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SECURITIES AND EXCHANGE COMMISSION Washington, D.C.

__________________

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended August 1, 1998

Commission File Number 1-9659

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THE NEIMAN MARCUS GROUP, INC. (Exact name of registrant as specified in its charter)

27 Boylston Street, Chestnut Hill, Massachusetts 02467 (Address of principal executive offices) (Zip Code)

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

Registrant's telephone number and area code: 617-232-0760 _______________

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

Title of each Class Name of each Exchange on which Registered

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

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

None _______________

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes X No _____

Indicate by check mark if disclosure of delinquent filers pursuant toItem 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 informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates ofthe registrant as of October 15, 1998 was $407,958,109.

There were 48,944,377 shares of Common Stock outstanding as of October 15,1998.

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Documents Incorporated by Reference

Portions of the Company's 1998 Annual Report to Shareholders areincorporated by reference in Parts I, II and IV of this Report.

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THE NEIMAN MARCUS GROUP, INC.

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 1, 1998

TABLE OF CONTENTS

Page No.PART I Item 1. Business 1 Item 2. Properties 4 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Security Holders 4

PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 5 Item 6. Selected Financial Data 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 5 Item 8. Financial Statements and Supplementary Data 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6

PART III Item 10. Directors and Executive Officers of the Registrant 6 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 23 Item 13. Certain Relationships and Related Transactions 26

PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26 Signatures S-1

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PART I

Item 1. Business

General

The Neiman Marcus Group, Inc. (together with its operating divisions andsubsidiaries, the "Company") is a Delaware corporation which commencedoperations in August 1987. Harcourt General, Inc. ("Harcourt General"), aDelaware corporation based in Chestnut Hill, Massachusetts, currently ownsapproximately 54% of the outstanding Common Stock of the Company. Four ofHarcourt General's senior officers - its Chairman and Chief Executive Officer,its two Presidents and Co-Chief Operating Officers, and its Senior VicePresident and Chief Financial Officer - are directors of the Company, and

virtually all of Harcourt General's officers and corporate staff occupysimilar positions with the Company. For more information about therelationship between the Company and Harcourt General, see Note 1 to theSummary Compensation Table in Item 11, Item 12, and Notes 3, 7 and 8 to theConsolidated Financial Statements in Item 14 below. Harcourt General is apublic company subject to the reporting requirements of the SecuritiesExchange Act of 1934. For further information about Harcourt General,reference may be made to the reports filed by Harcourt General from time totime with the Securities and Exchange Commission.

Business Overview

The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and NMDirect, is a high-end specialty retailer. The 31 Neiman Marcus stores are inpremier retail locations in major markets nationwide, and the two BergdorfGoodman stores, the main store and the Bergdorf Goodman Men store, are locatedin Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores andBergdorf Goodman offer high-end fashion apparel and accessories primarily fromleading designers. NM Direct, the Company's direct marketing operation,offers a mix of apparel and home furnishings which is complementary to theNeiman Marcus Stores merchandise. NM Direct also publishes the Horchowcatalogues, the world famous Neiman Marcus Christmas Book, and Chef's Catalog,a leading direct marketer of gourmet cookware and high-end kitchenware whichwas acquired in January 1998.

Description of Operations

Neiman Marcus Stores

Neiman Marcus Stores offer women's and men's apparel, fashion accessories,shoes, cosmetics, furs, precious and designer jewelry, decorative homeaccessories, fine china, crystal and silver, gourmet food products, children'sapparel and gift items. A relatively small portion of Neiman Marcus Stores'customers accounts for a significant percentage of its retail sales.

The Company currently operates 31 Neiman Marcus stores, located in Arizona(Scottsdale); California (five stores: Beverly Hills, Newport Beach, PaloAlto, San Diego and San Francisco);

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Colorado (Denver); the District of Columbia; Florida (two stores: FortLauderdale and Bal Harbour); Georgia (Atlanta); Hawaii (Honolulu); Illinois(three stores: Chicago, Northbrook and Oak Brook); Missouri (St. Louis);Massachusetts (Boston); Minnesota (Minneapolis); Michigan (Troy); Nevada(Las Vegas); New Jersey (two stores: Short Hills and Paramus); New York(Westchester); Pennsylvania (King of Prussia); Texas (six stores: three inDallas, one in Fort Worth and two in Houston); and Virginia (McLean). Theaverage size of these 31 stores is approximately 143,000 gross square feet, andthey range in size from 90,000 gross square feet to 269,000 gross square feet.

The Company opened its Neiman Marcus store in Hawaii in September 1998. TheCompany plans to open new Neiman Marcus stores in Palm Beach, Florida in 2000,Coral Gables, Florida in 2001, Houston, Texas in 2001, Plano, Texas in 2002,and Tampa, Florida in 2002. The Plano store will replace the existing storelocated in the Prestonwood Mall in Dallas, and the Houston store will replacethe existing Houston Town & Country store.

In October 1997, the Company announced plans to test a new retailing format,called The Galleries of Neiman Marcus, which will offer precious and designerjewelry, gifts and home accessories. The Company plans to test this format byopening stores of approximately 10,000 to 15,000 gross square feet each. Thefirst of these stores is expected to open in Beachwood, Ohio (near Cleveland)in November 1998, with subsequent openings in Phoenix and Seattle in 1999.

Bergdorf Goodman

The Company operates two Bergdorf Goodman stores in Manhattan at 58th Streetand Fifth Avenue. The main Bergdorf Goodman store consists of 250,000 grosssquare feet. The core of Bergdorf Goodman's offerings includes high-endwomen's apparel and unique fashion accessories from leading designers. Bergdorf Goodman also features traditional and contemporary decorative homeaccessories, precious and fashion jewelry, gifts, and gourmet foods. BergdorfGoodman Men consists of 66,000 gross square feet and is dedicated to finemen's apparel and accessories. During 1999, the Company expects to addapproximately 15,000 square feet of selling space to the main Bergdorf Goodmanstore by adding selling space below the first floor on the plaza level.

NM Direct

NM Direct operates an upscale direct marketing business, which primarilyoffers women's apparel under the Neiman Marcus name and, through its Horchowcatalogue, offers quality home furnishings, tabletop, linens and decorativeaccessories. NM Direct also offers a broad range of more modestly priceditems through its Trifles and Grand Finale lines and annually publishes theworld famous Neiman Marcus Christmas Book. The Company acquired Chef'sCatalog, a leading direct marketer of gourmet cookware and high-endkitchenware, in January 1998, and has consolidated those operations into NMDirect.

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Clearance Centers

The Company operates seven clearance centers which average 25,000 gross squarefeet each. These stores provide an efficient and controlled outlet for thesale of marked down merchandise from Neiman Marcus Stores, Bergdorf Goodmanand NM Direct. The Company expects to open two additional clearance centersduring fiscal 1999.

Competition

The specialty retail industry is highly competitive and fragmented. TheCompany competes with large specialty retailers, traditional and betterdepartment stores, national apparel chains, designer boutiques, individualspecialty apparel stores and direct marketing firms.

The Company competes for customers principally on the basis of quality,assortment and presentation of merchandise, customer service, sales andmarketing programs and value. In addition, the Company competes for qualitymerchandise and assortment principally based on relationships with designerresources and purchasing power. The Company's apparel business is especiallydependent upon its relationship with these designer resources. Neiman MarcusStores and Bergdorf Goodman compete for customers on the basis of storeambience. Neiman Marcus Stores competes with other retailers for real estateopportunities, principally on the basis of its ability to attract customers. NM Direct competes principally on the basis of quality, assortment andpresentation of merchandise, customer service, price and speed of delivery.

Employees

At August 1, 1998, Neiman Marcus Stores had approximately 11,800 employees,Bergdorf Goodman had approximately 1,100 employees, and NM Direct hadapproximately 1,400 employees. The Company's staffing requirements fluctuateduring the year as a result of the seasonality of the retail apparel industryand, accordingly, the Company expects to add approximately 1,700 more seasonalemployees in the second quarter of fiscal 1999. None of the employees ofNeiman Marcus Stores or NM Direct are subject to collective bargaining

agreements. Approximately 18% of the Bergdorf Goodman employees are subjectto collective bargaining agreements. The Company believes that its relationswith its employees are generally good.

Capital Expenditures; Seasonality; Liquidity

For information on capital expenditures, seasonality and liquidity, see"Management's Discussion and Analysis of Financial Condition and Results ofOperations" in Item 7 below.

Executive Officers of the Registrant

The information set forth under the heading "Executive Officers" in Item 10below is incorporated herein.

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Item 2. Properties

The Company's corporate headquarters are located at Harcourt General's leasedfacility in Chestnut Hill, Massachusetts. The operating headquarters forNeiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas,New York City and Las Colinas, Texas, respectively. The aggregate grosssquare footage used in the Company's operations is approximately as follows:

Owned Subject to Owned Ground Lease Leased Total

Neiman Marcus and Bergdorf Goodman Stores......................... 348,000 2,112,000 2,297,000 4,757,000

Distribution, Support and Office Facilities, Clearance Centers, and Chef's Catalog Stores..... 1,169,000 0 754,000 1,923,000

Leases for the Company's stores, including renewal options, range from 30 to 99years. The lease on the Bergdorf Goodman main store expires in 2050, and thelease on the Bergdorf Goodman Men's store expires in 2010, with two 10-yearrenewal options. Leases are generally at fixed rentals, and a majority ofleases provide for additional rentals based on sales in excess of predeterminedlevels. The Company owns approximately 34 acres of land inLongview, Texas, where its National Service Center, the principal distributionfacility for Neiman Marcus Stores, is located in a 464,000 square footfacility, and also owns approximately 50 acres of land in Las Colinas, Texas,where its 705,000 square foot NM Direct warehouse and distribution facility islocated. For further information on the Company's properties, see "OperatingLeases" in Note 13 of the Notes to the Consolidated Financial Statements inItem 14 below. For more information about the Company's plans to openadditional stores, see "Description of Operations" in Item 1 above.

Item 3. Legal Proceedings

The Company presently is engaged in various legal actions which are incidentalto the ordinary conduct of its business. The Company believes that anyliability arising as a result of these actions and proceedings will not have amaterial adverse effect on the Company's financial position or results of

operations.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

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Item 5. Market for the Registrant's Common Equity and Related StockholderMatters

The information contained under the captions "Stock Information" and "SharesOutstanding" on page 47 of the 1998 Annual Report is incorporated herein.

Beginning with the third quarter of fiscal 1995, the Company eliminated thequarterly cash dividend on its Common Stock. The Company currently does notintend to resume paying cash dividends on its Common Stock.

Item 6. Selected Financial Data

The response to this Item is contained in the 1998 Annual Report under thecaption "Selected Financial Data" on page 45 and is incorporated herein.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The response to this Item is contained in the 1998 Annual Report under thecaption "Management's Discussion and Analysis" on pages 23 through 27 and isincorporated herein.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The market risk inherent in the Company's financial instruments and positionrepresents the potential loss arising from adverse changes in interest rates. The Company does not enter into financial instruments for trading purposes.

At August 1, 1998, the fair value of the Company's fixed-rate debt wasestimated at $251.6 million using quoted market prices and comparablepublicly-traded issues. The carrying value at August 1, 1998 exceeded suchfair value by approximately $1.2 million. Market risk is estimated as thepotential change in fair value resulting from a hypothetical 10% adversechange in interest rates, and amounted to approximately $16.0 million atAugust 1, 1998.

The Company had approximately $35.0 million of variable rate borrowingsoutstanding under its revolving credit agreement, which approximated fairvalue, at August 1, 1998. A hypothetical 10% adverse change in interest ratesfor this variable rate debt would have an approximate $0.2 million negativeeffect on the Company's earnings and cash flows.

For additional information about the Company's financial instruments, seeNotes 1, 6 and 14 of the Notes to Consolidated Financial Statements,beginning, respectively, on pages 32, 35, and 42 of the 1998 Annual Report.

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Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements and supplementary data referred to inItem 14 are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

Set forth below are the names, ages at October 15, 1998, and principaloccupations for the last five years of each director of the Company.

Class I Directors - Terms expire at 2001 Annual Meeting of Stockholders

Richard A. Smith - 73; Director since 1987 Chairman of the Company and of Harcourt General; Chief Executive Officer of the Company and of Harcourt General since January 1997 and prior to December 1991; Chairman, President (until November 1995) and Chief Executive Officer of GC Companies, Inc. since December 1993; Director of Harcourt General and GC Companies, Inc. Mr. Smith is the father of Robert A. Smith, President and Chief Operating Officer and a director of the Company, and President and Co-Chief Operating Officer and a director of Harcourt General, and is the father-in-law of Brian J. Knez, a director of the Company and President and Co-Chief Operating Officer and a director of Harcourt General.

Robert A. Smith - 39; Director since 1997 President and Chief Operating Officer of the Company and President and Co-Chief Operating Officer of Harcourt General since January 1997; Group Vice President of the Company and of Harcourt General prior thereto; President and Chief Operating Officer of GC Companies, Inc. since November 1995; Director of Harcourt General. Mr. Smith is the son of Richard A. Smith, Chairman and Chief Executive Officer of the Company and of Harcourt General, and is the brother-in-law of Brian J. Knez, a director of the Company and President and Co-Chief Operating Officer and a director of Harcourt General.

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Class II Directors - Terms expire at 1999 Annual Meeting of Stockholders

Matina S. Horner, Ph.D. - 59; Director since 1993 Executive Vice President of the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and President Emerita of Radcliffe College since 1989; Director of Boston Edison Company.

Brian J. Knez - 41; Director since 1998 President and Co-Chief Operating Officer of Harcourt General since January 1997; President and Chief Executive Officer of Harcourt Brace & Company since May 1995; President of the Scientific, Technical, Medical and Professional Group of Harcourt Brace prior thereto; Director of Harcourt General and Open Market, Inc. Mr. Knez is the son-in-law of Richard A. Smith, Chairman and Chief Executive Officer of the Company and of Harcourt General, and the brother-in-law of Robert A. Smith, President and Chief Operating Officer and a director of the Company and President and Co-Chief Operating Officer and a director of Harcourt General.

Walter J. Salmon - 67; Director since 1987 Stanley Roth Sr. Professor of Retailing (Emeritus since 1997), Graduate School of Business Administration, Harvard University; Director of Hannaford Bros. Co., The Quaker Oats Company, Circuit City Stores, Inc., Luby's Cafeterias, Inc., Harrah's Entertainment, Inc., Cole National Corporation and PetsMart, Inc.

Class III Directors - Terms expire at 2000 Annual Meeting of Stockholders

John R. Cook - 57; Director since 1998 Senior Vice President and Chief Financial Officer of the Company and of Harcourt General.

Jean Head Sisco - 73; Director since 1987 Partner in Sisco Associates, international management consultants; Director of Textron, Inc., Newmont Mining Corporation and its principal subsidiary, Newmont Gold Company, Washington Mutual Investors Fund, Chiquita Brands International, Inc., The American Funds Tax-Exempt Series I and K-Tron International, Inc.

Vincent M. O'Reilly - 61; Director since 1997 Distinguished Senior Lecturer, Carroll School of Management, Boston College since October 1997; Executive Vice Chairman of Coopers & Lybrand from October 1994 until October 1997; Chief Operating Officer or Deputy Chairman of Coopers & Lybrand from 1988 to October 1994; Director of Eaton Vance Corp. and Teradyne, Inc.

Executive Officers

Set forth below are the names, ages at October 15, 1998, and principaloccupations for the last five years of each executive officer of the Companywho is not also a director of the Company.

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All such persons have been elected to serve until the next annual election ofofficers and their successors are elected or until their earlier resignation orremoval.

Burton M. Tanksy - 60 Executive Vice President of the Company (since February 1998) and Chairman and Chief Executive Officer of Neiman Marcus Stores since May 1994; Chairman and Chief Executive Officer of Bergdorf Goodman prior thereto.

Gerald A. Sampson - 57 President and Chief Operating Officer of Neiman Marcus Stores.

Stephen C. Elkin - 55 Chairman and Chief Executive Officer of Bergdorf Goodman since May 1994; President and Chief Operating Officer of Bergdorf Goodman prior thereto.

Dawn Mello - 67 President of Bergdorf Goodman since May 1994 and from 1983 to 1989; Executive Vice President and Creative Director Worldwide of Guccio Gucci SpA from October 1989 to May 1994.

Bernie Feiwus - 50 President and Chief Executive Officer of NM Direct.

Eric P. Geller - 51 Senior Vice President, General Counsel and Secretary of the Company and of Harcourt General.

Peter Farwell - 55 Vice President - Corporate Relations of the Company and of Harcourt General.

Paul F. Gibbons - 47 Vice President and Treasurer of the Company and of Harcourt General.

Gerald T. Hughes - 41 Vice President - Human Resources of the Company and of Harcourt General since June 1994; Associate General Counsel of the Company and of Harcourt General with responsibility for labor and employment matters prior thereto.

Catherine N. Janowski - 37 Vice President and Controller of the Company and of Harcourt General since November 1997; Director, Corporate Accounting of the Company and of Harcourt General prior thereto.

Michael F. Panutich - 50 Vice President - General Auditor of the Company and of Harcourt General.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires theCompany's directors and executive officers and persons who own more than 10%of the Company's Common Stock to file initial reports of ownership and reportsof changes in ownership with the Securities and Exchange Commission and theNew York Stock Exchange. The Company believes that all filing requirementsapplicable to its insiders were complied with during fiscal 1998.

[Remainder of Page Intentionally Left Blank]

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Item 11. Executive Compensation

Summary Compensation Table (1)

The following table provides information on the compensation provided by the Company during fiscal 1998,1997 and 1996 to the Company's Chief Executive Officer and the five most highly paid executive officers ofthe Company during fiscal 1998.

