been in effect as of [date]. [to be updated as appropriate]

HSBC is part of a financial services organization that has been providing superior products and services to its customers for more than 150 years. We greatly appreciate the trust that you and millions of customers have placed in us, and we will protect that trust by continuing to respect the privacy of all our applicants and customers even if our formal customer relationship ends.

What Information We Collect

It is important for you to know that in order to ensure that our customers get the very best service and the highest quality products, HSBC collects demographic information (such as your name and address) and credit information (such as information related to your accounts with us and others). This information is collected from the following sources:

·Information we receive from you on your application or other form;

·Information you provide by telephone or in person to a Neiman Marcus sales associate, Bergdorf Goodman sales associate or other representative;

·Information about your transactions on your account with us, or our affiliates;

·Information from an outside source such as your credit bureau report;

·[Information from list vendors;]

·[Information from public sources;] and

·Information about your Internet usage if you visit our website.

How We Share Information with Neiman Marcus Group

In order to provide you with the benefits and services available to you as a Neiman Marcus or Bergdorf Goodman cardholder, it is necessary for HSBC to share certain information about you with Neiman Marcus Group. Neiman Marcus Group includes Neiman Marcus Stores, Neiman Marcus Direct (including Horchow), and neimanmarcus.com, in addition to Bergdorf Goodman, Inc. including Bergdorf Goodman Stores, Bergdorf Goodman Direct and bergdorfgoodman.com.

Your Neiman Marcus or Bergdorf Goodman credit card can be used to make purchases at all of these locations.

The information we share with Neiman Marcus Group may come from your application, such as your name, address, e-mail address, telephone number, and social security number. Neiman Marcus Group may have also received some or all of this information from you. The information we share may also come from your transactions with us, such as your account number, information about your credit card purchases and your account performance. Neiman Marcus Group uses the information we share solely in connection with providing the benefits and services available to you as a Neiman Marcus or Bergdorf Goodman cardholder.

Except for accounts with Vermont mailing addresses, we may also share non-public personal information about you with Neiman Marcus Group which Neiman Marcus Group may use to provide you with information about benefits and services available to you as a Neiman Marcus Group customer, but that are not necessarily related to your account with us.  This information comes from the sources described above and may include your name, address, and account experience with us.

You may tell us not to share information with Neiman Marcus Group as set forth in the immediately preceding paragraph by completing the form below. For Vermont, state law requires us to obtain your permission in order to share information about you in this way, and we will not share information about you in this way unless you authorize us to do so. We will automatically treat accounts with Vermont mailing addresses as if they have opted out of such information sharing.

How We Share Information with Companies Affiliated with HSBC

From time to time, for general business purposes such as fraud control, or when we think it may benefit you, we share certain information with our companies in our corporate family (e.g., Affiliates), except as prohibited by applicable law. These affiliated companies, doing business under the HSBC name, all provide financial services, such as banking, insurance, mortgage, and brokerage services. The information we share might come from your application, such as your name, address, telephone number, and e-mail address. Also, the information we share could include your transactions with us or our Affiliates (such as your account balance, payment history, and parties to the transaction), your Internet usage, or credit card usage.

How We Share Information with Other Third Parties

We may provide information to non-affiliated companies that perform operational, collection, or fraud control services related to your account. The sharing of information with these types of companies is permitted by law. Such a company might include a financial company (such as an insurance service provider) or a non-financial company (such as a data processor or internet service provider) with whom we have a service agreement. These companies are contractually obligated to protect the information that they receive from us and may not use it for any other purpose other than for performance of services on behalf of HSBC. The information we may

share also comes from the sources described above and might include your name, address, phone number, and account experience with us.

Finally, we may provide information about you to non-affiliated companies such as credit reporting agencies and companies which provide services related to your account. This information sharing is also permitted by law.

Security of Your Information

Safekeeping of your non-public personal information is a high priority. We maintain physical safeguards, such as secure areas in buildings; electronic safeguards, such as passwords and encryption; and procedural safeguards, such as customer authentication procedures to detect identity theft. We restrict access to information about you to only those who need to know that information to provide products or services to you. We carefully select and monitor outside service providers, such as mail vendors, who have access to customer information, and we require them to keep it safe and secure. We do not allow them to use or share the information for any purpose other than to perform the service for which they are engaged. We train our employees with respect to security procedures and monitor compliance therewith.

How to Opt-Out of Information Sharing with Our Affiliates (Applicable to residents of all states except Vermont)

If you prefer that we not disclose nonpublic personal information about you to our Affiliates, you may opt out of those disclosures, that is, you may direct us not to make those disclosures (other than disclosures permitted by law) by completing this detachable reply form and mailing it to the following address:

The Neiman Marcus Group, Inc.

P.O. Box 720937

Dallas, Texas 75372-0937

We will be happy to comply with your request. This request will not apply to information about your transactions or experience with HSBC (such as account information, account usage, or payment history) and will only apply to the private label accounts you have with HSBC. Private Label accounts are not general purpose accounts such as MasterCard® or Visa®, but are accounts that may be used only at the specific merchant(s) named on the credit card. An opt-out request by any party on a joint account will apply to all parties on the joint account. Vermont residents are automatically opted-out of credit information sharing with our Affiliates.

How to Opt-Out of Information Sharing with Neiman Marcus Group (Applicable to residents of all states except Vermont)

If you do not want us to share your non-public personal information with Neiman Marcus Group for purposes that are unrelated to your account with us, please let us know by completing this detachable reply form and mailing it to the following address:

The Neiman Marcus Group, Inc.

P.O. Box 720937
Dallas, Texas 75372-0937

We will be happy to comply with your request. Your request will not apply to the sharing of information which we are permitted or required by law to share, and will only apply to the private label accounts you have with HSBC. If your account with HSBC is a joint account, an opt-out by any party on the joint account will apply to all parties on the account. Vermont residents are automatically opted-out of information sharing with Neiman Marcus Group that is not otherwise permitted or required by applicable law.

Changes to Privacy Statement

We reserve the right to modify or supplement our Privacy Statement at any time. If we make material changes, we will provide our current customers with a revised notice that describes our new practices. The current Privacy Statement applicable to Neiman Marcus and Bergdorf Goodman credit cards will always be available at the neimanmarcus.com web site.

The Neiman Marcus Group Privacy Policy

Neiman Marcus Group also wants you to be aware that whenever you shop with Neiman Marcus or Bergdorf Goodman – online, through their catalogs, or in the stores – Neiman Marcus Group obtains information from you needed to complete the transaction, including the specific products or services you purchase or use, which is shared among Neiman Marcus corporate affiliates. A separate privacy policy describing the collection, use, and protection of this and other information about you and your relationship to the Neiman Marcus Group companies is available at neimanmarcus.com, at any Neiman Marcus or Bergdorf Goodman location, or by writing to Neiman Marcus, P.O. Box 720937, Dallas, Texas 75372-0937.

SCHEDULE 7.1(a)(i)

Bank Reports

Department	Report	Description
Late Stage Collections	Roll Rates	Trial Balance By Cycle Trial Balance By Balance Range Roll Rate
	Dialer Reports Collection QA Reports Agency Batch Track Analysis Write-Off Performance Agency Placement Strategies Calling Strategies Debt Management Inventory Report Outbound/Inbound Dialer Volume Collection Productivity Reports	Job Performance Summary Monthly Job Performance Summary Monthly System Performance Summary Monthly System Completion Code Summary Monthly Job Completion Code Summary NM Monitoring Form Billing Calendar - Dialer Work Schedule Payment Plans CCCS Inventory Refer to Dialer Reports Collector Synopsis Summary Reports (By Team)
Payment Processing Image RPS Reports Statistical Reports	Cash Letter Reject Items Report Deposit Report Client Total Items Host File Batch Summary Report Payment Distribution Report NTN 100D 15,000+ Report Consolidated Cover Report Collection Report Transmission Report Image RPS Operators Report Encoding Errors Report Opener Statistics	Listing of checks to be deposited in pocket cut Displays item rejected by machine or operator Pocket cut totals Pass I Pocket totals NM & BG Batch listing for host file NM & BG Batch payment distribution by amount paid (PIF, min payment, etc.) NCR Payment Processing Control Listing Payments in excess of 15,000 Cash Letter Listing Foreign Conversions Collection Letter Printout of transmission and acceptance of file (to host) Statistics on each operator Monthly Quantity of keying errors Monthly Report on quantity and rate of envelopes opened

Statement Mailing	Statement Count Recap Detail Statistics By Package Statement of Mailing Statistical Totals Cass Report Reprint Statement Tray Labels Misc. Excel Schedules	Total Number of Cycles Processed Total Number of Statements
		Total Hours Processing Time Average Cycle Processing Time Average Statements Per Hour Number of Statements Mailed Same Day Number of Statements Mailed Within 24 Hours Number of Statements Mailed Within 48 Hours Number of Statements Mailed After 48 Hours Total Postage by Presort/USPS Explanations for Missed SLA’s
Credit Card Issuance	Data Card Audit File Misc. Excel Schedules	Total Number of Jobs Processed Total Number of Cards & Customers Total Hours Processing Time Average Job Processing Time By Type Average Cards Per Hour By Type Number of Cards Mailed Same Day Number of Cards Mailed Within 24 Hours Number of Cards Mailed Within 48 Hours Number of Cards Mailed After 48 Hours Postage Reconciliation Total Postage By Card Type Cards & Forms Reconciliation Explanations for Missed SLA’s

Note: In the event of a transfer of service, the reports provided by Bank shall be mutually agreed upon by NMG and Bank.

SCHEDULE 7.1(a)(ii)

NMG Reports

Department	Hotel Report	Brookline Equivalent
Collections	Roll Rates	Trial Balance By Cycle
		Trial Balance By Balance Range
		Roll Rate
	Dialer Reports	Job Performance Summary
		Monthly Job Performance Summary
		Monthly System Performance Summary
		Monthly System Completion Code Summary
		Monthly Job Completion Code Summary
	Collection QA Reports	NM Monitoring Form
	Collection Agency Audit Packages	Collection Agency Account Audit
		e.g. Attorney Placement Summary (Strong Law Firm)
	Collection Bureau Disputes	Report Card Information; Summary of Responses
	Calling Strategies	Billing Calendar - Dialer Work Schedule
	Block Code Report	Blocked Account Report
	Block Code/User Code Report	No applicable Report
	Debt Management Inventory Report	Payment Plans
		CCCS Inventory
	Outbound/Inbound Dialer Volume	Refer to Dialer Reports
	Collection Productivity Reports	Collector Synopsis Summary Reports (By Team)
Credit	Override Report	Credit Application Processing System CAPS Listing
	Credit Line Increases	New Accounts With Guidelines Exceeding $
		Credit Limit Change Report
	Forced Authorization Report	Daily Approval Override Code Usage - Manager Overrides
		Daily Approval Override Code Usage - Credit Center Overrides
		Authorization Production By Operator ID
		Auto & Manual Decline Transactions
	Reinstatement Report	No applicable Report
	Application Decision Timing	No applicable Report
	Adverse Action Timing	Adverse Action Letter Generation
	Decline Reason Timing	Adverse Action Letter Generation
Fraud	New Fraud Claims Report	CAPS - Real-Time Fraud Detection Payment Report Model
		Pending Fraud Write-Off
	Fraud By Name Plate Report	Fraud Expense Forecast
		Fraud Expense By Location
	Fraud Block Code Vintage Report	No applicable Report
	Fraud By Type	Fraud Loss By Type
	Fraud Write-Off Policies	No applicable Report
	Fraud Investigation Procedures	Loss Prevention Training Program - Module 5/Fraud Investigators
	SAR Reporting Timelines	No applicable Report

Customer Service	Credit Balance Refund Aging Report	Credit Balance Report
		Check Register
	Dispute Aging Report	Neiman Marcus FCBA Log
		Service Profile By Division
		Fiscal 2005 YTD Totals
		Dispute Items Report
	Lost/Stolen Account Maintenance	Accounts Transferred Today
		Transactions On Transfers
	SSCRA Reporting	No applicable Report
	Repeat Credit Bureau Disputes	No applicable Report
	QA Monitoring	Credit Services Quality Assurance Form
	Key Performance Measures	Service Levels - Credit Call Center
	Telephone Statistics Summary	Split/Skill Summary Monthly Authorizations
		Split/Skill Summary Monthly Infobot
		Split/Skill Summary Monthly Incircle/Gold
		Split/Skill Summary Monthly Incircle/Platinum
		Split/Skill Summary Monthly - NMD/NMO Referrals
		Split/Skill Summary Monthly Customer Service Help
	Dispute Processing & Procedures	Dispute Resolution Process
Compliance	Right to Financial Privacy	Subpoena Log
	Compliance Training	No applicable Report
	Escalated Complaint Reporting	No applicable Report
	Cash Payment Monitoring	Reporting Monies Received on In-Store Cash Payments
	OFAC Exception Reporting	Report Distribution Change Request
	High Risk Country Reporting	No applicable Report
	CIP Exception Reporting	No applicable Report
A/R System	Activity Recap Report (R16)	Activity Recap Report (R16)
	Reject Re-Entry Report (R15)	Reject Re-Entry Report (R15)
	Warehoused Transactions (D10)	Warehoused Transactions (D10)
	Blocked Account Report (O07)	Blocked Account Report (O07)
	Trial Balance by Account (O08)	Trial Balance by Account (O08)
	Charged Off Accounts Report (D09)	Charged Off Accounts Report (D09)
	Audit Exception Report (D15)	Audit Exception Report (D15)
	Generated Transaction Journal (D11)	Generated Transaction Journal (D11)
	Daily Balancing Report (R32)	Daily Balancing Report (R32)
	Accounts Transferred Today (O24)	Accounts Transferred Today (O24)
Risk/Portfolio Management	Application Result Summary	CAPS Listing
	Key Portfolio Statistics	Customer Aging Report (CAR)
	Authorization Summary	Daily Authorization Totals
		Rescore Summary Report
		Rescore With Limit Increase/Decrease - Tier I
		Rescore Tier II With Limit Increase
		Rescore Without Limit Increase/Decrease
		Rescore Tier II Without Increase By Reason Code
	Charge-Off & Recovery Trends	Bad Debt Provision
		Primary Collection Agency Performance Report
		Secondary Agency & Bankruptcy Performance Report

	Bankruptcy Analysis
	Bankruptcy Write-Off Analysis
Behavior Score Control Chart	No applicable Report
	Credit Reclassification Summary Report
FICO Score Control Chart	No applicable Report
Custom Score Control Chart	Population Stability Report Final Scores
Account Review Analysis	Quest Totals

SCHEDULE 7.1(b)

Monthly Settlement Sheet

The Monthly Settlement Sheet shall set forth:

(a)           the aggregate of all Joint Marketing Commitment Amounts spent by the NMG Companies in such Fiscal Month;

(b)           the number of In-Store Payments received by any of the NMG Companies in such Fiscal Month; and

(c)           any other amounts owed to the NMG Companies as explicitly provided herein or as otherwise agreed by the parties in writing with line item specificity, which amounts may be netted.

SCHEDULE 7.1(c)

Yearly Settlement Sheet

The Yearly Settlement Sheet shall set forth:

(a)           the aggregate of all [***] spent by the NMG Companies in the last Fiscal Month of such Fiscal Year;

(b)           the number of In-Store Payments received by any of the NMG Companies in the last Fiscal Month of such Fiscal Year;

(c)           the Finance Charge Reversal Percentage for such Fiscal Year and the calculation of any amounts due pursuant to Section 4.10(b);

(d)           the Late Fee Reversal Percentage for such Fiscal Year and the calculation of any amounts due pursuant to Section 4.10(c);

(e)           Average Private Label Receivables, (ii) Average Interest Free Receivables and (iii) the Net Yield for such Fiscal Year calculated on all Billed Cardholder Debt and the calculation of any amounts due pursuant to Section 4.11; and

(f)            any other amounts owed to the NMG Companies as explicitly provided herein or as otherwise agreed by the parties in writing with line item specificity, which amounts may be netted.

SCHEDULE 7.3(a)

Primary Servicer Service Level Standards

For the Initial Term and each Renewal Term, the following Servicing Levels will be maintained by Bank if they are providing such Services:

A. Documentation Services Bank will meet the following service levels on average each month:

1.Percentage of all billing statements that will be mailed out within 4 days of cycle close date provided that this standard shall not apply if a NMG systems problem prevents communication of the credit input data to Bank’s credit operations (monthly reporting will be completed on an Excel spreadsheet): [***] * [Regulatory SLA]

2.Statement Mailing Services and Credit Card Production Services paper quality for multi-color statements, carriers and matching window envelopes must meet minimum specifications: Ziegler 24-pound, 8 1/2” x 11” virgin white stock, maximum blank white perforated paper

3.Term notifications and privacy and other inserts included in mailings use minimum paper specifications: 60-pound offset

4.Statement programming developed must produce the following billing statement capabilities: multi-color and multiple, selective messaging billing statement capabilities along with an upgraded (from 3 of 9) insertion barcode. Current or upgraded (as approved by NMG) loyalty point information must also be included on the billing statement.

5.Statement insert dimension specifications: Correlate with billing statement size but must continue to meet single-page 1.000 ounce discounted qualification postal rate

6.Percentage of daily payments that will be processed within 48 hours of receipt (functionality includes desktop image archive capability up to 2 years for browse access): [***]

B. Credit Card Production Services Bank will meet the following service levels on average each month:

1.Percentage of all new account and replacement credit cards, including any Program Loyalty Program Cards, that will be mailed out within 4 business days after they are requested (monthly reporting will be completed on an Excel spreadsheet): [***] *

C. Late and Early-Stage Collections Bank will meet the following service levels on average each month:

1.The percentage of time that Bank shall make its collections operations available during the following times: [***]

Monday through Thursday 7:00 a.m. to 11:00 p.m.

Friday 7:00 a.m. to 5:00 p.m.

Saturday 7:00 to 11:00 a.m.

Sunday closed

2.The percentage of time that Bank shall complete the following minimum number of Account reviews for those accounts without a contact or tentative agreement still in the CTA sub-system: [***]

·	Mid balances [***]	every 3 days
·	Balances [***]	every 3 days
·	Balances greater than [***]	every 3 days

3.Percentage of time that Bank shall maintain a [***] monthly promise to pay ratio of accounts worked from the auto-dialer: [***]

4.Percentage of time that Bank shall maintain a [***] monthly contact ratio of accounts worked from the auto-dialer: [***]

5.Percentage of time that Bank shall maintain a [***] cure rate for Accounts worked excluding Accounts with balances greater than [***]: 98% *

6.Percentage of Accounts (greater than [***] balance) which initially enter the collections queue and are worked within [***] hours of such entry into the collections queue: [***]

D. Credit Processing Services & Customer Service Services Bank will meet the following service levels on average each month:

1.Percentage of all customer service inquiry batch-work correspondence (including address or name changes or credit bureau inquiries) that will be opened and reviewed within 5 days of receipt: [***]

2.Authorization, Customer Service and InCircle calls will be answered on a monthly average within the following timeframes after the call first becomes available for a Universal Agent to answer:

·[***] during the months of April through October;

·[***] during the months of November through February; and

·[***] during March or during a month when there is a significant promotion, sale event or another special event including the annual InCircle, Platinum and Gold charge card re-issuance (and the

Management Committee has been notified of such promotion, sale or special event).

If more than half of all Accounts receive a Change of Terms, then these standards will not be applied for the months during which the Change of Terms is becoming effective and one month after the Change of Terms has become effective. *

3.Percentage of all adverse action letters that will be mailed out within 21 days after the adverse decision was made: [***] [Regulatory SLA]

4.Upon the request of a Cardholder or upon the end of the fourth cycle for any Account with a Credit Balance up to [***], the percentage of Credit Balance refunds requested verbally or systemically that will be sent out within 3 days of such request or cycle end date provided that no Credit Balance refund will be sent out for a Credit Balance under [***] [Regulatory SLA]

5.Upon the request of a Cardholder or upon the end of the fourth cycle for any Account with a Credit Balance up to [***], the percentage of Credit Balance refunds requested by mail correspondence that will be sent out within 7 days of such request or cycle end date provided that no Credit Balance refund will be sent out for a Credit Balance under [***] [Regulatory SLA]

6.The percentage of Fair Credit billing and all other customer initiated disputes that are addressed within 60 days of receipt of notification: [***] * [Regulatory SLA]

7.The percentage of time that Bank shall make its customer service operations available from Monday through Friday from 8:00 a.m. CST to 7:00 p.m. CST and Saturday from 9:00 a.m. CST to 1:00 p.m.: [***]

8.The percentage of time that Bank shall make its authorizations and new account operations available from Monday through Friday from 9:00 a.m. CST to 11:00 p.m. CST, Saturday from 9:00 a.m. CST to 11:30 p.m. CST and Sunday from 9:00 a.m. CST to 10:30 p.m. CST (and will extend these hours to accommodate the store operations when formal store hours are extended due to special sales events and seasonal demands): [***]

V. Systems Bank will meet the following service levels on average each month:

1.Percentage of time that all Internet-based system functionality provided and maintained by Bank will be available to cardholders 24 hours a day, 7 days a week (other than scheduled system maintenance not exceeding four (4) hours per month during the hours of 12 am and 6 am CST: [***]

* Denotes a Starred SLA

SCHEDULE 7.3(c)

Primary Servicer Defaults

I.Primary Servicer Default. It shall be a “Primary Servicer Default” if either of the events set forth below shall occur and be continuing and remain unremedied prior to the expiration of the specified period:

(a)           Significant Failure. If Primary Servicer (i) is more than [***] below the target for any Starred SLA in any Fiscal Month, (ii) fails to meet any individual Starred SLA in two (2) consecutive Fiscal Months or (iii) fails to meet any Starred SLA four (4) times in any twelve (12) Fiscal Month period (including multiple breaches of the same and individual breaches of different Starred SLAs) (each, a “Significant Failure”).

(b)           Regulatory Failure. If Primary Servicer fails to meet an SLA designated as a regulatory-based SLA on Schedule 7.3(a) (a “Regulatory SLA”) and such failure results in a breach by Primary Servicer of Applicable Law (such failure, a “Regulatory Failure”).

II.Remedies.

(a)           In the event of a Significant Failure, Primary Servicer shall: (A) promptly report to NMG the reasons for the Starred SLA failure(s); (B) within thirty (30) days of such Significant Failure, propose a remediation plan for taking such action as Primary Servicer deems necessary to correct and prevent recurrence of such failure(s); and (C) subject to NMG’s agreement, implement the remediation plan as soon as practicable. However, under no circumstances shall the time period between NMG’s agreement to the remediation plan and completion of such plan exceed two (2) months.

(b)           If Primary Servicer has an additional failure of any of the same Starred SLA(s) (“Subsequent Failure”) during the twelve (12) Fiscal Months following the occurrence of any Significant Failure, Primary Servicer shall pay NMG Two Hundred Thousand Dollars [***], within fifteen (15) days of the end of such Fiscal Month, for each such Subsequent Failure.

(c)           Upon the occurrence of the second Subsequent Failure and each additional Subsequent Failure of the same Starred SLA during the twenty four (24) Fiscal Months following a Significant Failure or upon the occurrence of a Regulatory Failure, Primary Servicer shall pay NMG Five Hundred Thousand Dollars [***], within fifteen (15) days of the end of such Fiscal Month, per each additional Subsequent Failure.

(d)           Upon the occurrence of (i) the third and each additional Subsequent Failure of the same Starred SLA during the twenty four (24) Fiscal Months following a Significant Failure or (ii) a second Regulatory Failure of the same Regulatory SLA, NMG shall, in addition to payment as provided in paragraph (c) above, have the right to terminate the Program Agreement by providing thirty (30) days prior written notice to Bank, in which event the parties shall have the rights set forth in Article XVII; provided, however, that prior to NMG electing to terminate the Program Agreement, the Management Committee shall meet to discuss the occurrence of the Subsequent Failure and shall determine whether such SLA should be modified. If the Management Committee determines that such SLA shall be modified, then NMG shall not be entitled to terminate the Program Agreement as a result of the Subsequent Failure discussed at the meeting of the

Management Committee unless and until an additional Subsequent Failure of the same Starred SLA occurs.

(e)               Notwithstanding the foregoing, in the case of any Primary Servicer Default, after the Management Committee meeting referred to above and assuming that no SLA is modified, in lieu of terminating the Program Agreement, NMG may elect to cause the Services subject to such Servicer Default or all of the Services being provided by Primary Servicer to be transferred to NMG or another party designated by NMG; provided, that for purposes of transferring Services pursuant to this paragraph (n), an SLA that is both a Starred SLA and a Regulatory SLA shall be deemed to be a Regulatory SLA.

(f)               No such servicing transfer or termination of this Agreement pursuant to paragraph (e) above shall be effective until either assumption by NMG of the provision of the Services or the appointment by NMG of a successor servicer reasonably satisfactory to Bank pursuant to a servicing agreement reasonably satisfactory to Bank. Following the delivery by the applicable Party of written notice of a servicing transfer or termination, NMG shall have reasonable access to Primary Servicer’s operations and systems to ensure continuity of business and systems required to service the Accounts until such time as NMG assumes the provision of the Services or appoints a successor servicer reasonably satisfactory to Bank.

III.Non-Starred SLAs. For purposes of this Schedule 7.3(c), “Starred SLA” shall be deemed to include Non-Starred SLAs in the event that there have been more than eight (8) Significant Failures in any twelve (12) month period with respect to any Non-Starred SLAs; provided, that in the event there are no Significant Failures in the immediately following twelve (12) month period with respect to any of the Non-Starred SLAs, then such Non-Starred SLAs shall no longer be deemed to be Starred SLAs.

SCHEDULE 7.4(b)

Bank Systems

The system conversion date to the Bank PaySys environment is dependent on the following requirements:

1.NMG is currently using PaySys Release 2.59. Bank PaySys platform must have exact or enhanced screen and programming functionality. If newer release is offered, PaySys functionality in this new release must be conducive to a retail environment in all aspects related to all sub-system functionality.

2.Whether Universal Agents will be GUI-based screens or mainframe (green) screens, primary ‘work’ screen must have combined authorizations and customer service functionality to be able to decision majority of pending authorizations and perform generalized customer service non-financial maintenance and financial adjustments without further screen toggling.

3.All PaySys customization (see attached customized programming and reporting list by sub-system) currently used in the NMG PaySys environment must be converted to the Bank PaySys platform unless an enhanced product offered by Bank and mutually agreed upon can be substituted instead.

4.All credit system interfaces (see attached batch and on-line credit system interface lists) including POS, Sales Audit, CMOS and InCircle must continue without interruption or delayed service during and after PaySys system conversion.

5.Upgraded real-time adherence and/or call management technology that enhances NMG environment including Witness call monitoring software or a similar product with comparable technology must be converted at same time (if not sooner) as PaySys system conversion.

6.Updated technology associated with re-developing score models through StrategyWare initiatives or a comparable product with similar technology related to new account scorecards, restore matrixes or internal behavioral scores will be explored. This could potentially eliminate the need to convert current customization from NMG PaySys platform.

7.Explore and determine if other technological enhancements including fraud detection and Internet-related products can be utilized and upgraded immediately following PaySys system conversion.

8.Independent of the conversion to the Bank PaySys environment, the Parties shall have ongoing discussions regarding potential conversion of other credit systems used by Universal Agents that can be converted separately from the PaySys conversion. Regardless of whether other systems are converted, the Parties shall discuss the impact that the Bank PaySys conversion will have on these other systems and appropriate action shall be taken to minimize any effect of such conversion on these other systems. These systems include the check authorization system, gift card maintenance system, InCircle loyalty point redemption system, XNET signature slip, statement viewer and numerous other miscellaneous systems.

PaySys Release 2.59

Custom Functionality & Reporting
(excluding any batch or on-line interfaces and
any customization for other credit systems used)

NMG will review Bank’s current solution for a fit to the NMG business need. If NMG agrees that Bank functionality fulfills the NMG requirement, the enhancement request will be marked as “not required”. If NMG determines that Bank functionality does not fulfill the NMG requirement, NMG will then decide if the function is a “must have” for conversion, or is a candidate for a post-conversion implementation. Prior to any custom functionality or enhancement being deemed for a post-conversion implementation, NMG must be satisfied with the Bank timeline for implementation and Bank must use commercially reasonable efforts to implement such functionality within the proposed timeline. If Bank does not implement such functionality within the agreed-upon timeline (and allowing for a thirty (30) day grace period), such failure will be escalated to the Management Committee for an appropriate resolution. NMG’s prior written consent must be obtained in order to waive the implementation of any custom functionality detailed below. Prior to any conversion to the Bank Systems, NMG may specify additional custom functionalities that are required for a PaySys conversion as long as such functionalities are part of the NMG Systems prior to such conversion.

Credit Management System (CMS)

1.A special function within the POS System accesses the PaySys System for POS account look-up using various search criteria (i.e. name, address, phone, social security number) and responds back with up to 4 matching account numbers for selection.

2.Upgraded ARNL account look-up functionality to be able to search by social security number and through various phonetic methods. Retrieved account data on page 1 also displays account status code, block codes, current balance and the ability to view total balance owed on a customer with multiple accounts (revolving, signature, etc).

3.Old 9-digit account numbers are automatically run through the Mod-10 check-digit routine to define the full 12-digit account number when assessed through ARIQ.

4.Enhanced the customer statement formatting product (Metavante CSF) to re-design the statement for NMG (including InCircle point information and messages).

5.Custom late fee calculation method to assess the fee based on a percentage of the previous statement balance. Enhanced PaySys to accommodate late payment fees in addition to late fees with logic to only assess one fee per billing. Additionally, customers paying in full, regardless of delinquency level, will not be assessed a late payment fee.

6.Added a new screen to add a plan segment to an account without need for a sale (logic module 01) first.

7.New fields calculating last year’s total sales tax and this year’s total sales tax is displayed on each account.

8.High payment all-time date now displayed next to high payment all-time amount.

9.Added new screen ACH Pay by Phone functionality to authorize documentation of customer bank information and ACH history in order for customers to perform ACH payments.

10.Permanently display new account scorecard, new account score, credit bureau risk score (at time of opening) as well as high activity and updated credit bureau risk scores with dates with semi-annual portfolio reviews are done.

11.Foreign address logic at statement, credit card and letter correspondence time to suppress the ‘XX’ state and ‘99999’ zip code fields based on the ‘1’ in the language indicator field is done. The user demo 1 field housing the country is displayed instead.

12.E-mail information currently stored in the employer field has been expanded to 40 characters. A ‘Do Not E-Mail’ field is also being stored and will be sent to marketing channels. New e-mail update date and an e-mail share field that is also sent to marketing channels.

13.Store number data contained in the employee code field automatically stops a credit card from being issued and sends a message to the InCircle system to stop employee point redemption. When this store number is removed from this field as an employee leaves the Company, a credit card is automatically mailed to the customer. This field is also being expanded to 3-digits.

14.Upgraded ARML25 credit classification tables to measure ‘N’ class based on credit bureau risk score and remaining classes on risk score in additional to performance ratios.

15.On embossing screen, updated functionality for Universal Agents to define embossing card type (i.e. Regular, Gold, Platinum) to be mailed to the customer by the Credit Card Processing Department. New credit cards mailed out contain full customer name in mag-stripe.

16.Zero balance statements are not printed and sent to the customer.

17.CRM complimentary gifts scanned at the POS as a transaction code are delivered through the PaySys System as a ‘memo’ transaction for $0 that is eventually displayed on the billing statement as such.

18.Universal Agent keying and storage of GLB privacy sharing, California SB1 sharing restriction, Do Not Mail and affiliated credit bureau sharing codes and dates. In some instances, this information is passed to external systems for appropriate compliance.

19.Multiple new transaction codes in 100-300 series setup for both organizations (NM and BG) with GL level setup at a store level.

20.Specialized messaging for sales tax and InCircle customers done upon request to either replace existing mass marketing message temporarily and as an additional message on the billing statement.

21.Custom Reporting

[***]

[***]

Credit Decision Management (CDM)

1.Usage of 4 distinct Fair Isaacs (FICO) new account scorecard models separated based on the applicant’s time on file with the credit bureau and net fraction revolving burden. Each new account scorecard has different characteristics, point measurements and cut-off scores associated with overall risk.

2.Customized PaySys System to interface with the FICO Search model to retrieve a credit bureau report and accommodate cradle to grave application processing was built to stream-line application process and communicate back to the POS or NM Direct CMOS channels.

3.New account credit bureau reports received from TransUnion contain both an Empirica risk score and a TransRisk New Account (TRNA) Score for thin file application decisioning. If no Empirica is available, TRNA score acts as primary score.

4.POS Express Application input data populates PaySys screens automatically with name, address, phone, date of birth, driver’s license information, e-mail address and social security number.

5.POS Express Application process to link POS application input to CDM cradle to grave process. Delivery of either the account number or the application referral number is generated at POS within a 45-second window. On the NM Direct side, this same process is handled within a 45-second window but through the CMOS channel.

6.As ARMO7 billing records are being updated with last cycle billed data, APTM17 new account cycle assignment for all CDM types is automatically updated with appropriate next billing cycle to be used.

7.Internal fraud file utilized within the cross-checks process to refer those applicants with matching name, address, phone or social security number criteria.

8.Authentication pass/fail referral housed within the cross-checks section will indicate to Universal Agents to proceed to TransUnion website and obtain specific applicant questions and answers related to NM On-line application submission. [June 2005]

9.Duplicate account referral in cross-checks validates whether subscriber number used to pull bureau report (NM or BG) already has a trade-line on the bureau for that

organization. If so, the referral is created to ensure this account cannot be re-used before setting up a duplicate new account.

10.Date of birth provided on the bureau report is reformatted into the MMDDYYYY format to coincide with PaySys date of birth fields.

11.Multiple fraud custom referrals built to measure California 3-ID checks, address mismatches as well as bureau delivered fraud and consumer messages.

12.Customized age variance and 3-day retail specific inquiry counter referrals developed through FICO and utilized as an effective retail fraud predictor today.

13.Signature adverse action CDM types setup by new and existing accounts to input proposed sale date and whether the sale is store or customer initiated. If the signature request is declined or the customer walks away from a “customer-initiated” sale and the proposed sale data has elapsed, an adverse action letter is sent to the customer.

14.When both of the bureau agencies are down, “time out waiting on bureau” applications stored during this downtime are not automatically being processed through when bureaus are back up.

15.Custom Reporting

[***]

Financial Authorization System (FAS)

1.Authorization credit bureau reports received from TransUnion contain both an Empirica risk score and a Horizon bankruptcy indicator score.

2.In-house behavioral score model developed by Experian updated monthly at billing to recalculate customer payment and purchase behavior.

3.A customized initial 6-digit POS referral number that can eventually lead to an authorization approval code generated in Central Credit requires forced compliance input at the POS. Outside of system generated approval code, a ‘daily override code’ allows for approval at POS beyond the compliance input approval code.

4.Return and payment transactions go through same POS to FAS (OFAA) authorization process as a sale transaction does to ensure account number is validated before completing credit transaction.

5.Customized ‘Pay Review’ authorization referral and on-line reporting process for check-paying customers over-paying their last statement balance or for newer accounts paying before being billed.

6.Warning codes (housed on ARMB1) for Mr. and/or Mrs. Only, Credit Card Only or Check ID restrictions are prompted at the POS for selling associates to confirm acceptance before proceeding with the sale.

7.Separation of ‘open-to-buy’ versus an ‘open-to-buy, credit bureau exists’ referral to advise Universal Agent of when an existing credit bureau report (currently retained for 90 days) is still on file.

8.A specialized ‘excessive amount approved’ referral to automatically refer all customers who have had memo or same day transactions approved totaling over [***] for manual review.

9.An ‘irregular bureau’ referral was developed for those bureaus that either have no risk score, limited trade-line data or special considerations (i.e. mixed file possibility).

10.A ‘zip code check’ referral to compare the address on file to the newly pulled bureau address particularly on inactive customers is done to ensure we have the correct billing address.

11.A ‘time out’ referral that coincides with FICO Search automatic move to our secondary bureau (CBI Equifax) should TransUnion be down may occur if the delay is too significant. If so, this eliminates any transactions from being “hung” and allows Central Credit to call for immediate problem resolution support.

12.FACT Act fraud detection custom authorization referrals to trigger those customers who are changing their billing address, then ordering a credit card (and vice versa) in the designated period of time. In addition to referring the first purchase after receiving the credit card, the credit card mail-out date may be delayed intentionally until such time that the customer receives and can appropriate respond to an address change and credit card ordering confirmation letter.

13.FACT Act fraud detection custom authorization referrals to review address discrepancies (ADI) between the address on file and the address on the bureau as well as HAWK or other fraud messages on the bureau.

14.Ability for Universal Agents to see dual referral reasons on all authorization referrals. Additionally, some referrals are combined (i.e. HAWK, ADI or HAWK/ADI referrals) to display more than two reasons when pertinent.

15.Real-time daily sales tracking screen to view up-to-date sales and transaction counts across all stores. This helps in forecasting scheduling needs, particularly on sale days, for the remainder of the day.

16.On-line total account relationship screen for high-balance customers being built to quickly decipher customer status and indebtedness based on pertinent balance and payment information displayed. [June 2005]

17.Custom Reporting

[***]

[***]

Rescore Custom System (RCS)

1.Sub-system completely customized with POS to PaySys/RCS interface so when a customer hits their account open-to-buy, a bureau is automatically pulled through FICO Search and the account attempts to go through rescore.

2.Various screen parameters to fully control which accounts can go through rescore tier I and II by block code and other factors including high payment all-time and bureau risk score are used.

3.Using (ARML25) credit classification score, the Empirica or Beacon risk score and net fraction revolving burden (revolving debt ratio), 24 3-dimensional rescore tier I matrixes (separated first by credit classification score) contain new guideline assignments. Provided the rescore guideline is sufficient to approve the pending sale at POS, the approval back to POS is systemically done and the account guideline increased.  If not, POS generates a 6-digit referral number for manual handling.

4.In most cases where rescore tier I was not sufficient or a bureau is already on file for a customer (in which case they will not go through rescore tier I), rescore tier II customized tables can be utilized. First, a customized scorecard using a point accumulated system determines which of the 5 rescore tier II tables a customer goes through (1 being the best, 5 the worst). The rescore tier II tables are 2-dimensional based on a Horizon bankruptcy score and the customer’s last 6-months payments. These two variables result in a multiplier (i.e. 3.5%) amount that is then used to calculate against the last 6-months payments. Provided this calculation is enough the automatically proceed at the POS with approving the pending transaction and increasing the account guideline, it is done. Otherwise, POS generates a 6-digit referral number for manual handling.

5.If an existing credit bureau is still on file, before proceeding with ordering a new bureau report, a message asks the Universal Agent if they are sure a new bureau needs to be ordered.

6.The ability to release a California or Texas freeze file bureau report provided the customer gives us their PIN number is available.

7.Custom Reporting

[***]

Account Services Management (ASM)

1.Customized Universal Agent screen to perform authorization referrals and most customer service inquiries from one screen with limited, if any toggling to other screens needed. PaySys screens ASMW, ARMN, ARIH, ASSD, OFCP and OFRS useful information are contained on this customized screen. ASMN custom screen allows for account

maintenance including name or address changes, guideline or block code updates, ASM action code utilization and statement re-print ordering. Most authorization referrals are made from this screen and include the ability, if so desired, to notate why the decision was made and what manager, if any, assisted in the approval or denial. However, all customer service maintenance or authorization decisions made on this screen are automatically notated within ASHI with a before and after recap (i.e. block code changed from ‘E’ to ‘F’ or AGM approved a $15,564.48 sale on 5/11/05 at 3 pm for store 1, referred for HAWK/ADI and OTB, TU score of 712, manager DCV approved).

2.Pending FCRA screens by state that control address change, then credit card reorder requests within a specified period of time. A special ASM queue to manually release credit card requests once the customer has responded to the FCRA confirmation letter was built and is used today.

3.Custom Reporting

a.Custom Balancing Report — Summary [NCRM5932-1]

Collections Tracking System (CTA)

1.Replaced a PC client server RecoverMaster System and migrated the functionalities into CTA.

2.GUI-based front-end interface for Avaya auto-dialer.

3.Custom Reporting

[***]

Letter Tracking System (LTS)

1.Modified bracketed key words to correctly print foreign country letters similar to billing statements and other correspondence.

Transaction Management System (TRAMS)

1.Modified the NM Direct/On-line interface to accept full catalog descriptions andpurchase order numbers which are passed to CMS, statement history screens anddisplayed on customer billing statements.

2.Automated $50 annual Gold fee assessment to customers with a plan segmentautomatically added.

3.Custom Reporting

[***]

Security Supervisor (SSSR)

1.Automatic monthly purge of any users not accessing PaySys ID for one of the following reasons: (a) Have not used their ID ever and the first 30 days has elapsed; (b) Have not used their ID at least once in the last 90 days; (c) ID has been set to ‘9’ purge.

2.Custom Reporting

[***]

Credit Batch Interfaces

Internal NMG & Vendor Interface Systems	Credit Application	Data Stream	Input/Output Feed	Frequency	Processing Time-frame
[***]	TRAMS (front-end transaction processor)	Feeds NM full-line & clearance stores sales/returns/payment financial transactions	Input	Daily	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds BG full-line stores sales/returns/payment financial transactions	Input	Daily	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds NMO (web-site) and NMD (catalog) sales/returns financial transactions	Input	Daily	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds NM & BG mailed-in payments	Input	Mon-Fri	Afternoon
[***]	TRAMS (front-end transaction processor)	Feeds NM & BG ACH payments	Input	Mon-Fri	Morning
[***]	TRAMS (front-end transaction processor)	Feeds NM & BG ACH payments	Input	Mon-Fri	Morning
[***]	TRAMS (front-end transaction processor)	Feeds NM & BG ACH IVR payments	Input	Mon-Fri	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds NM employee credit card payments	Input	Weekly	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds BG employee credit card payments	Input	Every 2 wks.	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds NM retired employee credit card customers medical insurance payments.	Input	Monthly	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds Payments for customers requesting Incircle ‘Gold; card status.	Input	Daily	Nightly
[***]	TRAMS (front-end transaction processor)	Feeds NM & BG P&L accounts recovered payments and non-financial txns.	Input	Weekly	Nightly

[***]	Billing	Feeds Harbor with updated ACH IVR accounts billing balance and minimum payment information.	Output	Each billing cycle	Morning
[***]	Billing	Provide outside P&L collection agencies with new assigned NM & BG P&L accounts forcollection recovery.	Output	Each billing cycle	Morning
[***]	Customer Service	Feeds Harbor with new accounts that applied-for-ACH IVR payment processing.	Output	Mon-Fri	Nightly
[***]	Posting	Sends Chase an ACH payment file forNM/BG payments that are being posted to the customer’saccount that require ACH clearing.Receive Chase files that identify NM/BF accounts that were processed or are NSF status.	Output/Input	Mon-Fri	Nightly/Morning
[***]	Posting	Feeds Incircle system with posted NM sales/return txns.	Output	Daily	Nightly
[***]	Posting	Feeds NM customers that reached Incircle status for new credit card generation.	Input	Daily	Nightly
[***]	A/R	Feeds the EDW system with new account information and existing account demographicchanges.	Output	Daily	Nightly
[***]	Posting	Updates the NMG Credit customer database for accounts that opted for the ‘Do Not Call’.	Input	Monthly	Nightly
[***]	Statements	Provides Credit with an Incircle points file that will display a customer’s point information on a their billing statement.	Input	Daily	Nightly

[***]	Statements	Provides Credit with a BG Rewards file that will display a customer’s point information on a their billing statement.	Input	Daily	Nightly
[***]	Statements	Interface with Metavante CSF product to format the billing statement.	Input	Daily	Nightly
[***]	Statements	Interface with Code 1 & Mailstream for billing statement address correction and pre-sort mailing.	Input	Daily	Nightly
[***]	Credit Cards	Transmits credit card file (new accounts, replacements,Incircle, etc.) to produce NM & BG charge cards and mailers.	Output	Daily	Morning
[***]	A/R	Sends LP an extract file of the credit active database to identify employee accounts.	Output	Weekly	Nightly
[***]	A/R	Provide a monthly file of all NM & BG demographic and financial account information to the credit bureaus for credit reporting update.	Output	Monthly	Nightly
[***]	A/R	Create a monthly file with NM & BG customers that’opted-out’ frommailing promotion as part of the GLB bill.	Output	Monthly	Nightly
[***]	A/R	Send a file to Trans Union with NM & BG customers for credit limit/score review and receive back a filewith credit limit,bureau & horizonscore adjustments.	Output/Input	Semi-annual	Nightly

[***]	A/R	Send a file to Donnelley with NM & BG accounts that require name, address & phone verification and apply the changes received from Donnelley to our customer database.	Output/Input	Semi- annual	Nightly
[***]	Check Authorization	Provides a national negative check account file that is used-to-update the credit check authorization system.	Input	Tues-Sat	Nightly
[***]	Check Authorization	Provide eFunds Scan with an daily bad check file (adds/deletes) of NM/BG check customers.	Output	Mon-Fri	Nightly
[***]	A/R	Provides a feed of NM survey response with e-mail addresses that update the credit database.	Input	Weekly	Nightly
[***]	A/R	Provides a feed of Incircle customers that registered via Web-site with e-mail addresses.	Input	Monthly	Nightly
[***]	A/R	Provides a feed of all Incircle customers that will remain or lose their Incircle status based on the points that have been accrued this year.		Yearly in April	Nightly
[***]	A/R	FTP an extract file of BG Reward account information based upon selected account numbers provided to us by BG.	Output	Daily	Nightly
[***]	A/R	Provide BG Marketing system with new account information and existing account demographic changes	Output	Daily	Nightly

[***]	A/R	Provide InCircle with new account information and existing account demographic changes	Output	Daily	Nightly
[***]	A/R	Receives update from InCircle when a customer achieves one of the elite status (InCircle or Platinum), to create a new credit card. The embossing file is sent to InCircle for processing.	Input/Output	Daily	Nightly
[***]	Collection	Receive a file (upload to the mainframe) from the autodialer identifying collection accounts that were not reached (i.e. left message to call, no contact etc.). Send a new autodailer file (download to RT) listing new accounts that need to be contacted and reschedule existing collection accounts that were notreached.	Input/Output	Daily	Nightly/Morning
[***]		Sends credit sale slips scanned to be uploaded to the mainframe.	Input	Daily	Evening
[***]	A/R	Access (read only) the Credit customer database and extrapolate specific information for reporting purposes.	Output	System specific (i.e. daily, weekly, monthly or on request)	Varies (i.e. morning,evening, weekends)

Credit Online Interfaces

Internal NMG Interface Systems	Credit Application	Data Stream	External InterfaceSystems	Output Response	Response Time	Frequency	ProcessingTime-frame **
POS Store System - POS Express (new apps)	New Application	Receives transaction from the POS store register to process a new application credit card request.	Fair Isaac - formats a credit bureau inquiry, sends the data and formats the creditbureau reporting response for evaluation and new application decision processing.	Reply back to the POS register with an approval or referral response.	[***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
NMD - (new apps)	New Application	Receives transaction from the NMDcatalog division to process a new application creditcard request.	Fair Isaac - formats a credit bureau inquiry, sends the data and formats the creditbureau reporting response for evaluation and new application decision processing.	Reply back to NMD with an approval orreferral response.	[***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
NMO Web Acct Applications - [***] (new apps) - (In development)	New Application	Receives transaction from Web server to process new acct applications	Fair Isaac - formats a credit bureau inquiry, sends the data and formats the creditbureau reporting response for evaluation and new application decision processing.	Reply back to the Web server with an approval or referral response.	[***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
POS Store System - POS Express (account look- up)	CMS	Receives transaction from the POS store register to process either a name, address, phone or SSN# accountlookup.	None	Reply back to the POS register with account number or not found.	[***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM

POS StoreSystem - Sales Authorization (NM & BGcharge cards)	Authorization	Receives transaction from the POS store register to process a NM or BG purchase/return transaction.	Access the Fair Isaac system for creditreporting information if the account exceeds their OTB or had no activity over 12 months for evaluation andestablishing new credit limit.	Reply back to the POS register with an approval,referral or decline response.	[***]	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
POS StoreSystem - Sales Authorization(3rd party charge cards)	Authorization	Receives transaction from the POS store register to process 3rd party charge cards for purchase/return transaction.	Format the transaction and send the authorization request to AMEX or FNBO (Visa, MC, etc.) for processing.	Reply back to the POS register with an approval,referral or decline response.	[***]	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
NMD - Sales Authorization (NM & BG charge cards)	Authorization	Receives batched transactions on anhourly basis from NMD to processpurchase/return transaction.	Access the Fair Isaac system for creditreporting information if the account exceeds their OTB or had no activity over 12 months for evaluation andestablishing new credit limit.	Reply back toNMD with an approvals, referrals or declineresponse.	[***]	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
[***]	[***]	[***]	[***]	[***]	[***]	[***]	[***]

NM Sales Check Recon	Customer Service	Access the NM Sales Check Recon system to look up a customer’s credit sales slip.			< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
System Authorization [***]	In-house Credit System	Create a daily system authorization override code.		Download the systemauthorization [***] code to each POS store system RS/6000 box.		Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM Nightly
Systemware - Xnet Access		Access Systemware using Xnet to view NM & BG customer statements on-line (9 months) and reprint if necessary.		Statement view.	< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM Nightly
Systemware - Xnet Access		Access Systemware using Xnet to view NM & BG customer’s credit signature sale slip.		Credit signature sales slip view.	< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM Nightly
Systemware - Xnet Access		Access Systemware using Xnet to view NM & BG customer POS journal tape roll.		POS journal tape roll view.	< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM Nightly
Foreign Account new app validation	In-house Credit System	Receive from the customer a 3rd party credit card and [***]	[***]	[***]	< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM Nightly
Gift Card		Access the system to perform Gift Card maintenance.			< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM Nightly

Incircle		Access the Credit database to identify any Incircle delinquent accounts and lookup name and address information.		< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
Intervoice (IVR) customer inquiry		Access the Credit database to inquiry on the customer’s balance, purchase and payment activity and gift card information.	Send response back to the IVR based on the IVR option request.	< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM
BGMS Sales Check Recon	Customer Service	Access the BG Sales Check Recon system to look up a customer’s credit sales slip.		< [***] seconds	Mon-Sat Sun	7 AM - 11 PM 10 AM - 11 PM

** Credit online system availability is extended to 2 AM on special Incircle events.

SCHEDULE 7.6

Customer Management Systems

· Mass Personalization

· Empowering the Sales Associate

· Turbo Charging the Segment of One

PHASE I — As long as the NMG resources required for the change of terms are available, the Documentation Services and then the Credit Card Production Services operations, including statement mailing, payment processing and credit card processing activities, may, at NMG’s option, be converted to Bank systems. The delivery date depends on the complexity of the interfaces and would be agreed upon by Bank and NMG. As a statement processing enhancement, HSBC would provide “Mass Personalization” via color/graphical statement marketing capabilities driven by NMG’s current segmentation.

PHASE II — Portfolio (PaySys) Conversion delivery date to be determined and agreed upon by HSBC and NMG. Delivery date is contingent upon completing all batch and on-line interfaces, customization enhancements and satisfaction of the other requirements of Section 7.4.

PHASE III — Subsequent to the systems and portfolio conversion, in the event that NMG determines that any functionality set forth below would be (i) beneficial, (ii) feasible based on system requirements and (iii) able to interface to other affected systems as of the implementation date, Bank shall implement such functionality. Either Bank or NMG may propose other enhancements or modifications than those listed below (excluding any enhancement or modification set forth on a different Schedule) and the Parties may mutually agree to replace any of the functionalities listed below with such other modifications or enhancements. Bank and NMG shall agree on the delivery date of any functionality item, including any agreed upon enhancement or modification not listed below, which delivery date will be dependent on, among other considerations, the complexity of the interfaces and functionality.

·“Empowering the Sales Associate”

· Ability to select standard or personalized statement marketing/messages from the POS

· Ability to select standard or personalized letters, postcards, and eMail from the POS.