Long-Term Compensation (2) Annual Compensation Awards Other Annual Restricted All Other Name and Fiscal Salary Bonus Compensation Stock Awards Options Compensation Principal Position Year ($) ($)(3) ($)(4) ($)(5) (#) ($)(6)

Richard A. Smith (1) 1998 -- -- -- -- -- -- Chairman and Chief Executive Officer of the 1997 -- -- -- -- -- -- Company 1996 -- -- -- -- -- --

Burton M. Tansky 1998 $ 807,968 $ 470,000 -- $ 260,206 20,200 $ 20,227 Executive Vice President of the Company and 1997 $ 750,000 $ 292,500 -- -- 10,000 $ 19,357 Chairman and Chief Executive Officer of 1996 $ 650,000 $ 292,500 -- $ 153,750 -- $ 16,866 Neiman Marcus Stores

Gerald A. Sampson 1998 $ 520,000 $ 220,000 -- $ 125,163 9,600 $ 14,126 President and Chief Operating Officer of 1997 $ 500,000 $ 174,000 -- -- 6,500 $ 14,070 Neiman Marcus Stores 1996 $ 475,000 $ 190,000 -- -- 12,000 $ 12,854

Stephen C. Elkin 1998 $ 495,000 $ 210,000 -- $ 125,163 9,600 $ 13,883 Chairman and Chief Executive Officer of 1997 $ 480,000 $ 185,000 -- -- -- $ 10,771 Bergdorf Goodman 1996 $ 480,000 -- -- $ 115,313 -- $ 17,170

Dawn Mello 1998 $ 385,000 $ 140,000 -- $ 59,288 4,700 $ 10,289 President of Bergdorf Goodman 1997 $ 365,000 $ 110,000 -- -- 4,000 $ 9,210

1996 $ 350,000 $ 67,900 -- $ 53,813 -- $ 8,496

Bernie Feiwus 1998 $ 375,000 $ 35,000 -- $ 125,163 9,600 $ 10,899 President and Chief Executive Officer of NM 1997 $ 345,000 $ 115,000 -- -- 6,000 $ 10,697 Direct 1996 $ 325,000 $ 135,000 -- $ 76,875 10,000 $ 10,026

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(1) Under the terms of an Intercompany Services Agreement, Harcourt General provides certain management, accounting, financial, legal, tax, human resources and other corporate services to the Company, including the services of certain senior officers of Harcourt General who are also senior officers of the Company, in consideration of a fee based on Harcourt General's direct and indirect costs of providing the corporate services. The level of Harcourt General services and fees are subject to the approval of the Special Review Committee of the Board of Directors of the Company, which consists entirely of directors who are independent of Harcourt General. During fiscal 1998, 1997 and 1996, the Company paid or accrued approximately $5.4 million, $5.7 million and $6.9 million, respectively, to Harcourt General for all of its services under the Intercompany Services Agreement. With the exception of Mr. Smith, Chief Executive Officer of both the Company and of Harcourt General, the senior officers of Harcourt General (all of whom, including Mr. Smith, derive all of their compensation directly from Harcourt General) are not included in this table. Of the amounts payable under the Intercompany Services Agreement for fiscal 1998 and 1997, approximately $448,000 and $365,000, respectively, were attributable to Mr. Smith's services. These amounts include costs related to base compensation, bonuses, benefits and amounts necessary to fund retirement benefits, all of which are direct obligations of Harcourt General.

(2) Other than restricted stock, stock options and stock appreciation rights which may be granted under the Company's 1997 Incentive Plan, the Company does not have a long-term compensation program for its executive officers that includes long-term incentive payouts.

(3) Bonus payments are reported with respect to the year in which the related services were performed.

(4) No disclosure regarding items included in this category is required since no amounts in any of the fiscal years reported for any of the named executive officers exceed the lesser of $50,000, or 10% of the

annual salary and bonus for the named executive officer.

(5) Calculated by multiplying the closing price of the Company's Common Stock on the New York Stock Exchange on the date of grant by the number of shares awarded. For restricted Common Stock granted in fiscal 1998, the restrictions lapse upon the achievement of specified performance targets or, if the specified targets are not reached within five years of the date of grant, then on the eighth anniversary of the date of grant. The specified performance targets have not yet been attained. For restricted Common Stock granted in all prior fiscal years, 20% of an award of restricted Common Stock are freed from the restrictions each year, commencing one year after the date of grant, provided that the recipient continues to be employed by the Company on the anniversary date of the grant. Holders of restricted stock are entitled to vote their restricted shares. In the event of termination of employment for any reason, other than death or permanent disability, restricted shares are forfeited by the holders and revert to the Company. At the end of fiscal 1998, the named executive officers' restricted stock holdings and market values (based on the New York Stock Exchange closing price of $33.00 for the Company's Common Stock at fiscal year end) were as follows: Mr. Tansky - 13,900 shares ($458,700); Mr. Sampson - 5,800 shares ($191,400); Mr. Elkin - 8,300 shares ($273,900); Ms. Mello - 3,900 shares ($128,700) and Mr. Feiwus - 6,800 shares ($224,400). The closing price of the Company's Common Stock on the New York Stock Exchange on October 15, 1998 was $18.25.

(6) The items accounted for in this column include the cost to the Company of matching contributions under (a) the Company's Key Employee Deferred Compensation Plan and (b) group life insurance premiums. For fiscal 1998, such amounts for each of the named executive officers were, respectively, as follows: Mr. Tansky - $16,507 and $3,720; Mr. Sampson - $10,406 and $3,720; Mr. Elkin - $10,200 and $3,683; Ms. Mello - $7,425 and $2,864; and Mr. Feiwus - $7,350 and $3,549.

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Option Grants in Last Fiscal Year (1)

The following table provides information regarding options granted under theCompany's 1997 Incentive Plan during the fiscal year ended August 1, 1998 tothe executive officers named in the Summary Compensation Table.

Individual Grants -------------------------------------------- Potential % of Realizable Value Number of Total at Assumed Securities Options Annual Rates of Underlying Granted to Exercise Stock Price Options Employees or Base Appreciation Granted in Fiscal Price Expiration for Option Term (2) Name (#) Year ($/Sh) Date 5% ($) 10%($)- -------- ---------- --------- -------- ---------- -------- ----------

R. Smith (3) -- -- -- -- -- --

B. Tansky 20,200 6.20% $32.9375 9/10/07 $418,427 $1,060,377

G. Sampson 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941

S. Elkin 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941

D. Mello 4,700 1.44% $32.9375 9/10/07 $ 97,357 $246,721

B. Feiwus 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941

(1) No stock appreciation rights were granted to any named executive officer during fiscal 1998. All option grants are non-qualified stock options having a term of 10 years and one day. They become exercisable at the rate of 20% on each of the first five anniversary dates of the grant. All options were granted at fair market value measured by the closing price of the Common Stock on the New York Stock Exchange on the date of grant.

(2) These potential realizable values are based on assumed rates of appreciation required by applicable regulations of the Securities and Exchange Commission. The closing price of the Company's Common Stock on the New York Stock Exchange on October 15, 1998 was $18.25.

(3) None of the executive officers of Harcourt General who are also officers of the Company, including Mr. Smith, participate in the Company's 1997 Incentive Plan.


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Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

The following table provides information regarding the number and value ofstock options held at August 1, 1998 by the executive officers named in theSummary Compensation Table.

Number of Securities Underlying Value of Unexercised Unexercised Options/SARs at In-the-Money August 1, 1998(#) Options/SARs at Exercisable/ August 1, 1998($)Name Shares Acquired Value Unexercisable Exercisable/ - ---- on Exercise (#) Realized ($) -------------------- Unexercisable (1) --------------- ------------ ---------------------

R. Smith (2) -- -- -- --B. Tansky -- -- 74,200/42,500 $1,381,325 / $267,063G. Sampson -- -- 14,100/24,000 $ 232,600 / $164,500S. Elkin (3) 11,850 $230,412 50,500/19,600 $ 952,000 / $186,600D. Mello -- -- 8,300/13,900 $ 139,688 / $112,044B. Feiwus -- -- 14,200/25,900 $ 242,500 / $208,600

(1) The value of unexercised in-the-money options is calculated by multiplying the number of underlying shares by the difference between the closing price of the Company's Common Stock on the New York Stock Exchange at fiscal year end ($33.00) and the option exercise price for those shares. These values have not been realized. The closing price of the Company's Common Stock on the New York Stock Exchange on October

15, 1998 was $18.25.

(2) None of the executive officers of Harcourt General who are also officers of the Company, including Mr. Smith, participate in the Company's 1997 Incentive Plan.

(3) The Company paid Mr. Elkin $230,412 with respect to the surrender of vested options to purchase 11,850 shares of Common Stock at a weighted average exercise price of $17.25. That amount was calculated based on the difference between the closing price of the Common Stock on the New York Stock Exchange on the respective dates Mr. Elkin surrendered the options, and the various option exercise prices.


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Directors Compensation

Directors who are not employees of the Company or Harcourt General ("Non-Employee Directors") each receive (i) an annual cash retainer, subject todeferral as described below, of $20,000, (ii) a fee of $2,000 per Board ofDirectors meeting attended, (iii) a fee of $750 (the Chairperson receives$1,500) for each committee meeting attended, and (iv) reimbursement for traveland incidental expenses (an aggregate of $4,440 in fiscal 1998) incurred inattending meetings and carrying out their duties as directors. If a Non-Employee Director is unable to attend a meeting in person but participates bytelephone, he or she receives one-half of the fee that would otherwise bepayable.

In June 1998, the Board of Directors increased the annual retainer payable toits Non-Employee Directors by authorizing grants of stock-based units in anaggregate amount equal to the value of the annual cash retainer. Grants aremade quarterly, with the number of stock-based units in each grant calculatedon the basis of the trailing five day average of the closing price of theCompany's Common Stock at the end of each fiscal quarter. The value of eachNon-Employee Director's stock-based units will be payable only in cash whenthe Non-Employee Director ceases to serve as a member of the Board ofDirectors of the Company. These stock-based units are accounting entries only,and do not carry voting or dispositive rights.

The Company offers Non-Employee Directors the right to elect to receive thecash portion of their fees on a deferred basis (i) in the form of cash withinterest at a rate equal to the average of the top rates paid by major NewYork banks on primary new issues of three-month negotiable certificates ofdeposit as quoted on the last business day of the fiscal quarter, or (ii) inthe form of stock-based units, calculated on the basis of the trailing fiveday average of the closing price of the Company's Common Stock at the end ofeach fiscal quarter. For fiscal 1998, Dr. Horner elected to receive all ofher fees on a deferred basis using the stock based method and Mrs. Siscoelected to receive 50% of her fees on a deferred basis using thestock based method.

Pension Plans

The Company maintains a funded, qualified pension plan known as The NeimanMarcus Group, Inc. Retirement Plan (the "Retirement Plan"). Most non-union

employees over age 21 who have completed one year of service with 1,000 ormore hours participate in the Retirement Plan, which pays benefits uponretirement or termination of employment. The Retirement Plan is a "career-average" plan, under which a participant earns each year a retirement annuityequal to 1% of his or her compensation for the year up to the Social Securitywage base and 1.5% of his or her compensation for the year in excess of suchwage base. Benefits under the Retirement Plan become fully vested after fiveyears of service with the Company.

The Company also maintains a Supplemental Executive Retirement Plan (the"SERP"). The SERP is an unfunded, nonqualified plan under which benefits arepaid from the Company's general assets to supplement Retirement Plan benefitsand Social Security. Executive, administrative and professional employees(other than those employed as salespersons) with an annual base salary atleast equal to a minimum established by the Company ($160,000 as of

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August 1, 1998) are eligible to participate. At normal retirement age (age 65),a participant with 25 or more years of service is entitled to payments under theSERP sufficient to bring his or her combined annual benefit from theRetirement Plan and SERP, computed as a straight life annuity, up to 50% ofthe participant's highest consecutive 60 month average of annual pensionableearnings, less 60% of his or her estimated annual primary Social Securitybenefit. If the participant has fewer than 25 years of service, the combinedbenefit is proportionately reduced. Benefits under the SERP become fullyvested after five years of service with the Company.

The following table, which includes benefits under the Retirement Plan and theSERP, shows the estimated annual pension benefits payable to employees invarious compensation and years of service categories. The estimated benefitsapply to an employee retiring at age 65 in 1998 who elects to receive his orher benefit in the form of a straight life annuity. The amounts actuallypayable will be lower than the amounts shown below, since such amounts will bereduced by 60% of the participant's estimated primary Social Security benefit.

Estimated Annual Retirement Benefits Under Retirement Plan and SERP

Average Total Years of Service Pensionable Earnings 5 10 15 20 25 -------- ------- ------- ------- --------- --------

$300,000 $30,000 $60,000 $90,000 $ 120,000 $150,000

400,000 40,000 80,000 120,000 160,000 200,000

500,000 50,000 100,000 150,000 200,000 250,000

600,000 60,000 120,000 180,000 240,000 300,000

700,000 70,000 140,000 210,000 280,000 350,000

800,000 80,000 160,000 240,000 320,000 400,000

900,000 90,000 180,000 270,000 360,000 450,000

The following table shows the pensionable earnings and credited years ofservice for the executive officers named in the Summary Compensation Table asof August 1, 1998 and years of service creditable at age 65.

Pensionable Earnings for Year Ended Years of Service(2)Name August 1, 1998(1) at August 1,1998 at Age 65- ---- ----------------- ---------------- ---------

R. Smith (3) -- -- -- B. Tansky $808,000 --(4) 20 (4)G. Sampson 520,000 --(5) 20 (5)S. Elkin 495,000 20 29D. Mello 385,000 17 15B. Feiwus 375,000 18 33__________

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(1) In computing the combined benefit under the Retirement Plan and SERP, "pensionable earnings" means, with respect to the Retirement Plan, base salary and any bonus and, with respect to the SERP, base salary only. The amounts shown above include base salary only. For the amount of bonus included in pensionable earnings under the Retirement Plan see the Summary Compensation Table in Item 11 above. With respect to both the Retirement Plan and the SERP, deferred base salary and/or deferred bonus amounts are included in benefit calculations.

(2) The years of credited service set forth in the table reflect years of credited service under the Retirement Plan, which is a "career average plan" with no limitation on years of credited service. However, credited service under the SERP may not exceed 25 years.

(3) Mr. Smith does not participate in the Company's Retirement Plan or SERP.

(4) Under Mr. Tansky's employment agreement with the Company, for purposes of determining his retirement benefits under the SERP, Mr. Tansky will be credited with 5/3 times his years of service with the Company provided (i) he remains continuously employed by the Company until his 65th birthday or (ii) the Company fails to extend his employment beyond January 31, 2000; otherwise, Mr. Tansky's accrued service under the SERP will be calculated in the normal manner. Mr. Tansky is 60 years old.

(5) For purposes of determining Mr. Sampson's retirement benefits under the SERP, Mr. Sampson will be credited with 20/13 times his years of service with the Company provided he remains continuously employed by the Company until his 65th birthday; otherwise, Mr. Sampson's accrued service under the SERP will be calculated in the normal manner. Mr. Sampson is 57 years old. Employment and Severance Agreements

Burton Tansky

Pursuant to an agreement between Mr. Tansky and the Company, effectiveFebruary 1997, Mr. Tansky was employed as Chairman and Chief Executive Officerof Neiman Marcus Stores through January 31, 2000. Mr. Tansky also was namedExecutive Vice President of the Company in February 1998. In the event Mr.Tansky is terminated without cause within 24 months of a change of control ofthe Company, or if within 24 months of such a change of control Mr. Tanskyresigns because he is not permitted to continue in a position comparable induties and responsibilities to that which he held prior to the change ofcontrol, Mr. Tansky will be entitled to receive his then-current basecompensation for 18 months. If the Company terminates Mr. Tansky's employmentduring the term of the Employment Agreement for any reason other than for

cause or other than because of his total disability or death, Mr. Tansky willcontinue to receive his base compensation and benefits until January 31, 2001or for 18 months following termination, whichever is greater. If the Companydetermines not to extend Mr. Tansky's employment beyond January 31, 2000, theCompany will pay to Mr. Tansky his then-current base compensation throughJanuary 31, 2001, which amount will be reduced by any amounts earned by himfrom other employment between August 1, 2000 and January 31, 2001, and theCompany will credit Mr. Tansky with service pursuant to the SERP as if he hadremained employed by the Company until age 65.

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Gerald A. Sampson

Pursuant to an agreement between Mr. Sampson and the Company effectiveSeptember 1998, which replaced a similar agreement dated September 1996, Mr.Sampson is entitled to receive severance payments in the event his employmentwith the Company is terminated in certain situations. If the Companyterminates Mr. Sampson's employment other than for cause or other than due tohis total disability or death, Mr. Sampson shall have the right to receive anamount equivalent to one and one-half times his then-current basecompensation, payable in 18 monthly installments. Mr. Sampson will also beentitled to receive such payments if his employment is terminated by asuccessor to the Company within 24 months of a change of control of theCompany without cause or other than due to his total disability or death, orif within 24 months of such a change of control Mr. Sampson resigns because heis not permitted to continue in a position comparable in duties andresponsibilities to that which he held prior to the change of control. Beginning six months following the date of a covered termination orresignation, all amounts to be paid under such agreement shall be reduced bythe amount Mr. Sampson receives as compensation or severance related to otheremployment. Mr. Sampson has agreed to provide the Company with three monthsadvance notice of his intent to resign from the Company provided that suchresignation does not follow a change of control of the Company.

Stephen C. Elkin

Pursuant to an agreement between Mr. Elkin and Bergdorf Goodman, effectiveSeptember 1993, Mr. Elkin is entitled to receive severance payments in theevent his employment with Bergdorf Goodman is terminated in certainsituations. If the Company terminates Mr. Elkin's employment other than forcause or other than due to his total disability or death, he will receive anamount equal to one and one half times his then-current base salary, whichamount will be paid to him in 18 monthly installments following suchtermination but will be reduced by any amounts received by him from otheremployment during the period beginning six months following his terminationand ending at the end of the 18 month period. Mr. Elkin will also be entitledto receive such payments in the event his employment is terminated withoutcause within 24 months of a change of control of either Bergdorf Goodman orthe Company, or in the event he resigns within 24 months of a change ofcontrol because he is not permitted to continue in a position comparable induties and responsibilities to that which he held before the change ofcontrol.

Dawn Mello

Pursuant to an agreement between Ms. Mello and Bergdorf Goodman, effective May1994, Ms. Mello is entitled to receive severance payments in the event heremployment with Bergdorf Goodman is terminated in certain situations. If theCompany terminates Ms. Mello's employment other than for cause or other thandue to her total disability or death, Ms. Mello will receive an amount equalto her then-current annual salary, which amount will be paid in 12 monthlyinstallments following such termination but will be reduced by any amountsreceived by her from other employment during the period beginning six months

and ending 12 months following such termination.

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Bernie Feiwus

Pursuant to an agreement between Mr. Feiwus and NM Direct, effective October1995, Mr. Feiwus is entitled to receive severance payments in the event hisemployment with NM Direct is terminated in certain situations. If the Companyterminates Mr. Feiwus' employment without cause within 24 months of a changeof control of the Company or of NM Direct, or if within 24 months after such achange of control Mr. Feiwus resigns his employment because he is notpermitted to continue in a position comparable in duties and responsibilitiesto that which he held before the change of control, he will receive an amountequal to one and one half times his then-current annual base salary, whichamount will be paid in 18 monthly installments following such termination butwill be reduced by any amounts received by him from other employment duringthe period beginning six months and ending 18 months following suchtermination.