· Ability to select standard or personalized eCare marketing/messages from the POS

·“Multi-Channel Mass Personalization” using Brookline’s current segmentation characteristics.

· Centralized ability to drive standard letters, postcards, and eMail. (may be additional cost)

·    Centralized ability to drive standard eCare marketing/messages.

·Centralized ability to drive standard Customer Service marketing/messages.

·Internet Capabilities and Various Scoring, Fraud or Other Enhancements

·Refer to Schedules 4.8(b) and 7.4(b) for all functionalities

· “Turbo Charging the Segment of One”.

·Ability to create individual customer profiles based upon number and value of purchases, product type, department, manufacturer, etc.

·Ability to drive the “Empowering of the Sales Associate” based on the above profiles.

·Ability to drive the “Multi-Channel Mass Personalization based on the above profiles.

SCHEDULE 9.1(a)(i)

Daily NMG Compensation

Bank shall pay to NMG an amount equal to the aggregate for all Private Label Accounts and Non-Card Payment Plans of the following:

For each such Private Label Account or Non-Card Payment Plan, the product of (A) the sum of (x) the Program Fee Percentage applicable to such Account and (y) the Servicing Fee Percentage and (B) Net Credit Sales under such Account reflected in all NMG Charge Transaction Data required to be paid for by Bank on such Business Day pursuant to Section 8.4.

Determination of Program Fee Percentage

The “Program Fee Percentage” with respect to each Account means [***]. The Program Fee Percentage applicable to an Account shall be increased on the effective date of any of the following change in terms applicable to such Account to [***] plus the amount set forth in the column designated “Program Fee Increase Amount” below and shall remain at such increased percentage until further changed as set forth below:

[***]

The Program Fee Percentage shall be increased for changes in APR and fee terms changes on a cumulative basis. For example, if (i) an APR on an Account is changed to a variable rate based on the Prime Rate plus a [***] margin and (ii) the late fee on such Account is changed so that it is assessed within 5 days after the end of the applicable late period, then the Program Fee Percentage with respect to such Account would be [***]. With respect to any Fixed Rate option set forth above, if the one month LIBOR rate increases beyond [***], the Parties will negotiate in good faith to adjust the Program Fee Percentage.

“Prime Rate” means the “Prime Rate” as such rate is reported in the Consumer Rates column of The Wall Street Journal or as determined in such other mutually acceptable manner as the parties agree if The Wall Street Journal is no longer reporting such rate.

In the event that all of the Services set forth below are transferred to Bank and the Servicing Agreement is terminated, the Program Fee Percentage applicable to all Accounts shall be increased by [***].

Determination of Servicing Fee Percentage

The “Servicing Fee Percentage” means [***]. The Servicing Fee Percentage applicable to all Accounts shall be decreased on the date that Bank begins providing the following Services to the Program:

[***]

During the Term, while NMG is providing the Services set forth above, a portion of some of the Services may be subject to sales and use tax in Texas. Refer to Section 19.6 for treatment of sales and use tax on these Services.

SCHEDULE 9.1(a)(ii)

Monthly NMG Compensation

(a)           Marketing Reimbursement. The aggregate of all Joint Marketing Commitment amounts spent by the NMG Companies in the prior Fiscal Month.

(b)           In-Store Payment Reimbursement. An amount equal to [***] (which amount shall increase by CPI on each anniversary of the Effective Date, with the increased amount remaining in effect until the following anniversary) per In-Store Payment received by any of the NMG Companies in the prior Fiscal Month.

SCHEDULE 16.2(c)

If this Agreement is terminated pursuant to Section 16.2(c) prior to the end of the Initial Term, NMG shall pay Bank the sum of (i) the NMG Marketing Commitment for the Fiscal Year prior to such termination (or the NMG Marketing Commitment for the first Fiscal Year if this Agreement is terminated prior to the end of the first full Fiscal Year of the term), (ii) the Joint Marketing Commitment for the Fiscal Year prior to such termination (or the Joint Marketing Commitment for the first Fiscal Year if this Agreement is terminated prior to the end of the first full Fiscal Year of the term), and (iii) the following amount:

Date of Termination	Amount
Prior to the first anniversary of the Effective Date:	$	[***]
On or after the first anniversary of the Effective Date and prior to the second anniversary of the Effective Date:	$	[***]
On or after the second anniversary of the Effective Date and prior to the third anniversary of the Effective Date:	$	[***]
On or after the third anniversary of the Effective Date and prior to the fourth anniversary of the Effective Date:	$	[***]
On or after the fourth anniversary of the Effective Date and prior to the fifth anniversary of the Effective Date:	$	[***]

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SCHEDULE 16.3(b)

Bank may terminate this Agreement in accordance with Section 16.3(b), if NMG has not maintained on average during such Fiscal Year full-line, retail store square footage of at least 4,250,00 square feet.

The following stores were included in the calculation of square footage:

Dallas, Texas (Downtown)

Dallas, Texas (North Park)

Houston, Texas (Galleria)

Bal Harbour Florida

Atlanta, Georgia

St. Louis, Missouri

Northbrook, Illinois

Fort Worth, Texas

Washington, D.C.

Newport Beach, California

Beverly Hills, California

Westchester, New York

Las Vegas, Nevada

Oak Brook, Illinois

San Diego, California

Fort Lauderdale, Florida

San Francisco, California

Chicago, Illinois (Michigan Avenue)

Boston, Massachusetts

Palo Alto, California

McLean, Virginia

Denver, Colorado

Minneapolis, Minnesota

Scottsdale, Arizona

Troy, Michigan

Short Hills, New Jersey

King of Prussia, Pennsylvania

Paramus, New Jersey

Honolulu, Hawaii

Palm Beach, Florida

Plano, Texas (Willow Bend)

Tampa, Florida

Coral Gables, Florida

Orlando, Florida

Bergdorf Goodman, New York City (Women’s Store)

Bergdorf Goodman, New York City (Men’s Store)

EX-10.31

EXHIBIT 10.31

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

SERVICING AGREEMENT

between

THE NEIMAN MARCUS GROUP, INC.

and

HSBC BANK NEVADA, N.A.

Dated as of July 7, 2005

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01.	Defined Terms	1
Section 1.02.	Certain Interpretive Matters	3
ARTICLE II
SERVICING
Section 2.01.	Appointment	3
Section 2.02.	Servicer Compensation	3
Section 2.03.	Services	4
Section 2.04.	Service Level Standards	5
Section 2.05.	Use of Subservicers	5
Section 2.06.	Disaster Recovery	5
Section 2.07.	Inventory	6
Section 2.08.	Securitization	6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01.	Representations and Warranties of Servicer	6
Section 3.02.	Representations and Warranties of Bank	8
ARTICLE IV
ADDITIONAL COVENANTS
Section 4.01.	Further Assurances	9
Section 4.02.	Modifications	9
Section 4.03.	Correction of Errors	9
Section 4.04.	Changes in Law	9
Section 4.05.	Cooperation	9
Section 4.06.	Facilities and Equipment	9
Section 4.07.	Insurance	10
Section 4.08.	Customer Information	10
ARTICLE V
DEFAULT; REMEDIES
Section 5.01.	Servicer Default	10
Section 5.02.	Remedies	11

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Section 5.03.	Non-Starred SLAs		12
ARTICLE VI
TERM
Section 6.01.	Term of Agreement		12
Section 6.02.	Servicer Termination Events		12
Section 6.03.	Termination by Bank		13
Section 6.04.	Effect of Termination		13
ARTICLE VII
INDEMNIFICATION
Section 7.01.	Indemnification		13
Section 7.02.	Procedure for Indemnification		14
Section 7.03.	Notice and Additional Rights and Limitations.		15
Section 7.04.	Limits on Indemnification		15
ARTICLE VIII
MISCELLANEOUS
Section 8.01.	Confidentiality		15
Section 8.02.	Access Rights		18
Section 8.03.	No Waiver; Remedies; Amendment		18
Section 8.04.	Independent Contractor		18
Section 8.05.	No Joint Venture		18
Section 8.06.	Payment Terms		18
Section 8.07.	Entire Agreement		19
Section 8.08.	No Set-Off		19
Section 8.09.	Notices		19
Section 8.10.	Severability		20
Section 8.11.	Headings		20
Section 8.12.	Survival		20
Section 8.13.	Costs and Expenses		20
Section 8.14.	Drafting		20
Section 8.15.	Counterparts		20
Section 8.16.	Assignment; Successors		20
Section 8.17.	Governing Law		21
Section 8.18.	Waiver of Jury Trial and Venue		21
SCHEDULES
Schedule 1.01(a)		Services
Schedule 2.03(e)		Monthly Reports
Schedule 2.04(a)		Service Level Standards
Schedule 5.02		Remedies
Schedule 7.04		Indemnity Matters

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SERVICING AGREEMENT

This Servicing Agreement (as amended from time to time, this “Agreement”), dated as of July 7, 2005, is between The Neiman Marcus Group, Inc., a Delaware corporation (“Servicer”), and HSBC Bank Nevada, N.A., a national credit card bank (“Bank”).

WHEREAS, Servicer and certain of its subsidiaries (together, “Sellers”) have entered into a Purchase, Sale and Servicing Transfer Agreement with Bank and HSBC Finance Corporation, a Delaware corporation (“Bank Parent”), dated as of July 7, 2005 (as amended from time to time, the “Purchase Agreement”), pursuant to which Sellers will sell, and Bank will purchase, specified assets related to Sellers’ consumer private label credit card business;

WHEREAS, Servicer and certain of its subsidiaries (together, the “NMG Companies”) are entering into a Program Agreement, dated as of June 8, 2005 (as amended from time to time, the “Program Agreement”), with Bank and Household Corporation, a Delaware corporation (“Primary Servicer”, and together with Bank, the “Household Companies”) which shall govern the operation of such credit card business and the rendering of marketing and other services by the parties thereto; and

WHEREAS, Bank wishes to retain Servicer to provide, and Servicer wishes to provide, certain servicing and administration activities relating to the Accounts and the Program, all pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.01. Defined Terms. Wherever used in this Agreement, unless the context otherwise requires, the following terms shall have the meanings set forth below. Capitalized terms used but not defined in this Agreement shall have the meanings given them in the Program Agreement.

“Agreement”: As defined in the preamble hereof.

“Bank”: As defined in the preamble hereof.

“Bank Parent”: As defined in the recitals hereof.

“Credit Card Production Services”: The Services set forth in paragraph 2 of Section I of Schedule 1.01(a).

“Confidential Information”: As defined in Section 8.01(a)(i) hereof.

“Damages”: As defined in Section 7.01(a) hereof.

“Data Processing Services”: The Services set forth in paragraph 4 of Section I of Schedule 1.01(a).

“Deductible Amount”: As defined in Schedule 7.04.

“Disclosing Party”: As defined in Section 8.01(a)(iv) hereof.

“Documentation Services”: The Services set forth in paragraph 1 of Section I of Schedule 1.01(a).

“Household Companies”: As defined in the recitals hereof.

“Initial Penalty Amount”: As defined in Schedule 5.02.

“Late Stage Collection Services”: The Services set forth in paragraph 3 of Section I of Schedule 1.01(a).

“NMG Companies”: As defined in the recitals hereof.

“Non-Starred SLAs”: Any SLA on Schedule 2.04(a) that is not a Starred SLA.

“Other Services”: The Services set forth in Section II of Schedule 1.01(a).

“Party”: When used in the singular, either Servicer or Bank or, when used in the plural, both Servicer and Bank.

“Primary Servicer”: As defined in the recitals hereof.

“Program Agreement”: As defined in the recitals hereof.

“Purchase Agreement”: As defined in the recitals hereof.

“Receiving Party”: As defined in Section 8.01(a)(iv) hereof.

“Regulatory Failure”: As defined in Section 5.01(b) hereof.

“Regulatory SLA”: As defined in Section 5.01(b) hereof.

“Securitization Documents”: As defined in the Purchase Agreement.

“Sellers”: As defined in the recitals hereof.

“Servicer”: As defined in the preamble hereof.

“Servicer Default”: As defined in Section 5.01 hereof.

“Servicer Event of Default”: The occurrence of any one of the events listed in Section 6.02.

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“Services”: As defined in Section 2.02(a) hereof.

“Significant Failure”: As defined in Section 5.01(a) hereof.

“SLA”: Each individual performance standard set forth on Schedule 2.04(a).

“Solvent”: When used with respect to any Person, that (a) the present fair salable value of such Person’s assets exceed the total amount of its liabilities, (b) such Person is able to pay its debts as they become due and (c) such Person does not have unreasonably small capital to carry on its business as theretofore operated and all business in which such Person is about to engage.

“Starred SLA”: On Schedule 2.04(a), SLA number 1 of Section A, SLA number 1 of Section B, SLA number 6 of Section C and SLA numbers 2 and 6 of Section D.

“Subsequent Failure”: As defined in Section 5.02(b) hereof.

“Subsequent Penalty Amount”: As defined in Schedule 5.02.

“Term”: As defined in Section 6.01 hereof.

“Transaction Document”: The Purchase Agreement, the Program Agreement and this Agreement and the agreements, instruments, schedules and other documents to be delivered pursuant thereto and hereto.

Section 1.02. Certain Interpretive Matters. As used herein: (a) all references to the plural number shall include the singular number (and vice versa); (b) all references to “herein,” “hereunder,” “hereof” or like words shall refer to this Agreement as a whole and not to any particular section, subsection or clause contained in this Agreement; (c) all references to “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”; (d) all references to “$” or “dollars” shall be deemed references to United States dollars; and (e) all references to a particular agreement, instrument or document shall include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument, or document.

ARTICLE II

SERVICING

Section 2.01. Appointment. Subject to the terms and conditions of this Agreement, Bank hereby appoints Servicer as of the Effective Date as the servicer of the Accounts (excluding Non-Store Accounts associated with Dual-Line Credit Cards) and Cardholder Indebtedness and Servicer hereby accepts such appointment.

Section 2.02. Servicer Compensation. As compensation for provision of the Services hereunder, Servicer shall receive payment of the payment calculated by reference to the Servicing Fee Percentage as set forth in Schedule 9.1(a)(i) of the Program Agreement. Upon transfer of any of the Services to Primary Servicer in accordance with Section 2.03(b), the

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amount payable to Servicer set forth in Schedule 9.1(a)(i) shall be adjusted as set forth in Schedule 9.1(a)(i) in order to reflect the reduction of Services being performed by Servicer and the assumption of the performance of such Services by Primary Servicer.

Section 2.03. Services.

(a) Commencing on the Effective Date and continuing until the date, if any, upon which any listed type of Service enumerated below is transferred to Primary Servicer as provided in this Agreement, Servicer shall perform the following services (collectively, the “Services”): (i) the Documentation Services; (ii) the Late Stage Collection Services; (iii) the Credit Card Production Services; (iv) the Data Processing Services; and (v) the Other Services, in each case in accordance with this Agreement and the Risk Management Policies and Operating Procedures. Servicer shall service the Accounts in compliance with Applicable Law, in such a way as to not disparage or embarrass the Household Companies or either of their names, with a level of service to Cardholders and with no less care and diligence than the degree of service, care and diligence employed by Servicer prior to the Effective Date. Notwithstanding anything to the contrary contained herein, Bank shall be solely responsible for monitoring legal developments applicable to the operation of the Credit Card Business, although Servicer shall promptly apprise Bank of any such legal developments of which it becomes aware.

(b) Servicer may elect upon not less than thirty (30) days’ written notice to Bank to transfer (i) any one or more type of Services referenced in clauses (i) through (iv) of Section 2.03(a) or (ii) following conversion to the Bank Systems, all of the Services being performed hereunder, to Primary Servicer, in which event Primary Servicer shall accept appointment as servicer with respect to such Services and shall be required to comply with the provisions of the Program Agreement in connection with the performance of such Services, including the requirement to meet the SLAs applicable to Primary Servicer for such Service set forth in Schedule 7.3(a) of the Program Agreement. Upon the date of the foregoing transfer, Servicer shall be released from any further obligation with respect to the performance of such Services.

(c) Notwithstanding Section 2.03(b), Bank and Servicer agree that the Documentation Services shall be transferred to Primary Servicer as soon as practicable after the date hereof and, upon such transfer, Primary Servicer shall be required to comply with the provisions of the Program Agreement in connection with the performance of such Services, including the requirement to meet the SLAs applicable to the Documentation Services set forth in Schedule 7.3(a) of the Program Agreement.

(d) Servicer shall maintain records relating to its performance of the Services in accordance with the record retention policies set forth on Schedule 4.4(f) of the Program Agreement. Records may be kept in either paper or electronic form. Servicer shall retrieve, reproduce and deliver to Bank any records reasonably requested from time to time by Bank for the purpose of providing customer assistance or resolving customer disputes, and Bank shall compensate Servicer on demand for the reasonable costs and expenses associated with such retrieval, reproduction and delivery.

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(e) Within fifteen (15) days after the end of each Fiscal Month, Servicer shall provide to Bank the reports specified in Schedule 2.03(e) and such other reports as are mutually agreed to by the Parties from time to time.

(f) Bank shall train personnel of Servicer on Bank’s systems and processes that are related to or that interface with, but that are not components of, the Services to the extent necessary for Servicer to perform the Services. Servicer shall train personnel of Bank on Servicer’s systems and processes that are related to the Services being provided under this Agreement.

(g) Bank shall cooperate, and shall ensure that each of its Affiliates shall cooperate, with Servicer in all matters relating to Servicer’s performance of the Services at Servicer’s reasonable request. Such cooperation shall be provided at the expense of Bank and shall include providing Servicer with reasonable access to the personnel, records, systems, technology and information of the Household Companies and their Affiliates relating to the Accounts. Servicer shall obtain all licenses and authorizations necessary to perform the Services that it provides hereunder.

Section 2.04. Service Level Standards.

(a) Servicer shall perform the applicable Services in accordance with the SLAs set forth on Schedule 2.04(a).

(b) Servicer shall report to Bank monthly, in a mutually agreed upon format, Servicer’s performance under each of the SLAs set forth on Schedule 2.04(a). If Servicer fails to meet any SLA, Servicer shall (i) immediately report to the Management Committee the reasons for the SLA failure(s); and (ii) promptly take commercially reasonable action to correct and prevent recurrence of such failure(s).

Section 2.05. Use of Subservicers. Servicer shall have the right to perform any portion of the Services through one or more subservicers; provided that (i) any subservicer that is not an Affiliate of Servicer shall be subject to approval pursuant to Article III of the Program Agreement and (ii) Servicer shall remain fully responsible to Bank for the portion of the Services performed by any such subservicer(s) (including its Affiliates). Notwithstanding the foregoing, to the extent Servicer subcontracts or outsources to any third party any Services as of the date hereof, Servicer may continue to subcontract or outsource such Services to such third party.

Section 2.06. Disaster Recovery. For as long as Servicer is providing services hereunder, Servicer shall continue to maintain the disaster recovery plan in effect on the Effective Date. Servicer shall be prepared to and have the ability to implement such plan if necessary. Servicer shall provide Bank with access to review such plan upon request. Servicer shall test the plan annually and shall promptly implement such plan upon the occurrence of a disaster or business interruption. Servicer shall be excused from its failure to meet any applicable SLAs that result directly from the failure of any of the Bank Systems. If in the event of a disaster or severe business interruption Servicer fails to take reasonable steps to respond to such disaster or severe business interruption, Bank shall have reasonable access to Servicer’s systems, technical personnel and disaster recovery resources, so as to ensure continuity of business and systems required to service the Accounts.

5

Section 2.07. Inventory. The Parties hereby agree that all paper, envelopes and plastic reasonably required for production and mailing of Cardholder Documentation and Loyalty Cards will be either (i) purchased by Servicer in consultation with Bank, in which case Servicer shall invoice Bank directly for such purchases and Bank shall pay Servicer for such invoices (including shipping and taxes), or (ii) purchased by Bank in consultation with Servicer at Bank’s sole cost and expense, provided that material qualities and quantities must be reasonably satisfactory to Servicer.

Section 2.08. Securitization.

(a) As part of the Services hereunder, Servicer hereby agrees to continue and to have its Subsidiaries continue to perform for the benefit of Bank and Bank Parent on a subservicing basis, the servicing functions set forth under the Securitization Documents with respect to the Accounts and receivables generated thereunder that are subject to such Securitization Documents, from and after the Closing Date, including the execution and delivery of all certificates and reports as required by such Securitization Documents, which certificates and reports shall be addressed to HSBC Finance Corporation, a Delaware corporation as the Servicer.

(b) Servicer hereby acknowledges and agrees that HSBC Finance Corporation shall be entitled to rely on such reports and certificates as a basis for issuing any of its own reports and certificates under the Securitization Documents. In addition, Servicer hereby agrees to use commercially reasonable efforts to cause Servicer’s independent public accountants to issue the reports required by the Securitization Documents and deliver such reports to HSBC Finance Corporation for the period starting October 31, 2004 and ending on the Closing Date, such reports to be delivered by such independent public accounting firm on or before October 31, 2005.

(c) Servicer shall cooperate with Bank and Bank Parent to correct any errors or deficiencies discovered in any of the reports referred to in this Section 2.08.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.01. Representations and Warranties of Servicer. Servicer represents and warrants to Bank as follows:

(a) Organization. Servicer (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities in which it is engaged makes such licensing or qualification necessary, except to the extent that its non-compliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to

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perform its obligations hereunder, and (iii) has all necessary licenses, permits, consents or approvals from or by, and has made all necessary filings and registrations with, all governmental authorities having jurisdiction, to the extent required for the ownership, lease or conduct and operation of its business, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to make such filings or registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to perform its obligations under this Agreement.

(b) Capacity; Authorization; Validity. Servicer has all necessary corporate power and authority to (i) execute and enter into this Agreement, and (ii) perform its obligations hereunder and the other documents, instruments and agreements relating to this Agreement executed by it pursuant hereto. The execution and delivery by Servicer of this Agreement and all documents, instruments and agreements executed and delivered by Servicer pursuant hereto, and the consummation by Servicer of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate actions of Servicer. This Agreement (i) has been duly executed and delivered by Servicer, (ii) constitutes the valid and legally binding obligation of Servicer, and (iii) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).

(c) Conflicts; Defaults; Etc. The execution, delivery and performance of this Agreement by Servicer, its compliance with the terms hereof, and consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which Servicer is a party or by which it is bound, or to which any of the assets of Servicer is subject; (ii) conflict with or violate the articles of incorporation or by-laws of Servicer; (iii) breach or violate any Applicable Law or Applicable Order, in each case, applicable to Servicer; (iv) require the consent or approval of any other party to any contract, instrument or commitment to which Servicer is a party or by which it is bound; or (v) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any Governmental Authority, except, in the cases of clauses (i) and (iii)-(v), for such conflicts, breaches, defaults, violations or failures to obtain such consents or approvals or make or obtain such filings, notices, consents and approvals as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon Servicer’s ability to perform its obligations under this Agreement.

(d) Litigation. No action, claim, litigation, proceeding, arbitration or investigation is pending or, to the Knowledge of Servicer, threatened against Servicer or any of its Subsidiaries, at law, in equity or otherwise, by or before any Governmental Authority, to which Servicer or any of its Subsidiaries is a party, which would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Servicer to perform its obligations under this Agreement.

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(e) Facilities and Equipment. Servicer has all necessary facilities, equipment, supplies and such other resources as are reasonably necessary to provide the Services under this Agreement.

(f) Solvency. Servicer is Solvent.

Section 3.02. Representations and Warranties of Bank. Bank represents and warrants to Servicer as follows:

(a) Organization. Bank (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities in which it is engaged makes such licensing or qualification necessary, except to the extent that its non-compliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to perform its obligations hereunder, and (iii) has all necessary licenses, permits, consents or approvals from or by, and has made all necessary filings and registrations with, all governmental authorities having jurisdiction, to the extent required for the ownership, lease or conduct and operation of its business, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to make such filings or registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to perform its obligations under this Agreement.

(b) Capacity; Authorization; Validity. Bank has all necessary corporate power and authority to (i) execute and enter into this Agreement, and (ii) perform its obligations hereunder and the other documents, instruments and agreements relating to this Agreement executed by it pursuant hereto. The execution and delivery by Bank of this Agreement and all documents, instruments and agreements executed and delivered by Bank pursuant hereto, and the consummation by Bank of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate actions of Bank. This Agreement (i) has been duly executed and delivered by Bank, (ii) constitutes the valid and legally binding obligation of Bank, and (iii) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).

(c) Conflicts; Defaults; Etc. The execution, delivery and performance of this Agreement by Bank, its compliance with the terms hereof, and consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which Bank is a party or by which it is bound, or to which any of the assets of Bank is subject; (ii) conflict with or violate the articles of incorporation or by-laws of Bank; (iii) breach or violate any Applicable Law or Applicable Order, in each case, applicable to Bank; (iv) require the consent or approval of any other party to any contract, instrument or commitment to which Bank is a party or by which it is bound; or (v) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any Governmental Authority, except,

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in the cases of clauses (i) and (iii)-(v), for such conflicts, breaches, defaults, violations or failures to obtain such consents or approvals or make or obtain such filings, notices, consents and approvals as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon Bank’s ability to perform its obligations under this Agreement.

(d) Litigation. No action, claim, litigation, proceeding, arbitration or investigation is pending or, to the Knowledge of Bank, threatened against Bank or any of its Affiliates, at law, in equity or otherwise, by or before any Governmental Authority, to which Bank or any of its Subsidiaries is a party, which would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Bank to perform its obligations under this Agreement.

(e) Solvency. Bank is Solvent.

ARTICLE IV

ADDITIONAL COVENANTS

Section 4.01. Further Assurances. From time to time after the execution of this Agreement, as and when requested by either Party, the other Party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments as may be reasonably necessary to consummate the transactions contemplated by this Agreement.

Section 4.02. Modifications. Except as permitted by this Agreement, the Program Agreement, the Risk Management Policies or the Operating Procedures, Servicer shall not enter into any agreement or arrangement reducing amounts payable by Cardholders.

Section 4.03. Correction of Errors. Each of the Parties shall correct or cause to be corrected as promptly as practicable any data processing or billing errors of which it receives knowledge that occur in the performance of the Services.

Section 4.04. Changes in Law. Bank shall notify Servicer from time to time, in a timely manner, of the expiration, revocation or amendment of, or other material developments relating to, any requirements of Applicable Law affecting the provision by Servicer of the Services. If such changes in law materially increase Servicer’s cost of providing the Services, the Management Committee shall meet to discuss the increased cost and shall determine the allocation of such increased cost between the Parties.

Section 4.05. Cooperation. Each Party covenants that it shall use commercially reasonable efforts to cooperate with the other Party in the servicing of the accounts.

Section 4.06. Facilities and Equipment.

(a) For as long as Servicer is providing Services hereunder, Servicer shall maintain in good working order all necessary facilities, equipment, supplies and such other resources as are reasonably necessary to provide any Services in accordance with the SLAs under this Agreement.

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(b) Servicer shall provide Bank with written notice prior to opening a new servicing facility for the purpose of providing the Services.

Section 4.07. Insurance. Servicer shall maintain insurance policies (in any event including error and omissions liability insurance and fiduciary liability insurance) with respect to its employees and properties under such terms and conditions as are (i) commercially reasonable and available from time to time and (ii) customary for similarly situated Persons engaged in similar business, except in each case for insurance which a failure to maintain would not reasonable be expected to have a material adverse effect on the ability of Servicer to perform its obligations under this Agreement.

Section 4.08. Customer Information. Servicer shall maintain an information security program that is designed to meet all requirements of Applicable Law, including, at a minimum, maintenance of an information security program that is designed to: (i) ensure the security and confidentiality of customer information; (ii) protect against any anticipated threats or hazards to the security or integrity of such information; (iii) protect against unauthorized access to or use of such information; and (iv) ensure the proper disposal of such information. Additionally, such security measures shall meet current industry standards and shall be at least as protective as those used by Servicer to protect its other confidential customer information. Servicer shall use the same degree of care in protecting the customer information against unauthorized disclosure as it accords to its own confidential customer information, but in no event less than a reasonable standard of care. In the event Servicer becomes aware of any unauthorized use of or access to customer information, Servicer shall immediately notify Bank and shall cooperate with Bank, as it deems necessary or as required by Applicable Law, (x) to assess the nature and scope of such incident, (y) to contain and control such incident to prevent further unauthorized access to or use of such information, and (z) to provide prompt notice to affected customers to the extent required by Applicable Law or otherwise with the approval of the Management Committee.

ARTICLE V

DEFAULT; REMEDIES

Section 5.01. Servicer Default. It shall be a “Servicer Default” if either of the events set forth below shall occur and be continuing and remain unremedied prior to the expiration of the specified period:

(a) Significant Failure. If Servicer (i) is more than 20% below the target for any Starred SLA in any Fiscal Month, (ii) fails to meet any individual Starred SLA in two (2) consecutive Fiscal Months or (iii) fails to meet any Starred SLA four (4) times in any twelve (12) Fiscal Month period (including multiple breaches of the same and individual breaches of different Starred SLAs) (each, a “Significant Failure”).

(b) Regulatory Failure. If Servicer fails to meet an SLA designated as a regulatory-based SLA on Schedule 2.04(a) (each, a “Regulatory SLA”) and such failure results in a breach by Servicer of Applicable Law (such failure, a “Regulatory Failure”).

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Section 5.02. Remedies.

(a) In the event of a Significant Failure, Servicer shall: (A) promptly report to the Management Committee the reasons for the Starred SLA failure(s); (B) within thirty (30) days of such Significant Failure, propose a remediation plan for taking such action as Servicer deems necessary to correct and prevent recurrence of such failure(s); and (C) subject to Bank’s agreement, implement the remediation plan as soon as practicable. However, under no circumstances shall the time period between Bank’s agreement to the remediation plan and completion of such plan exceed two (2) months.

(b) If Servicer has an additional failure of any of the same Starred SLA(s) (“Subsequent Failure”) during the twelve (12) Fiscal Months following the occurrence of any Significant Failure, Servicer shall pay Bank the Initial Penalty Amount, within fifteen (15) days of the end of such Fiscal Month, for each such Subsequent Failure.

(c) Upon the occurrence of the second Subsequent Failure and each additional Subsequent Failure of the same Starred SLA during the twenty four (24) Fiscal Months following a Significant Failure or upon the occurrence of a Regulatory Failure, Servicer shall pay Bank the Subsequent Penalty Amount, within fifteen (15) days of the end of such Fiscal Month, per each additional Subsequent Failure.

(d) Upon the occurrence of (i) the third and each additional Subsequent Failure of the same Starred SLA during the twenty four (24) Fiscal Months following a Significant Failure or (ii) a second Regulatory Failure of the same Regulatory SLA, Bank shall, in addition to payment as provided in paragraph (c) above, have the right to terminate the Program Agreement by providing thirty (30) days prior written notice to Servicer, in which event the parties shall have the rights set forth in Article XVII of the Program Agreement; provided, however, that prior to either Party electing to transfer the provision of such Services pursuant to Section 5.02(e) below or to terminate the Program Agreement, the Management Committee shall meet to discuss the occurrence of the Subsequent Failure and shall determine whether such SLA should be modified (except in the case of a Regulatory Failure, in which event no Management Committee meeting shall be required as a condition to transferring the affected Services pursuant to Section 5.02(e)). If the Management Committee determines that such SLA shall be modified, then Bank shall not be entitled to terminate the Program Agreement as a result of the Subsequent Failure discussed at the meeting of the Management Committee unless and until an additional Subsequent Failure of the same Starred SLA occurs; and provided, further, that for purposes of transferring Services pursuant to this Section 5.02(d) or Section 5.02(e), an SLA that is both a Starred SLA and a Regulatory SLA shall be deemed to be a Regulatory SLA.

(e) Notwithstanding the foregoing, in the case of any Servicer Default with respect to any type of Service, after the Management Committee meeting referred to above (except in the case of a Regulatory Failure) and assuming that no SLA is modified, in lieu of terminating the Program Agreement, either Party may elect to cause the Services subject to such Servicer Default to be transferred to Primary Servicer pursuant to the Program Agreement.

(f) No servicing transfer or termination of this Agreement pursuant to Section 5.02(d) or Section 5.02(e) above shall be effective until either assumption by the Bank or its

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Affiliate of the provision of the Services or the appointment by Bank of a successor servicer reasonably satisfactory to Servicer pursuant to a servicing agreement reasonably satisfactory to Servicer. Following the delivery by the applicable Party of written notice of a servicing transfer or termination, Bank shall have reasonable access to Servicer’s operations and systems to ensure continuity of business and systems required to service the Accounts until such time as Bank or its Affiliate assumes the provision of the Services or appoints a successor servicer reasonably satisfactory to Servicer. Both Parties shall use commercially reasonable efforts and cooperate with each other to ensure continuity of business during any transfer of Services.

Section 5.03. Non-Starred SLAs. For purposes of this Article V, “Starred SLA” shall be deemed to include Non-Starred SLAs in the event that there have been more than eight (8) Significant Failures in any twelve (12) month period with respect to any Non-Starred SLAs; provided, that in the event there are no Significant Failures in the immediately following twelve (12) month period with respect to any of the Non-Starred SLAs, then such Non-Starred SLAs shall no longer be deemed to be Starred SLAs.

ARTICLE VI

TERM

Section 6.01. Term of Agreement. The term of this Agreement shall commence on the date hereof and expire simultaneously with the termination of the Program Agreement or the termination pursuant to Section 2.03(b), 5.02(d) or 5.02(e) (the “Term”).

Section 6.02. Servicer Termination Events. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an event of default by Servicer hereunder:

(a) Servicer shall fail to make payment in full of any amount due to Bank pursuant to Section 5.02 within two (2) Business Days after such payment is due pursuant to Section 5.02.

(b) Servicer shall fail to comply with Section 4.06, 4.07 or 4.08 and such failure shall materially impair the quality of the Services hereunder.

(c) A petition under the U.S. Bankruptcy Code or similar law shall be filed against Servicer and not be dismissed within sixty (60) days.

(d) A decree or order by a court having jurisdiction (i) for relief in respect of Servicer pursuant to the Bankruptcy Code or any other applicable bankruptcy or other similar law, (ii) for appointment of a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Servicer or of any substantial part of its properties, or (iii) ordering the winding-up or liquidation of the affairs of Servicer shall, in any such case be entered, and shall not be vacated, discharged, stayed or bonded within sixty (60) days from the date of entry thereof.

(e) Servicer shall (i) file a petition seeking relief pursuant to the Bankruptcy Code or any other applicable bankruptcy or other similar law, (ii) consent to the institution of

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proceedings pursuant thereto or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Servicer or any substantial part of its properties, or (iii) take corporate or similar action in furtherance of any such action.

Section 6.03. Termination by Bank. Bank may terminate this Agreement upon written notice prior to the end of the Term after the occurrence of a Servicer Event of Default. No such termination shall be effective until either assumption by Bank or its Affiliate of the provision of the Services pursuant to the Program Agreement or the appointment by Bank of a successor servicer reasonably satisfactory to Servicer pursuant to a servicing agreement reasonably satisfactory to Servicer. Following the delivery by Bank of written notice of a servicing transfer or termination, Bank shall have reasonable access to Servicer’s operations and systems to ensure continuity of business and systems required to service the Accounts until such time as Bank or its Affiliate assumes the provision of the Services or appoints a successor servicer reasonably satisfactory to Servicer. Both Parties shall use commercially reasonable efforts and cooperate with each other to ensure continuity of business during any transfer of Services.

Section 6.04. Effect of Termination.

(a) If this Agreement terminates for any reason, the Parties shall cooperate to ensure an orderly transfer of servicing as provided in subsection (b) below.

(b) If this Agreement is terminated pursuant to Section 5.02(e) or Section 6.03, Servicer shall take all commercially reasonable steps necessary to effectuate a transfer of the Services to Primary Servicer or any other applicable successor servicer. To the extent that compliance with this Section 6.04(b) shall require Servicer to disclose to a successor servicer any Confidential Information (as defined in the Program Agreement), the successor servicer shall be required to enter into a confidentiality agreement satisfactory in form and substance to Servicer. Bank agrees that so long as the Program is in effect, it shall perform, or require any successor servicer to perform, the Services in accordance with the provisions of Sections 7.2 and 7.3 of the Program Agreement.

ARTICLE VII

INDEMNIFICATION

Section 7.01. Indemnification By Servicer. Servicer agrees to indemnify and hold harmless Bank, its Affiliates and their respective officers, directors and employees from and against and in respect of any and all losses, liabilities, damages, costs and expenses of whatever nature, including reasonable attorneys’ fees and expenses (collectively, “Damages”), which are caused or incurred by, result from, arise out of or relate to:

(a) the breach of any of Servicer’s representations or warranties made in this Agreement;

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(b) the failure by Servicer to perform any of its covenants or agreements contained in this Agreement, except to the extent such failure to perform is caused by (i) the failure of any of the Household Companies to perform its obligations under any Transaction Document or (ii) any actions or omission by Servicer taken or not taken at any Household Companies’ written request or direction pursuant to any Transaction Document;

(c) any fines or penalties imposed by a Governmental Authority on the basis of a Regulatory Failure;

(d) any lawsuit, legal proceeding, arbitration proceeding, claim, dispute, complaint or setoff by a Cardholder with respect to anything actually or allegedly done or not done by Servicer in connection with the Services, excluding anything actually or allegedly done or not done by Servicer that (A) is required or expressly permitted under the Risk Management Policies, the Operating Procedures or any Transaction Document or (B) is done at the express direction of Bank.

(e) any lawsuit, legal proceeding, arbitration proceeding or claim by a third party alleging any material inaccuracy in the information provided pursuant to Section 2.08.

Section 7.02. Procedure for Indemnification.

(a) In case any claim is made, or any suit or action is commenced against Bank in respect of which indemnification may be sought by it under this Section 7.02, Bank shall promptly give Servicer notice thereof and Servicer shall be entitled to participate in the defense thereof and, with prior written notice to Bank given not later than twenty (20) days after the delivery of the applicable notice from Bank, to assume, at Servicer’s expense, the defense thereof, with counsel reasonably satisfactory to Bank. After notice from Servicer to Bank of its election so to assume the defense thereof, Servicer shall not be liable to Bank under this Section for any attorneys’ fees or other expenses subsequently incurred by Bank in connection with the defense thereof, except as set forth in Section 7.02(b), other than reasonable costs of investigation.

(b) Bank shall have the right to employ its own counsel if Servicer elects to assume such defense, but the fees and expenses of such counsel shall be at Bank’s expense, unless (i) the employment of such counsel has been authorized in writing by Servicer, (ii) Servicer has not employed counsel to take charge of the defense within twenty (20) days after delivery of the applicable notice or, having elected to assume such defense, thereafter ceases its defense of such action, or (iii) Bank has reasonably concluded that the interests of the Parties are conflicting such that it would be inappropriate for the same counsel to represent both parties (in which case Servicer shall not have the right to direct the defense of such action on behalf of Bank), in any of which events the attorneys’ fees and expenses of counsel to Bank shall be borne by Servicer.

(c) Bank or Servicer may at any time notify the other of its intention to settle or compromise any claim, suit or action against Bank in respect of which payments may be sought by Bank hereunder, and (i) Servicer may settle or compromise any such claim, suit or action solely for the payment of money damages for which Bank will be fully indemnified

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hereunder and given a full and complete release of any and all liability by all relevant parties relating to such claim, suit or action, but shall not agree to any other settlement or compromise unless Bank consents in writing, which consent shall not be unreasonably withheld (it being agreed that any failure of an Bank to consent to any settlement or compromise involving relief other than monetary damages shall not be deemed to be unreasonably withheld), and (ii) Bank may settle or compromise any such claim, suit or action solely for an amount not exceeding One Thousand Dollars ($1,000), but shall not settle or compromise any other matter without the prior written consent of Servicer, which consent shall not be unreasonably withheld.

Section 7.03. Notice and Additional Rights and Limitations.

(a) If Bank fails to give prompt notice of any claim being made or any suit or action being commenced in respect of which indemnification under this Section 7.03 may be sought, such failure shall not limit the liability of Servicer; provided, however, that this provision shall not be deemed to limit Servicer’s rights to recover from Bank for any loss, cost or expense which it can establish resulted from such failure to give prompt notice.

(b) This Section 7.03 shall govern the obligations of the Parties with respect to the subject matter hereof but shall not be deemed to limit the rights that either Party might otherwise have at law or in equity.

(c) Notwithstanding anything to the contrary in this Agreement, no Party shall be liable to the other for punitive or exemplary damages relating to or arising out of this Agreement, any breach hereof or any of the transactions provided for therein, unless Bank shall have become liable to a third party for such amounts.

Section 7.04. Limits on Indemnification. Notwithstanding anything to the contrary set forth in this article, Servicer shall not have any obligation to indemnify Bank in respect of any breach of a representation or warranty under Section 7.01(a) unless and until the Deductible Amount of Damages has been incurred in the aggregate by Bank in respect of breaches of representations and warranties under Section 7.01(a). After Bank incurs in aggregate the Deductible Amount of Damages in respect of breaches of representations and warranties under Section 7.01(a), Servicer shall indemnify Bank in accordance with this Article VII to the extent of the full amount of such Damages.

ARTICLE VIII

MISCELLANEOUS

Section 8.01. Confidentiality

(a) General Confidentiality.

(i) For purposes of this Agreement, “Confidential Information” means any of the following: (i) information that is provided by or on behalf of either Servicer or the Household Companies to the other Party or its agents in connection with providing Services hereunder (including information provided prior to the date hereof or the Effective Date); (ii) information about Servicer or the Household Companies or their

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Affiliates, or their respective businesses or employees, that is otherwise obtained by the other Party in connection with providing Services hereunder, in each case including: (A) information concerning marketing plans, objectives and financial results; (B) information regarding business systems, methods, processes, financing data, programs and products; (C) information regarding any products offered or proposed to be offered under the Program Agreement or the manner of offering of any such products; (D) information unrelated to the Program obtained by Servicer or the Household Companies in connection with this Agreement, including by accessing or being present at the business location of the other Party; and (E) proprietary technical information, including source codes, or other proprietary information developed in connection with the Program; and (iii) the terms and conditions of this Agreement.

(ii) The restrictions on disclosure of Confidential Information under this Section 8.01 shall not apply to information received or obtained by Servicer or the Household Companies, as the case may be, that: (i) is or becomes generally available to the public other than as a result of disclosure in breach of this Agreement or any other confidentiality obligations; (ii) is lawfully received on a non-confidential basis from a third party authorized to disclose such information without restriction and without breach of this Agreement; (iii) is contained in, or is capable of being discovered through examination of, publicly available records or products; (iv) is required to be disclosed by Applicable Law; provided that the Party subject to such Applicable Law shall use reasonable efforts to avoid such disclosure and notify the other Party of any such use or requirement prior to disclosure of any Confidential Information obtained from the other Party in order to afford such other Party an opportunity to seek a protective order to prevent or limit disclosure of the Confidential Information to third Parties; provided, further, that such information shall be disclosed only to the extent required by such Applicable Law and shall otherwise remain Confidential Information; or (v) is developed by Servicer or the Household Companies, as the case may be, without the use or knowledge of any proprietary, non-public information provided by the other Party under, or otherwise made available to such Party as a result of, this Agreement. Nothing herein shall be construed to permit the Receiving Party (as defined below) to disclose to any third party any Confidential Information that the Receiving Party is required to keep confidential under Applicable Law.

(iii) The terms and conditions of this Agreement shall each be the Confidential Information of Servicer and the Household Companies and each of the Parties to this Agreement shall be deemed to be a Receiving Party of each of them; provided, however, that the terms of this Agreement may be filed by either Party with any Governmental Authority (including public filings with the Securities and Exchange Commission) to the extent required by Applicable Law.

(iv) If Servicer, on the one hand, or the Household Companies, on the other hand, receives Confidential Information of the other Party (“Receiving Party”), the Receiving Party shall do the following with respect to the Confidential Information of the other Party (“Disclosing Party”): (i) keep the Confidential Information of the Disclosing Party secure and confidential; (ii) treat all Confidential Information of the Disclosing Party with the same degree of care as it accords its own Confidential Information, but in

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no event less than a reasonable degree of care; and (iii) implement and maintain commercially reasonable physical, electronic, administrative and procedural security measures, including commercially reasonable authentication, access controls, virus protection and intrusion detection practices and procedures.

(b) Use and Disclosure of Confidential Information.

(i) Each Receiving Party shall use and disclose the Confidential Information of the Disclosing Party only for the purpose of performing its obligations or enforcing its rights with respect to the Program or as otherwise expressly permitted by this Agreement, and shall not accumulate in any way or make use of such Confidential Information for any other purpose.

(ii) Each Receiving Party shall: (i) limit access to the Disclosing Party’s Confidential Information to those employees, authorized agents, vendors, consultants, service providers, accountants, advisors and subcontractors who have a reasonable need to access such Confidential Information in connection with the provision of the Services hereunder, in each case in accordance with the terms of this Agreement, and (ii) ensure that any Person with access to the Disclosing Party’s Confidential Information agrees to be bound by a confidentiality agreement containing the restrictions set forth in this Section 8.01.

(c) Unauthorized Use or Disclosure of Confidential Information. Each Receiving Party agrees that any unauthorized use or disclosure of Confidential Information of the Disclosing Party might cause immediate and irreparable harm to the Disclosing Party for which money damages might not constitute an adequate remedy. In that event, the Receiving Party agrees that injunctive relief may be warranted in addition to any other remedies the Disclosing Party may have. In addition, the Receiving Party agrees promptly to advise the Disclosing Party by telephone and in writing via facsimile of any security breach that may have compromised any Confidential Information or of any unauthorized misappropriation, disclosure or use by any Person of the Confidential Information of the Disclosing Party which may come to its attention, and to take all steps at its own expense reasonably requested by the Disclosing Party to limit, stop or otherwise remedy such breach, misappropriation, disclosure or use.

(d) Return or Destruction of Confidential Information. Upon the termination or expiration of this Agreement, the Receiving Party shall comply with the Disclosing Party’s reasonable instructions regarding the disposition of the Disclosing Party’s Confidential Information, which may include return of any and all the Disclosing Party’s Confidential Information (including any electronic or paper copies, reproductions, extracts or summaries thereof); provided, however, that the Receiving Party in possession of tangible property containing the Disclosing Party’s Confidential Information may retain one archived copy of such material, subject to the terms of this Agreement, which may be used solely for regulatory purposes and may not be used for any other purpose. Such compliance shall be certified in writing, including a statement that no copies of Confidential Information have been kept, except as necessary for regulatory purposes.

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Section 8.02. Access Rights. Each Party shall permit the other Party and its representatives and regulators to visit its facilities related to the Program during normal business hours with reasonable advance notice. The reviewing Party shall employ such reasonable procedures and methods as necessary and appropriate in the circumstances, minimizing interference to the extent practicable with the reviewed Party’s normal business operations. The reviewed Party shall use commercially reasonable efforts to facilitate the reviewing Party’s review, including making reasonably available such personnel of the reviewed Party and its service providers to assist the reviewing Party and its representatives as reasonably requested. Each Party shall also permit the other Party and its representatives and regulators to review (during normal business hours) and obtain copies of the books and records relating to the Program, including any audit results of subcontractors that provide Services; provided that neither Party shall be required to provide access to records to the extent that (a) such access is prohibited by Applicable Law, (b) such records are legally privileged, (c) such records are company planning documents of such Party or any of its Affiliates, operating budgets, management reviews or employee records, (d) such records relate to other customers of, or credit programs operated by, the Household Companies or Servicer or (e) such records relate to other customers or operations of such Party other than the Program or to personnel records not normally disclosed in connection with audits.

Section 8.03. No Waiver; Remedies; Amendment.

(a) Failure or delay on the part of either Party to exercise any right provided for herein shall not act as a waiver thereof, nor shall any single or partial exercise of any right by either Party preclude any other or further exercise thereof.

(b) Remedies provided in this Agreement shall be the exclusive remedies of the Parties for breaches of, or claims relating to, this Agreement.

(c) In no event shall a term or provision of this Agreement be deemed to have been waived, modified or amended, unless a waiver, modification or amendment is in writing and signed by the Parties hereto.

Section 8.04. Independent Contractor. In the performance of its duties or obligations under this Agreement, Servicer shall not be deemed to be the agent of Bank and Bank shall not be deemed to be the agent of Servicer and each Party shall at all times take whatever measures as are necessary to ensure that its status shall be that of an independent contractor.

Section 8.05. No Joint Venture. Nothing in this Agreement or any Transaction Document shall be deemed to create a partnership or joint venture between Servicer and Bank. Except as expressly set forth herein, no Party shall have any authority hereunder to bind or commit the other Party.

Section 8.06. Payment Terms. All payments to be made by either Party pursuant to this Agreement shall be made by wire transfer in lawful money of the United States, immediately available funds, to such account as the receiving Party shall specify prior to noon, New York time, two Business Days prior to the date payment is required. Any payment required to be made on a day that is not a Business Day shall be made on the next succeeding Business Day.

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Section 8.07. Entire Agreement. Each Party acknowledges that no representations, agreements, or promises were made to it by the other Party other than those representations, agreements or promises specifically contained in this Agreement and in the Transaction Documents and in a separate confidentiality letter signed by Bank dated March 9, 2005. This Agreement and the other Transaction Documents and such confidentiality letter set forth the entire understanding between the Parties hereto with respect to the subject matter hereof and thereof.

Section 8.08. No Set-Off. The Parties agree that each Party has waived any right to set-off, combine, consolidate or otherwise appropriate and apply (i) any assets of the other Party held by the Party or (ii) any indebtedness or other liabilities at any time owing by the Party to the other Party, as the case may be, against or on account of any obligations owed by the other Party in connection with this Agreement, except as expressly set forth herein.

Section 8.09. Notices. All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given upon the delivery or receipt thereof, as the case may be, sent by registered or certified mail, return receipt requested, via overnight delivery service, postage prepaid, or by facsimile transmission (receipt confirmed) to:

(a)In the case of Servicer:

c/o The Neiman Marcus Group, Inc.

One Marcus Square

1618 Main Street

Dallas, Texas 75201

Attention: General Counsel

Facsimile: (214) 573-5354

With a copy to:

c/o The Neiman Marcus Group, Inc.

One Marcus Square

1618 Main Street

Dallas, Texas 75201

Attention: Credit Card Program Manager

Facsimile: (214) 743-7646

With a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Maripat Alpuche, Esq.

Facsimile: (212) 455-2502

19

(b)In the case of Bank:

HSBC Bank Nevada, N.A.

2700 Sanders Road

Prospect Heights, Illinois 60070

Attention: Chief Operating Officer, HSBC Retail Services

Facsimile: (847) 205-7441

With a copy to:

HSBC Retail Services

2700 Sanders Road

Prospect Heights, Illinois 60070

Attention: General Counsel, Retail Services Division

Facsimile: (847) 205-7417

Section 8.10. Severability. To the fullest extent permitted by law, any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in such jurisdiction or in any other jurisdiction.

Section 8.11. Headings. The headings and recitals contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 8.12. Survival. The provisions of Section 2.02, Section 6.02(a), Section 6.02(b), Section 6.04, Section 8.01, Section 8.08, Section 8.12, Section 8.13, Section 8.17 and Section 8.18 and Article VII shall survive any termination of this Agreement.

Section 8.13. Costs and Expenses. Except as expressly provided otherwise in this Agreement, the Risk Management Policies, the Operating Procedures or any other Transaction Document, each Party shall bear all costs and expenses incurred by such Party in connection with its performance of its duties hereunder (including, in the case of Servicer, all costs and expenses incurred by it in connection with its performance of the Services) or otherwise.

Section 8.14. Drafting. Each Party acknowledges that its legal counsel participated in the drafting of this Agreement. The Parties hereby agree that the rule of construction that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement to favor one Party over the other.

Section 8.15. Counterparts. This Agreement may be executed in one or more counterparts, each of which counterparts shall be deemed to be original, and all such counterparts shall constitute one and the same instrument.