--------------------Notwithstanding anything to the contrary set forth in any of the Company'sprevious filings under the Securities Act of 1933 or the Securities ExchangeAct of 1934, each as amended, that might incorporate future filings, includingthis Form 10-K, in whole or in part, the following Compensation CommitteeReport on Executive Compensation and Stock Performance Graph shall not bedeemed to be incorporated by reference into any such filings, nor shall suchsections of this Report be deemed to be incorporated into any future filingsmade by the Company under the Securities Act of 1933 or the SecuritiesExchange Act of 1934.

Compensation Committee Report on Executive Compensation

Introduction

The Compensation Committee is composed of Walter J. Salmon (Chairman), MatinaS. Horner, Vincent M. O'Reilly and Jean Head Sisco. The members of theCompensation Committee are all independent directors.

The principal responsibility of the Committee is to review the performance of,and determine the compensation for, the executive officers of the Company whoare not also executive officers of Harcourt General. The individuals in thisgroup include Messrs. Tansky, Sampson, Elkin, Feiwus and Ms. Mello, all ofwhom are named executive officers in the Summary Compensation Table. Thecompensation of Harcourt General's executive officers, most of whom are alsoexecutive officers of the Company, is determined by Harcourt General'sCompensation Committee.

Compensation Policies

The principal objectives of the Company's executive compensation program areto (i) reward competitively its executive officers, (ii) attract and retainindividuals important to the success of the Company, (iii) provide incentivesthat will motivate those executives, and (iv) reward the Company's executivesfor achieving the business objectives of the Company and its operatingdivisions over both the short and long terms.

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The Committee makes annual and long term incentives a significant component ofthe Company's executive officers' total compensation. The Committee alsoincreases the variable risk and reward of such incentive compensation inproportion to an executive's level of responsibility in the Company.

Early in each fiscal year, the Committee considers the recommendations of theChief Executive Officer, which are supported by data generated by theCompany's Human Resources Department and/or outside compensation consultants,for each component of compensation of the Company's executive officers. TheCommittee reviews those recommendations and then approves them or makes suchmodifications as it deems appropriate.

The principal components of the Company's compensation program are (i) basesalary, (ii) annual incentive bonus, and (iii) stock incentives.

Base Salary.

For fiscal 1998, base salary was determined with reference both to salary survey information from recognized compensation consulting firms and to each executive officer's level of responsibility, experience and performance. The salary survey data was used to establish benchmark amounts for both base salary and total cash compensation for each executive position. Comparisons were made to a broad range of domestic publicly held "upscale" specialty retailing companies. Because the Company competes for executive talent with a broad range of companies, the Committee did not limit its comparison information for compensation purposes to the companies included in the peer group in the Stock Performance Graph. For fiscal 1998, the Committee generally set its salary and total cash compensation benchmarks (assuming that maximum bonuses would be achieved) for executive officers at the middle range of the comparison group of companies.

The Committee reviewed in detail the base salary levels for each of the named executive officers of the Company. While the Committee used the benchmarks described above as a reference point, a particular individual's base salary may vary from the benchmark depending upon his or her salary history, experience, individual performance, guidelines established by the Chief Executive Officer with respect to salary increases for the entire Company, and the subjective judgment of the Committee.

Annual Incentive Bonus.

The annual incentive bonus program is intended to put substantial amounts of total cash compensation at risk with the intent of focusing the attention of the executives on achieving both the Company's and their division's performance goals and their individual goals, thereby contributing to profitability and building shareholder value. For fiscal 1998 the named executive officers' cash bonus opportunity for performance at the level of meeting the fiscal 1998 budget ranged from 7 1/2% to 11 3/4% of base salary, and increased to a range of 30% to 47% of base salary for performance above the fiscal 1998 budget. For superior performance in excess of the fiscal 1998 budget, cash bonus

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opportunities ranged from 60% to 94% of base salary. The determination of annual bonuses for the named executive officers for fiscal 1998 was based principally on (i) the achievement of performance objectives by the operating division for which the executive was responsible, (ii) the

individual executive's own performance, and (iii) the Company's overall performance. The divisional performance component of the bonus was determined based on a weighting of several factors, the most important of which was operating earnings before corporate expenses. Other factors included return on net assets for Neiman Marcus Stores and Bergdorf Goodman, and growth in the number of customer accounts for NM Direct. The individual performance goals for each of the Company's named executive officers included the achievement of certain specified tasks.

Although the bonuses actually awarded to the named executive officers for fiscal 1998 were determined by an assessment of all of these factors, as well as certain subjective factors, had the Company and/or the relevant division fallen sufficiently short of its performance target, there was a presumption that bonuses would not be paid absent special circumstances. Moreover, even if the Company and/or the relevant divisions achieved their respective performance targets, the Committee had the discretion to reduce or eliminate an individual's bonus had an individual fallen short of his or her performance goals.

In September 1998 the Compensation Committee established the Company's and each division's performance goals for fiscal 1999 and determined the executive officers who should participate in the annual incentive plan for that year and their respective bonus award opportunities. For fiscal 1999 the named executive officers' cash bonus opportunity for performance at the level of meeting the fiscal 1999 budget will range from 7 1/2% to 12 1/2% of base salary, and will increase to a range of 30% to 50% of base salary for performance above the fiscal 1999 budget which would represent a significant improvement over the Company's fiscal 1998 results. For superior performance in excess of the fiscal 1999 budget, cash bonus opportunities will range from 60% to 100% of base salary. If performance is below the fiscal 1999 budget, the Committee may reduce cash bonus awards or not grant them at all.

Stock Incentives.

In 1997 the Committee restructured the Company's long term stock incentive program to provide for increased capital accumulation opportunities for executive officers. The Committee's purpose in awarding equity based incentives is to achieve as much as possible an identity of interest between the Company's executives and the long term interest of the stockholders. For fiscal 1998, the principal factors considered in determining which executives (including the named executive officers) were awarded equity based compensation, and in determining the types and amounts of such awards, included salary levels, equity awards granted to executives at competing retail companies, and the performance, experience, and level of responsibility of each executive.

The Company granted two kinds of equity based incentives in fiscal 1998 (i) non-qualified stock options, and (ii) performance accelerated

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restricted stock. Non-qualified stock options vest over a five year period and terminate 10 years from the date of grant. The restrictions on performance accelerated restricted stock lapse upon the earlier of (i) the achievement of specified business objectives (including without limitation improvements in operating earnings and return on net assets) within five years of the date of grant, or (ii) the eighth anniversary of the date of grant.

Compensation of the Chief Executive Officer

During fiscal 1998, Mr. Smith also served as the Chief Executive Officer ofHarcourt General, which owns a majority of the outstanding Common Stock of theCompany. Mr. Smith received all of his cash and non-cash compensation fromHarcourt General and not from the Company. However, pursuant to theIntercompany Services Agreement between the Company and Harcourt General,Harcourt General provides certain management and other corporate services tothe Company, including the services of Mr. Smith as Chief Executive Officer. During fiscal 1998, the Company paid or accrued approximately $5.4 million toHarcourt General for all of its services under the Intercompany ServicesAgreement, of which approximately $448,000 was attributable to Mr. Smith'sservices. While the Special Review Committee of the Company reviews each yearthe appropriateness of the charges by Harcourt General to the Company underthe Intercompany Services Agreement, neither this Committee nor the SpecialReview Committee plays any role in determining the compensation that Mr. Smithor any other executive officer of Harcourt General receives from HarcourtGeneral.

Compliance with the Internal Revenue Code

The Internal Revenue Code (the "Code") generally disallows a tax deduction topublic companies for compensation in excess of $1 million per year which isnot "performance based" paid to each of the executive officers named in theSummary Compensation Table. During fiscal 1997, the Committee, the Board ofDirectors and the stockholders of the Company approved The Neiman Marcus Group1997 Incentive Plan. This Plan allows the Committee to continue to award stockincentives and cash bonuses based on objective criteria. It is expected thatthe stock incentives and cash bonuses awarded under the Plan will becharacterized as "performance based" compensation and therefore will be fullydeductible by the Company. The Company expects that the executive officers ofthe Company will agree to defer income in fiscal 1998 and future years if andto the extent that their compensation is not deductible by the Company underthe Code. The Committee will continue to monitor the requirements of the Codeto determine what actions should be taken by the Company in order to preservethe tax deduction for executive compensation to the maximum extent, consistentwith the Company's continuing goals of providing the executives of the Companywith appropriate incentives and rewards for their performance.

COMPENSATION COMMITTEE Walter J. Salmon, Chairman Matina S. Horner Vincent M. O'Reilly Jean Head Sisco

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Stock Performance Graph

The following graph compares the total cumulative return over five years onthe Company's Common Stock to the total cumulative return over the same periodof the common stocks of companies in (i) the Standard & Poor's 500 Index, and(ii) a peer group index consisting of Tiffany & Co., Nordstrom, Inc., and SaksHoldings, Inc. ("SHI"). The graph assumes that the value of the investment inthe Company's Common Stock and each index was $100 at July 31, 1993, and thatall dividends were reinvested. SHI, which began trading on the NYSE on May22, 1996 and accordingly is included in the peer group index commencing as ofthe end of the Company's 1996 fiscal year, ceased trading on September 17,1998 upon the completion of the merger of SHI and Proffitt's, Inc. (now knownas Saks Incorporated). For comparative purposes, the value of an investmentin SHI as of May 22, 1996 is set at an amount equal to the average of thecumulative total returns of the other members of the peer group index as of

that same date ($165.46). The common stocks of the companies in the peergroup index have been weighted annually at the beginning of each fiscal yearto reflect relative stock market capitalization. The comparisons provided inthis graph are not intended to be indicative of possible future performance ofthe Company's stock.

July 31, 1993 July 30, 1994 July 29, 1995 August 3, 1996 August 2, 1997 August 1, 1998 ------------- ------------- ------------- -------------- -------------- -------------- The Neiman Marcus Group, Inc. $100.00 $106.51 $108.16 $189.06 $196.54 $232.15S&P 500 Index $100.00 $104.73 $107.39 $129.28 $194.31 $233.36Peer Index $100.00 $154.07 $146.83 $165.46 $199.35 $226.81

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

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Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information, as of October 15, 1998, withrespect to the beneficial ownership of the Common Stock by (i) each personknown to the Company to own beneficially more than 5% of the outstandingshares of Common Stock; (ii) each executive officer named in the SummaryCompensation Table; (iii) each director of the Company; and (iv) all directorsand current executive officers of the Company as a group.

Number Percent of Shares of Common Name of Beneficial Owner Owned (1) Stock ------------------------ --------- --------- Harcourt General, Inc. (2) 26,429,502 54.0%27 Boylston StreetChestnut Hill, MA 02467

Gabelli Funds, Inc. (3) 4,475,500 9.1%One Corporate CenterRye, NY 10580

PRIMECAP Management Company (4) 4,069,100 8.3%225 South Lake AvenuePasadena, CA 91101

Neuberger & Berman, LLC (5) 3,050,850 6.2%605 Third AvenueNew York, NY 10158

Burton M. Tansky (6) 134,940 *

Gerald A. Sampson (7) 65,038 *

Stephen Elkin (8) 82,697 *

Dawn Mello (9) 19,963 *

Bernie Feiwus (10) 32,155 *

Matina S. Horner (11) 1,591 *

Vincent M. O'Reilly (11) 946 *

Walter J. Salmon (11) 10,088 *

Jean Head Sisco (11) 2,095 *

Richard A. Smith (2) (12) -- *

Robert A. Smith (2) (12) -- *

Brian J. Knez (2) (12) -- *

John R. Cook -- *

All current executive officers and directors as a group (19 persons)(13) 357,046 *__________

* Less than 1%.

(1) Unless otherwise indicated in the following footnotes, each stockholder referred to above has sole voting and dispositive power with respect to the shares listed.

(2) Richard A. Smith, Chairman and Chief Executive Officer of the Company and of Harcourt General, his sister, Nancy L. Marks, and certain members of their families (including Robert A. Smith, President and Chief Operating Officer and a director of the Company and President and Co- Chief Operating Officer of Harcourt General, and Brian J. Knez, a director of the Company and President and Co-Chief Operating Officer of Harcourt General) may be regarded as controlling persons of Harcourt General, and therefore of the Company. The shares of Harcourt General Class B Stock and Harcourt General Common Stock 23

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beneficially owned by or for the benefit of the Smith family constitute approximately 28% of the aggregate number of outstanding equity securities of Harcourt General. Each share of Harcourt General voting stock entitles the holder thereof to one vote on all matters submitted to Harcourt General's stockholders, except that each share of Harcourt General Class B Stock (virtually all of which is owned by the Smith family) entitles the holder thereof to ten votes on the election of directors at any Harcourt General stockholders' meeting under certain circumstances. Accordingly, as to any elections in which the Harcourt General Class B Stock would carry ten votes per share at a Harcourt General stockholders' meeting, the Smith family would have approximately 80% of the combined voting power of the Harcourt General voting securities.

Under the definition of "beneficial ownership" in Rule 13d-3 of the Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended, the Smith family and the members of Harcourt General's Board of Directors may be deemed to be the beneficial owners of the securities of the Company beneficially owned by Harcourt General in that they may be deemed to share with Harcourt General the power to direct the voting and/or disposition of such securities. However, this information should not be deemed to constitute an admission that any such person or group of persons is the beneficial owner of such securities.

(3) The information reported is based on a Schedule 13D dated August 18, 1997 filed with the Securities and Exchange Commission (the

"Commission") by the Gabelli Funds, Inc. and its affiliates (collectively, the "Gabelli Affiliates"). The Gabelli Affiliates have sole voting power with respect to 4,372,500 shares and sole dispositive power with respect to all of the shares reported in the table.

(4) The information reported is as of August 31, 1998 and was provided to the Company by PRIMECAP Management Company ("PMC"). Of the shares attributed to PMC, PMC has sole voting and sole dispositive power over 939,100 shares. PMC has shared dispositive power over 3,130,000 shares attributed to Vanguard/PRIMECAP Fund, Inc.

(5) The information reported is based on a Schedule 13G dated February 10, 1998 filed with the Commission by Neuberger & Berman, LLC. Neuberger & Berman, LLC has sole voting power with respect to 880,450 shares reported in the table, and does not have sole dispositive power over any of the shares reported in the table.

(6) Includes 89,540 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 15, 1998. Also includes 21,900 shares of restricted stock over which Mr. Tansky has voting but not dispositive power.

(7) Includes 21,720 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 15, 1998. Also includes 9,600 shares of restricted stock over which Mr. Sampson has voting but not dispositive power.

(8) Includes 56,420 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 15, 1998. Also includes 11,600 shares of restricted stock over which Mr. Elkin has voting but not dispositive power. Also includes 7,533 shares of Common Stock allocated to Mr. Elkin under the Company's Employee Savings Plan ("ESP") as to which Mr. Elkin shares voting power with the trustee of the ESP.

(9) Includes 5,540 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 15, 1998. Also includes 5,200 shares of restricted stock over which Ms. Mello has voting but not dispositive power.

(10) Includes 22,820 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 15, 1998. Also includes 7,800 shares of restricted stock over which Mr. Feiwus has voting but not dispositive power. Also includes 535 shares of Common Stock allocated to Mr. Feiwus under the ESP as to which Mr. Feiwus shares voting power with the trustee of the ESP.

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(11) Dr. Horner, Mr. O'Reilly, Professor Salmon and Mrs. Sisco hold, respectively, 1,591, 146, 146, and 961 Common Stock based units which are included in the table. These directors do not have voting or dispositive power with respect to these Common Stock based units. For additional information concerning these Common Stock based units, see "Directors' Compensation."

(12) The members of the Board of Directors of Harcourt General, including Richard A. Smith, Robert A. Smith, and Brian J. Knez, may be deemed to be the beneficial owners of the securities of the Company owned by Harcourt General. However, this information should not be deemed to be an admission that any such person or group is the beneficial owner of such securities.

(13) Excludes the beneficial ownership of securities of the Company which may be deemed to be attributed to Richard A. Smith, Robert A. Smith, and Brian J. Knez (see Notes 2 and 12 above). Includes (i) 196,040 shares

of Common Stock which are subject to outstanding options exercisable within 60 days of October 15, 1998, (ii) 56,100 shares of restricted stock over which individuals in the group have voting but not dispositive power, (iii) 8,068 shares of Common Stock allocated to individuals in the group under the ESP as to which such individuals share voting power with the trustee of the ESP, and (iv) the 2,844 Common Stock based units referred to in Note 11 above.


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Item 13. Certain Relationships and Related Transactions

Transactions with Principal Stockholder - Intercompany Services Agreement

See Note 1 to the Summary Compensation Table in Item 11 above.

Transactions with Officers

During fiscal 1998 and through October 15, 1998, Messrs. Tansky, Sampson,Elkin and Feiwus had outstanding loans under the Company's Key Executive StockPurchase Loan Plan (the "Loan Plan") in the respective maximum aggregateprincipal amounts of $367,595, $536,589, $160,306, and $193,315. At August 1,1998, the outstanding amounts of such loans were as follows: Mr. Tansky - $0;Mr. Sampson - $457,894; Mr. Elkin - $116,487; and Mr. Feiwus - $0. Inaccordance with the provisions of the Loan Plan, these loans were used toacquire shares of Common Stock either in the open market or pursuant to stockoption exercises and to discharge certain tax liabilities incurred inconnection with the release of restrictions on previous grants of restrictedCommon Stock. The loans are secured by a pledge of the purchased shares andbear interest at an annual rate of five percent, payable quarterly. Pursuant tothe terms of the Loan Plan, each executive officer's loan will become due andpayable seven months after his employment with the Company terminates. Noother officer of the Company had outstanding loans under the Loan Plan inexcess of $60,000 during fiscal 1998 or subsequent thereto.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

14(a)(1) Consolidated Financial Statements

The documents listed below are incorporated herein by reference to the 1998Annual Report, and are incorporated herein by reference into Item 8 hereof:

Consolidated Balance Sheets -August 1, 1998 and August 2, 1997.

Consolidated Statements of Earnings for the fiscal years ended August 1, 1998, August 2, 1997, and August 3, 1996.

Consolidated Statements of Cash Flows for the fiscal years ended August 1, 1998, August 2, 1997, and August 3, 1996.

Consolidated Statements of Common Shareholders' Equity for the fiscal years ended August 1, 1998, August 2, 1997, and August 3, 1996.

Notes to Consolidated Financial Statements.

Independent Auditors' Report.

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14(a)(2) Consolidated Financial Statement Schedules

The document and schedule listed below are filed as part of this Form 10-K:

Document/Schedule Page in ----------------- Form 10-K ---------

Independent Auditors' Report F-1 on Consolidated Financial Statement Schedule

Schedule II - Valuation and Qualifying F-2 Accounts and Reserves

All other schedules for which provision is made in the applicable regulationsof the Securities and Exchange Commission have been omitted because theinformation is disclosed in the Consolidated Financial Statements or becausesuch schedules are not required or are not applicable.