Section 8.16. Assignment; Successors. This Agreement shall not be assigned by either Party without the prior written consent of the other, except that (a) Servicer shall have the right to assign its rights and obligations hereunder to any Affiliate of Servicer and (b) Bank shall

20

have the right to assign its rights and obligations hereunder to an Affiliate. This Agreement is intended for the exclusive benefit of the Parties hereto and their respective successors and permitted assigns, and shall not create any rights in or be enforceable by any other Person whomsoever, other than any Person entitled to indemnification from Servicer pursuant to Article VII hereof, it being the intention of the Parties that no other Person shall be deemed to be a third party beneficiary of this Agreement. This Agreement shall be binding on, and enforceable against, the successors and permitted assigns of the Parties.

Section 8.17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within such State, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

Section 8.18. Waiver of Jury Trial and Venue.

(a) Each party hereto hereby waives all right to trial by jury in any action or proceeding to enforce or defend any rights under this Agreement.

(b) Each party hereto hereby irrevocably submits to the jurisdiction of the United States District Court for the State of Delaware or, if such federal jurisdiction is unavailable, in the state courts of the State of Delaware over any action arising out of this Agreement, and each party hereto hereby irrevocably waives any objection which such party may now or hereafter have to the laying of improper venue or forum non conveniens. Each party hereto agrees that a judgment in any such action or proceeding may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Any and all service of process and any other notice in any such suit, action or proceeding with respect to this Agreement shall be effective against any party hereto if given as provided herein.

21

IN WITNESS WHEREOF, the Parties have caused their respective duly authorized representatives to execute this Agreement as of the date first written above.

THE NEIMAN MARCUS GROUP, INC.
By:	/s/ Steven P. Dennis
Name:	Steven P. Dennis
Title:	Senior Vice President, Strategy & Business Development
HSBC BANK NEVADA, N.A.
By:	/s/ Charles A. Colip
Name:	Charles A. Colip
Title:	Executive Vice President

22

SCHEDULE 1.01(a)

Services

I.   The Services that may be transitioned to Bank are defined as follows:

1.Documentation Services — The Statement Mailing responsibilities include preparing, processing and mailing customer billing statements with related and appropriate inserts including but not limited to privacy policies and term notifications. Additional credit correspondence may also be included. There are non-credit functions (i.e. store and marketing mailings) not included in a transfer of Documentation Services.  The ability for Universal Agents to retrieve copies of customer billing statements through the SystemWare XNET or comparable system must also be done as part of this transition. The cardholder remittance processing (Payment Processing) functionality related to receiving and processing all incoming charge payments, except those payments received in the store, may also be transitioned.  The Payment Processing transition must include a daily feed of NM and BG payments separately as a TRAMS input feed into the NMG PaySys system until the Bank PaySys system is used.

2.Credit Card Production Services — The production and issuance of all new, replacement and reissued credit card plates related to the following credit card programs (Neiman Marcus, Bergdorf Goodman, NM Gold, NM InCircle, NM Platinum).  In addition to the embossed credit cards, the production services group generates non-embossed gift cards with the 16-digit gift card number coded in the magnetic stripe.  The timeline for the potential transition of gift card issuance and additional costs incurred, if any, will be mutually agreed upon by Bank and NMG prior to such conversion.

3.Late Stage Collections — Collection accounts greater than or equal to 120 contractual days delinquent including charged-off (P&L) accounts.  Customer contact may include the use of power dialing equipment, generated collection letters in addition to outbound phone contact with the customer. Post Charge-off (P&L) Collection Services include the administration, maintenance and placement of accounts to outside attorneys and agencies on a contingency fee basis.

4.Data Processing Services — Credit card data processing involves retail cardholder account data storage and maintenance, transaction authorizing and posting, fraud and risk management strategies and settlement.

II.  Services not considered for transfer to the Bank includes:

On collection accounts less than 120 contractual days delinquent (Early Stage Collections), services include providing account monitoring, identifying over-extended accounts and initiating the appropriate collection efforts.

Credit Processing Services include the processing, primarily through store referral call interaction, and decisioning of new applications and pending sale transactions on existing accounts. Both of these underwriting processes are governed by the risk management policies and operating procedures.

Customer Service Services has multiple areas of functionality.  The call center responds and resolves cardholder and store inquiries and handles card program billing-related claims for Neiman Marcus, Bergdorf Goodman and the InCircle loyalty program.   Other support groups involved in the customer resolution process include Bill Adjustments, Media Retention and Retrieval, Accounts Receivable reconciliation, Third Party Charge-backs as well as various clerical responsibilities.

2

SCHEDULE 2.03(e)

Monthly Reports

Department	Hotel Report	Brookline Equivalent
Collections	Roll Rates	Trial Balance By Cycle
		Trial Balance By Balance Range
		Roll Rate
	Dialer Reports	Job Performance Summary
		Monthly Job Performance Summary
		Monthly System Performance Summary
		Monthly System Completion Code Summary
		Monthly Job Completion Code Summary
	Collection QA Reports	NM Monitoring Form
	Collection Agency Audit Packages	Collection Agency Account Audit
		e.g. Attorney Placement Summary (Strong Law Firm)
	Collection Bureau Disputes	Report Card Information; Summary of Responses
	Calling Strategies	Billing Calendar - Dialer Work Schedule
	Block Code Report	Blocked Account Report
	Block Code/User Code Report	No applicable Report
	Debt Management Inventory Report	Payment Plans
		CCCS Inventory
	Outbound/Inbound Dialer Volume	Refer to Dialer Reports
	Collection Productivity Reports	Collector Synopsis Summary Reports (By Team)
Credit	Override Report	Credit Application Processing System CAPS Listing
	Credit Line Increases	New Accounts With Guidelines Exceeding $
		Credit Limit Change Report
	Forced Authorization Report	Daily Approval Override Code Usage - Manager Overrides
		Daily Approval Override Code Usage - Credit Center Overrides
		Authorization Production By Operator ID
		Auto & Manual Decline Transactions
	Reinstatement Report	No applicable Report
	Application Decision Timing	No applicable Report
	Adverse Action Timing	Adverse Action Letter Generation
	Decline Reason Timing	Adverse Action Letter Generation
Fraud	New Fraud Claims Report	CAPS - Real-Time Fraud Detection Payment Report Model
		Pending Fraud Write-Off
	Fraud By Name Plate Report	Fraud Expense Forecast
		Fraud Expense By Location
	Fraud Block Code Vintage Report	No applicable Report
	Fraud By Type	Fraud Loss By Type
	Fraud Write-Off Policies	No applicable Report
	Fraud Investigation Procedures	Loss Prevention Training Program - Module 5/Fraud Investigators
	SAR Reporting Timelines	No applicable Report

Customer Service	Credit Balance Refund Aging Report	Credit Balance Report
		Check Register
	Dispute Aging Report	Neiman Marcus FCBA Log
		Service Profile By Division
		Fiscal 2005 YTD Totals
		Dispute Items Report
	Lost/Stolen Account Maintenance	Accounts Transferred Today
		Transactions On Transfers
	SSCRA Reporting	No applicable Report
	Repeat Credit Bureau Disputes	No applicable Report
	QA Monitoring	Credit Services Quality Assurance Form
	Key Performance Measures	Service Levels - Credit Call Center
	Telephone Statistics Summary	Split/Skill Summary Monthly Authorizations
		Split/Skill Summary Monthly Infobot
		Split/Skill Summary Monthly Incircle/Gold
		Split/Skill Summary Monthly Incircle/Platinum
		Split/Skill Summary Monthly - NMD/NMO Referrals
		Split/Skill Summary Monthly Customer Service Help
	Dispute Processing & Procedures	Dispute Resolution Process
Compliance	Right to Financial Privacy	Subpoena Log
	Compliance Training	No applicable Report
	Escalated Complaint Reporting	No applicable Report
	Cash Payment Monitoring	Reporting Monies Received on In-Store Cash Payments
	OFAC Exception Reporting	Report Distribution Change Request
	High Risk Country Reporting	No applicable Report
	CIP Exception Reporting	No applicable Report
A/R System	Activity Recap Report (R16)	Activity Recap Report (R16)
	Reject Re-Entry Report (R15)	Reject Re-Entry Report (R15)
	Warehoused Transactions (D10)	Warehoused Transactions (D10)
	Blocked Account Report (O07)	Blocked Account Report (O07)
	Trial Balance by Account (O08)	Trial Balance by Account (O08)
	Charged Off Accounts Report (D09)	Charged Off Accounts Report (D09)
	Audit Exception Report (D15)	Audit Exception Report (D15)
	Generated Transaction Journal (D11)	Generated Transaction Journal (D11)
	Daily Balancing Report (R32)	Daily Balancing Report (R32)
	Accounts Transferred Today (O24)	Accounts Transferred Today (O24)
Risk/Portfolio	Application Result Summary	CAPS Listing
Management	Key Portfolio Statistics	Customer Aging Report (CAR)
	Authorization Summary	Daily Authorization Totals
		Rescore Summary Report
		Rescore With Limit Increase/Decrease - Tier I
		Rescore Tier II With Limit Increase
		Rescore Without Limit Increase/Decrease
		Rescore Tier II Without Increase By Reason Code

2

Charge-Off & Recovery Trends	Bad Debt Provision
	Primary Collection Agency Performance Report
	Secondary Agency & Bankruptcy Performance Report
	Bankruptcy Analysis
	Bankruptcy Write-Off Analysis
Behavior Score Control Chart	No applicable Report
	Credit Reclassification Summary Report
FICO Score Control Chart	No applicable Report
Custom Score Control Chart	Population Stability Report Final Scores
Account Review Analysis	Quest Totals

3

SCHEDULE 2.04(a)

Service Level Standards

For the Term, the following Servicing Levels will be maintained by Servicer as noted:

A.Documentation Services Servicer will meet the following service levels on average each month (as measured by Servicer’s standard practices):

1.Percentage of all billing statements that will be mailed out within 5 days of cycle close date provided that this standard shall not apply if a systems problem prevents communication of the credit input data to Servicer’s credit operations (monthly reporting will be completed on an Excel spreadsheet): [***] * [Regulatory SLA]

2.Statement Mailing Services and Credit Card Production Services paper quality for statements, carriers and matching window envelopes must meet the following minimum specifications: 70-pound Cougar smooth natural/cream design

3.Term notifications and privacy and other inserts included in mailings must meet the following minimum paper specifications: 60-pound offset

4.Metavante CSF programming is used to produce the following billing statements: one-color billing statements with 3 of 9 insertion barcode instructions

5.The following are the statement insert dimensions specifications: no larger than 5 ½” long and 3 ¼” wide with a maximum insert weight of .150 ounces; total single-page statement mailing package per envelope must not exceed 1.000 ounce to qualify for discounted postal rate

6.Percentage of daily payments that will be processed within 48 hours of receipt (Functionality includes desktop image archive capability up to 2 years for browse access): [***]

B.Credit Card Production ServicesServicer will meet the following service level on average each month (as measured by Servicer’s standard practices):

1.Percentage of all new account and replacement credit cards, including any Program Loyalty Program Cards that will be mailed out within 5 business days after they are requested (monthly reporting will be completed on an Excel spreadsheet): [***] *

C.Late and Early-Stage Collections Servicer will meet the following service levels on average each month (as measured by Servicer’s standard practices):

2.Percentage of time that Servicer shall make its collections operations available during the following times: [***]

Monday through Thursday 7:00 a.m. to 11:00 p.m.

Friday 7:00 a.m. to 5:00 p.m.

Saturday 7:00 to 11:00 a.m.

Sunday closed

3.Percentage of time that Servicer shall complete the following minimum number of Account reviews per day for those accounts without a contact or tentative agreement still in the CTA sub-system: [***]

Mid balances ($[***] to $[***])	every 3 days
Balances $[***] to $[***]	every 3 days
Balances greater than $[***]	every 3 days

4.Percentage of time that Servicer shall maintain a [***] monthly promise to pay ratio of accounts worked from the autodialer: [***]

5.Percentage of time that Servicer shall maintain a [***] monthly contact ratio of accounts worked from the autodialer: [***]

6.Percentage of time that Servicer shall maintain a [***] cure rate for Accounts worked excluding Accounts with balances greater than $[***]: [***] *

7.Percentage of Accounts (greater than $[***] balance) which initially enter the collections queue will be worked within 48 hours of such entry into the collections queue: [***]

D.Credit Processing Services & Customer Service Services Servicer will meet the following service levels on average each month (as measured by Servicer’s standard practices):

1.Percentage of all customer service inquiry batch-work correspondence (including address or name changes or credit bureau inquiries) that will be opened and reviewed within 5 days of receipt: [***]

2.Authorization, customer service and InCircle calls will be answered on a monthly average within the following timeframes after the call first becomes available for a Universal Agent to answer:

·[***] (“[***] ASA”) during the months of April through October;

·[***] (“[***] ASA”) during the months of November through February; and

·[***] (“[***] ASA”) during March and during a month when there is a significant promotion , sale event or another special event including the annual InCircle, Platinum and Gold charge card re-issuance (and the Management Committee has been notified of such promotion, sale event or special event).

If more than half of all Accounts receive a Change of Terms, then these standards will not be applied for the months during which the Change of Terms is becoming effective and one month after the Change of Terms has become effective. If the initial charge card re-issuance (with Bank information on back of charge cards) is not sent to all cardholders with the Change of Terms notice, then these ASA standards will not be applied for the

2

months in which the re-issued charge cards are sent and one month after all re-issued charge cards have been mailed to all cardholders. *

3.Percentage of all adverse action letters that will be mailed out within 21 days after the adverse decision was made: [***] [Regulatory SLA]

4.Upon the request of a Cardholder or upon the end of the fourth cycle for any Account with a Credit Balance up to $[***], the percentage of Credit Balance refunds requested verbally or systemically that will be sent out within 5  days of such request or cycle end date provided that no Credit Balance refund will be sent out for a Credit Balance under [***] [Regulatory SLA]

5.Upon the request of a Cardholder or upon the end of the fourth cycle for any Account with a Credit Balance up to $[***], the percentage of Credit Balance refunds requested by mail correspondence that will be sent out within 9 days of such request or cycle end date provided that no Credit Balance refund will be sent out for a Credit Balance under [***] [Regulatory SLA]

6.Percentage of Fair Credit billing and all other customer initiated disputes are handled [resolved] within 60 days of receipt of notification: [***] * [Regulatory SLA]

7.Percentage of time that Servicer shall make its customer service operations from Monday through Friday from 8:00 a.m. CST to 7:00 p.m. CST and Saturday from 9:00 a.m. CST to 1:00 p.m: [***]

8.Percentage of time that Servicer shall make its authorizations and new account operations available from Monday through Friday from 9:00 a.m. CST to 11:00 p.m. CST, Saturday from 9:00 a.m. CST to 11:30 p.m. CST and Sunday from 9:00 a.m. CST to 10:30 p.m. CST (and will extend these hours to accommodate the store operations when formal store hours are extended due to special sales events and seasonal demands): [***]

* Denotes a Starred SLA

3

SCHEDULE 5.02

Remedies

“Initial Penalty Amount”: [***].

“Subsequent Penalty Amount”: [***].

4

SCHEDULE 7.04

Indemnity Matters

“Deductible Amount”: [***].

5

EX-10.46

Exhibit 10.46

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

FIRST AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This First Amendment to Credit Card Program Agreement (“First Amendment”) is made as of the 30th day of April, 2006, by and among The Neiman Marcus Group, Inc. (“NMG”), Bergdorf Goodman, Inc. (“BG, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and Household Corporation, a Delaware corporation (“Primary Servicer”) to that certain Credit Card Program Agreement (“Agreement”) executed as of June 8, 2005 by and between the parties hereto.

W I T N E S S E T H:

WHEREAS, the parties wish to amend the Agreement as set forth herein;

NOW, THEREFORE, in consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Add a new Section 9.3 to the Agreement as follows:

“9.3Signature Recourse Accounts. The Parties agree that any written-off amounts of certain Signature Accounts created pursuant to this Agreement shall be subject to reimbursement from the NMG Companies to Bank as set forth on Schedule 9.3.”

2. To the extent the provisions of this First Amendment are inconsistent with the Agreement, this First Amendment shall govern.

3. This First Amendment supersedes all prior communications and shall be binding upon and inure to the benefit of the parties, their respective successors and assigns.

4. All capitalized terms not otherwise defined herein shall have the same meaning afforded them in the Agreement.

5. Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

[Remainder of Page Intentionally Left Blank]

SCHEDULE 9.3

(a) The Parties agree that certain Signature Accounts created pursuant to this Schedule 9.3 shall be subject to the following provisions of this Schedule 9.3.

(b) Definitions.

(i) “Immediate Decision Signature Account” is a Non-Card Payment Plan Signature Account with a credit line of [***] or more (i) that the NMG Companies cause to be opened, on behalf of Bank, before Bank has had full opportunity under then-current Bank timeframes, to review the creditworthiness of the applicant; and, (ii) having a credit line in excess of the credit line that Bank actually approved following its review of the creditworthiness of the applicant (the excess credit line amount will be referred to herein as a “Recourse Amount”).

(ii) “Partial Override Signature Account” is a Non-Card Payment Plan Signature Account with a credit line of [***] or more (i) that the NMG Companies cause to be’ opened, on behalf of Bank; and, (ii) due to the NMG Companies’ partial override decision, having a credit line in excess of the credit line that Bank actually approved (the excess credit line amount will also be referred to herein as a “Recourse Amount”).

(iii) “Recourse Account”. An Account defined as either an Immediate Decision Signature Account or Partial Override Signature Account.

(iv) “Written-off Recourse Portfolio Amounts”. The aggregate outstanding Recourse Amounts related to Recourse Accounts that have been written-off in accordance with the Risk Management Policies.

(c) All Recourse Account applicants must meet the following minimum credit criteria: (a) the applicants must be a minimum of [***] years of age at the time of the application; and (b) the applicants must be treated in the same manner as other Signature Account applicants based on the Agreement and the Operating Instructions.

(d) All of the Immediate Decision Signature Accounts and the Partial Override Signature Accounts will be included when calculating the amount of Interest Free Receivables in connection with Schedule 1.1 (f) of the Agreement.

(e) In the event that Bank determines that the NMG Companies is creating Recourse Accounts in a manner such that a significant percentage of Recourse Amounts have been written-off or will be written-off, Bank may unilaterally terminate further funding of new Recourse Accounts.  In any event Bank and NMG will work together cooperatively to manage the Recourse Accounts to maintain reasonable risk for both parties and to accommodate the NMG Companies and the relationship between the NMG Companies and their customers. Recourse Accounts will be serviced and treated in a manner similar to other Signature Accounts.

(f) Repurchase of Written-off Recourse Portfolio Amounts.  The NMG Companies understand that but for their promises pursuant to this Schedule 9.3, Bank would have the right to not fund the Recourse Amounts.  As such, in consideration of Bank’s funding the Recourse Amounts, the NMG Companies agree that it will pay to Bank, on a monthly basis, any and all Written-off Recourse Portfolio Amounts. Upon Bank’s receipt of consideration, from the NMG Companies, for the Written-off Recourse Portfolio Amounts, Bank and the NMG Companies

shall service and collect the Written-off Recourse Portfolio Amounts pursuant to Section (i) herein.

(g) All Recourse Accounts shall remain at the initial credit limit extended at the time the Recourse Account is opened.

(h) All Recourse Amounts must be approved by the NMG Companies’ Vice President of Credit.  As of the date of the First Amendment to the Agreement, the NMG Companies’ current Vice President of Credit is Bill Hough.

(i) Collection of Written-off Recourse Portfolio Amounts. Bank and the NMG Companies will jointly participate in all servicing and collection efforts with respect to Written-off Recourse Portfolio Amounts and shall divide any recoveries of Recourse Portfolio Amounts and non-Recourse Amounts according to the following parameters:

(1) If a written-off balance consists only of a Written-off Recourse Portfolio Amount, or less, the NMG Companies shall be entitled to collect and receive that written-off balance.

(2) If a written-off balance consists of a Written-off Recourse Portfolio Amount in addition to an amount approved by the Bank, any recovery will be split equally up to the point that the NMG Companies are made whole for any Charged-off Recourse Portfolio Amount owed to or paid to Bank; and, Bank will be entitled to collect or receive any additional recovery thereafter.

(3) Bank will assume all costs of collecting Written-off Recourse Portfolio Amounts.

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed as of the date first above written.

	THE NEIMAN MARCUS GROUP, INC.
By:	/s/  William S. Hough
	Title:  VP Credit Services
	BERGDORF GOODMAN, INC.
By:	/s/  William S. Hough
	Title:  VP Credit Services
	HSBC BANK NEVADA, N.A.
By:	/s/  Charles A. Colp
	Title:  Executive Vice President
	HOUSEHOLD CORPORATION
By:	/s/  Charles A. Colp
	Title:  Executive Vice President

EX-10.47

Exhibit 10.47

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

SECOND AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Second Amendment to Credit Card Program Agreement (“Second Amendment”) is made as of the 28th day of June, 2006, by and among The Neiman Marcus Group, Inc. (“NMG”), Bergdorf Goodman, Inc. (“BG”, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and Household Corporation, a Delaware corporation (“Primary Servicer”), to that certain Credit Card Program Agreement (“Agreement”) executed as of June 8, 2005 and amended by the First Amendment to Credit Card Program Agreement executed as of April 30, 2006, by and between the parties thereto.

W I T N E S S E T H:

WHEREAS, the parties wish to further amend the Agreement as set forth herein:

NOW, THEREFORE, in consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             Schedule 7.3(a)(A)(1) is deleted in its entirety and replaced with the following new Schedule 7.3(a)(A)(1):

“Percentage of all billing statements that will be mailed out within [***] days (excluding Sundays) of cycle close date provided that this standard shall not apply if either:  (i) a NMG system problem prevents communications of the credit input data to Bank’s credit operations (monthly reporting will be completed on an Excel spreadsheet); or, (ii) Inserts provided by the NMG Companies do not meet Bank’s specification:  [***]”

2.             The table included in Schedule 9.1(a)(1) under the section titled “Determination of Servicing Fee Percentage” is hereby deleted and replaced with the following new table:

Service	Amount	Definition
Billing and Statementing
Documentation Services —Statement Mailing — Internal Inserts	[***]	Bank is issuing the cycle end bills and statements for all Accounts and including internal inserts in such bills
Documentation Services —Statement Mailing — External Inserts	[***]	Bank is issuing the cycle end bills and statements for all Accounts and including external inserts in such Bills
Credit Card Production Services	[***]	Bank is producing and issuing all new, replacement and reissued credit card plates
Late Stage Collections
General Late Stage Collections	[***]	Bank is collecting balances which are at least [***] days past their due date
Charged off balances	[***]	Bank is collecting balances which have been written-off in accordance with the Risk Management Policies
Universal Agents to Bank Payroll		Bank is employing the Persons responsible for

		customer service and related activities
Early Stage Collections	[***]	Bank is collecting balances which are less than [***] days past their due date
Customer Service Services	[***]	Bank is staffing the call center and resolving customer and store inquiries
Credit Processing Services	[***]	Bank if processing and decisioning new applications and pending sale transactions
Data Processing Services (Systems Conversions)	[***]	Bank is processing all Account activity on the Bank’s systems

3.             To the extent the provisions of this Second Amendment are inconsistent with the Agreement, this Second Amendment shall govern.

4.             This Second Amendment supersedes all prior communications and shall be binding upon and inure to the benefits of the parties, their respective successors and assigns.

5.             All capitalized terms not otherwise defined herein shall have the same meaning afforded them in the Agreement.

6.             Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed as of the date first above written.

	THE NEIMAN MARCUS GROUP, INC.
By:	/s/  William S. Hough
	Title: VP Credit Services
	BERGDORF GOODMAN, INC.
By:	/s/  William S. Hough
	Title: VP Credit Services
	HSBC BANK NEVADA, N.A.
By:	/s/  Richard Klesse
	Title: Vice President
	HOUSEHOLD CORPORATION
By:	/s/  Richard Klesse
	Title: Vice President

EX-10.48

Exhibit 10.48

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

THIRD AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Third Amendment to Credit Card Program Agreement (“First Amendment”) is made effective as of the 1st day of August, 2006, by and among The Neiman Marcus Group, Inc. (“NMG”), Bergdorf Goodman, Inc. (“BG, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and Household Corporation, a Delaware corporation (“Primary Servicer”) to that certain Credit Card Program Agreement (“Agreement”) executed as of June 8, 2005 and amended by the First Amendment to Credit Card Program Agreement executed as of April 30, 2006 (“First Amendment”) and the Second Amendment to Credit Card Program Agreement executed as of June 29, 2006 (“Second Amendment”) by and between the parties hereto.

W I T N E S S E T H:

WHEREAS, the parties wish to amend the Agreement as set forth herein;

NOW, THEREFORE, in consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Schedule 7.3(a) (C) is deleted in its entirety and replaced with the following new Schedule 7.3(a)(c):

“C.Late and Early Stage Collections.  Bank will meet the following service levels `on an average each month:

1.The percentage of time that Bank shall make its collections operations available during the following times:  [***]

Monday through Thursday	8:00 a.m. to 9:00 p.m.	Central time
Friday	8:00 a.m. to 5:00 p.m.	Central time
Saturday	8:00 to 12:00 p.m.	Central time
Sunday	None. Closed.

2.The percentage of time that Bank shall maintain a contact penetration for the following categories of Accounts:  [***]*

—	Balances greater than [***] which are [***] or more cycles delinquent	every Month
—	Balances greater than [***] which are [***] or more cycles delinquent	every Month

3.The Parties agree to mutually review and amend, if necessary, Schedule 7.3(a)(C) if the Cardholder Agreement is materially altered.

4.To the extent the provisions of this Third Amendment are inconsistent with the Agreement, this Third Amendment shall govern.

5.This Third Amendment supersedes all prior communications and shall be binding upon and inure to the benefit of the parties, their respective successors and assigns.

6.All capitalized terms not otherwise defined herein shall have the same meaning afforded them in the Agreement.  Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, each of the Parties has caused this Third Amendment to be duly executed as of the date first above written.

	THE NEIMAN MARCUS GROUP, INC.
By:	/s/  William S. Hough
	Title: VP Credit Services
	BERGDORF GOODMAN, INC.
By:	/s/  William S. Hough
	Title: VP Credit Services
	HSBC BANK NEVADA, N.A.
By:	/s/  Brian D. Hughes
	Title: Executive Vice President
	HOUSEHOLD CORPORATION
By:	/s/  Brian D. Hughes
	Title: Managing Director

FOURTH AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Third Amendment to Credit Card Program Agreement (“First Amendment”) is made effective as of the 3 day of April, 2007, by and among The Neiman Marcus Group, Inc. (“NMG”), Bergdorf Goodman, Inc. (“BG, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and HSBC Private Label Corporation, a Delaware corporation formerly known as Household Corporation (“Primary Servicer”) to that certain Credit Card Program Agreement (“Agreement”) executed as of June 8, 2005 and amended by the First Amendment to Credit Card Program Agreement executed as of April 30, 2006 (“First Amendment”), and the Second Amendment to Credit Card Program Agreement executed as of June 28, 2006 (“Second Amendment”) and the Third Amendment to Credit Card Program Agreement executed as of August 1, 2006, by and between the parties hereto.  In consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties acknowledge and agree as follows:

1.Recourse Credit Program.  The Parties will establish and maintain a recourse credit program in accordance with the terms and conditions set forth in the attached addendum (“Article XX — Recourse Credit Program”), which is hereby incorporated into the Agreement and this Fourth Amendment.

2.Administrative Provisions.  When construing the provisions of the Agreement and this Fourth Amendment:

A.To the extent the provisions of this Fourth Amendment are consistent with the Agreement, this Fourth Amendment shall govern.

B.This Fourth Amendment supersedes all prior communications and shall be binding upon and inure to the benefit of the parties, their respective successors and assigns.

C.All capitalized terms not otherwise defined herein shall have the same meaning afforded them in the Agreement.

D.Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, each of the Parties has caused this Fourth Amendment to be duly executed as of the date first above written.

THE NEIMAN MARCUS GROUP, INC.		HSBC BANK NEVADA, N.A.
By:	/s/ William S. Hough	By:	/s/ Brian D. Hughes
	Title: VP Credit Services		Title: Executive Vice President

THE NEIMAN MARCUS GROUP, INC.		HSBC PRIVATE LABEL CORPORATION
By:	/s/ William S. Hough	By:	/s/ Brian D. Hughes
	Title: VP Credit Services		Title: Executive Vice President

EX-10.49

Exhibit 10.49

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

ADDENDUM TO THE

FOURTH AMENDMENT TO THE

CREDIT CARD AGREEMENT

ARTICLE XX

RECOURSE CREDIT PROGRAM

20.1Recourse Credit Program

(a)Overview.  From time to time, NMG may request that the Bank approve an Application that Bank would otherwise decline under the Program (“Recourse Application Request”), or increase the credit limit on an Account beyond the credit line that Bank would otherwise approve under the Program (“Recourse Credit Line Request”).  If such requests are within a range of acceptable creditworthiness, as solely determined by NMG’s Vice President of Credit Risk or NMG’s Director of Credit Operations, then the Bank will approve the requests subject to the terms and conditions set forth in this Article XX.  Any other Recourse Credit Line Requests may be added as Recourse Accounts, provided there is a mutual agreement between NMG and the Bank.  Thereafter, the underlying account (“Recourse Account”) will be segregated into a portfolio of recourse accounts (collectively the “Recourse Portfolio”).

(b)NMG Obligations

(i)Obligation to Purchase.  NMG understands and acknowledges that Bank would no approve any Recourse Requests or any Recourse Credit Line Requests if NMG had not promised to comply with all of the terms and conditions set forth in this Article XX.  In exchange for Bank’s approval of such requests, NMG agrees to purchase any Recourse Account from Bank that:  (A) becomes [***] days past due; (B) is held by a Cardholder who is deceased; or (C) is included in any bankruptcy proceedings; or (D) is included in any probate proceeding (referred to collectively hereafter as “Recourse Events”).  NMG agrees to purchase each such Recourse Account from Bank for the full balance due at the time of the purchase, including earned finance charges and fees (“Purchase Price’).  NMG agrees to pay the Purchase Price to Bank within [***] days after receiving written notice from Bank of the occurrence of a Recourse Event.

(ii)Additional Procedures.  NMG shall follow any procedures requested by Bank for the Recourse Portfolio.  Those procedures are subject to change form time to time by Bank upon [***] days prior written notice to NMG.

(iii)Performance.  NMG shall be obligated under this Article XX for Recourse Accounts without requiring any actions or proceedings to be taken by Bank against the Cardholder(s).  NMG expressly waives the benefit of any notice from Bank of modification of the Recourse Account terms and agrees that, prior to any purchase demand by Bank, Bank may, without releasing the liability of NMG hereunder, extend the time for making any payment, waive or extend the performance of any agreement or otherwise waive, amend, extend or modify any agreement or terms governing Recourse Accounts.  Bank may proceed against NMG directly and independently of Cardholder(s), as Bank may elect.

(c)Bank Obligations

(i)Assignment.  Upon payment to Bank of the Purchase Price for any Recourse Account, Bank shall assign all rights, title and interest in such Recourse Account to NMG.  Thereafter, NMG will bear all liability and risk of loss associated with such Recourse Account, without warranty by or recourse or liability to Bank, and NMG shall have the sole right to collect all amounts payable under the assigned Recourse Account.  NMG agrees that Bank may deduct past due amounts NMG owes to Bank for Recourse Accounts hereunder from any amounts Bank owes to NMG under the Agreement.

(ii)Forwarding Payments.  If Bank receives a payment on a Recourse Account after it has been purchased by NMG, Bank will forward to NMG the equivalent sums for such payment received.  Bank will forward such amounts to NMG on monthly basis.

(iii)Reports.  Bank agrees to provide NMG with reporting on the status of all Recourse Accounts (“Delinquency Report”) not less than monthly.  The Delinquency Report shall include the total number of Recourse Accounts in the Recourse Portfolio, the aggregate dollar amount of the Recourse Accounts in the Recourse Portfolio, the percentage of the total Program receivables that are comprised of Recourse Accounts, and an itemized accounting of the delinquency level of each Recourse Account.

(d)Termination.  Bank may discontinue the addition of new Recourse Accounts to the Recourse Portfolio at any time, upon [***] days prior written notice to NMG.  In addition, upon termination of the Agreement, or receipt or delivery of notice of termination by any Party, Bank may immediately cease the approval of further Recourse Application Requests and Recourse Credit Line Requests.  In such case, the rights and obligations of the Parties with respect to Recourse Accounts established before the effective date of termination will not be affected.

20.2Recourse Accounts

(a)Criteria.  At a minimum, applicants must be a minimum of [***] of age at the time of application to be approved for a Recourse Account.

(b)Cardholder Terms.  The terms and conditions of all Recourse Accounts shall be the terms and conditions applicable to the Account type set forth on Schedule 3.2(e) of the Agreement.

(c)Reversals.  All Recourse Accounts will be included in the Finance Charge Reversal Percentage calculations and the Late Fee Reversal Percentage calculations made by the Parties under the Agreement.

(d)Interest Free Accounts.  All Recourse Accounts will be subject to the interest free requirements set forth in Section 4.11 of the Agreement.

20.3Recourse Portfolio

(a)Portfolio Cap.  If, at any time, the aggregate dollar amount of the Recourse Portfolio Agreement equals or exceeds [***] of Bank’s receivables for the total Program, then Bank may suspend the addition of new Accounts to the Recourse Portfolio until the aggregate dollar amount of the Recourse Portfolio falls below the cap and Bank consents to continue the addition of new Recourse Accounts to the Recourse Portfolio.

(b)Removals from Recourse Portfolio.  In the event a Cardholder pays the entire balance owed on a Recourse Account, Bank may in its sole discretion at any point thereafter remove such Recourse Account from the Recourse Portfolio and treat it as a regular Account.  Accordingly, if, and from time to time, any such Recourse Account is removed from the Recourse Portfolio, the Account shall no longer be deemed a Recourse Account or subject to the terms of this Article XX.

(c)Annual Review.  At the end of each Program Year, Bank will review the performance of the Recourse Portfolio.  If, as a result of such review, Bank determines that any Recourse Accounts should be removed from the Recourse Portfolio, the Parties will discuss such determination and negotiate such removal in good faith.

EX-10.50

Exhibit 10.50

FIFTH AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Fifth Amendment to Credit Card Program Agreement (“Fifth Amendment”) is made effective as of the 13th day of March, 2007, by and among The Neiman Marcus Group, Inc. (“NMG”), Bergdorf Goodman, Inc. (“BG, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and HSBC Private Label Corporation, a Delaware corporation formerly known as Household Corporation (“Primary Servicer”) to that certain Credit Card Program Agreement (“Agreement”) executed as of June 8, 2005 and amended by the First Amendment to Credit Card Program Agreement executed as of April 30, 2006 (“First Amendment”), and the Second Amendment to Credit Card Program Agreement executed as of June 28, 2006 (“Second Amendment”) and the Third Amendment to Credit Card Program Agreement executed as of August 1, 2006, and the Fourth Amendment to Credit Card Program Agreement executed as of March 13, 2007, by and between the parties hereto.  In consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties acknowledge and agree as follows:

1.Additional Chargeback Rights.  Section 8.5 of the Agreement is amended to read as follows:

8.5Bank’s Right to Charge Back.  Bank shall have the right to charge back to NMG the amount of any Cardholder Indebtedness, including Cardholder Indebtedness incurred prior to the Effective Date with respect to Purchased Accounts, relating to NMG Charge Transaction Data if with respect to the related NMG Transaction:

(a)The Cardholder refuses to pay the charge based on a dispute regarding the quality or delivery of NMG Goods and Services representing a valid defense to payment consistent with Applicable Law, provided that any such refusal constitutes a bona fide claim presented by the Cardholder in good faith n the reasonable opinion of NMG, after consultation with Bank;

(b)The Cardholder refuses to pay the charge based on claim of unauthorized use of the NMG Credit Card at a Retail Merchant; provided that any such refusal constitutes a bona fide claim presented by the Cardholder in good faith in the reasonable opinion of NMG, after consultation with Bank;

(c)The charge was for a bona fide sale or delivery of NMG Goods and Services by or through a NMG Channel;

(d)The sales slip is a duplicate of a charge slip previously paid;

(e)The price of NMG Goods and Services shown on the charge slip differs from the amount shown on the Cardholder’s copy of the sales slip;

(f)The charge or Account arose from fraud of any employee or agent in a Retail Merchant;

(g)NMG fails to provide Bank with a copy of the applicable sales slip;

(h)NMG fails to provide Bank with a properly signed sales slip;

(i)NMG fails to provide Bank with a copy of the applicable delivery invoice;

(j)NMG fails to obtain proper identification from the Cardholder at the time of the Application;

(k)NMG ships merchandise to a Cardholder at a previously unused address;

(l)The charge or Account arose from fraud of any employee or agent in a NMG call center;

(m)The charge or Account arose from the unauthorized removal of information from an NMG store or owned facility.

(n)The charge or Account arose from the unauthorized removal of information from an NMG computer systems; or

(o)NMG ships merchandise to a Cardholder after receiving the Cardholder’s request to cease such shipment.

2.Administrative Provisions.  When construing the provisions of the Agreement and this Fifth Amendment:

A.To the extent the provisions of this Fifth Amendment are consistent with the Agreement, this Fifth Amendment shall govern.

B.This Fifth Amendment supersedes all prior communications and shall be binding upon and inure to the benefit of the parties, their respective successors and assigns.

C.All capitalized terms not otherwise defined herein shall have the same meaning afforded them in the Agreement.

D.Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, each of the Parties has caused this Fourth Amendment to be duly executed as of the date first above written.

THE NEIMAN MARCUS GROUP, INC.		HSBC BANK NEVADA, N.A.
By:	/s/ William S. Hough	By:	/s/ Brian D. Hughes
	Title: VP Credit Services		Title: Executive Vice President
THE NEIMAN MARCUS GROUP, INC.		HSBC PRIVATE LABEL CORPORATION
By:	/s/ William S. Hough	By:	/s/ Brian D. Hughes
	Title: VP Credit Services		Title: Managing Director

EX-10.51

Exhibit 10.51

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

SIXTH AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Sixth Amendment to Credit Card Program Agreement (“Sixth Amendment”) is made effective as of the 17th day of July, 2007, by and among The Neiman Marcus Group, Inc. (“NMG”), Bergdorf Goodman, Inc. (“BG, and together with NMG, the “NMG Companies”), HSBC Bank Nevada, N.A., a national credit card bank (“Bank”), and HSBC Private Label Corporation, a Delaware corporation formerly known as Household Corporation (“Primary Servicer”) to that certain Credit Card Program Agreement, executed as of June 8, 2005 and amended by the First Amendment to Credit Card Program Agreement executed as of April 30, 2006, and the Second Amendment to Credit Card Program Agreement executed as of June 28, 2006, and the Third Amendment to Credit Card Program Agreement executed as of August 1,2006, and the Fourth Amendment to the Credit Card Program Agreement executed as of April 3, 2007, and the Fifth Amendment to the Credit Card Program Agreement executed as of March 13,2007, by and between the parties hereto, (collectively, the “Agreement”).

In consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties acknowledge and agree that, effective October 4, 2007:

1.Changes to Cardholder Terms.  Section 4.7 of the Agreement is deleted and replaced with a new Section 4.7, which is set forth in the attached Addendum l.  A new Schedule 4.7(a) is added to the Agreement as set forth in the attached Addendum 2.

2.Changes to Participation in Late Fee Reversals.  Schedule 1.1(f) of the Agreement is deleted and replaced with a new Schedule 1.1 (f), which is set forth in the attached Addendum 3.

3.Changes to NMG Compensation.  Section 9.1(a) of the Agreement is deleted and replaced with a new Section 9.1(a), which is set forth in the attached Addendum 4.  A new Schedule 9.1(a)(iii) is added to the Agreement as set forth in the attached Addendum 5.

4.Administrative Provisions.  When construing the provisions of the Agreement and this Sixth Amendment:

A.To the extent the provisions of this Sixth Amendment are inconsistent with the Agreement, this Sixth Amendment shall govern.

B.This Sixth Amendment supersedes all prior communications with respect to the matters set forth herein and shall be binding upon and inure to the benefit of the parties, their respective successors and assigns.

C.All capitalized terms not otherwise defined herein shall have the same meaning afforded them in the Agreement.

D.Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, each of the Parties has caused this Sixth Amendment to be duly executed as of the date first above written.

THE NEIMAN MARCUS GROUP, INC.		HSBC BANK NEVADA, N.A.
By:	/s/  Steven P. Dennis	By:	/s/ Brian D. Hughes
	Title:  Senior Vice President		Title: Executive Vice President
BERGDORF GOODMAN, INC.		HSBC PRIVATE LABEL CORPORATION
By:	/s/  Nelson A. Bangs	By:	/s/ Brian D. Hughes
	Title: Vice President		Title: Managing Director

ADDENDUM 1 TO THE

SIXTH AMENDMENT TO THE

CREDIT CARD PROGRAM

AGREEMENT

4.7Cardholder Terms.

(a)The terms and conditions of all Accounts shall be the terms and conditions specified in Schedule 4.7(a).  Additional changes to the terms and conditions of the Accounts may be made only in accordance with Article III.

(b)The account numbers and BINs of all Purchased Accounts shall remain the same after the Effective Date.

ADDENDUM 2 TO THE

SIXTH AMENDMENT TO THE

CREDIT CARD PROGRAM AGREEMENT

SCHEDULE 4.7(a) - Cardholder Terms

Annual Fee	No annual fee, except for $50 NM Gold Card program membership fee.
Late Payment or Late Fee (at cycle)	Based upon two prior month’s statement balance:
	·$20-$49.99 Balance = $10.00
	·$50-$149.99 Balance = $20.00
	·$150+ Balance = $29.00
Returned Check Fees (BG to be standardized as NM)	$25 per returned check
Minimum Payment Amount (BG to be standardized as NM)	10% of billed balance (but at least $25 rounded up to the nearest $10).
Minimum Finance Charge	$.50
Standard APR	21.0% APR for Cardholders who reside in any state but Michigan or Colorado (or at NMG’s election, all Cardholders other than 1,500 VIP Accounts plus up to 5,000 other Accounts). Prime + 15% for Cardholders who reside in Michigan or Colorado.
Grace Period for the Imposition of Late Fees	8 days after the payment due date
Grace Period for the Reoayment of Purchases	27 days
Method of Computing the Balance for Purchases	Average Daily Balance (including new purchases)

ADDENDUM 3 TO THE

SIXTH AMENDMENT TO THE CREDIT

CARD PROGRAM AGREEMENT

SCHEDULE 1.1(f)

“High Collar” means (i) with respect to the Finance Charge Reversal Percentage applicable to the Private Label Accounts, [***], (ii) with respect to the Late Fee Reversal Percentage applicable to the Private Label Accounts, [***], (iii) with respect to the dollar amount of Average Interest Free Receivables as a percentage of Average Private Label Receivables, [***], or, in each case, such other level as may from time to time be set by the Management Committee.

“Low Collar” means (i) with respect to the Finance Charge Reversal Percentage applicable to the Private Label Accounts, [***], (ii) with respect to the Late Fee Reversal Percentage applicable to the Private Label Accounts, [***], (iii) with respect to the dollar amount of Average Interest Free Receivables as a percentage of Average Private Label Receivables, [***], or, in each case, such other level as may from time to time be set by the Management Committee.

ADDENDUM 4 TO THE

SIXTH AMENDMENT TO THE CREDIT

CARD PROGRAM AGREEMENT

9.1NMG Compensation.

(a)Payments.

(i)Not later than 1:00 pm (Central time) on each Business Day, Bank shall pay to NMG an amount equal to the amount set forth on Schedule 9.1(a)(i) with respect to the Accounts other than the Non-Store Accounts.

(ii)Not later than 1:00 pm (Central time) on the tenth (10th) Business Day after the end of each Fiscal Month, Bank shall pay NMG the amounts determined in accordance with Schedule 9.1 (a)(ii) with respect to the Accounts other than the Non-Store Accounts.

(iii)Not later than I 00 pm (Central time) on the last Business Day of April and October each calendar year, Bank shall pay NMG the amounts determined in accordance with Schedule 9.1(a)(iii) with respect to Accounts other than the Non-Store Accounts.

(iv)Not later than 1:00 pm (Central time) on the tenth (10th) Business Day following the receipt of the Year-End Settlement Sheet, each Party shall pay to the other Party the amounts, if any, determined in accordance with such Year-End Settlement Sheet.

(v)On the dates and times agreed to by the Parties with respect to the Dual-Line Credit Cards pursuant to Section 2.2( c )(ii), Bank shall pay to NMG the amounts payable with respect to such Dual-Line Credit Cards.

(vi)Such amounts shall be paid to NMG or Bank, as the case may be, regardless of whether any amounts are disputed by Bank or NMG. For the avoidance of doubt, any such payment shall not be deemed a waiver of, or in any other way limit, a Party’s right to pursue any dispute with respect to such payment in accordance with the terms of this Agreement and each of Bank or NMG may invoke the dispute resolution procedures set forth herein following payment of such amounts.

ADDENDUM 5 TO THE

SIXTH AMENDMENT TO THE CREDIT CARD PROGRAM AGREEMENT

SCHEDULE 9.1(a)(iii)

Bi-Annual NMG Compensation

Late Fee Income Participation Payment.  An amount equal to the Actual Late Fee Net Income for the prior six calendar months, minus the Base Late Fee Net Income for the prior six calendar months, multiplied by the applicable Late Fee Income Participation Percentage.  Payment of such amount shall be independent of and in no way modify the Program Fee Percentage applicable to an Account as set forth in Schedule 9. I(a)(i) of the Agreement.

(a)To establish the Actual Late Fee Net Income and the Base Late Fee Net Income, Bank will generate and provide to NMG a Monthly Late Fee Income Report, on or before the [***] Business Day of each Fiscal Month, that is substantially similar to the sample Monthly Late Fee Income Report attached hereto as Exhibit A and identifies all of the following:

(i)Actual Late Fee Gross Income, being the amount of Late Fees assessed during the prior calendar month in accordance with Section 4.7 of the Agreement as amended by the Sixth Amendment.

(ii)Base Late Fee Gross Income, being the amount of Late Fees that would have been assessed during the prior calendar month if Section 4.7 of the Agreement had not been amended by the Sixth Amendment.

(iii)Late Fees Waived, being the amount of Late Fees that were assessed but then reversed during the prior calendar month in accordance with the Agreement;

(iv)Late Fees Charged Off, being the amount of Late Fees that were assessed but then charged-off during the prior calendar month in accordance with the Agreement.

(v)Actual Late Fee Net Income, being the Actual Late Fee Gross Income minus Late Fees Waived, minus Late Fees Charged Off.

(vi)Base Late Fee Net Income, being the Base Late Fee Gross Income, minus Late Fees Waived, minus Late Fees Charged Off.

(b)To establish the applicable Late Fee Income Percentage, Bank will provide NMG with a Bi-Annual Late Fee Income Report, on or before the fifteenth (15th) Business Day of April and October each calendar year, that is substantially similar to the sample Bi-Annual Late Fee Income Report attached hereto as Exhibit B and identifies the difference between the Actual Late Fee Net Income for the prior six (6) calendar months and the Base Late Fee Net Income for the prior six (6) calendar months.

(i)Annual Difference Less than [***]. If the cumulative difference between the Actual Late Fee Net Income and the Base Late Fee Net Income from October 1st of one calendar year to September 30th of the next calendar year is less than or equal to [***], then the applicable Late Fee Income Percentage will be [***].

(ii)Annual Difference Greater than [***]. If the cumulative difference between the Actual Late Fee Net Income and the Base Late Fee Net Income from October 1st of one calendar year to September 30th of the next calendar year is greater than [***], then the applicable Late Fee Income Percentage will be [***] for the first [***] and [***] for all amounts greater than [***].

(iii)Effect of Termination. Upon termination of the Agreement, the applicable Late Fee Income Percentage will be pro-rated as follows:

A.An Adjusted Income Differential Amount will be established by multiplying [***] by the number of days between October 1st and the effective date of termination.

B.If the cumulative difference between the Actual Late Fee Net Income and the Base Late Fee Net Income is less than or equal to the Adjusted Income Differential Amount, then the applicable Late Fee Income Percentage will be [***].

C.If the cumulative difference between the Actual Late Fee Net Income and the Base Late Fee Net Income is greater than the Adjusted Income Differential Amount, then the applicable Late Fee Income Percentage will be [***] for the amounts up to and including the Adjusted Income Differential Amount and [***] for all amounts greater than Adjusted Income Differential Amount.

(c)For example, if the Bi-Annual Late Fee Income Report in October of2009 is as set forth in the sample Bi-Annual Report attached as Exhibit B, then the Late Fee Income Participation Payments would be [***] in April of 2008 and [***] in October of 2009.

EX-10.52

Exhibit 10.52

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

SEVENTH AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Seventh Amendment to Credit Card Program Agreement (the “Seventh Amendment”) is entered into this 21st day of April 2008 by and among The Neiman Marcus Group, Inc. and Bergdorf Goodman, Inc. on the one hand, and HSBC Private Label Corporation (formerly, Household Corporation) and HSBC Bank Nevada, N.A. on the other hand, to that certain Credit Card Program Agreement, dated June 8, 2005 (as amended, the “Agreement”), among the foregoing parties. All capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Agreement.

1.The following new defined terms shall be added in Section 1.1 of the Agreement in the appropriate alphabetical order:

“Active Account” means an Account with debit or credit activity within the last [***] days.

“Average Number of Active Accounts” means, with respect to any period, the sum of the number of Active Accounts on the last day of each calendar month during such period divided by the number of calendar months in such period.

“Average Gross Receivables” means, (i) with respect to the RAM Measurement Period, the average of the Gross Receivables on the last day of each calendar month during the period from [***] and (ii) with respect to any Reference Period, the average of the Gross Receivables on the last day of each calendar month during the period from [***] through the end of such Reference Period.

“High/Low Collar Review Period” means the period of 120 days following the effective date of the February 2008 Change of Terms (as that term is defined in the Letter Agreement between the parties executed on February 22, 2008), and an additional [***] days in which the Parties shall attempt to mutually agree upon a new High Collar and Low Collar.

“Inactive Account” means any Account that is not an Active Account.

“Net Credit Sales”, for purposes of this Seventh Amendment, means, for any period, an amount equal to (A) gross credit sales on Accounts (including gift card sales, sales tax, delivery charges, Licensee sales and any other amount included in the full amount charged by Cardholders) reflected in the NMG Charge Transaction Data during such period, minus (B) the sum of credits for returned goods and cancelled services and other credits (such as concessions, discounts and adjustments) on Accounts reflected in the NMG Charge Transaction Data during such period.

1

“Net Write-Off Ratio” means, with respect to any period, (i) Net Write-Offs (as defined below) during such period divided by (ii) Net Credit Sales during such period.

“Next Gen” means an individual consumer’s (including Cardholders) credit score based upon that consumer’s overall credit performance and history as provided by the three major credit bureaus (Equifax-Pinnacle, Experian-Experian/Fair Isaac Advanced Risk Score and TransUnion-Precision).

“RAM Measurement Period” means the period from (and including) [***] through [***].

“Reference Period” means with respect to any interim annual payment required pursuant to Section 9.1 (a)(vii) or (viiI), the period from (and including) [***] preceding the due date for the Year-End Settlement Sheet on which such payment will be reflected.

“Risk Adjusted Margin” means, with respect to the RAM Measurement Period (or in the case of any interim payment pursuant to Section 9.1 (a) (vii), the relevant Reference Period), the percentage equivalent of a fraction equal to (A) (i) Gross Financing Income for such period, minus (ii) Net Write-Offs for such period, minus(iii) Funding Costs for such period, plus (iv) the total of all amounts paid by NMG pursuant to Section 9.1(a)(viii) at any time during such period divided by (B) the Average Gross Receivables for such period.”

“Rolling 12 Net Write-Off Ratio” means, with respect to any calendar month, the Net Write-Off Ratio for the period of 12 consecutive calendar months ending on and including the month immediately preceding such calendar month.