14(a)(3) Exhibits

The exhibits filed as part of this Annual Report are listed in the ExhibitIndex immediately preceding the exhibits. The Company has identified with anasterisk in the Exhibit Index each management contract and compensation planfiled as an exhibit to this Form 10-K in response to Item 14(c) of Form 10-K.

14(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter endedAugust 1, 1998.

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of The Neiman Marcus Group, Inc.Chestnut Hill, MA

We have audited the consolidated financial statements of The Neiman MarcusGroup, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997, and foreach of the three fiscal years in the period ended August 1, 1998, and haveissued our report thereon dated August 27, 1998; such financial statements andreport are included in your 1998 Annual Report to Shareholders and areincorporated herein by reference. Our audits also included the financialstatement schedule of The Neiman Marcus Group, Inc. and subsidiaries, listedin Item 14. This financial statement schedule is the responsibility of theCompany's management. Our responsibility is to express an opinion based onour audits. In our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, presents fairly in all material respects the information set forththerein.

/s/ DELOITTE & TOUCHE LLP

Boston, MassachusettsAugust 27, 1998

F-1

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THE NEIMAN MARCUS GROUP, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

THREE YEARS ENDED AUGUST 1, 1998 (In thousands)

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E

Additions ___________________ Charged to Balance at Charged to Other Balance at Beginning Costs and Accounts - Deductions - End Description of Period Expenses (A) of Period________________________________________________________________________________________________

YEAR ENDED AUGUST 1, 1998

Allowance for doubtful accounts $1,700 2,771 - 2,671 $1,800(deducted from accounts receivable)


Allowance for doubtful accounts $1,300 2,815 - 2,415 $1,700(deducted from accounts receivable)


Allowance for doubtful accounts(deducted from accounts receivable) $1,512 2,385 - 2,597 $1,300

(A) Write-off of uncollectible accounts net of recoveries.

F-2

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SIGNATURES

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


By: /s/ Richard A. Smith Richard A. Smith Chairman and Chief Executive Officer

Dated: October 28, 1998

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

Signature Title Date

Principal Executive Officer: /s/ Richard A. Smith Chairman and Chief October 28, 1998Richard A. Smith Executive Officer

Principal Financial Officer:

/s/ John R. Cook Senior Vice President and October 28, 1998John R. Cook Chief Financial Officer

Principal Accounting Officer:

/s/ Catherine N. Janowski Vice President and October 28, 1998Catherine N. Janowski Controller

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Directors:

/s/ Richard A. Smith October 28, 1998Richard A. Smith

/s/ Matina S. Horner October 28, 1998Matina S. Horner

/s/ Vincent M. O'Reilly October 23, 1998Vincent M. O'Reilly

/s/ Walter J. Salmon October 28, 1998Walter J. Salmon

/s/ Jean Head Sisco October 28, 1998Jean Head Sisco

/s/ Robert A. Smith October 28, 1998Robert A. Smith

/s/ Brian J. Knez October 28, 1998Brian J. Knez

/s/ John R. Cook October 28, 1998John R. Cook

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EXHIBIT INDEX

3.1 (a) Restated Certificate of Incorporation of the Company, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1998.

3.2 By-Laws of the Company, as amended, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 1, 1992.

4.1 Indenture, dated as of May 27, 1988, between the Company and The Bank of New York, as trustee (the "Indenture").

4.2 Form of 6.65% Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture.

4.3 Form of 7.125% Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture.

*10.1 Intercompany Services Agreement, dated as of July 24, 1987, between Harcourt General and the Company, incorporated herein by reference to the Company's Annual Report on Form 10-K for the twenty-six week period ended August 1, 1987.

*10.2 1987 Stock Incentive Plan, incorporated herein by reference to the Company's Annual Report on Form 10-K for the twenty-six week period ended August 1, 1987.

*10.3 The Neiman Marcus Group, Inc. 1997 Incentive Plan, incorporated herein by reference to Exhibit A to the Company's Definitive Schedule 14A dated December 10, 1996 and filed with the Securities and Exchange Commission.

*10.4 Employment Agreement between the Company and Burton M. Tansky effective February 1, 1997, incorporated herein by reference to the Company's Annual Report on From 10-K for the fiscal year ended August 3, 1996.

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*10.5 Termination and Change of Control Agreement between the Company and Gerald A. Sampson dated September 17, 1998.

*10.6 Termination Agreement between Bergdorf Goodman, Inc. and Stephen C. Elkin, effective September 1993, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993.

*10.7 Termination Agreement between Bergdorf Goodman, Inc. and Dawn Mello, effective May 1994, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1994.

*10.8 Change of Control Agreement between the Company and Bernie Feiwus, effective October 1995, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 29, 1995.

*10.9 Key Executive Stock Purchase Loan Plan, as amended, incorporated. herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 2, 1997.

*10.10 Supplemental Executive Retirement Plan, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1988.

*10.11 Description of the Company's Executive Life Insurance Plan, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 1, 1992.

*10.12 Supplementary Executive Medical Plan, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993.

*10.13 Key Employee Deferred Compensation Plan, as amended, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1994.

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*10.14 Deferred Compensation Plan For Non-Employee Directors, as amended.

10.15 Credit Agreement dated as of October 29, 1997 among the Company, the Banks parties thereto, Bank of America National Trust and Savings Association, as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 1, 1997.

10.16 Receivables Purchase Agreement, dated as of March 1, 1995, between the Company and Neiman Marcus Funding Corporation, incorporated herein by reference to Exhibit 10.1 to Registration Statement on Form S-3 of Neiman Marcus Group Credit Card Master Trust dated March 3,1995 (Registration No. 33-88098).

10.17 Pooling and Servicing Agreement, dated as of March 1, 1995, between Neiman Marcus Funding Corporation, the Company and The Chase Manhattan Bank, N.A., incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3 of Neiman Marcus

Group Credit Card Master Trust dated March 3, 1995 (Registration No. 33-88098).

10.18 Series 1995-1 Supplement to the Pooling and Servicing Agreement, dated as of March 1, 1995, among Neiman Marcus Funding Corporation, the Company and The Chase Manhattan Bank, N.A., incorporated herein by reference to Exhibit 4.2 to Registration Statement on Form S-3 of Neiman Marcus Group Credit Card Master Trust dated March 3, 1995 (Registration No. 33-88098).

10.19 Exchange and Repurchase Agreement between The Neiman Marcus Group, Inc. and Harcourt General, Inc., incorporated herein by Reference to Exhibit 10.1 to Registration Statement on Form S-3 of The Neiman Marcus Group, Inc. dated October 10, 1996 (Registration No. 333-11721).

13.1 The following sections of the 1998 Annual Report to Shareholders ("1998 Annual Report") which are expressly incorporated by reference into this Annual Report on Form 10-K:

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Management's Discussion and Analysis of Financial Condition and Results of Operations at pages 23 through 27 of the 1998 Annual Report.

Consolidated Financial Statements and the Notes thereto at pages 28 through 43 of the 1998 Annual Report.

Independent Auditors' Report at page 44 of the 1998 Annual Report.

The information appearing under the caption "Selected Financial Data" on page 45 of the 1998 Annual Report.

The information appearing under the captions "Stock Information" and "Shares Outstanding" on page 47 of the 1998 Annual Report.

21.1 Subsidiaries of the Company.

23.1 Consent of Deloitte & Touche LLP.

27.1 Financial Data Schedule.

99.1 Dividend Reinvestment and Common Stock Purchase Plan, incorporated herein by reference to the Company's Registration Statement on Form S-3 dated September 17, 1990 (Registration No. 33-36419). __________

* Exhibits filed pursuant to Item 14(c) of Form 10-K.

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

Page

Recitals of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Agreements of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 1. Definitions and Other Provisions of General Application . . . 1 Section 101. Definitions . . . . . . . . . . . . . . . . . . . . 1 Section 102. Compliance Certificates and Opinions . . . . . . . 9 Section 103. Form of Documents Delivered to Trustee . . . . . . 9 Section 104. Acts of Securityholders . . . . . . . . . . . . . . 10 Section 105. Notices, etc., to Trustee and Company . . . . . . . 11 Section 106. Notices to Securityholders; Waiver . . . . . . . . 11 Section 107. Conflict with Trust Indenture Act . . . . . . . . . 12 Section 108. Effect of Headings and Table of Contents . . . . . 12 Section 109. Successors and Assigns . . . . . . . . . . . . . . 12 Section 110. Separability Clause . . . . . . . . . . . . . . . . 12 Section 111. Benefits of Indenture . . . . . . . . . . . . . . . 12 Section 112. Governing Law . . . . . . . . . . . . . . . . . . . 12 Section 113. Counterparts . . . . . . . . . . . . . . . . . . . 13

ARTICLE 2. Security Forms . . . . . . . . . . . . . . . . . . . . . . . 13 Section 201. Forms Generally . . . . . . . . . . . . . . . . . . 13 Section 202. Forms of Securities . . . . . . . . . . . . . . . . 13 Section 203. Form of Trustee's Certificate of Authentication . . 13 Section 204. Securities Issuable in the Form of a Global Security 14

ARTICLE 3. The Securities . . . . . . . . . . . . . . . . . . . . . . . 16 Section 301. General Title; General Limitations; Issuable in Series; Terms of Particular Series . . . . . . . . . . . . . . . . . . . . 16 Section 302. Denominations . . . . . . . . . . . . . . . . . . . 18 Section 303. Execution, Authentication and Delivery and Dating . 18 Section 304. Temporary Securities . . . . . . . . . . . . . . . 20 Section 305. Registration, Transfer and Exchange . . . . . . . . 20 Section 306. Mutilated, Destroyed, Lost and Stolen Securities . 21 Section 307. Payment of Interest; Interest Rights Preserved . . 22 Section 308. Persons Deemed Owners . . . . . . . . . . . . . . . 23 Section 309. Cancellation . . . . . . . . . . . . . . . . . . . 23 Section 310. Computation of Interest . . . . . . . . . . . . . . 23 Section 311. Medium-Term . . . . . . . . . . . . . . . . . . . . 24 Section 312. CUSIP Numbers . . . . . . . . . . . . . . . . . . . 24

ARTICLE 4. Satisfaction and Discharge . . . . . . . . . . . . . . . . . 24 Section 401. Satisfaction and Discharge of Indenture . . . . . . 24 Section 402. Application of Trust Money . . . . . . . . . . . . 26 Section 403. Defeasance Upon Deposit of Funds or Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE 5. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 27

i

Section 501. Events of Default . . . . . . . . . . . . . . . . . 27 Section 502. Acceleration of Maturity; Rescission and Annulment 29 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 504. Trustee May File Proofs of Claim . . . . . . . . . 31 Section 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 506. Application of Money Collected . . . . . . . . . . 32 Section 507. Limitation on Suits . . . . . . . . . . . . . . . . 32

Section 508. Unconditional Right of Securityholders To Receive Principal, Premium and Interest . . . . . . . . . . . . . . . . . . 33 Section 509. Restoration of Rights and Remedies . . . . . . . . 33 Section 510. Rights and Remedies Cumulative . . . . . . . . . . 33 Section 511. Delay or Omission Not Waiver . . . . . . . . . . . 34 Section 512. Control by Securityholders . . . . . . . . . . . . 34 Section 513. Waiver of Past Defaults . . . . . . . . . . . . . . 34 Section 514. Undertaking for Costs . . . . . . . . . . . . . . . 35

ARTICLE 6. The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 601. Certain Duties and Responsibilities . . . . . . . . 35 Section 602. Notice of Defaults . . . . . . . . . . . . . . . . 36 Section 603. Certain Rights of Trustee . . . . . . . . . . . . . 37 Section 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 605. May Hold Securities . . . . . . . . . . . . . . . . 38 Section 606. Money Held in Trust . . . . . . . . . . . . . . . . 38 Section 607. Compensation and Reimbursement . . . . . . . . . . 38 Section 608. Disqualification; Conflicting Interests . . . . . . 39 Section 609. Corporate Trustee Required; Eligibility . . . . . . 39 Section 610. Resignation of Successor . . . . . . . . . . . . . 40 Section 611. Acceptance of Appointment by Successor . . . . . . 42 Section 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 613. Preferential Collection of Claims Against Company . 43 Section 614. Appointment of Authentication Agent . . . . . . . . 46

ARTICLE 7. Securityholders' Lists and Reports by Trustee and Company . . 48 Section 701. Company To Furnish Trustee Names and Addresses of Securityholders . . . . . . . . . . . . . . . . . . . . . 48 Section 702. Preservation of Information; Communications to Securityholders . . . . . . . . . . . . . . . . . . . . . . . 48 Section 703. Reports by Trustee . . . . . . . . . . . . . . . . 50 Section 704. Reports by Company . . . . . . . . . . . . . . . . 51

ARTICLE 8. Consolidation, Merger, Conveyance or Transfer . . . . . . . . 52 Section 801. When Company May Merge or Transfer Assets . . . . . 52

ARTICLE 9. Supplemental Indentures . . . . . . . . . . . . . . . . . . . 53 Section 901. Supplemental Indentures Without Consent of Securityholders . . . . . . . . . . . . . . . . . . . . . . . 53

ii

Section 902. Supplemental Indentures with Consent of Securityholders . . . . . . . . . . . . . . . . . . . . . . . 54 Section 903. Execution of Supplemental Indentures. . . . . . . . 55 Section 904. Effect of Supplemental Indentures. . . . . . . . . 55 Section 905. Conformity with Trust Indenture Act . . . . . . . . 55 Section 906. Reference in Securities to Supplemental Indentures. 55

ARTICLE 10. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 1001. Payment of Principal, Premium and Interest . . . . 56 Section 1002. Maintenance of Office or Agency . . . . . . . . . . 56 Section 1003. Money for Security Payments To Be Held in Trust . . 56 Section 1004. Statement as to Compliance . . . . . . . . . . . . 57 Section 1005. Legal Existence . . . . . . . . . . . . . . . . . . 58 Section 1006. Limitation on Liens . . . . . . . . . . . . . . . . 58 Section 1007. Limitation on Sale and Leasebacks . . . . . . . . . 60 Section 1008. Waiver of Certain Covenants . . . . . . . . . . . . 61 Section 1009. Calculation of Original Issue Discount. . . . . . . 61

ARTICLE 11. Redemption of Securities . . . . . . . . . . . . . . . . . . 61 Section 1101. Applicability of Article . . . . . . . . . . . . . 61 Section 1102. Election To Redeem; Notice to Trustee . . . . . . . 61 Section 1103. Selection by Trustee of Securities To Be Redeemed . 62 Section 1104. Notice of Redemption . . . . . . . . . . . . . . . 62 Section 1105. Deposit of Redemption Price . . . . . . . . . . . . 63 Section 1106. Securities Payable on Redemption Date . . . . . . . 63 Section 1107. Securities Redeemed in Part . . . . . . . . . . . . 64 Section 1108. Provisions with Respect to any Sinking Funds . . . 64

iii

Table Showing Reflection in Indenture of Certain Provisions of TrustIndenture 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

iv

(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . 508 (c) . . . . . . . . . . . . . . . . . . . . 104

Section 317(a)(1) . . . . . . . . . . . . . . . . . . 503 (a)(2) . . . . . . . . . . . . . . . . . . 504 (b) . . . . . . . . . . . . . . . . . . . . 1003

Section 318(a) . . . . . . . . . . . . . . . . . . . 107

v

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 thisIndenture to provide for the issuance of its unsecured and unsubordinateddebentures, notes, bonds or other evidences of indebtedness, to be issued inone or more fully registered series.

All things necessary to make this Indenture a valid agreement of theCompany, in accordance with its terms, have been done.

Agreements of the Parties

To set forth or to provide for the establishment of the terms andconditions upon which the Securities are and are to be authenticated, issuedand delivered, and in consideration of the premises and the purchase ofSecurities by the Holders thereof, it is mutually covenanted and agreed asfollows, for the equal and proportionate benefit of all Holders of theSecurities 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 andof any indenture supplemental hereto, except as otherwise expressly providedor 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 meaningspecified in Section 104.

"Affiliate" of any specified Person means any other Person directly orindirectly controlling or controlled by or under direct or indirect commoncontrol with such specified Person. For the purposes of this definition,"control" when used with respect to any specified Person means the power todirect 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 theforegoing. "Authenticating Agent" means any Person authorized by the Trustee toauthenticate Securities under Section 614.

"Board of Directors" means either the board of directors of the Companyor any duly authorized committee of that board or any officers of the Companyacting pursuant to authority granted by the board of directors of the Companyor any committee of such board.

"Board Resolution" means a copy of a resolution certified by theSecretary or an Assistant Secretary of the Company to have been duly adoptedby the Board of Directors and to be in full force and effect on the date ofsuch certification, and delivered to the Trustee.

"Business Day" means, with respect to any series of Securities, each daywhich is neither a Saturday, Sunday or other day on which banking institutionsin the pertinent Place or Places of Payment are authorized or required by lawor executive order to be closed.

"Capital Stock" means, with respect to any corporation, any and allshares, interests, rights to purchase, warrants, options, participations orother equivalents of or interests (however designated) in stock issued by thatcorporation.

"Commission" means the Securities and Exchange Commission, as from timeto time constituted, created under the Securities Exchange Act of 1934, or, ifat any time after the execution of this instrument such Commission is notexisting and performing the duties now assigned to it under the TrustIndenture 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 theapplicable provisions of this Indenture, and thereafter "Company" shall meansuch successor.

2

"Company Request", "Company Order" and "Company Consent" mean a writtenrequest, order or consent, respectively, signed in the name of the Company byits Chairman of the Board, a Vice Chairman, its President or a Vice President,and by its Treasurer, an Assistant Treasurer, its Secretary or an AssistantSecretary, and delivered to the Trustee.

"Consolidated Net Assets" means the total amount of all assets appearingon the consolidated balance sheet of the Company and its RestrictedSubsidiaries (at their net book values, after deducting related depreciation,amortization and all other valuation reserves which have been set aside inconnection with the business conducted and which are reflected on theaforementioned consolidated balance sheet), less total current liabilitiesother 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 beprincipally administered, which office at the date hereof is located at 101Barclay 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 pursuantto either Section 204 or 301, with respect to securities of any seriesissuable or issued as a Global Security, The Depository Trust Company, NewYork, New York, or any successor thereto registered as a clearing agency underthe Securities Exchange Act of 1934, as amended, or other applicable statuteor regulation.

"Event of Default" has the meaning specified in Article Five.

"Funded Debt" means indebtedness of the Company or a RestrictedSubsidiary that matures by its terms one year or more after its creation orthat is extendable or renewable at the option of the obligor to a date oneyear or more after the date of the incurrence or assumption of suchindebtedness, and indebtedness classified as long-term debt under generallyaccepted accounting principles, in each case ranking in right of payment atleast pari passu with the Securities.