“Shared Write-Off Amount” means, with respect to the RAM Measurement Period (or in the case of any interim payment pursuant to Section 9.1 (a)(viii), the relevant Reference Period), the amount by which Net Write-Offs for such period exceed [***] of Net Credit Sales up to and including [***] of Net Credit Sales for such period (it being understood for the avoidance of doubt that if the Net Write-Off Ratio for such period is less than or equal to [***], then the Shared Write-Off Amount shall be zero, and that the Shared Write-Off Amount cannot exceed an amount equal to [***]of Net Credit Sales).

“Variable Break-Even Margin” means (i) Gross Financing Income (defined below) plus (ii) the amounts paid by NMG pursuant to Section 9.1 (a) (viii) minus (iii) Funding Costs (defined below) minus (iv) Net Write-Offs (defined below) minus (v) the Total of All Amounts Bank Paid to NMG (defined below) minus (vi) Marketing Expenses (defined below) minus (vii) Fraud Loss (defined below) minus (viii) Standard Variable Operating Expenses (defined below).  As used to determine Variable Break-Even Margin, the following terms shall have the following meanings:

(1)“Gross Financing Income” means, with respect to any period, an amount equal to the sum of assessed or accrued finance charges, late fees, NSF fees and any other interest or fees payable under the Program and any amounts paid by NMG to Bank pursuant to Section 4.10 or 4.11 during such period less the sum of finance charge waivers, fee waivers, the amount required under GAAP to be amortized by Bank as deferral amortization pursuant to Financial Accounting Standard No. 91 during such period and any amounts paid by Bank to NMG pursuant to Section 4.10 or 4,11 during such period. Fees from Approved Ancillary Products are not included as part of Gross Financing Income.

(ii) “Funding Costs” means for each calendar month during any period, the product of (A) business daily average of one month LIBOR as published by Bloomberg Financial Markets plus [***], times (B) the average of [***] of the Gross Receivables for each day during such calendar month.

(iii) “Net Write-Offs” means, with respect to Accounts that have been written off in a particular period in accordance with the credit and collection policies contained in. the’ Risk Management Policies, (a) the portion of the total Gross Receivables charged-off as uncollectible to the written-off Accounts in accordance with such credit and collection policies (and not as a result of fraud losses) during such period minus (b) any recoveries, including sales tax recoveries, received during such period on previously written-

off Accounts.

(iv) “Total of All Amounts Bank Paid to NMG” means the amounts paid by Bank pursuant to Section .9.1 (a)(i) and Section  and Section 9.1(a)(vii) (A).

(v) “Fraud Loss” means, during any period, actual fraud loss incurred by Bank during such period net of chargebacks to NMG during such period.

(vi) “Marketing Expense” means, during any period, actual marketing expenses incurred by Bank or reimbursements made by Bank to NMG of marketing expenses incurred by NMG during such period, in each case that satisfy the marketing commitments set forth in Schedule 5.2 of the Program Agreement.

(vii) “Standard Variable Operating Expenses” means (A) for the period of [***], [***] multiplied by the Average Number of Active Accounts during such period, (B) for the period of [***], [***] multiplied by the Average Number of Active Accounts during such period, (C) for the period of [***], [***] multiplied by the Average Number of Active Accounts during such period, and (D) for the RAM Measurement Period, the sum of the amounts calculated in accordance with the foregoing clauses (A) - (C).  In the event that any additional Services are assumed by the Bank under Schedule 9.1(a)(i), the parties shall negotiate in good faith to determine an appropriate amendment to the foregoing amounts to appropriately take such additional Services into account.

2.Section 3.2(g) of the Agreement is amended by adding the following clause (v) as an additional “Bank Matter” at the end thereof:

“(v) if at any time during the Term, the Rolling 12 Net Write-Off Ratio is greater than [***] but equal to or less than [***] for [***] consecutive calendar months, for so long as the Rolling 12 Net Write-Off Ratio remains greater than [***] but equal to or less than [***], changes to Risk Management Policies that are designed to reduce the Net Write- Off Ratio, provided that such changes:

(A) will not affect a group of Accounts for which the historic ratio of (1) Net Credit Sales lost to (2) Net Write-Offs reduced in respect of each ten (10) point Next Gen score band (e.g. 600-609) is greater than [***] (as set forth in the report provided by HSBC to NMG).  Such report shall be provided to NMG at least 30 days in advance of making any such changes and shall demonstrate the most recent rolling 3 month authorization after 12 months on book (Example attached as Exhibit B) for each such group of Accounts.  Bank may blend groups of Accounts in adjacent ten (10) point Next Gen score bands together (e.g. 600-609 and 590-599) so long as (x) the ratio of Net Credit Sales lost to Net Write-Offs reduced for the group at Accounts in the highest ten (10) point Next Gen score band (e.g., 600-609 would be higher than 590-599) of the groups to be blended does not exceed [***] and (y) the total blended rate of Net Credit Sales lost to Net Write Offs reduced does not exceed [***] for the combined groups.  Notwithstanding the foregoing, Bank may implement changes to Risk Management Policies in respect of a subgroup of Accounts within an individual ten (10) point Next Gen score band whose Net Write Off ratio is greater than [***], if, by utilizing other risk attributes that historically correlate (consistent with Bank’s past practice) to the likelihood of Net Write Offs, such subgroup of Accounts within such ten (10) point Next Gen score band has a Net Write Off ratio of less than [***], as set forth in the report provided by HSBC to NMG (Example attached as Exhibit C).

(8) (i) will not result in the closure of Accounts that are current or one payment delinquent (currently known as “X days”), unless NMG otherwise agrees;

(ii) will not decrease credit lines on Active Accounts below the current balance or [***], whichever is higher; and

(iii) will not decrease credit lines on Inactive Accounts below [***]; and

(C) will not be made to any Account segment without NMG’s prior approval if Bank has previously implemented a change in any Risk Management Policy in respect of such Account segment within the prior 3 months.”

3.Section 3.2(g) of the Agreement is amended by adding the following clause (vi) as an additional “Bank Matter” at the end thereof:

“(vi) if at any time during the Term, the Rolling 12 Net Write-Off Ratio is greater than [***] for [***] consecutive calendar months, for so long as the Rolling 12 Net Write-Off Ratio remains greater than [***], changes to Risk Management Policies that are designed to reduce the Net Write-Off Ratio, provided that such changes will not affect a group of Accounts for which the historic ratio of (1). Net Credit Sales lost to (2) Net Write-Offs reduced in respect of each ten (10) point Next Gen score band (e.g. 600-609) is greater than [***] (as set forth in the report provided by HSBC to NMG).  Such report shall be provided to NMG at least 30 days in advance of making any such changes and shall demonstrate the most recent rolling 3 month authorization after 12 months on book (Example attached as Exhibit 8) for each such group of Accounts.  Bank may blend groups of Accounts in adjacent ten (10) point Next Gen score bands together (e,g, 600-609 and 590-599) so long as (x) the ratio of Net Credit Sales lost to Net Write-Offs reduced for the group of Accounts in the highest ten (10) point Next Gen score band (e,g., 600-609 would be higher than 590-599) of the groups to be blended does not exceed [***] and (y) the total blended rate of Net Credit Sales lost to Net Write Offs reduced does not exceed [***] for the combined groups. Notwithstanding the foregoing,  Bank may implement changes to Risk Management Policies in respect of a subgroup of Accounts within an individual ten (10) point Next Gen score band whose Net Write Off ratio is greater than [***], if, by utilizing other risk attributes that historically correlate (consistent with Bank’s past practice) to the likelihood of Net Write Offs, such subgroup of Accounts within such ten (10) point Next Gen score band has a Net Write Off ratio of less than [***], as set forth in the report provided by HSBC to NMG (Example attached as Exhibit C).”

4.The following shall be added as a new Section 3.4 of the Agreement:

“Section 3.4.  Consideration of Change of Terms.  The Management Committee will consider implementing an additional change of terms during calendar year 2008, with the goal of creating an additional [***] in annual pre-tax profit improvement for the Program, net of all associated expenses. Notwithstanding anything to the contrary in this Article Ill, and excluding any change in terms that may be necessary pursuant to Applicable Law (which shall continue to be governed by Section 3.2(g)(ii) of this Agreement), unless all members of the Management Committee approve such additional calendar year 2008 change of terms, including the terms of implementation thereof, such change of terms shall be deemed rejected.  For the avoidance of doubt, and subject to the immediately preceding sentence (i) no change of terms proposed during calendar year 2008 shall constitute an Unapproved Matter or a Bank Matter, (ii) no such change of terms proposal shall be subject to the dispute resolution procedures of Section 3.2(e)(ii)(B) and, if rejected by any NMG Designee, each such change of terms proposal shall be deemed rejected by the Management Committee.”

5.The following shall be added as a new Section 4.6(e) of the Agreement:

“Effective March 2008, the Risk Management Policies are amended as set forth in Schedule 4.6(e), attached hereto.  NMG is allowed to accept the credit risk for any Account affected by the actions taken pursuant to these as well as any other future Risk Management Policy changes pursuant to the existing recourse programs between the parties, as set forth in Article XX of this Agreement, and via the process outlined in the attached Exhibit A to Schedule 4.6(e).”

6.Schedule 1.1 (f) shall be amended to reflect a mutually agreed upon new High Collar and Low Collar upon the expiration of the High/Low Collar Review Period. If the Parties are unable to reach a mutual agreement at the expiration of the High/Low Collar Review Period, the existing High Collar and Low Collar meanings

set forth in Schedule 1.1 (f) of the Program Agreement, as amended via the Sixth Amendment to the Program Agreement, dated as of July 17, 2007 (“Sixth Amendment”), shall continue to apply. For the avoidance of doubt, the High Collar and Low Collar meanings from the Sixth Amendment shall apply during the High/Low Collar Review Period.

7.Schedule 4.6(c) of the Agreement is amended as follows:

(a) by deleting the “Collections” (Net Write-Off Percentages to Credit Sales) target from such Schedule; and

(b) by adding the following paragraph at the end of paragraph (A) thereof:

“Notwithstanding the foregoing provisions of this Schedule, in the event that the Rolling 12 Net Write-Off Ratio for any two consecutive calendar months is greater than [***], then the Risk Management Targets set forth in this Schedule 4.6(c) shall be suspended.  Once the Rolling 12 Net Write-Off Ratio for a calendar month is below [***], the Risk Management Targets set forth in this Schedule 4.6(c) shall be automatically reinstated (however, if the Roiling 12 Net Write-Off Ratio range is between [***] to [***] for [***] consecutive calendar months, the Parties shall meet to discuss reinstatement of the Risk Management Targets, timing of such and whether to readjust such Risk Management Targets further), and HSBC shall have [***] days to achieve such Risk Management Targets, as they may be adjusted, after such reinstatement.  If the Risk Management Targets have not been met by the end of such [***]-day period, the NMG Companies shall have the right to terminate the Agreement pursuant to Section 15.2(h) thereof.”

8.The attached Schedule 7.1 (e) replaces in its entirety Schedule 7.1 (c) to the Agreement.

9.The following new Section 7.1 (d) shall be added at the end of Section 7.1:

“(d)  On each “Report Date” reflected on Schedule 7.1 (d), Bank will deliver to NMG a calculation of (i) the Risk Adjusted Margin, the Net Write-Off Ratio, Variable Break-Even Margin and each component of each of the foregoing (including, in the case of Gross Financing Income, separately reported amounts in respect of finance charges, late fees and fee waivers), in each case calculated as if the Reference Period were the period indicated as such in such Schedule and (ii) the dollar amount that would be payable by Bank to NMG (or by NMG to Bank) pursuant to each of Section 9.1(a)(vii) (A) and (B) and 9.1(a)(viii) if such payment were due in respect of the reported period.  Such calculations shall be in such form and shall reflect such detail with respect to each of the foregoing items, and each component thereof) as shall be mutually agreed upon by the Parties.  The financial information set .forth in such reports from HSBC is derived from its General Ledger (GL) and/or its supporting financial accounting subsystems.

10.The following shall be added as new Sections 9,1 (a) (vii), (viii) and (ix) of the Agreement:

“(vii)  Bank will pay to NMG the following amounts in respect of the RAM Measurement Period, with interim annual payments in respect of the total amount payable (calculated on an estimated basis based on the relevant Reference Period) being reflected on and paid pursuant to each Year-End Settlement Sheet, and with the final payment in respect of the full RAM Measurement Period being due and payable on [***]:

(A)  [***] of the product of (1) the amount, if any, by which the Risk Adjusted Margin exceeds [***] times (2) the Average Gross receivables Amount; provided, however, that, in calculating any payment in respect of the total amount owing by Bank pursuant to this clause (A), there shall be deducted from such payment the net amount previously paid by Bank pursuant to this clause (A) (after adding all previous interim payments and deducting all previous interim refunds paid by NMG to Bank pursuant to the following sentence of this clause (A)).  In the event that the amount owing by Bank to NMG pursuant to this clause (A) is less than the net amount already paid by Bank to NMG pursuant to this clause (A) (after applying this sentence), NMG shall refund to Bank the excess of the net amount previously paid by Bank over the total amount payable by Bank in respect of the RAM Measurement Period (or the relevant Reference Period, as applicable).  For the avoidance of doubt, in no event shall the total payments by NMG pursuant to this clause (A) exceed the total amounts received by it from Bank pursuant to this clause (A); and

(B)  [***] of the amount, if any, by which the Variable Break-Even Margin exceeds zero; provided, however, that, in calculating any payment in respect of the total amount owing by Bank

pursuant to this clause (B), there shall be deducted from such payment the net amount previously paid by Bank pursuant to this clause (B) (after adding all previous interim payments and deducting all previous interim refunds paid by NMG to Bank pursuant to the following sentence of this clause (B)).  In the event that the amount owing by Bank to NMG pursuant to this clause (B) is less than the net amount already paid by Bank to NMG pursuant to this clause (B) (after applying this sentence), NMG shall refund to Bank the excess of the net amount previously paid by Bank over the total amount payable by Bank in respect of the RAM Measurement Period (or the relevant Reference Period, as applicable).  For the avoidance of doubt, in no event shall the total payments by NMG pursuant to this clause (B) exceed the total amounts received by it from Bank pursuant to this clause (B).

(viii)  NMG will pay to Bank [***] of the Shared Write Off Amount, if any, with respect to the RAM Measurement Period, with interim annual payments in respect of the total amount payable (calculated on an estimated basis based on the relevant Reference Period) being reflected on and paid pursuant to each Year-End Settlement Sheet, and with the final payment in respect of the full RAM Measurement Period being due and payable on [***], provided, however, that, in calculating any payment in respect to the total amount owing by NMG pursuant to this clause (viii), there shall be deducted from such payment the net amount previously paid by NMG pursuant to this clause (viii) (after adding all previous interim payments and deducting all previous interim refunds paid by Bank to NMG pursuant to the following sentence of this clause (viii)) in the event that the amount owing by NMG to Bank pursuant to this clause (viii) is less than the net amount already paid by NMG to Bank pursuant to this clause (viii) (after applying this sentence).  Bank shall refund to NMG the excess of the net amount previously paid by Bank over the total amount payable by Bank in respect of the RAM Measurement Period (or the relevant Reference Period, as applicable).  For the avoidance of doubt, in no event shall the total payments by Bank pursuant to this clause (viii) exceed the total amounts received by it from NMG pursuant to this clause (viii).

(ix)  Set forth on Schedule 9.1(a0(ix), are illustrative calculations of the payments described in clauses (vii) and (viii) above.

11.The attached Schedule 9.1(a)(i) shall replace in its entirety Schedule 9.1(a)(i) of the Agreement.

12.Within five (5) business days of the execution of this Seventh Amendment by NMG and Bank, NMG shall dismiss, without prejudice, the proceedings before the District Court in Dallas County, Texas as well as its accompanying temporary restraining order (“Lawsuit”).

13.The parties agree that, if either is contacted by the media and/or customers regarding the Lawsuit, that each may state only that the matter has been satisfactorily resolved.  The parties will mutually agree upon scripting to address any inquiries by the media and/or customers with respect to the February 2008 Change of Terms and any additional change in terms.

14.Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

AGREED TO AND EXECUTED on this the 21st day of April, 2008.

HSBC BANK NEVADA, N.A.		HSBC PRIVATE LABEL CORPORATION
By:	/s/ Eliabeth F. McCombe	By:	/s/ Elizabeth F. McCombe
Its:	EVP	Its:	VP

THE NEIMAN MARCUS GROUP, INC.		BERGDORF GOODMAN, INC.
By:	/s/  James E. Skinner	By:	/s/  James E. Skinner
Its:	EVP & CFO	Its:	VP

Schedule 4.6 (e)

Changes to Risk Management Policies to be Implemented by the end of March 2008

— Reduce the credit line to the balance on accounts with a Next Gen score less than [***] ([***] implementation)

— Reduce the credit line to the balance on “X day” (i.e., [***] days delinquent) accounts with balances less than [***] and Next Gen scores less than [***] ([***] implementation).

— Reduce the credit line to the balance on [***] day accounts with balances less than [***] and a Next Gen scores less than [***] ([***] implementation).

— Reduce the credit line to the balance .on all accounts that are [***] &[***] authorizations ([***] implementation).

— Close all accounts that are [***] ([***] implementation)

— Increase POS cut .off to [***] In Store, and [***] Neiman Marcus Direct and Neiman Marcus/Bergdorf Goodman Online ([***] implementation).

— All accounts that are noted as [***] and/or [***] will be exempted from the foregoing actions (currently known as [***]).

Exhibit A to Schedule 4.6(e)

Recourse Review Process

Beginning as of the Effective Date, Bank and NMG shall comply with the following Recourse Review process prior to any Risk Management Policy changes.

Process Owner	Description	Timing
Bank	Will provide a report of Accounts (inactive and active) that would be affected by impending Risk Management Policy changes. The report will include Account number, block code(s), Account open date, LTD purchases, YTD purchases, current balance, credit line, cycle due, and will be sorted from High Balance to Low Balance.	30 days before implementation of Risk Management Policy changes.
NMG	Will review the Accounts and provide Bank with a list of Accounts that they would like to take on full recourse, per the Fourth Amendment to the Agreement executed April 3, 2007.	15 days before implementation of Risk Management Policy changes.
Bank	Bank will flag the identified Accounts as full recourse using the then current recourse management procedures. These Accounts will be included in the monthly recourse portfolio reporting.	Within 5 days of implementation of Risk Management Policy changes.
Bank	After the initial implementation, Bank will provide reporting, (not less than quarterly) on any new Accounts, not previously identified, that will be impacted by previous changes to Risk Management Policies.	On Going

SCHEDULE 7.1(e)

Yearly Settlement Sheet

The Yearly Settlement Sheet shall set forth:

(a)the aggregate of all Joint Marketing Commitment Amounts spent by the NMG Companies in the last Fiscal Month of such Fiscal Year; and

(b)the number of In-Store Payments received by any of the NMG Companies in the last Fiscal Month of such Fiscal Year;

(c)the Finance Charge Reversal Percentage for such Fiscal Year and the calculation of any amounts due pursuant to Section 4.10(b);

(d)the Late Fee Reversal Percentage for such Fiscal Year and the calculation of any amounts due pursuant to Section 4.10(c);

(e)Average Private Label Receivables, (ii) Average Interest Free Receivables and (iii) the Net Yield for such Fiscal Year calculated on all Billed Cardholder Debt and the calculation of any amounts due pursuant to Section 4.11; and

(f)any other amounts owed to the NMG Companies as explicitly provided herein or as otherwise agreed by the parties in writing with line item specificity, which amounts may be netted.

(g)The net amount payable by one party to the other after giving effect to payments owing pursuant to Sections 9.1(a)(vii) and (viii).

Schedule 7.1(d)

Reporting

The calculation of Risk Adjusted Margin, the Net-Write-Off Ratio, Variable Break-Even Margin and each component of the foregoing will begin on [***] and will be measured quarterly (through the end of the RAM Measurement Period) and the payments contemplated by Sections 9.1(a)(vii) and (viii) shall be settled annually based on the below:

Measurement Period	Report Date	Payment Date
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]

Schedule 9.1 (a)(i)

Daily NMG Compensation

Bank shall pay to NMG an amount equal to the aggregate for all Private Label Accounts and Non-Card Payment Plans of the following:

For each such Private Label Account or Non-Card Payment Plan, the product of (A) the sum of (x) the Program Fee Percentage applicable to such Account and (y) the Servicing Fee Percentage and (B) Net Credit Sales under such Account reflected in all NMG Charge Transaction Data required to be paid for by Bank on such Business Day pursuant to Section 8.4.

Determination of Program Fee Percentage

The “Program Fee Percentage” with respect to each Account means [***].

Determination of Servicing Fee Percentage

The “Servicing Fee Percentage” means [***].  The Servicing Fee Percentage applicable to all Accounts shall be decreased on the date that Bank begins providing the following Services to the Program:

Service	Amount	Definition
General Late Stage Collections	[***]	Bank is collecting balances which are at least [***] days past their due date
Universal Agents to Bank Payroll		Bank is employing the Persons responsible for customer service and related activities
Early Stage Collections	[***]	Bank is collecting balances which are less than [***] days past their due date
Customer Service Services	[***]	Bank is staffing the call center and resolving customer and store inquiries
Credit Processing Services	[***]	Bank is processing and decisioning new applications and pending sale transaction

During the Term, while NMG is providing the Services set forth above, a portion of some of the Services may be subject to sales and use tax in Texas.  Refer to Section 19.6 for treatment of sales and use tax on these Services.

Schedule 9.1(a)(ix)

Illustrative Calculations

[***]

Average Gross Receivables	[***]
Net Credit Sales	[***]
Number of Average Active Accounts	[***]
Gross Finance Income	[***]
Less Cost of Funds (actual internal charge)	[***]
Less Net Write-Offs	[***]
	[***]
	[***]
Increased late fee due to 6th amendment
Adjust	[***]
	[***]
Risk Adjusted Margin	[***]

Variable Margin

Gross Finance Income**	[***]
Less Cost of Funds*	[***]
Less Net Write-Offs	[***]
Less All Payments Bank paid to NMG	[***]
Less Fraud Loss	[***]
Less marketing Expense	[***]
Less Standard Variable Expenses	[***]
Variable Margin	[***]

*  Avg 1 month Libor for 2007 + [***] = [***] times [***] of Gross receivables ([***]).

**  Includes income from the Late Fee Change 6th amendment for Nov & Dec.

Example of 2009 Year End Settlement

Assumptions for Calculations
Average Gross Receivables	[***]
Net Credit Sales	[***]
Number of Average Active Accounts	[***]
Gross Finance Income	[***]
1-Month-LIBOR	[***]
Net Write-Offs at [***] of Net Credit Sales	[***]
Recoveries	[***]
Fraud Loss	[***]
Marketing Expense	[***]
Payment to NMG for Processing In-Store Payments	[***]

Schedule 1

Gross Receivables to Write-Off	[***]
Less Recoveries	[***]
Net Write-Offs	[***]
[***] of Credit Sales	[***]
Shared Net Write-Offs	[***]
NMG Payable to Bank [***] of Shared	[***]

Schedule 2 [***] RAM Sharing

Gross Finance Income	[***]
Plus NMG Paid to Bank Shared W/O Amount	[***]
Less Cost of Funds (1)	[***]
Less Net Write-Offs	[***]
Risk-Adjusted Revenue	[***]
Risk-Adjusted Margin	[***]
	[***]
	[***]
Excess Available for RAM Sharing	[***]
Bank Payable to NMG of [***] RAM Sharing	[***]

Schedule 3 Variable Break-Even

Gross Finance Income	[***]
NMG Payable to Bank [***] of Shared	[***]
Less Cost of Funds(1)	[***]
Less Net Write-Offs	[***]
Less All Payments Bank Paid to NMG (2)	[***]
Less Fraud Loss	[***]
Less Marketing Expense	[***]
Less Standard Variable Expenses (3)	[***]
Variable Margin	[***]
Bank Payable to NMG of [***] Variable Break Even	[***]
(1)
1 Month LIBOR times [***] of Average Gross Receivables	[***]
[***] times [***] of Average Gross Receivables	[***]
Cost of Funds	[***]

(2)
[***] NMG Program Fee	[***]
[***] Servicing Fee	[***]
Payment to NMG for Processing In-Store Payments	[***]
Bank Payable to NMG of [***] RAM Sharing	[***]
	[***]
(3)
Number of Average Active Accounts	[***]
[***] cost per average account	[***]

EXHIBIT B

Authorization 12 Month On Book (MOB) Report — Next Gen Score

[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]

[***]						[***]
[***]	[***]		[***]		[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]
[***]	$	[***]	$	[***]	[***]

EXHIBIT C

Authorizations 12 Months On Book (MOB) Report-Next Gen Score 600-609 (EXAMPLE ONLY)

[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
	[***]

[***]
[***]	[***]		[***]	[***]		[***]
[***]	$	[***]	[***]	$	[***]	[***]
[***]	[***]		[***]	[***]		[***]
[***]	[***]		[***]	[***]		[***]
[***]	[***]		[***]	[***]		[***]
[***]	[***]		[***]	[***]		[***]
[***]	[***]		[***]	[***]		[***]
[***]	[***]		[***]	[***]		[***]	[***]
[***]	[***]		[***]	[***]		[***]
[***]

*Sample Attribute

**Sample Band

EX-10.53

Exhibit 10.53

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

EIGHTH AMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This Eighth Amendment to Credit Card Program Agreement (the “Eighth Amendment”) is entered into this 17th day of October, 2008, by and among The Neiman Marcus Group, Inc. and Bergdorf Goodman, Inc. on the one hand, and HSBC Private Label Corporation (formerly, Household Corporation) and HSBC Bank Nevada, N.A., on the other hand, to that certain Credit Card Program Agreement, dated June 8, 2005 (as amended, the “Agreement”), among the foregoing parties.  All capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Agreement.

1.Schedule 3.3 (Program Relationship Managers; Partner Program Team) of the Agreement is amended by striking the existing Subsection 3(a), only, of said schedule and replacing it with the following:

“3.Bank’s Program Team Requirements and Specifications

(a)Fully-Dedicated Team Members and Payment:  Bank shall ensure that the following full-time employees, in each case having the experience and skills referred to below shall devote 100% of their work efforts to the Program:

(i)  Two (2) marketing strategies with cumulative experience in the credit card or retail marketing industry of at least 15 years, or such other experience acceptable to NMG; and

(ii)  One (1) fully-trained data mining analyst.