"Global Security", when used with respect to any series of Securitiesissued hereunder, means a Security which is executed by the Company andauthenticated and delivered by the Trustee to the Depositary or pursuant tothe Depositary's instruction, all in accordance with this Indenture and anindenture supplemental hereto, if any, or Board Resolution and pursuant to aCompany Request, which shall be registered in the name of the Depositary orits nominee and which shall represent, and shall be denominated in an amountequal to the aggregate principal amount of, all of the Outstanding Securitiesof such series or any portion thereof, in either case having the same terms,including, without limitation, the same original issue date, date or dates onwhich principal is due, and interest rate or method of determining interest.

"Holder", when used with respect to any Security, means aSecurityholder.

3

"Indenture" or "this Indenture" means this instrument as originallyexecuted or as it may from time to time be supplemented or amended by one ormore indentures supplemental hereto entered into pursuant to the applicableprovisions hereof and shall include the terms of particular series ofSecurities established as contemplated by Section 301.

"Independent", when used with respect to any specified Person, meanssuch a Person who (1) is in fact independent, (2) does not have any directfinancial interest or any material indirect financial interest in the Companyor in any other obligor upon the Securities or in any Affiliate of the Companyor of such other obligor, and (3) is not connected with the Company or suchother obligor or any Affiliate of the Company or of such other obligor, as anofficer, employee, promoter, underwriter, trustee, partner, director or personperforming similar functions. Whenever it is herein provided that anyIndependent Person's opinion or certificate shall be furnished to the Trustee,such Person shall be appointed by a Company Order and approved by the Trusteein the exercise of reasonable care, and such opinion or certificate shallstate that the signer has read this definition and that the signer isindependent within the meaning hereof.

"Interest", when used with respect to an Original Issue DiscountSecurity which by its terms bears interest only after Maturity, means interestpayable after Maturity.

"Interest Payment Date", when used with respect to any series ofSecurities, means the Stated Maturity of any installment of interest on thoseSecurities.

"Lien" means any mortgage, pledge, lien, encumbrance, charge or security interest.

"Maturity", when used with respect to any Securities, means the date onwhich the principal of any such Security becomes due and payable as therein orherein provided, whether on a Repayment Date, at the Stated Maturity or bydeclaration of acceleration, call for redemption or otherwise.

"Officers' Certificate" means a certificate signed by the Chairman ofthe Board, a Vice Chairman, the President or a Vice President, and by theTreasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary ofthe Company, and delivered to the Trustee. Wherever this Indenture requiresthat an Officers' Certificate be signed also by an accountant or other expert,such accountant or other expert (except as otherwise expressly provided inthis Indenture) may be in the employ of the Company, and shall be acceptableto the Trustee, which acceptance shall not be unreasonably withheld.

"Opinion of Counsel" means a written opinion of counsel, who may (exceptas otherwise expressly provided in this Indenture) be an employee of or ofcounsel to the Company (who shall be at least at the level of seniorattorney). Such counsel shall be acceptable to the Trustee, whose acceptanceshall not be unreasonably withheld.

4

"Original Issue Discount Security" means (i) any Security which providesfor an amount less than the principal amount thereof to be due and payableupon a declaration of acceleration of the Maturity thereof, and (ii) any otherSecurity deemed an Original Issue Discount Security for United States Federalincome tax purposes.

"Outstanding", when used with respect to Securities or Securities of anyseries, means, as of the date of determination, all such Securitiestheretofore 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 ofsuch Securities outstanding have given any request, demand, authorization,direction, notice, consent or waiver hereunder, (i) the principal amount ofany Original Issue Discount Security that shall be deemed to be Outstandingshall be the amount of the principal thereof that would be due and payable asof the date of the taking of such action upon a declaration of acceleration ofthe Maturity thereof and (ii) Securities owned by the Company or any otherobligor upon the Securities or any Affiliate of the Company or of such otherobligor shall be disregarded and deemed not to be Outstanding. In determiningwhether the Trustee shall be protected in relying upon any such request,demand, authorization, direction, notice, consent or waiver, only Securitieswhich a Responsible Officer assigned to the corporate trust department of theTrustee actually knows to be owned by the Company or any other obligor uponthe Securities or any Affiliate of the Company or such other obligor shall beso disregarded. Securities so owned which have been pledged in good faith maybe regarded as Outstanding if the pledgee establishes to the satisfaction ofthe Trustee the pledgee's right to act as owner with respect to suchSecurities and that the pledgee is not the Company or any other obligor uponthe Securities or any Affiliate of the Company or such other obligor.

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"Paying Agent" means any Person authorized by the Company to pay theprincipal of (and premium, if any) or interest on any Securities on behalf ofthe Company. The Company initially authorizes the Trustee to act as PayingAgent for the Securities on its behalf. The Company may at any time and fromtime to time authorize one or more Persons, including the Company, to act asPaying Agent in addition to or in place of the Trustee with respect to anyseries of Securities issued under this Indenture.

"Person" means any individual, corporation, partnership, joint venture,association, joint-stock company, trust, unincorporated organization orgovernment 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 theseries of Securities in question in accordance with the provisions of Section301.

"Predecessor Securities" of any particular Security means every previousSecurity evidencing all or a portion of the same debt as that evidenced bysuch particular Security; and, for the purposes of this definition, anySecurity authenticated and delivered under Section 306 in lieu of a lost,destroyed or stolen Security shall be deemed to evidence the same debt as thelost, destroyed or stolen Security.

"Preferred Stock" means, as to any Person, capital stock of such Personthat has a preference as to dividends or upon liquidation over the commonstock of such Person.

"Principal Property" of a Person means all land, buildings, machineryand equipment, and leasehold interests and improvements in respect of theforegoing, that are located in the United States of America and that would bereflected on a consolidated balance sheet of such Person provided that theterm "Principal Property" shall not include any land, building, machinery,equipment, leasehold interest or improvements which the Board of Directors ofthe Company by resolution determines not to be of material importance to thetotal business conducted by the Company and its Subsidiaries as an entirety.

Redemption Date", when used with respect to any Security to beredeemed, means the date fixed for such redemption by or pursuant to thisIndenture.

"Redemption Price", when used with respect to any Security to beredeemed, means the price specified in the Security at which it is to beredeemed pursuant to this Indenture.

"Regular Record Date" for the interest payable on any Security on anyInterest Payment Date means the date specified in such Security as the RegularRecord Date.

"Repayment Date", when used with respect to any Security to be repaid,means the date fixed for such repayment pursuant to such Security.

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"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 anyvice president, any assistant secretary, any assistant treasurer, any seniortrust officer or trust officer or any other officer of the Trustee customarilyperforming functions similar to those performed by any of the above designatedofficers and also means, with respect to a particular corporate trust matter,any other officer to whom such matter is referred because of his knowledge ofand familiarity with the particular subject.

"Restricted Subsidiary" means any Subsidiary of the Company (other thana Subsidiary that is principally engaged in the business of owning orinvesting in real estate (a 'Real Estate Subsidiary'), finance, credit,leasing, financial services or other similar operations, or any combinationthereof), which itself, or with one or more other Restricted Subsidiaries,owns or leases a Principal Property; PROVIDED, HOWEVER, that in the event thatany Restricted Subsidiary, in a single transaction or through a series ofrelated transactions, shall (i) be consolidated with or merge with or into aReal 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 Personpursuant to which the Company or any Restricted Subsidiary leases anyPrincipal Property that has been or is to be sold or transferred by theCompany or the Restricted Subsidiary to such Person, other than (1) temporaryleases for a term, including renewals at the option of the lessee, of not morethan three years, (2) leases between the Company and a Restricted Subsidiaryor between Restricted Subsidiaries and (3) arrangements pursuant to anyprovision of law with an effect similar to the former Section 168(f)(8) of theInternal 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 casemay be, of any series authenticated and delivered from time to time under thisIndenture.

"Security Register" shall have the meaning specified in Section 305.

"Security Registrar" means the Person who keeps the Security Registerspecified in Section 305. The Company initially appoints the Trustee to actas Security Registrar for the Securities on its behalf. The Company may atany time and from time to time authorize any Person, including the Company, toact as Security Registrar in place of the Trustee with respect to any seriesof Securities issued under this Indenture.

"Securityholder" means a Person in whose name a Security is registeredin the Security Register.

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"Special Record Date" for the payment of any Defaulted Interest (asdefined in Section 307) means a date fixed by the Trustee pursuant to Section307.

"Stated Maturity" when used with respect to any Security or anyinstallment of principal thereof or interest thereon means the date specifiedin such Security as the fixed date on which the principal of such Security orsuch installment of principal or interest is due and payable.

"Subsidiary" of any corporation means a corporation, a majority of whoseCapital Stock with voting power (other than Capital Stock having such poweronly by reason of the happening of a contingency) to elect a majority of thedirectors of such corporation is, at the date of determination, directly orindirectly owned by such corporation, by one or more Subsidiaries of suchcorporation or by such corporation and one or more Subsidiaries of suchcorporation.

"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, asamended by the Trust Indenture Reform Act of 1990, and as in force at the dateas of which this instrument was executed except as provided in Section 905.

"Trustee" means the Person named as the Trustee in the first paragraphof this instrument until a successor Trustee shall have become such pursuantto the applicable provisions of this Indenture, and thereafter "Trustee" shallmean and include each Person who is then a Trustee hereunder. If at any timethere is more than one such Person, "Trustee" as used with respect to theSecurities of any series shall mean the Trustee with respect to Securities ofthat series.

"U.S. Government Obligations" shall have the meaning specified in Section 403.

"Value" means, with respect to a Sale and Leaseback Transaction, as ofany particular time, an amount equal to the greater of (i) the net proceeds ofthe sale or transfer of the property leased pursuant to such Sale andLeaseback Transaction or (ii) the fair value, as determined by the Company, ofsuch property at the time of entering into such Sale and LeasebackTransaction, in either case divided by the number of full years of the term ofthe lease and then multiplied by the number of full years of such termremaining at the time of determination, without regard to any renewal orextension options contained in the lease.

"Vice President" when used with respect to the Company or the Trusteemeans any vice president, whether or not designated by a number or a word orwords added before or after the title "vice president", including, withoutlimitation, an assistant vice president.

Section 1.12. Compliance Certificates and Opinions. Upon anyapplication or request by the Company to the Trustee to take any action underany provision of this Indenture, the Company shall furnish to the Trustee anOfficers' Certificate stating that all conditions precedent, if any (includingany covenants compliance with which constitutes a condition precedent),

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provided for in this Indenture relating to the proposed action have beencomplied with and an opinion of Counsel stating that in the opinion of suchCounsel all such conditions precedent, if any (including any covenantscompliance with which constitutes a condition precedent), have been compliedwith, except that in the case of any such application or request as to whichthe furnishing of such documents is specifically required by any provision ofthis Indenture relating to such particular application or request, noadditional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a conditionor covenant provided for in this Indenture (other than annual statements ofcompliance 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 casewhere several matters are required to be certified by, or covered by anopinion of, any specified Person, it is not necessary that all such matters becertified by, or covered by the opinion of, only one such Person, or that theybe so certified or covered by only one document, but one such Person maycertify or give an opinion with respect to some matters and one or more othersuch Persons may certify or give an opinion as to the other matters, and anysuch 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, orrepresentations by, counsel, unless such officer knows, or in the exercise ofreasonable care should know, that the certificate or opinion orrepresentations with respect to the matters upon which his certificate oropinion is based are erroneous. Any such certificate or Opinion of Counselmay be based, insofar as it relates to factual matters, upon a certificate oropinion of, or representations by, an officer or officers of the Companystating that the information with respect to such factual matters is in thepossession of the Company, unless such counsel knows, or in the exercise ofreasonable care should know, that the certificate or opinion or repre-sentations with respect to such matters are erroneous.

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Where any Person is required to make, give or execute two or moreapplications, requests, consents, certificates, statements, opinions or otherinstruments under this Indenture, they may, but need not, be consolidated andform 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

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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.

(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 ofSecurityholders or other document provided or permitted by this Indenture tobe 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 thisIndenture or any Security provides for notice to Securityholders of any event,such notice shall be sufficiently given (unless otherwise herein or in suchSecurity expressly provided) if in writing and mailed, first-class postageprepaid, to each Securityholder affected by such event, at his address as itappears in the Security Register, not later than the latest date, and notearlier than the earliest date, prescribed for the giving of such notice. Inany case where notice to Securityholders is given by mail, neither the failureto mail such notice, nor any defect in any notice so mailed, to any particularSecurityholder shall affect the sufficiency of such notice with respect toother Securityholders. Where this Indenture or any Security provides fornotice in any manner, such notice may be waived in writing by the Personentitled to receive such notice, either before or after the event, and suchwaiver shall be the equivalent of such notice. Waivers of notice by

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Securityholders shall be filed with the Trustee, but such filing shall not bea condition precedent to the validity of any action taken in reliance uponsuch waiver.

In case, by reason of the suspension of regular mail service as a resultof a strike, work stoppage or otherwise, it shall be impractical to mailnotice of any event to any Securityholder when such notice is required to begiven pursuant to any provision of this Indenture, then any method ofnotification as shall be satisfactory to the Trustee and the Company shall bedeemed to be a sufficient giving of such notice.

Section 1.17. Conflict with Trust Indenture Act. If any provisionhereof limits, qualifies or conflicts with the duties imposed by any ofSections 310 to 317, inclusive, of the Trust Indenture Act through operationof Section 318(c) thereof, such imposed duties shall control.

Section 1.18. Effect of Headings and Table of Contents. The Articleand Section headings herein and the Table of Contents are for convenience onlyand shall not affect the construction hereof.

Section 1.19. Successors and Assigns. All covenants and agreementsin 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 thisIndenture or in the Securities shall be invalid, illegal or unenforceable, thevalidity, legality and enforceability of the remaining provisions shall not inany way be affected or impaired thereby.

Section 1.111. Benefits of Indenture. Nothing in this Indenture orin any Securities, express or implied, shall give to any Person, other thanthe parties hereto and their successors hereunder, any Authenticating Agent orPaying Agent, the Security Registrar and the Holders of Securities (or such ofthem 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 Securitiesshall be construed in accordance with and governed by the laws of the State ofNew York, without regard to conflicts of laws principles thereof.

Section 1.113. Counterparts. This instrument may be executed in anynumber of counterparts, each of which so executed shall be deemed to be anoriginal, but all such counterparts shall together constitute but one and thesame instrument.

ARTICLE 2. Security Forms.

Section 2.11. Forms Generally. The Securities shall have suchappropriate insertions, omissions, substitutions and other variations as arerequired or permitted by this Indenture and may have such letters, numbers orother 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

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may, consistently herewith, be determined by the officer executing such

Securities, as evidenced by such officer's execution of the Securities. Anyportion 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.

The definitive Securities shall be printed, lithographed or engraved orproduced by any combination of these methods on steel engraved borders or maybe produced in any other manner, all as determined by the officer executingsuch Securities, as evidenced by such officer's execution of such Securities,subject, with respect to the Securities of any series, to the rules of anysecurities exchange on which such Securities are listed.

Section 2.12. Forms of Securities. Each Security shall be in one ofthe forms approved from time to time by or pursuant to a Board Resolution, orestablished in one or more indentures supplemental hereto. Prior to thedelivery of a Security to the Trustee for authentication in any form approvedby or pursuant to a Board Resolution, the Company shall deliver to the Trusteethe Board Resolution by or pursuant to which such form of Security has beenapproved, which Board Resolution shall have attached thereto a true andcorrect copy of the form of Security which has been approved thereby or, if aBoard Resolution authorizes a specific officer or officers to approve a formof Security, a certificate of such officer or officers approving the form ofSecurity attached thereto. Any form of Security approved by or pursuant to aBoard Resolution must be acceptable as to form to the Trustee, such acceptanceto 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. Theform of Trustee's Certificate of Authentication for any Security issuedpursuant 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

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aggregate principal amount of Securities delivered to Holders thereof.

(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 inSeries; Terms of Particular Series. The aggregate principal amount ofSecurities which may be authenticated and delivered and Outstanding under thisIndenture is not limited.

The Securities may be issued in one or more series up to an aggregateprincipal amount of Securities as from time to time may be authorized by theBoard of Directors. All Securities of each series under this Indenture shallin all respects be equally and ratably entitled to the benefits hereof withrespect to such series without preference, priority or distinction on accountof the actual time of the authentication and delivery or Stated Maturity ofthe Securities of such series.

Each series of Securities shall be created either by or pursuant to aBoard Resolution or by an indenture supplemental hereto. The Securities ofeach such series may bear such date or dates, be payable at such place orplaces, have such Stated Maturity or Maturities, be issuable at such premiumover 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 atsuch place or places to the Holders of Securities registered as such on suchRegular Record Dates, or may bear no interest, and may be redeemable orrepayable at such Redemption Price or Prices or Repayment Price or Prices, asthe case may be, whether at the option of the Holder or otherwise, and uponsuch terms, all as shall be provided for in or pursuant to the BoardResolution or in the supplemental indenture creating that series. There mayalso be established in or pursuant to a Board Resolution or in a supplementalindenture prior to the issuance of Securities of each such series, provisionfor:

(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

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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;

(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,

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all upon such terms as may be determined in or pursuant to a Board Resolutionor in a supplemental indenture with respect to such series. All Securities ofthe same series shall be substantially identical in tenor and effect except asto denomination and except if issued pursuant to Section 311.

The form of the Securities of each series shall be established pursuantto the provisions of this Indenture in or pursuant to the Board Resolution orin the supplemental indenture creating such series. The Securities of eachseries shall be distinguished from the Securities of each other series in suchmanner, reasonably satisfactory to the Trustee, as the Board of Directors maydetermine.

Unless otherwise provided with respect to Securities of a particularseries, 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 seriesissued under this Indenture may be determined pursuant to this Section byproviding for the method by which such terms or provisions shall be deter-mined.

Section 3.12. Denominations. The Securities of each series shall beissuable in such denominations as shall be provided in the provisions of thisIndenture or in or pursuant to the Board Resolution or the supplementalindenture creating such series. In the absence of any such provisions withrespect to the Securities of any series, the Securities of that series shallbe issuable only in fully registered form in denominations of $1,000 and anyintegral multiple thereof.

Section 3.13. Execution, Authentication and Delivery and Dating.The Securities shall be executed on behalf of the Company by its Chairman ofthe 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 orfacsimile.

Securities bearing the manual or facsimile signatures of individuals whowere 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 suchoffices prior to the authentication and delivery of such Securities or did nothold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery ofthis Indenture, the Company may deliver Securities executed by the Company tothe Trustee for authentication; and the Trustee shall, upon Company Order,authenticate and make available for delivery such Securities as in thisIndenture provided and not otherwise.

Prior to any such authentication and delivery, the Trustee shall beentitled to receive, in addition to any Officers' Certificate and Opinion ofCounsel required to be furnished to the Trustee pursuant to Section 102, andthe Board Resolution and any certificate relating to the issuance of the

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series of Securities required to be furnished pursuant to Section 202, anOpinion of Counsel stating that:

(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

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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)."

The Trustee shall not be required to authenticate such Securities if theissue thereof will adversely affect the Trustee's own rights, duties orimmunities under the Securities and this Indenture.

Unless otherwise provided in the form of Security for any series, allSecurities shall be dated the date of their authentication.

No Security shall be entitled to any benefit under this Indenture or bevalid or obligatory for any purpose unless there appears on such Security acertificate of authentication substantially in the form provided for hereinexecuted by the Trustee by manual signature, and such certificate upon anySecurity shall be conclusive evidence, and the only evidence, that suchSecurity has been duly authenticated and delivered hereunder.

Section 3.14. Temporary Securities. Pending the preparation ofdefinitive Securities of any series, the Company may execute, and, uponreceipt of the documents required by Section 303, together with a CompanyOrder, 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 theyare issued and with such appropriate insertions, omissions, substitutions andother variations as the officers executing such Securities may determine, asevidenced by their execution of such Securities.

If temporary Securities of any series are issued, the Company will causedefinitive Securities of such series to be prepared without unreasonabledelay. After the preparation of definitive Securities, the temporarySecurities of such series shall be exchangeable for definitive Securities ofsuch series upon surrender of the temporary Securities of such series at theoffice or agency of the Company in a Place of Payment, without charge to theHolder; and upon surrender for cancellation of any one or more temporarySecurities the Company shall execute and the Trustee shall authenticate andmake available for delivery in exchange therefor a like principal amount ofdefinitive Securities of such series of authorized denominations and of liketenor and terms. Until so exchanged the temporary Securities of such seriesshall in all respects be entitled to the same benefits under this Indenture asdefinitive Securities of such series.

Section 3.15. Registration, Transfer and Exchange. The Companyshall keep or cause to be kept a register or registers (herein sometimesreferred to as the "Security Register") in which, subject to such reasonableregulations as it may prescribe, the Company shall provide for theregistration of Securities, or of Securities of a particular series, and fortransfers of Securities or of Securities of such series. Any such register

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shall be in written form or in any other form capable of being converted intowritten form within a reasonable time. At all reasonable times theinformation contained in such register or registers shall be available forinspection by the Trustee at the office or agency to be maintained by theCompany as provided in Section 1002. There shall be only one SecurityRegister per series of Securities.

Subject to Section 204, upon surrender for transfer of any Security ofany series at the office or agency of the Company in a Place of Payment, theCompany shall execute, and the Trustee shall authenticate and make availablefor delivery, in the name of the designated transferee or transferees, one ormore new Securities of such series of any authorized denominations, of a likeaggregate principal amount and Stated Maturity and of like tenor and terms.

Subject to Section 204, at the option of the Holder, Securities of anyseries may be exchanged for other Securities of such series of any authorizeddenominations, of a like aggregate principal amount and Stated Maturity and oflike tenor and terms, upon surrender of the Securities to be exchanged at suchoffice or agency. Whenever any Securities are so surrendered for exchange,the Company shall execute, and the Trustee shall authenticate and makeavailable for delivery, the Securities which the Securityholder making theexchange is entitled to receive.

All Securities issued upon any transfer or exchange of Securities shallbe the valid obligations of the Company, evidencing the same debt, andentitled to the same benefits under this Indenture, as the Securitiessurrendered 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 beaccompanied by a written instrument of transfer in form satisfactory to theCompany and the Security Registrar duly executed, by the Holder thereof or hisattorney duly authorized in writing.

Unless otherwise provided in the Security to be transferred orexchanged, no service charge shall be made on any Securityholder for anytransfer or exchange of Securities, but the Company may (unless otherwiseprovided in such Security) require payment of a sum sufficient to cover anytax or other governmental charge that may be imposed in connection with anytransfer or exchange of Securities, other than exchanges pursuant to Section304 or 906 not involving any transfer.

The Company shall not be required (i) to issue, transfer or exchange anySecurity of any series during a period beginning at the opening of business 15days before the day of the mailing of a notice of redemption of Securities ofsuch series selected for redemption under Section 1103 and ending at the closeof business on the date of such mailing, or (ii) to transfer or exchange anySecurity so selected for redemption in whole or in part.

None of the Company, the Trustee, any agent of the Trustee, any PayingAgent or the Security Registrar will have any responsibility or liability forany aspect of the records relating to or payments made on account of benefi-

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cial ownership interests of a Global Security or for maintaining, supervisingor reviewing any records relating to such beneficial ownership interests.

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 ortheft of any Security, and (ii) there is delivered to the Company and theTrustee such security or indemnity as may be required by them to save each ofthem harmless, then, in the absence of notice to the Company or the Trusteethat such Security has been acquired by a bona fide purchaser, the Companyshall execute and upon its request the Trustee shall authenticate and makeavailable 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 contemporaneouslyoutstanding.

In case any such mutilated, destroyed, lost or stolen Security hasbecome or is about to become due and payable, the Company in its discretionmay, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Companymay require the payment of a sum sufficient to cover any tax or othergovernmental charge that may be imposed in relation thereto and any otherexpenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security issued pursuant to this Section in lieu of anydestroyed, lost or stolen Security shall constitute an original additionalcontractual obligation of the Company, whether or not the destroyed, lost orstolen Security shall be at any time enforceable by anyone, and shall beentitled to all the benefits of this Indenture equally and proportionatelywith any and all other Securities of the same series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to theextent lawful) all other rights and remedies with respect to the replacementor 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 Section301, interest on any Security which is payable, and is punctually paid or dulyprovided for, on any Interest Payment Date shall be paid to the Person inwhose name that Security (or one or more Predecessor Securities) is registeredat the close of business on the Regular Record Date for such interest.

Any interest on any Security which is payable, but is not punctuallypaid or duly provided for, on any Interest Payment Date (herein called"Defaulted Interest") shall forthwith cease to be payable to the registeredHolder on the relevant Regular Record Date by virtue of his having been suchHolder; and, except as hereinafter provided, such Defaulted Interest may bepaid 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 satisfactory 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 Securitydelivered under this Indenture upon transfer of or in exchange for or in lieuof 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 andany agent of the Company or the Trustee may treat the Person in whose name anySecurity is registered as the owner of such Security for the purpose ofreceiving payment of principal of (and premium, if any), and (subject toSection 307) interest on, such Security and for all other purposes whatsoever,whether or not such Security be overdue, and neither the Company, the Trusteenor any agent of the Company or the Trustee shall be affected by notice to thecontrary.

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Section 3.19. Cancellation. All Securities surrendered for payment,redemption, transfer, or exchange or credit against a sinking fund shall, ifsurrendered to any Person other than the Trustee, be delivered to the Trusteeand, if not already canceled, shall be promptly canceled by it. The Companymay at any time deliver to the Trustee for cancellation any Securitiespreviously authenticated and delivered hereunder which the Company may haveacquired in any manner whatsoever, and all Securities so delivered shall bepromptly canceled by the Trustee. No Security shall be authenticated in lieuof or in exchange for any Securities canceled as provided in this Section,except as expressly permitted by this Indenture. The Trustee shall deliverall canceled Securities to the Company.

Section 3.110. Computation of Interest. Unless otherwise provided ascontemplated in Section 301, interest on the Securities shall be calculated onthe basis of a 360-day year of twelve 30-day months.

Section 3.111. Medium-Term. Notwithstanding any contrary provisionherein, if all Securities of a series are not to be originally issued at onetime, it shall not be necessary for the Company to deliver to the Trustee anOfficers' Certificate, Board Resolution, supplemental indenture, Opinion ofCounsel 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 suchseries if such documents are delivered to the Trustee or its agent at or priorto the authentication upon original issuance of the first Security of suchseries to be issued; provided that any subsequent request by the Company tothe Trustee to authenticate Securities of such series upon original issuanceshall constitute a representation and warranty by the Company that as of thedate of such request, the statements made in the Officers' Certificate orother certificates delivered pursuant to Sections 102 and 202 shall be trueand correct as if made on such date.

A Company Order, Officers' Certificate or Board Resolution orsupplemental indenture delivered by the Company to the Trustee in thecircumstances set forth in the preceding paragraph may provide that Securitieswhich are the subject thereof will be authenticated and delivered by theTrustee or its agent on original issue from time to time in the aggregateprincipal amount established for such series pursuant to such proceduresacceptable to the Trustee as may be specified from time to time by CompanyOrder upon the telephonic, electronic or written order of persons designatedin such Company Order, Officers' Certificate, supplemental indenture or BoardResolution (any such telephonic or electronic instructions to be promptlyconfirmed in writing by such persons) and that such persons are authorized todetermine, consistent with such Company Order, Officers' Certificate,supplemental indenture or Board Resolution, such terms and conditions of saidSecurities as are specified in such Company Order, Officers' Certificate,supplemental indenture or Board Resolution.

Section 3.112. CUSIP Numbers. The Company in issuing the Securitiesmay use "CUSIP" numbers (if then generally in use), and, if so, the Trusteeshall use "CUSIP" numbers in notices of redemption as a convenience toHolders; provided that any such notice may state that no representation ismade as to the correctness of such numbers either as printed on the Securities

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or as contained in any notice of a redemption and that reliance may be placedonly on the other identification numbers printed on the Securities, and anysuch redemption shall not be affected by any defect in or omission of suchnumbers. The Company will promptly notify the Trustee of any change in the"CUSIP" numbers.

ARTICLE 4. Satisfaction and Discharge.

Section 4.11. Satisfaction and Discharge of Indenture. ThisIndenture shall cease to be of further effect with respect to any series ofSecurities (except as to any surviving rights of conversion or transfer orexchange of Securities of such series expressly provided for herein or in theform of Security for such series), and the Trustee, on demand of and at theexpense of the Company, shall execute proper instruments acknowledgingsatisfaction 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 respectto any series of Securities, the obligations of the Company to the Trusteewith 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 pursuantto Section 401 or Section 403 shall be held in trust and the deposited moneyand the money from the U.S. Government Obligations shall be applied by it, inaccordance with the provisions of the series of Securities in respect of whichit was deposited and this Indenture, to the payment, either directly orthrough any Paying Agent (including the Company acting as its own PayingAgent) as the Trustee may determine, to the Persons entitled thereto, of theprincipal (and premium, if any) and interest for whose payment such money orU.S. Government Obligations has been deposited with the Trustee; but suchmoney and U.S. Government Obligations need not be segregated from other fundsexcept to the extent required by law. Any money received from principal orinterest payments on any U.S. Government Obligations in excess of the amountneeded 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 4.03shall be paid over to the Company upon receipt of a Company Request togetherwith the opinion of a nationally recognized firm of independent publicaccountants expressed in a written certification thereof delivered to theTrustee to the effect that such money is in excess of the amount needed or tobe 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 thisSection shall not be applicable to the Securities of any series, at theCompany's option, either (a) the Company shall be deemed to have beenDischarged (as defined below) from its obligations with respect to any seriesof Securities after the applicable conditions set forth below have beensatisfied or (b) the Company shall cease to be under any obligation to complywith any term, provision or condition set forth in, at the election of theCompany, any or all of Sections 1006, 1007 and subsection (5) of Section 501(and any other Sections applicable to such Securities that are determinedpursuant to Section 301 to be subject to this provision) with respect to anyseries of Securities at any time after the applicable conditions set forthbelow have been satisfied:

(1) the Company shall have deposited or caused to be deposited irrevocably with the Trustee as trust funds in trust, specifically

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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 anddischarged the entire indebtedness represented by, and obligations under, theSecurities of such series and to have satisfied all the obligations under thisIndenture relating to the Securities of such series (and the Trustee, at theexpense of the Company, shall execute proper instruments acknowledging thesame), except (A) the rights of Holders of Securities to receive, from thetrust fund described in clause (1) above, payment of the principal and anypremium 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 andimmunities of the Trustee hereunder.

The Company shall pay and indemnify the Trustee against any tax, fee orother charge imposed on or assessed against the U.S. Government Obligationsdeposited pursuant to this Article or the principal and interest received in

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respect thereof other than any such tax, fee or other charge which by law isfor the account of the Holders of Outstanding Securities.

ARTICLE 5. Remedies.

Section 5.11. Events of Default. "Event of Default", wherever usedherein, means with respect to any series of Securities any one of thefollowing events (whatever the reason for such Event of Default and whether itshall be voluntary or involuntary or be effected by operation of law orpursuant to any judgment, decree or order of any court or any order, rule orregulation of any administrative or governmental body), unless such event iseither inapplicable to a particular series or it is specifically deleted ormodified in or pursuant to the supplemental indenture or Board Resolutioncreating 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

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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

(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) (ifthe Event of Default under paragraph (4) or (8) is with respect to less thanall series of Securities then outstanding) of Section 501 occurs and iscontinuing 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 alreadybecome due and payable, either the Trustee or the Holders of not less than 25%in aggregate principal amount of the Securities of such series thenOutstanding hereunder (each such series acting as a separate class), by noticein writing to the Company (and to the Trustee if given by Holders), maydeclare the principal amount (or, if the Securities of such series areOriginal Issue Discount Securities, such portion of the principal amount asmay be specified in the terms of that series) of all the Securities of suchseries and all accrued interest thereon to be due and payable immediately, andupon any such declaration the same shall become and shall be immediately dueand payable, anything in this Indenture or in the Securities of such seriescontained to the contrary notwithstanding. If an Event of Default describedin paragraph (4) or (8) (if the Event of Default under paragraph (4) or (8) is

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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 andpayable, either the Trustee or the Holders of not less than 25% in aggregateprincipal amount of all the Securities then Outstanding hereunder (treated asone class), by notice in writing to the Company (and to the Trustee if givenby Holders), may declare the principal amount (or, if any Securities areOriginal Issue Discount Securities, such portion of the principal amount asmay be specified in the terms thereof) of all the Securities then Outstandingand all accrued interest thereon to be due and payable immediately, and uponany such declaration the same shall become and shall be immediately due andpayable, anything in this Indenture or in the Securities contained to thecontrary notwithstanding.

At any time after such a declaration of acceleration has been made withrespect to the Securities of any or all series, as the case may be, and beforea judgment or decree for payment of the money due has been obtained by theTrustee as hereinafter in this Article provided, the Holders of a majority inprincipal amount of the Outstanding Securities of such series, by writtennotice to the Company and the Trustee, shall rescind and annul suchdeclaration 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 rightconsequent thereon.

Section 5.13. Collection of Indebtedness and Suits for Enforcementby 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 installments 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, theTrustee, in its own name and as trustee of an express trust, may institute ajudicial proceeding for the collection of the sums so due and unpaid, and mayprosecute such proceeding to judgment or final decree, and may enforce thesame against the Company or any other obligor upon the Securities of suchseries and collect the money adjudged or decreed to be payable in the mannerprovided by law out of the property of the Company or any other obligor uponsuch Securities, wherever situated.

If an Event of Default with respect to any series of Securities occursand is continuing, the Trustee may in its discretion proceed to protect andenforce its rights and the rights of the Holders of Securities of such seriesby such appropriate judicial proceedings as the Trustee shall deem mosteffectual to protect and enforce any such rights, whether for the specificenforcement of any covenant or agreement in this Indenture or in aid of theexercise 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 thependency of any receivership, insolvency, liquidation, bankruptcy,reorganization, arrangement, adjustment, composition or other judicialproceeding relative to the Company or any other obligor upon the Securities orthe property of the Company or of such other obligor or their creditors, theTrustee (irrespective of whether the principal of the Securities shall then bedue 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 forthe 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 othersimilar official) in any such judicial proceeding is hereby authorized by eachSecurityholder to make such payment to the Trustee and in the event that theTrustee shall consent to the making of such payments directly to theSecurityholders, to pay to the Trustee any amount due to it for the reasonablecompensation, expenses, disbursements and advances of the Trustee, its agentsand counsel, and any other amounts due the Trustee under Section 607.

Nothing herein contained shall be deemed to authorize the Trustee toauthorize or consent to or accept or adopt on behalf of any Securityholder anyplan of reorganization, arrangement, adjustment or composition affecting theSecurities or the rights of any Holder thereof, or to authorize the Trustee tovote in respect of the claim of any Securityholder in any such proceeding.

Section 5.15. Trustee May Enforce Claims Without Possession ofSecurities. All rights of action and claims under this Indenture or theSecurities of any series may be prosecuted and enforced by the Trustee withoutthe possession of any of the Securities of such series or the productionthereof in any proceeding relating thereto, and any such proceeding institutedby the Trustee shall be brought in its own name as trustee of an expresstrust, and any recovery of judgment shall after provision for the payment ofthe reasonable compensation, expenses, disbursements and advances of theTrustee, its agent and counsel and any other amounts due the Trustee underSection 607, be for the ratable benefit of the Holders of the Securities ofthe series in respect of which such judgment has been recovered.

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Section 5.16. Application of Money Collected. Any money collectedby the Trustee with respect to a series of Securities pursuant to this Articleshall be applied in the following order, at the date or dates fixed by theTrustee 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 suchseries and the notation thereon of the payment if only partially paid and uponsurrender 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 theSecurities of that series for principal (and premium, if any) and interest, inrespect of which or for the benefit of which such money has been collected,ratably, without preference or priority of any kind, according to the amountsdue and payable on such Securities for principal (and premium, if any) andinterest, respectively.

THIRD: If any, to the Company.

Section 5.17. Limitation on Suits. No Holder of any Security of anyseries shall have any right to institute any proceeding, judicial orotherwise, with respect to this Indenture, or for the appointment of areceiver 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 ofsuch series shall have any right in any manner whatever by virtue of, or byavailing of, any provision of this Indenture to affect, disturb or prejudicethe rights of any other Holders of Securities of such series, or to obtain orto seek to obtain priority or preference over any other such Holders or to

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enforce any right under this Indenture, except in the manner herein providedand for the equal and proportionate benefit of all the Holders of allSecurities of such series.

Section 5.18. Unconditional Right of Securityholders To ReceivePrincipal, Premium and Interest. Notwithstanding any other provisions in thisIndenture, the Holder of any Security shall have the right, which is absoluteand unconditional, to receive payment of the principal of (and premium, ifany) and (subject to Section 307) interest on such Security on the respectiveStated Maturities expressed in such Security (or, in the case of redemption orrepayment, on the Redemption Date or Repayment Date, as the case may be) andto institute suit for the enforcement of any such payment, and such rightshall not be impaired without the consent of such Holder.

Section 5.19. Restoration of Rights and Remedies. If the Trustee orany Securityholder has instituted any proceeding to enforce any right orremedy under this Indenture and such proceeding has been discontinued orabandoned for any reason, then and in every such case the Company, the Trusteeand the Securityholders shall, subject to any determination in suchproceeding, be restored severally and respectively to their former positionshereunder, and thereafter all rights and remedies of the Trustee and theSecurityholders shall continue as though no such proceeding had beeninstituted.