The foregoing dedicated employees shall devote substantially all of their efforts to performing Bank’s obligation pursuant to Section 5.4

Further, in lieu of maintaining an additional data mining analyst to the one noted above, Bank shall twice pay [***] to NMG, with each payment being made separately and in accordance with the September 2008 and September 2009 Monthly Settlement Sheets, as contemplated in Schedule 7.1(b).  The September 2009 payment shall be prorated accordingly given the existing Term of the Agreement.”

2.Except as otherwise modified herein, the terms and conditions of the Agreement remain in full force and effect.

AGREED TO AND EXECUTED on this the 17th day of October 2008.

HSBC BANK NEVADA, N.A.		HSBC PRIVATE LABEL CORPORATION
By:	/s/  Brian D. Hughes	By:	/s/  Brian D. Hughes
	Title:  Executive Vice President		Title:  Executive Vice President
THE NEIMAN MARCUS GROUP, INC.		BERGDORF GOODMAN, INC.
By:	/s/  William S. Hough	By:	/s/  Nelson A. Bangs
	Title:  VP Credit Services		Title:  Vice President

EX-10.54

Exhibit 10.54

Confidential Treatment Requested.

Certain material (indicated by asterisks) has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

9thAMENDMENT TO CREDIT CARD PROGRAM AGREEMENT

This 9th Amendment to Credit Card Program Agreement (the “9th Amendment”) is entered into this 30th day of December 2008 by and among The Neiman Marcus Group, Inc. and Bergdorf Goodman, Inc. on the one hand, and HSBC Private Label Corporation (formerly, Household Corporation) and HSBC Bank Nevada, N.A. on the other hand, to that certain Credit Card Program Agreement, dated June 8, 2005 (as amended, the “Agreement”), among the foregoing parties. The 9th Amendment shall have an effective date as of November 21st, 2008. All capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Agreement.

1. In Section 1.1 of the Agreement, the following sentence shall be added at the end of the definition for “Average Interest Free Receivables”: “Average Interest Free Receivables does not include interest free Accounts that do not bear interest subject to NMG Transactions made pursuant to the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704 (as defined below).”

2. In Section 1.1 of the Agreement, the following sentence shall be added at the end of the definition for “Gross Financing Income”: “The Merchant Discount payable by NMG to Bank pursuant to the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704 shall be included in the calculation of Gross Financing Income, and therefore, shall be included in the calculation of Variable Break-Even Margin.”

3. The following new defined term shall be added in Section 1.1. of the Agreement in the appropriate alphabetical order: “Six (6) Month No Interest/No Payment Promotion Credit Plan #30704 means a promotional offer made to Cardholders for specific NMG Transactions whereby the Account shall not bear interest for such specific NMG Transactions, and the Cardholder shall not be required to make a payment towards the cost of such Card Sale, for a period of six months from the date of such purchase.  The Parties shall mutually determine which NMG Transactions qualify for this promotional offer.  NMG may run other no interest/no payment promotions with 6 month durations that utilize different credit plan numbers, which would be excluded from a Merchant Discount assessment.”

4. The following sentence shall be added at the end of Section 4.11 of the Agreement, Interest Free Accounts: “For the avoidance of doubt, interest free Accounts that do not bear interest subject to NMG Transactions made pursuant to the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704, which the Parties have mutually agreed to offer, shall not be included in the calculation of High Collar or Low Collar, and the cost of maintaining these shall not be borne solely by Bank; instead, NMG shall be assessed a Merchant Discount on NMG Transactions made pursuant to the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704 in an amount of [***].”

5. Section 8.7 of the Agreement, No Merchant Discount, is hereby deleted and replaced with the following: ‘‘None of NMG, its Affiliates or the Retail Merchants shall be required to pay any Merchant Discount on any NMG Transaction, except when NMG Transactions are placed on the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704.  In such instances, during the Term, NMG shall be assessed a Merchant Discount of [***].  Furthermore, NMG shall be entitled to a refund of the Merchant Discount if the NMG Transaction subject to the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704 is canceled or the Goods are returned or canceled within sixty (60) days of the date of the Card Sale. Other than NMG Transactions subject to the Six (6) Month No/Interest Payment Promotion Credit Plan #30704, Bank shall directly process the NMG Transactions such that the Retail Merchants do not incur any merchant acquirer/processor or similar fees, including but not limited to no interest/no payment promotions of six months that have a different credit plan number.”

6. A new Section 4.12 shall be added to the Agreement as follows:

“4.12 Six (6) Month No Interest/No Payment Credit Plan #30704.  Each calendar quarter, NMG and HSBC will review the terms relating to the Six (6) Month No Interest/No Payment Promotion Credit Plan #30704

and attempt to mutually agree on whether to continue offering the plan and on any revised terms that are appropriate in connection therewith. If the parties cannot agree as to whether to continue offering the plan and on the terms governing such plan going forward, either party may discontinue the offering of such plan effective at the beginning of the next calendar quarter, beginning on April 1, 2009.”

AGREED TO AND EXECUTED on this the 30th day of December 2008.

HSBC BANK NEVADA, N.A.		HSBC PRIVATE LABEL CORPORATION
By:	/s/  Brian D. Hughes	By:	/s/  Brian D. Hughes
	Title:  Executive Vice President		Title:  Executive Vice President
THE NEIMAN MARCUS GROUP, INC.		BERGDORF GOODMAN, INC.
By:	/s/  William S. Hough	By:	/s/  Nelson A. Bangs
	Title:  VP Credit Services		Title:  Vice President

EX-10.55

EXHIBIT 10.55

FORM OF

FIRST AMENDMENT TO

SECOND PRIORITY LEASEHOLD MORTGAGE,

ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FINANCING STATEMENT

THIS FIRST AMENDMENT TO SECOND PRIORITY LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT (this “Instrument”), dated as of September     , 2009, is entered into by and between THE NEIMAN MARCUS GROUP, INC., a Delaware corporation (“Mortgagor”), whose address is One Marcus Square, 1618 Main Street, Dallas, Texas 75201 and BANK OF AMERICA, N.A., a national association, whose address is 1455 Market Street, 5th Floor, San Francisco, California 94103, as agent (as successor to Deutsche Bank Trust Company Americas, in such capacity, “Agent”, and together with its successors and assigns, “Mortgagee”) for the Secured Parties defined in the Amended Credit Agreement (defined below).

WITNESSETH THAT,

WHEREAS, Mortgagor, Existing Agent (defined below) and others party thereto have entered into that certain Credit Agreement, dated as of October 6, 2005 (as amended, supplemented or otherwise modified to date, the “Existing Credit Agreement”);

WHEREAS, Mortgagor is the record owner and holder of certain leasehold interests in that certain real property described in Exhibit A attached hereto and by this reference incorporated herein, together with the Improvements (as defined in the Mortgage, defined below) constructed thereon;

WHEREAS, Mortgagor has executed and delivered that certain instrument entitled “SECOND PRIORITY LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT” and dated as of October 6, 2005 and recorded on October 14, 2005 with the Bergen County Clerk as Book 15001, Page 126 (the “Mortgage”);

WHEREAS, the Mortgage secures, among other things, the obligations of Mortgagor under the Existing Credit Agreement;

WHEREAS, the parties to the Existing Credit Agreement and the Agent now desire to amend the Existing Credit Agreement pursuant to the terms of that certain Amended and Restated Credit Agreement dated as of July 15, 2009 (the “Credit Agreement Amendment”) by and among Mortgagor, the other Borrowers referred to therein, Neiman Marcus, Inc., and certain subsidiaries of Mortgagor from time to time party thereto, the Agent and the other Secured Parties (the Existing Credit Agreement, as amended by such Credit Agreement Amendment, and any and all amendments, modifications, supplements, restatements, extensions, renewals or replacements thereof are collectively referred to herein as the “Amended Credit Agreement”);

WHEREAS, pursuant to that certain Substitution of Agent and Joinder Agreement, dated as of the date hereof, DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation, resigned as the agent under the Existing Credit Agreement (as defined below) (the “Existing Agent”), and pursuant to the Amended Credit Agreement, Agent has been appointed as the successor to the Existing Agent; and

WHEREAS, concurrently therewith, Mortgagor and Mortgagee desire to amend the Mortgage as set forth below.

NOW THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the mutual receipt and sufficiency of which are hereby acknowledged, Mortgagor and Mortgagee hereby agree as follows:

1.             Definitions.  All capitalized terms used but not otherwise defined in this Instrument shall have the same meanings ascribed to such capitalized terms in the Mortgage, as amended by this Instrument, or if not defined therein, in the Amended Credit Agreement.

2.             Amended Credit Agreement. All references in the Mortgage to the “Revolving Facility Credit Agreement” shall be deemed to be references to the Amended Credit Agreement.

3.             Mortgagee.  All references in the Mortgage to the “Mortgagee” shall be deemed to be references to “Mortgagee” as defined in the preamble to this Instrument.

4.             Miscellaneous Amendments.

(a)           All references to the “Lenders”, the “Administrative Agent”, the “Swingline Lender”, the “Issuing Bank”, the “Letters of Credit”, the “Secured Parties” and the “Intercreditor Agreement” shall be deemed to be references to such terms as defined in the Amended Credit Agreement.

(b)           The phrase “(vi) the Lien Subordination and Intercreditor Agreement, dated as of even date hereof, among the Collateral Agent, Credit Suisse, Merger Sub, Neiman Marcus, Holdings and the subsidiaries of Neiman Marcus from time to time party thereto as attached hereto as Exhibit C” is hereby deleted in its entirety.

(c)           The phrase “at the rate of [    ]% per annum” is hereby deleted from Section 1.12(c)(ii)(C) and replaced with “at the rate of [    ]% per annum”. [NOTE: TITLE COMPANY TO PROVIDE APPLICABLE PERCENTAGE.]

(d)           The reference to “Section 2.13(c)” in Section 2.03(b) of the Mortgage is hereby deleted and replaced with “Section 2.13(d)”.

(e)           The sentence “The Revolving Facility Credit Agreement provides that the sum of the principal amount of the Loans and the Letters of Credit from time to time outstanding and secured hereby shall not exceed $1,975,000,000.” is hereby deleted in its entirety and replaced with “The Amended Credit Agreement provides that the sum of the principal amount of the Loans and the Letters of Credit from time to time outstanding and secured hereby shall not exceed $600,000,000.”

(f)            Exhibit C to the Mortgage is hereby deleted in its entirety.

5.           Limited Amendment; Ratification. This Instrument is given solely to amend the Mortgage as set forth herein.  No further amendment or modification is made or intended, and the terms and provisions of the Mortgage shall, except as expressly modified herein, continue in full force and effect after the date hereof.  The warranties, representations, covenants and agreements contained in the Mortgage, as herein expressly amended, are hereby specifically reaffirmed and remade by Mortgagor and the entire Mortgage, as herein expressly amended, is hereby ratified, approved and confirmed in every respect.  Mortgagor also hereby ratifies and confirms, as of the date of the Mortgage and as of the date hereof, the liens, encumbrances and security interests in and on the Premises and the Mortgaged Property intended to be created by the Mortgage, as amended hereby.

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6.             No Release or Novation. The Obligations secured by the Mortgage are continuing obligations and nothing contained herein shall be deemed to release, terminate or subordinate any lien, security interest or assignment created or evidenced by the Mortgage and all such liens, security interests and assignments and the priority thereof shall relate back to the date that the Mortgage was filed as referenced in the recitals above.  Mortgagor and Mortgagee intend that this Instrument shall in no way affect the priority of the Mortgage or constitute a novation of the indebtedness secured thereby.

7.             Successors and Assigns. This Instrument shall bind and inure to the benefit of Mortgagor, Mortgagee and the Secured Parties and their respective successors, substitutes and assigns.

8.             Recordation; Costs and Expenses. Mortgagor shall cause this Instrument to be filed and/or recorded in the filing or recording offices referenced in the recitals above and/or such other places as requested by Mortgagee, and Mortgagor shall pay to Mortgagee all expenses incurred by Mortgagee in connection with the preparation, execution, filing and recordation of this Instrument, including, without limitation, attorneys’ fees, filing and recording fees, documentary stamp, mortgage and intangible taxes and title search charges and other charges incurred to assure or insure the priority of the lien of the Mortgage, as amended by this Instrument.

9.             Counterparts. This Instrument may be executed in any number of original counterparts,  which when so executed shall be deemed to be an original for all purposes, and all counterparts shall together constitute one and the same instrument; signature and acknowledgment pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.  This Instrument shall become effective upon the execution of a counterpart hereof by each of the parties hereto.

[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

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IN WITNESS WHEREOF, Mortgagor and Mortgagee have on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this Instrument to be duly EXECUTED AND DELIVERED by authority duly given.

Mortgagor:
THE NEIMAN MARCUS GROUP, INC.,
a Delaware corporation
By:
	Name:
	Title:

STATE OF	)
	) ss.:
COUNTY OF	)

On this            day of September, 2009, in the County and State aforesaid, before me, the subscriber, a Notary Public authorized to take acknowledgements and proofs in said County and State, personally appeared                                                                       , the                                              of The Neiman Marcus Group, Inc., who, I am satisfied, is the person who, as such officer, signed the within instrument on behalf of such corporation, and said person did acknowledge that he or she is authorized to sign and deliver the within instrument on behalf of such corporation and that he or she signed and delivered the same as the act and deed of such corporation for the uses and purposes expressed therein.

	Name:
	Notary Public
My Commission Expires:
(NOTARIAL SEAL)

[Signatures Continue on Following Page]

S-1

Mortgagee:
BANK OF AMERICA, N.A.,
a national association,
as a Co-Collateral Agent
By:
	Name:
	Title:

STATE OF	)
	) ss.:
COUNTY OF	)

On this          day of September, 2009, in the County and State aforesaid, before me, the subscriber, a Notary Public authorized to take acknowledgements and proofs in said County and State, personally appeared                                                                       , the                                              of Bank of America, N.A., who, I am satisfied, is the person who, as such officer, signed the within instrument on behalf of such national association, and said person did acknowledge that he or she is authorized to sign and deliver the within instrument on behalf of such national association and that he or she signed and delivered the same as the act and deed of such national association for the uses and purposes expressed therein.

	Name:
	Notary Public
My Commission Expires:
(NOTARIAL SEAL)

S-2

EXHIBIT A

LEGAL DESCRIPTION

The Neiman Marcus Group, Inc. is a record owner of a leasehold interest in the property located at 503 Garden State Plaza, Paramus, NJ and described on this Exhibit A.

[See Attached Pages for Legal Description]

A-1

EX-12.1

EXHIBIT 12.1

Neiman Marcus, Inc.

Computation of Ratio of Earnings to Fixed Charges

(Unaudited)

	(Successor)												(Predecessor)
(in thousands, except ratios)	Fiscal year endedAugust 1,2009			Fiscal year endedAugust 2,2008			Fiscal year endedJuly 28,2007			Forty-three weeksendedJuly 29, 2006(a)			Nine weeks ended October 1, 2005(a)			Fiscal year endedJuly 30, 2005(a)
Fixed Charges:
Interest on debt	$	221,951		$	233,557		$	255,859		$	214,777		$	3,186		$	23,336
Amortization of debt discount and expense	17,185			14,217			14,141			11,728			96			831
Interest element of rentals	24,750			27,291			24,915			19,404			3,729			20,691
Total fixed charges	$	263,886		$	275,065		$	294,915		$	245,909		$	7,011		$	44,858
(Loss) earnings:
(Loss) earnings from continuing operations before income taxes	$	(888,491	)	$	226,629		$	216,998		$	41,043		$	71,173		$	385,177
Add back:
Fixed charges	263,886			275,065			294,915			245,909			7,011			44,858
Amortization of capitalized interest	1,058			1,018			495			776			105			538
Less:
Capitalized interest	(993		)	(3,036		)	(2,825		)	(3,446		)	(1,146		)	(5,350		)
Total (loss) earnings	$	(624,540	)	$	499,676		$	509,583		$	284,282		$	77,143		$	425,223
Ratio of earnings to fixed charges (b)			(c)	1.8			1.7			1.2			11.0			9.5

(a)           All periods presented have been adjusted to exclude the operations of Kate Spade LLC.

(b)           Interest associated with income tax liabilities is excluded from our calculation.

(c)           For fiscal year 2009, the aggregate amount of fixed charges exceeded our earnings by approximately $888.4 million which is the amount of additional earnings that would have been required to achieve a ratio of earnings to fixed charges of 1.0x for such period.  The deficiency of the ratio of earnings to fixed charges for fiscal year 2009 is primarily due to the pretax impairment charges related to 1) $329.7 million for the writedown to fair value of goodwill, 2) $343.2 million for the writedown to fair value of the net carrying value of tradenames and 3) $30.3 million for the writedown to fair value of the net carrying value of certain long-lived assets.

EX-14.1

Exhibit 14.1

CODE of
ETHICS and
CONDUCT

THE NEIMAN MARCUS GROUP, INC.

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

2

	ADVERTISING
	RECORD KEEPING
		Preparation of Records
		Retention of Records
	E-MAIL, VOICE MAIL AND THE INTERNET
			Appropriate Use
			Privacy
			Creation and Retention of Messages
	CONFLICTS OF INTEREST
			Gifts
			Entertainment
	DRUG AND ALCOHOL USE AND TESTING
	ENVIRONMENTAL COMPLIANCE
IMPLEMENTATION OF THE CODE
	THE COMPLIANCE COMMITTEE
	DISSEMINATION OF INFORMATION
	TRAINING AND EDUCATION
	DISCIPLINE FOR VIOLATIONS
	INVESTIGATIONS AND RESPONDING TO ALLEGATIONS OF VIOLATIONS
	RETENTION OF OUTSIDE LEGAL COUNSEL

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

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

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

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

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

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

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

4

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

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

5

THE CODE

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

CONSEQUENCES OF NON-COMPLIANCE

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

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

DUTY TO REPORT

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

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

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

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

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

COMPLIANCE WITH LAWS AND RELATED POLICIES

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

GENERAL OBLIGATION TO DEAL FAIRLY

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

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ANTITRUST LAWS

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

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

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

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

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

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

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

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

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

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

INSIDER TRADING

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

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

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

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

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

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

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

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

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

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

EMPLOYMENT LAWS

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

EQUAL EMPLOYMENT OPPORTUNITY

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

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

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

SEXUAL HARASSMENT

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

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

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

REPORTING DISCRIMINATION AND HARASSMENT

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

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

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

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

SAFETY AND HEALTH

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

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

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

AMERICANS WITH DISABILITIES ACT

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

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

CONTRACTING WITH OTHER PARTIES

ENTERING AGREEMENTS

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

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

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

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

TERMINATING AGREEMENTS

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

PRODUCT SAFETY

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

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

FLAMMABILITY STANDARDS

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

CHILDREN’S TOYS

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

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coated with paint or other products containing lead.

FOOD AND COSMETIC PRODUCTS

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

POTENTIALLY HAZARDOUS PRODUCTS

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

INTELLECTUAL PROPERTY

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

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

COPYRIGHT COMPLIANCE

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

TRADEMARK PROTECTION

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

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

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

TRADE SECRETS AND PROPRIETARY AND CONFIDENTIAL INFORMATION

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

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

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

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

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

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

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

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INTERNATIONAL BUSINESS

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

THE FOREIGN CORRUPT PRACTICES ACT

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

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

IMPORT AND CUSTOMS CONTROLS

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

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

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

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

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

EXPORT CONTROLS

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

ANTIBOYCOTT LAWS

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

U.S. EMBARGOES

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

POLITICAL ACTIVITIES AND CONTRIBUTIONS

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

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

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

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

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

IMPROPER OR UNRECORDED PAYMENTS; EXCESSIVE GIFTS

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

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

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

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

Company policy also prohibits employees from giving or receiving excessive or

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

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

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

FALSE STATEMENTS AND SCHEMES TO DEFRAUD

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

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

THEFT OR MISUSE OF COMPANY PROPERTY

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

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

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

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

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

WIRETAPPING, EAVESDROPPING AND TAPE RECORDING

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

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

RESPONDING TO INQUIRIES FROM THIRD PARTIES

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

REQUESTS BY ATTORNEYS AND GOVERNMENT AGENTS

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

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

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determine the appropriate response.

REQUESTS FOR INSPECTIONS OF PREMISES

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

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

CONTACTS WITH THE MEDIA AND THE FINANCIAL COMMUNITY

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

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

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

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

ADVERTISING

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

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

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

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

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

RECORD KEEPING

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

PREPARATION OF RECORDS

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

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

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

RETENTION OF RECORDS

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

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

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

E-MAIL, VOICE MAIL AND THE INTERNET

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

APPROPRIATE USE

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

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

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

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

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

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

PRIVACY

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

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

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

CREATION AND RETENTION OF MESSAGES

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

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

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CONFLICTS OF INTEREST

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

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

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

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

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

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

GIFTS

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

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

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

ENTERTAINMENT

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

(1) the entertainment occurs infrequently;

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

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

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

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

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

DRUG AND ALCOHOL USE AND TESTING

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

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

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

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

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

ENVIRONMENTAL COMPLIANCE

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

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

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

IMPLEMENTATION OF THE CODE

THE COMPLIANCE COMMITTEE

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

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DISSEMINATION OF INFORMATION

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

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

TRAINING AND EDUCATION

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

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

DISCIPLINE FOR VIOLATIONS

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

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

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

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

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

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

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

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

INVESTIGATING AND RESPONDING TO ALLEGATIONS OF VIOLATIONS

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

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

RETENTION OF OUTSIDE LEGAL COUNSEL

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

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THE NEIMAN MARCUS GROUP, INC.

CODE OF ETHICS AND CONDUCT

CERTIFICATION

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

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

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

Signature

Print name

Associate #

Title

Company

Date

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

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EX-14.2

Exhibit 14.2

NEIMAN MARCUS GROUP CODE OF ETHICS
FOR FINANCIAL PROFESSIONALS

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

All financial associates of The Neiman Marcus Group will:

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

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

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

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

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

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

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

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

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

(j)    Achieve responsible use of and control over all assets and resources employed or entrusted.

You are specifically prohibited from directly or indirectly taking any action to influence, coerce, manipulate or mislead NMG’s independent public auditors as they render their opinion regarding the fairness of the financial statements of NMG or its subsidiaries.

You understand that you will be held accountable for your adherence to this Code of Ethics for Financial Professionals.  Your failure to observe the terms of this Code may result in disciplinary action, up to and including termination of employment.  Violations of this Code of Ethics for Financial Professionals may also constitute violations of law and may result in civil and criminal penalties for you, your supervisors and/or NMG.

If you have any questions regarding the best course of action in a particular situation, you should promptly contact the Company’s General Counsel, who is Chairman of the Compliance Committee.  You may choose to remain anonymous in reporting any possible violation of this Code of Ethics. For Financial Professionals

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EX-21.1

EXHIBIT 21.1

NEIMAN MARCUS, INC.
SUBSIDIARIES OF THE COMPANY

JURISDICTION OF SUBSIDIARY/AFFILIATE	INCORPORATION	SHAREHOLDER
Bergdorf Goodman, Inc.	New York	Neiman Marcus Holdings, Inc.
Bergdorf Graphics, Inc.	New York	Bergdorf Goodman, Inc.
BergdorfGoodman.com, LLC	Delaware	The Neiman Marcus Group, Inc.
NEMA Beverage Corporation	Texas	NEMA Beverage Holding Corporation
NEMA Beverage Holding Corporation	Texas	NEMA Beverage Parent Corporation
NEMA Beverage Parent Corporation	Texas	The Neiman Marcus Group, Inc.
NM Financial Services, Inc.	Delaware	The Neiman Marcus Group, Inc.
NMGP, LLC	Virginia	The Neiman Marcus Group, Inc.
NM Nevada Trust	Massachusetts	The Neiman Marcus Group, Inc. (90 shares) Bergdorf Goodman, Inc. (10 shares)
Neiman Marcus Holdings, Inc.	California	The Neiman Marcus Group, Inc.
Quality Call Care Solutions, Inc.	Ontario, Canada	The Neiman Marcus Group, Inc.
The Neiman Marcus Group, Inc.	Delaware	Neiman Marcus, Inc.
Worth Avenue Leasing Company	Florida	The Neiman Marcus Group, Inc.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement No. 333-133184 on Form S-1 and the Registration Statement No. 333-136297 on Form S-1 of Neiman Marcus, Inc. and subsidiaries and in the related Prospectus Supplements filed pursuant to Rule 424(b) of our reports dated October 20, 2009, with respect to the consolidated financial statements and schedule of Neiman Marcus, Inc. and subsidiaries and the effectiveness of internal control over financial reporting of Neiman Marcus, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the year ended August 1, 2009.

/s/ ERNST & YOUNG LLP

Dallas, Texas

October 20, 2009

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Burton M. Tansky, certify that:

1.I have reviewed this annual report on Form 10-K of Neiman Marcus, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)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

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  October 20, 2009
	/s/ BURTON M. TANSKY
	Burton M. Tansky President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James E. Skinner, certify that:

1.I have reviewed this annual report on Form 10-K of Neiman Marcus, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)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

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  October 20, 2009
	/s/ JAMES E. SKINNER
	James E. Skinner Executive Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the following certifications are being made to accompany the Registrant’s annual report on Form 10-K for the fiscal year ended August 1, 2009

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 Neiman Marcus, Inc. (the Company) hereby certifies, to such officer’s knowledge, that:

(i)            the Annual Report on Form 10-K of the Company for the fiscal year ended August 1, 2009 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 20, 2009	/S/ BURTON M. TANSKY
	Burton M. Tansky
	President and Chief Executive Officer

Certification of Chief Financial 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 Neiman Marcus, Inc. (the Company) hereby certifies, to such officer’s knowledge, that:

(i)            the Annual Report on Form 10-K of the Company for the fiscal year ended August 1, 2009 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 20, 2009	/s/ JAMES E. SKINNER
	James E. Skinner
	Executive Vice President and Chief Financial Officer

(1)A signed original of this written statement required by Section 906 has been provided to Neiman Marcus, Inc. and will be retained by Neiman Marcus, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.