Section 5.110. Rights and Remedies Cumulative. No right or remedyherein conferred upon or reserved to the Trustee or to the Securityholders isintended to be exclusive of any other right or remedy, and every right andremedy shall, to the extent permitted by law, be cumulative and in addition toevery other right and remedy given hereunder or now or hereafter existing atlaw or in equity or otherwise (except as provided in the last sentence ofSection 306). The assertion or employment of any right or remedy hereunder,or otherwise, shall not prevent the concurrent assertion or employment of anyother appropriate right or remedy.

Section 5.111. Delay or Omission Not Waiver. No delay or omission ofthe Trustee or of any Holder of any Security to exercise any right or remedyaccruing upon any Event of Default shall impair any such right or remedy orconstitute 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 tothe Securityholders may be exercised from time to time, and as often as may bedeemed expedient, by the Trustee or by the Securityholders, as the case maybe.

Section 5.112. Control by Securityholders. The Holders of a majorityin principal amount of the Outstanding Securities of any series shall have theright to direct the time, method and place of conducting any proceeding forany remedy available to the Trustee or exercising any trust or power conferredon 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

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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

(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 thana majority in principal amount of the Outstanding Securities of any series mayon behalf of the Holders of all the Securities of such series waive any pastdefault hereunder with respect to such series and its consequences, except adefault 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 Eventof Default arising therefrom shall be deemed to have been cured, for everypurpose of this Indenture; but no such waiver shall extend to any subsequentor other default or impair any right consequent thereon.

Section 5.114. Undertaking for Costs. All parties to this Indentureagree, and each Holder of any Security by his acceptance thereof shall bedeemed to have agreed, that any court may in its discretion require, in anysuit for the enforcement of any right or remedy under this Indenture, or inany 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 thecosts of such suit, and that such court may in its discretion assessreasonable costs, including reasonable attorneys' fees and expenses, againstany party litigant in such suit, having due regard to the merits and goodfaith of the claims or defenses made by such party litigant; but theprovisions of this Section shall not apply to any suit instituted by theTrustee, or to any suit instituted by any Securityholder for the enforcementof the payment of the principal of (or premium, if any) or interest on any

Security on or after the respective Stated Maturities expressed in suchSecurity (or, in the case of redemption or repayment, on or after theRedemption 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 theoccurrence of any default hereunder with respect to Securities of any series,the Trustee shall transmit by mail to all Securityholders of such series, astheir names and addresses appear in the Security Register, notice of suchdefault hereunder actually known to the Trustee, unless such default shallhave been cured or waived; provided, however, that, except in the case of adefault in the payment of the principal of (or premium, if any) or interest onany Security of such series or in the payment of any sinking or purchase fundinstallment or analogous obligation with respect to Securities of such series,the Trustee shall be protected in withholding such notice if and so long asthe board of directors, the executive committee or a trust committee ofdirectors and/or Responsible Officers of the Trustee in good faith determinethat the withholding of such notice is in the interests of the Securityholdersof such series; and provided, further, that in the case of any default of thecharacter specified in Section 501(4) with respect to Securities of suchseries no such notice to Securityholders of such series shall be given untilat least 90 days after the occurrence thereof. For the purpose of thisSection, the term "default", with respect to Securities of any series, meansany event which is, or after notice or lapse of time or both would become, anEvent of Default with respect to Securities of such series.

Section 6.13. Certain Rights of Trustee. Except as otherwiseprovided 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 ofSecurities. The recitals contained herein and in the Securities, except thecertificates of authentication, shall be taken as the statements of theCompany, and the Trustee assumes no responsibility for their correctness. TheTrustee makes no representations as to the validity or sufficiency of thisIndenture or of the Securities. The Trustee shall not be accountable for theuse 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 orany other capacity, may become the owner or pledgee of Securities and, subjectto Sections 608 and 613, may otherwise deal with the Company with the same

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rights it would have if it were not Trustee, Paying Agent, Security Registraror such other agent.

Section 6.16. Money Held in Trust. Subject to the provisions ofSection 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 theywere received, but need not be segregated from other funds except to theextent required by law. The Trustee shall be under no liability for intereston any money received by it hereunder except as otherwise agreed in writingwith 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 underthis Section the Trustee shall have a lien prior to the Securities upon allproperty and funds held or collected by the Trustee as such, except funds heldin trust for the payment of principal of (and premium, if any) or interest onparticular Securities.

When the Trustee incurs expenses or renders services in connection withan Event of Default specified in Section 501(6) or Section 501(7), theexpenses (including the reasonable charges and expenses of its counsel) andthe compensation for the services are intended to constitute expenses ofadministration under any applicable Federal or State bankruptcy, insolvency orother similar law.

The provisions of this Section shall survive the termination of thisIndenture.

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Section 6.18. Disqualification; Conflicting Interests. The Trusteefor the Securities of any series issued hereunder shall be subject to theprovisions of Section 310(b) of the Trust Indenture Act during the period oftime provided for therein. In determining whether the Trustee has aconflicting interest as defined in Section 310(b) of the Trust Indenture Actwith respect to the Securities of any series, there shall be excluded thisIndenture with respect to Securities of any particular series of Securitiesother than that series. Nothing herein shall prevent the Trustee from filingwith the Commission the application referred to in the second to lastparagraph of Section 310(b) of the Trust Indenture Act.

Section 6.19. Corporate Trustee Required; Eligibility. There shallat 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, pursuantto law or to the requirements of the aforesaid supervising or examiningauthority, then for the purposes of this Section, the combined capital andsurplus of such corporation shall be deemed to be its combined capital andsurplus 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 trusteefor the Securities of any series issued hereunder. If at any time the Trusteewith respect to any series of Securities shall cease to be eligible inaccordance with the provisions of this Section, it shall resign immediately inthe 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

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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.

(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 theTrustee, with respect to the series, or in the case of Clause (4), withrespect to all series, or (ii) subject to Section 514, any Securityholder whohas been a bona fide Holder of a Security of such series for at least 6 monthsmay, on behalf of himself and all others similarly situated, petition anycourt of competent jurisdiction for the removal of the Trustee and theappointment of a successor Trustee with respect to the series, or, in the caseof 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

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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.

(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. Everysuccessor Trustee appointed hereunder shall execute, acknowledge and deliverto the Company and to the predecessor Trustee an instrument accepting suchappointment, and thereupon the resignation or removal of the predecessorTrustee shall become effective with respect to any series as to which it is

resigning or being removed as Trustee, and such successor Trustee, without anyfurther act, deed or conveyance, shall become vested with all the rights,powers, trusts and duties of the predecessor Trustee with respect to any suchseries; but, on request of the Company or the successor Trustee, suchpredecessor Trustee shall, upon payment of its reasonable charges, if any,execute and deliver an instrument transferring to such successor Trustee allthe rights, powers and trusts of the predecessor Trustee, and shall dulyassign, transfer and deliver to such successor Trustee all property and moneyheld by such predecessor Trustee hereunder with respect to all or any suchseries, subject nevertheless to its lien, if any, provided for in Section 607.Upon request of any such successor Trustee, the Company shall execute any andall instruments for more fully and certainly vesting in and confirming to suchsuccessor Trustee all such rights, powers and trusts.

In case of the appointment hereunder of a successor Trustee with respectto the Securities of one or more (but not all) series, the Company, thepredecessor Trustee and each successor Trustee with respect to the Securitiesof any applicable series shall execute and deliver an indenture supplementalhereto which shall contain such provisions as shall be deemed necessary ordesirable to confirm that all the rights, powers, trusts and duties of thepredecessor Trustee with respect to the Securities of any series as to whichthe predecessor Trustee is not being succeeded shall continue to be vested inthe predecessor Trustee, and shall add to or change any of the provisions of

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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 understoodthat nothing herein or in such supplemental indenture shall constitute suchTrustees co-trustees of the same trust and that each such Trustee shall beTrustee of a trust or trusts hereunder separate and apart from any trust ortrusts hereunder administered by any other such Trustee.

No successor Trustee with respect to any series of Securities shallaccept its appointment unless at the time of such acceptance such successorTrustee shall be qualified and eligible with respect to that series under thisArticle.

Section 6.112. Merger, Conversion, Consolidation or Succession toBusiness. Any corporation into which the Trustee may be merged or convertedor with which it may be consolidated, or any corporation resulting from anymerger, conversion or consolidation to which the Trustee shall be a party, orany corporation succeeding to all or substantially all of the corporate trustbusiness of the Trustee, shall be the successor of the Trustee hereunder,provided such corporation shall be otherwise qualified and eligible under thisArticle, without the execution or filing of any paper or any further act onthe part of any of the parties hereto. In case any Securities shall have beenauthenticated, but not delivered, by the Trustee then in office, any successorby merger, conversion or consolidation to such authenticating Trustee mayadopt such authentication and deliver the Securities so authenticated with thesame effect as if such successor Trustee had itself authenticated suchSecurities.

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

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disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.

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 substitutedafter the beginning of such 3-month period for property held as security atthe time of such substitution shall, to the extent of the fair value of theproperty released, have the same status as the property released, and, to theextent that any claim referred to in any of such paragraphs is created inrenewal of or in substitution for or for the purpose of repaying or refundingany pre-existing claim of the Trustee as such creditor, such claim shall havethe same status as such pre-existing claim.

If the Trustee shall be required to account, the funds and property heldin such special account and the proceeds thereof shall be apportioned betweenthe Trustee, the Securityholders and the holders of other indenture securities

in such manner that the Trustee, the Securityholders and the holders of otherindenture securities realize, as a result of payments from such specialaccount and payments of dividends on claims filed against the Company inbankruptcy or receivership or in proceedings for reorganization pursuant tothe Federal Bankruptcy Act or applicable State law, the same percentage oftheir respective claims, figured before crediting to the claim of the Trusteeanything on account of the receipt by it from the Company of the funds and

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property in such special Account and before crediting to the respective claimsof the Trustee and the Securityholders and the holders of other indenturesecurities dividends on claims filed against the Company in bankruptcy orreceivership or in proceedings for reorganization pursuant to the FederalBankruptcy Act or applicable State law, but after crediting thereon receiptson account of the indebtedness represented by their respective claims from allsources other than from such dividends and from the funds and property so heldin such special account. As used in this paragraph, with respect to anyclaim, the term "dividends" shall include any distribution with respect tosuch claim, in bankruptcy or receivership or proceedings for reorganizationpursuant to the Federal Bankruptcy Act or applicable State law, whether suchdistribution is made in cash, securities, or other property, but shall notinclude any such distribution with respect to the secured portion, if any, ofsuch claim. The court in which such bankruptcy, receivership or proceedingsfor reorganization is pending shall have jurisdiction (i) to apportion betweenthe Trustee and the Securityholders and the holders of other indenturesecurities, in accordance with the provisions-of this paragraph, the funds andproperty held in such special account and proceeds thereof, or (ii) in lieu ofsuch apportionment, in whole or in part, to give to the provisions of thisparagraph due consideration in determining the fairness of the distributionsto be made to the Trustee and the Securityholders and the holders of otherindenture securities with respect to their respective claims, in which eventit shall not be necessary to liquidate or to appraise the value of anysecurities or other property held in such special account or as security forany such claim, or to make a specific allocation of such distributions asbetween the secured and unsecured portions of such claims, or otherwise toapply the provisions of this paragraph as a mathematical formula.

Any Trustee which has resigned or been removed after the beginning ofsuch 3-month period shall be subject to the provisions of this Subsection asthough such resignation or removal had not occurred. If any Trustee hasresigned or been removed prior to the beginning of such 3-month period, itshall be subject to the provisions of this Subsection if and only if thefollowing 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

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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;

(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

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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.

(5) The term "Company" means any obligor upon the Securities.

Section 6.114. Appointment of Authentication Agent. At any time whenany of the Securities remain Outstanding the Trustee, with the approval of theCompany, may appoint an Authenticating Agent or Agents with respect to one ormore series of Securities which shall be authorized to act on behalf of theTrustee to authenticate Securities of such series issued upon exchange,registration of transfer or partial redemption thereof or pursuant to Section306, and Securities so authenticated shall be entitled to the benefits of thisIndenture and shall be valid and obligatory for all purposes as ifauthenticated by the Trustee hereunder. Wherever reference is made in thisIndenture to the authentication and delivery of Securities by the Trustee orthe Trustee's certificate of authentication, such reference shall be deemed toinclude authentication and delivery on behalf of the Trustee by anAuthenticating Agent and a certificate of authentication executed on behalf ofthe Trustee by an Authenticating Agent. Each Authenticating Agent shall beacceptable to the Company and shall at all times be a corporation organizedand doing business under the laws of the United States of America, any Statethereof or the District of Columbia, authorized under such laws to act as anAuthenticating Agent, having a combined capital and surplus of not less than$50,000,000 and, if other than the Company itself, subject to supervision orexamination by Federal or State authority. If such Authenticating Agentpublishes reports of condition at least annually, pursuant to law or to therequirements of said supervising or examining authority, then for the purposesof this Section, the combined capital and surplus of such Authenticating Agentshall be deemed to be its combined capital and surplus as set forth in itsmost recent report of condition so published. If at any time anAuthenticating Agent shall cease to be eligible in accordance with theprovisions of this Section, such Authenticating Agent shall resign immediatelyin the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged orconverted or with which it may be consolidated, or any corporation resultingfrom any merger, conversion or consolidation to which such AuthenticatingAgent shall be a party, or any corporation succeeding to the corporate agencyor corporate trust business of an Authenticating Agent, shall continue to bean Authenticating Agent, provided such corporation shall be otherwise eligibleunder this Section, without the execution or filing of any paper or anyfurther act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written noticethereof to the Trustee and, if other than the Company, to the Company. TheTrustee may at any time terminate the agency of an Authenticating Agent bygiving written notice thereof to such Authenticating Agent and, if other thanthe Company, to the Company. Upon receiving such a notice of resignation or

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upon such a termination, or in case at any time such Authenticating Agentshall cease to be eligible in accordance with the provisions of this Section,the Trustee, with the approval of the Company, may appoint a successorAuthenticating Agent which shall be acceptable to the Company and shall mailwritten notice of such appointment by first-class mail, postage prepaid, toall Holders of Securities of the series with respect to which suchAuthenticating Agent will serve, as their names and addresses appear in theSecurity Register. Any successor Authenticating Agent upon acceptance of itsappointment hereunder shall become vested with all the rights, powers and

duties of its predecessor hereunder, with like effect as if originally namedas an Authenticating Agent. No successor Authenticating Agent shall beappointed unless eligible under the provisions of this Section.

The Company agrees to pay to each Authenticating Agent from time to timereasonable compensation for its services under this Section.

If an appointment with respect to one or more series is made pursuant tothis Section, the Securities of such series may have endorsed thereon, inaddition to the Trustee's certificate of authentication, an alternatecertificate 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 ofSecurityholders. 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 actingas Security Registrar.

Section 7.12. Preservation of Information; Communications toSecurityholders.

(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

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which such applicants propose to transmit, then the Trustee shall, within 5 Business Days after the receipt of such application, at its election, either

(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 suchinformation, the Trustee shall, upon the written request of such applicants,mail to each Holder of a Security of such series or to all Securityholders, asthe case may be, whose names and addresses appear in the information preservedat the time by the Trustee in accordance with Section 702(a), a copy of theform of proxy or other communication which is specified in such request, withreasonable promptness after a tender to the Trustee of the material to bemailed and of payment, or provision for the payment, of the reasonableexpenses of mailing, unless, within 5 days after such tender, the Trustee

shall mail to such applicants and file with the Commission, together with acopy of the material to be mailed, a written statement to the effect that, inthe opinion of the Trustee, such mailing would be contrary to the bestinterests 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 writtenstatement shall specify the basis of such opinion. If the Commission, afteropportunity for a hearing upon the objections specified in the writtenstatement so filed, shall enter an order refusing to sustain any of suchobjections or if, after the entry of an order sustaining one or more of suchobjections, the Commission shall find, after notice and opportunity forhearing, that all the objections so sustained have been met and shall enter anorder so declaring, the Trustee shall mail copies of such material to allSecurityholders of such series or all Securityholders, as the case may be,with reasonable promptness after the entry of such order and the renewal ofsuch tender; otherwise the Trustee shall be relieved of any obligation or dutyto 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

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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.

(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 isfor informational purposes only and the Trustee's receipt of such shall notconstitute constructive notice of any information contained therein ordeterminable from information contained therein, including the Company'scompliance with any of its covenants hereunder (as to which the Trustee isentitled to rely exclusively on Officers' Certificates).

ARTICLE 8. Consolidation, Merger, Conveyance or Transfer.

Section 8.11. When Company May Merge or Transfer Assets. TheCompany, 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 itsproperties 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 transferred (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, saleor otherwise) of the properties and assets of one or more RestrictedSubsidiaries (other than to the Company or another direct or indirect whollyowned Subsidiary) in a single transaction or through a series of relatedtransactions, which, if such assets were owned by the Company, wouldconstitute all or substantially all of the properties and assets of theCompany, shall be deemed to be the transfer of all or substantially all of theproperties and assets of the Company.

The successor Person formed by such consolidation or into which theCompany is merged or the successor Person to which such conveyance, transfer

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or lease is made shall succeed to, and be substituted for, and may exerciseevery right and power of, the Company under this Indenture with the sameeffect as if such successor had been named as the Company herein, andthereafter, except in the case of a lease of its properties and assetssubstantially as an entirety, the Company shall be discharged and releasedfrom all obligations and covenants under this Indenture and the Securities.The Trustee shall enter into a supplemental indenture to evidence thesuccession and substitution of such successor Person and such discharge andrelease of the Company.

ARTICLE 9. Supplemental Indentures.

Section 9.11. Supplemental Indentures Without Consent ofSecurityholders. Without the consent of the Holders of any Securities, theCompany, when authorized by a Board Resolution, and the Trustee, at any timeand from time to time, may enter into one or more indentures supplementalhereto, in form satisfactory to the Trustee, for any of the followingpurposes:

(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 provisions of this Indenture as shall be necessary to provide for or

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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 theinterest of the Holders of Securities of any series.

Section 9.12. Supplemental Indentures with Consent ofSecurityholders. With the consent of the Holders of not less than a majorityin principal amount of the Outstanding Securities of each series affected bysuch supplemental indenture or indentures, by Act of said Holders delivered tothe Company and the Trustee, the Company, when authorized by a BoardResolution, and the Trustee may enter into an indenture or indenturessupplemental hereto for the purpose of adding any provisions to or changing inany manner or eliminating any of the provisions of this Indenture or ofmodifying in any manner the rights of the Holders of the Securities of eachsuch series under this Indenture; provided, however, that no such supplementalindenture shall, without the consent of the Holder of each OutstandingSecurity 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 orother provision of this Indenture which has expressly been included solely forthe benefit of one or more particular series of Securities, or which modifiesthe rights of the Holders of Securities of such series with respect to suchcovenant 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 thisSection 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 forthe purpose of determining the Persons entitled to consent to any indenturesupplemental hereto. If a record date is fixed, the Holders on such recorddate, or their duly designated proxies, and only such Persons, shall beentitled to consent to such supplemental indenture, whether or not suchHolders remain Holders after such record date; provided, that unless suchconsent shall have become effective by virtue of the requisite percentagehaving been obtained prior to the date which is six months after such recorddate, any such consent previously given shall automatically and withoutfurther 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 indenturepermitted by this Article or the modifications thereby of the trusts createdby this Indenture, the Trustee shall be entitled to receive, and (subject toSection 601) shall be fully protected in relying upon, an Opinion of Counselstating that the execution of such supplemental indenture is authorized orpermitted by this Indenture. The Trustee may, but shall not be obligated to,enter into any such supplemental indenture which affects the Trustee's ownrights, duties or immunities under this Indenture or otherwise.

Section 9.14. Effect of Supplemental Indentures. Upon the executionof any supplemental indenture under this Article, this Indenture shall bemodified in accordance therewith, and such supplemental indenture shall form apart of this Indenture for all purposes; and every Holder of Securitiestheretofore or thereafter authenticated and delivered hereunder shall be boundthereby to the extent provided therein.

Section 9.15. Conformity with Trust Indenture Act. Everysupplemental indenture executed pursuant to this Article shall conform to therequirements 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 supplementalindenture 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 forin such supplemental indenture. If the Company shall so determine, newSecurities so modified as to conform, in the opinion of the Trustee and theBoard of Directors, to any such supplemental indenture may be prepared andexecuted by the Company and authenticated and delivered by the Trustee inexchange for Outstanding Securities.

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ARTICLE 10. Covenants.

Section 10.11. Payment of Principal, Premium and Interest. Withrespect to each series of Securities, the Company will duly and punctually paythe principal of (and premium, if any) and interest on such Securities inaccordance with their terms and this Indenture, and will duly comply with allthe other terms, agreements and conditions contained in, or made in theIndenture for the benefit of, the Securities of such series.

Section 10.12. Maintenance of Office or Agency. The Company willmaintain an office or agency in each Place of Payment where Securities may bepresented or surrendered for payment, where Securities may be surrendered fortransfer 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 willgive prompt written notice to the Trustee of the location, and of any changein the location, of such office or agency. If at any time the Company shallfail to maintain such office or agency or shall fail to furnish the Trusteewith the address thereof, such presentations, surrenders, notices and demandsmay be made or served at the principal Corporate Trust Office of the Trustee,Attention: Corporate Trust Trustee Administration, and the Company herebyappoints 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. Ifthe Company shall at any time act as its own Paying Agent for any series ofSecurities, it will, on or before each due date of the principal of (andpremium, 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 asum sufficient to pay the principal (and premium, if any) or interest sobecoming due until such sums shall be paid to such Persons or otherwisedisposed of as herein provided, and will promptly notify the Trustee of itsaction or failure to act.

Whenever the Company shall have one or more Paying Agents for any seriesof Securities, it will, prior to each due date of the principal of (andpremium, if any) or interest on, any Securities of such series, deposit with aPaying Agent a sum sufficient to pay the principal (and premium, if any) orinterest so becoming due, such sum to be held in trust for the benefit of thePersons entitled to such principal (and premium, if any) or interest, and(unless such Paying Agent is the Trustee) the Company will promptly notify theTrustee of its action or failure so to act.

The Company will cause each Paying Agent other than the Trustee for anyseries of Securities to execute and deliver to the Trustee an instrument inwhich 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 thesatisfaction and discharge of this Indenture with respect to any series ofSecurities or for any other purpose, pay, or by Company Order direct anyPaying Agent to pay, to the Trustee all sums held in trust by the Company orsuch Paying Agent in respect of each and every series of Securities as towhich it seeks to discharge this Indenture or, if for any other purpose, allsums so held in trust by the Company in respect of all Securities, such sumsto be held by the Trustee upon the same trusts as those upon which such sumswere held by the Company or such Paying Agent; and, upon such payment by anyPaying Agent to the Trustee, such Paying Agent shall be released from allfurther liability with respect to such money.

Any money deposited with the Trustee or any Paying Agent, or then heldby the Company, in trust for the payment of the principal of (and premium, ifany) or interest on any Security of any series and remaining unclaimed for twoyears after such principal (and premium, if any) or interest has become dueand payable shall be paid to the Company on Company Request, or (if then heldby the Company) shall be discharged from such trust; and the Holder of suchSecurity shall thereafter, as an unsecured general creditor, look only to theCompany for payment thereof, and all liability of the Trustee or such PayingAgent with respect to such trust money, and all liability of the Company astrustee thereof, shall thereupon cease. The Trustee or such Paying Agent,before being required to make any such repayment, may at the expense of theCompany mail to the Holders of the Securities as to which the money to berepaid was held in trust, as their names and addresses appear in the SecurityRegister, a notice that such moneys remain unclaimed and that, after a datespecified in the notice, which shall not be less than 30 days from the date onwhich the notice was first mailed to the Holders of the Securities as to whichthe money to be repaid was held in trust, any unclaimed balance of such moneysthen remaining will be paid to the Company free of the trust formerlyimpressed upon it.

Section 10.14. Statement as to Compliance. The Company will deliverto the Trustee, within 120 days of the end of each fiscal year, a writtenstatement signed by the principal executive officer, principal financialofficer 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 Companywill do or cause to be done all things necessary to preserve and keep in fullforce 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 Companyor any Restricted Subsidiary or shares of Capital Stock or indebtedness of anySubsidiary to secure any debt of any Person, or permit any RestrictedSubsidiary so to do, without making effective provision whereby the Securitiesthen outstanding and having the benefit of this Section shall be secured bythe Lien equally and ratably with such debt for so long as such debt shall beso secured, except that the foregoing shall not prevent the Company or anyRestricted Subsidiary from creating, assuming or suffering to exist Liens ofthe 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

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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;

(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

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provisions of any contract or statute, or any Liens securing industrial development, pollution control, or similar revenue bonds;

(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 shallnot enter into any Sale and Leaseback Transaction involving a PrincipalProperty of the Company or any Restricted Subsidiary, nor permit anyRestricted 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 inrespect of any series of Securities, in any particular instance, to comply

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with any covenant or condition set forth in Sections 1006 and 1007, if beforeor after the time for such compliance the Holders of at least a majority inprincipal amount of the Securities at the time Outstanding of such seriesshall, by Act of such Securityholders, either waive such compliance in suchinstance or generally waive compliance with such covenant or condition, but nosuch waiver shall extend to or affect such covenant or condition except to theextent so expressly waived, and, until such waiver shall become effective, theobligations of the Company and the duties of the Trustee in respect of anysuch covenant or condition shall remain in full force and effect.

Section 10.19. Calculation of Original Issue Discount. The Companyshall file with the Trustee promptly at the end of each calendar year (i) awritten notice specifying the amount of original issue discount (includingdaily rates and accrual periods) accrued on Outstanding Securities as of theend of such year and (ii) such other specific information relating to suchoriginal issue discount as may then be relevant under the Internal RevenueCode of 1986, as amended from time to time.

ARTICLE 11. Redemption of Securities.

Section 11.11. Applicability of Article. The Company may reserve theright to redeem and pay before Stated Maturity all or any part of theSecurities of any series, either by optional redemption, sinking or purchasefund or analogous obligation or otherwise, by provision therefor in the formof Security for such series established and approved pursuant to Section 202and on such terms as are specified in such form or in the indenturesupplemental hereto with respect to Securities of such series as provided inSection 301. Redemption of Securities of any series shall be made inaccordance with the terms of such Securities and, to the extent that thisArticle does not conflict with such terms, the succeeding Sections of thisArticle.

Section 11.12. Election To Redeem; Notice to Trustee. The electionof the Company to redeem any Securities redeemable at the election of theCompany shall be evidenced by, or pursuant to authority granted by, a BoardResolution. In case of any redemption at the election of the Company, theCompany shall, at least 60 days prior to the Redemption Date fixed by theCompany (unless a shorter notice shall be satisfactory to the Trustee), notifythe Trustee of such Redemption Date and of the principal amount of Securitiesof 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 expirationof any restriction on such redemption provided in the terms of such securitiesor elsewhere in this Indenture, or (ii) pursuant to an election of the Companywhich is subject to a condition specified in the terms of such Securities, theCompany shall furnish the Trustee with an Officers' Certificate evidencingcompliance with such restriction or condition.

Section 11.13. Selection by Trustee of Securities To Be Redeemed. Ifless than all the Securities of like tenor and terms of any series (a"Tranche") are to be redeemed, the particular Securities to be redeemed shallbe selected not more than 60 days prior to the Redemption Date by the Trustee,

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from the Outstanding Securities of such Tranche not previously called forredemption, by such method as the Trustee shall deem fair and appropriate(other than pro rata selection) and which may include provision for theelection for redemption of portions of the principal of Securities of suchTranche of a denomination larger than the minimum authorized denomination forSecurities of that series. Unless otherwise provided in the terms of aparticular series of Securities, the portions of the principal of Securitiesso selected for partial redemption shall be equal to the minimum authorizeddenomination of the Securities of such series, or an integral multiplethereof, and the principal amount which remains outstanding shall not be lessthan the minimum authorized denomination for Securities of such series. Ifless than all the Securities of unlike tenor and terms of a series are to beredeemed, the particular Tranche of Securities to be redeemed shall beselected by the Company.

The Trustee shall promptly notify the Company in writing of theSecurities selected for redemption and, in the case of any Security selectedfor partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwiserequires, all provisions relating to the redemption of Securities shallrelate, 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 beredeemed.

Section 11.14. Notice of Redemption. Notice of redemption shall begiven by first-class mail, postage prepaid, mailed not less than 30 nor morethan 60 days prior to the Redemption Date, to each holder of Securities to beredeemed, 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 theCompany shall be given by the Company or, at the Company's request, by theTrustee in the name and at the expense of the Company.

Section 11.15. Deposit of Redemption Price. On or prior to 10:00a.m., New York City time, on any Redemption Date, the Company shall depositwith the Trustee or with a Paying Agent (or, if the Company is acting as itsown Paying Agent, segregate and hold in trust as provided in Section 1003) anamount of money sufficient to pay the Redemption Price of all the Securitieswhich are to be redeemed on that date; provided that such amount shall be sodeposited with the Trustee or Paying Agent in time for the Trustee or PayingAgent, as the case may be, to pay such Redemption Price in accordance with itsnormal procedures.

Section 11.16. Securities Payable on Redemption Date. Notice ofRedemption having been given as aforesaid, the Securities so to be redeemedshall, on the Redemption Date, become due and payable at the Redemption Pricetherein specified and from and after such date (unless the Company shalldefault in the payment of the Redemption Price) such Securities shall cease tobear interest. Upon surrender of such Securities for redemption in accordancewith the notice, such Securities shall be paid by the Company at theRedemption Price. Unless otherwise provided with respect to such Securitiespursuant to Section 301, installments of interest the Stated Maturity of whichis on or prior to the Redemption Date shall be payable to the Holders of suchsecurities registered as such on the relevant Regular Record Dates accordingto their terms and the provisions of Section 307.

If any Security called for redemption shall not be so paid uponsurrender thereof for redemption, the principal shall, until paid, bearinterest from the Redemption Date at the rate borne by the Security, or asotherwise provided in such Security.

Section 11.17. Securities Redeemed in Part. Any Security which is tobe redeemed only in part shall be surrendered at the office or agency of theCompany in the Place of Payment with respect to that series (with, if theCompany or the Trustee so requires, due endorsement by, or a writteninstrument of transfer in form satisfactory to the Company and the Trusteeduly executed by, the Holder thereof or his attorney duly authorized inwriting) and the Company shall execute and the Trustee shall authenticate andmake available for delivery to the Holder of such Security without servicecharge, a new Security or Securities of the same series and Stated Maturityand of like tenor and terms, of any authorized denomination as requested bysuch Holder in aggregate principal amount equal to and in exchange for theunredeemed portion of the principal of the Security so surrendered.

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Section 11.18. Provisions with Respect to any Sinking Funds. Unlessthe form or terms of any series of Securities shall provide otherwise, in lieuof making all or any part of any mandatory sinking fund payment with respectto such series of Securities in cash, the Company may at its option (1)deliver to the Trustee for cancellation any Securities of such seriestheretofore acquired by the Company, or (2) receive credit for any Securitiesof such series (not previously so credited) acquired by the Company (includingby way of optional redemption (pursuant to the sinking fund or otherwise) butnot by way of mandatory sinking fund redemption) and theretofore delivered to

the Trustee for cancellation, and if it does so then (i) Securities sodelivered or credited shall be credited at the applicable sinking fundRedemption Price with respect to Securities of such series, and (ii) on orbefore the 60th day next preceding each sinking fund Redemption Date withrespect to such series of Securities, the Company will deliver to the Trustee(A) an Officers' Certificate specifying the portions of such sinking fundpayment to be satisfied by payment of cash and by delivery or credit ofSecurities of such series acquired by the Company, and (B) such Securities, tothe extent not previously surrendered. Such Officers' Certificate shall alsostate the basis for such credit and that the Securities for which the Companyelects to receive credit have not been previously so credited and were notacquired by the Company through operation of the mandatory sinking fund, ifany, provided with respect to such Securities and shall also state that noEvent of Default with respect to Securities of such series has occurred and iscontinuing. All Securities so delivered to the Trustee shall be canceled bythe Trustee and no Securities shall be authenticated in lieu thereof.

If the sinking fund payment or payments (mandatory or optional) withrespect to any series of Securities made in cash plus any unused balance ofany preceding sinking fund payments with respect to Securities of such seriesmade in cash shall exceed $50,000 (or a lesser sum if the Company shall sorequest), unless otherwise provided by the terms of such series of Securities,that cash shall be applied by the Trustee on the sinking fund Redemption Datewith respect to Securities of such series next following the date of suchpayment to the redemption of Securities of such series at the applicablesinking fund Redemption Price with respect to Securities of such series,together with accrued interest, if any, to the date fixed for redemption, withthe effect provided in Section 1106. The Trustee shall select, in the mannerprovided in Section 1103, for redemption on such sinking fund Redemption Datea sufficient principal amount of Securities of such series to utilize thatcash and shall thereupon cause notice of redemption of the Securities of suchseries 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 ofSecurities in part at the option of the Company. Any sinking fund moneys notso applied or allocated by the Trustee to the redemption of Securities of suchseries shall be added to the next cash sinking fund payment with respect toSecurities of such series received by the Trustee and, together with suchpayment, shall be applied in accordance with the provisions of this Section1108. Any and all sinking fund moneys with respect to Securities of anyseries held by the Trustee at the Maturity of Securities of such series, andnot held for the payment or redemption of particular Securities of suchseries, shall be applied by the Trustee, together with other moneys, if

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necessary, to be deposited sufficient for the purpose, to the payment of theprincipal of the Securities of such series at Maturity.

Prior to each sinking fund Redemption Date provided with respect toSecurities of any series, the Company shall deposit with the Trustee cash in asum equal to all accrued interest, if any, to the date fixed for redemption onSecurities to be redeemed on such sinking fund Redemption Date pursuant tothis Section 1108; provided that such cash shall be so deposited with theTrustee in time for the Trustee to make the payment of such accrued interestin accordance with its normal procedures.

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to beduly executed as of the day and year first above written.


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

EXHIBIT 4.2

Unless this certificate is presented by an authorized representative ofThe Depository Trust Company, a New York corporation ("DTC"), to Issuer or itsagent for registration of transfer, exchange or payment and any certificateissued is registered in the name of Cede & Co. or in such other name as isrequested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OROTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFULinasmuch as the registered owner hereof, Cede & Co., has an interest herein.

THE NEIMAN MARCUS GROUP, INC. 6.65% Senior Note Due 2008

REGISTERED CUSIP 640204 AA 1

No. R-1

THE NEIMAN MARCUS GROUP, INC., a corporation duly organized and existingunder the laws of the State of Delaware (herein called the "Company," whichterm includes any successor under the Indenture hereinafter referred to), forvalue received, hereby promises to pay to

Cede & Co.

or registered assigns, the principal sum of $125,000,000 at the office oragency of the Company in the Borough of Manhattan, The City of New York, onJune 1, 2008 in such coin or currency of the United States of America as atthe time of payment shall be legal tender for the payment of public andprivate debts, and to pay interest on said principal sum semiannually on June1 and December 1 of each year (each an "Interest Payment Date"), commencingDecember 1, 1998, at said office or agency, in like coin or currency, at therate per annum specified in the title hereof, from the most recent InterestPayment Date to which interest on the Notes has been paid, or, if no interesthas been paid on the Notes since May 27, 1998, from May 27, 1998, untilpayment of said principal sum has been made or duly provided for. Theinterest so payable, and punctually paid or duly provided for, on any June 1or 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 Bankof New York, Trustee (herein called the "Trustee"), be paid to the Person inwhose name this Note (or one or more Predecessor Securities) is registered atthe 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, andmay, at the option of the Company, be paid by check mailed to the registeredaddress of such Person. Any such interest which is payable, but is not sopunctually paid or duly provided for, shall forthwith cease to be payable tothe registered Holder on such Regular Record Date and may be paid either tothe Person in whose name this Note (or one or more Predecessor Securities) isregistered at the close of business on a Special Record Date for the paymentof such Defaulted Interest to be fixed by the Trustee, notice whereof shall begiven to Holders of Notes not less than 10 days prior to such Special RecordDate, or may be paid at any time in any other lawful manner not inconsistent

with the requirements of any securities exchange on which the Notes may be

listed and upon such notice as may be required by such exchange, if suchmanner of payment shall be deemed practical by the Trustee, all as more fullyprovided in the Indenture.

The Bank of New York will be the Paying Agent and the Security Registrarwith respect to this Note. The Company reserves the right at any time to varyor terminate the appointment of any Paying Agent or Security Registrar, toappoint additional or other Paying Agents and other Security Registrars, whichmay include the Company, and to approve any change in the office through whichany Paying Agent or Security Registrar acts; provided, that there will at alltimes be a Paying Agent in the City of New York.

This Note 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 beissued under and pursuant to the Indenture, to which Indenture and all otherindentures supplemental thereto reference is hereby made for a statement ofthe respective rights, limitations of rights, obligations, duties andimmunities thereunder of the Trustee and any agent of the Trustee, any PayingAgent, the Company and the Holders of the Securities and the terms upon whichthe Securities are issued and are to be authenticated and delivered.

The Securities may be issued in one or more series, which differentseries may be issued in various aggregate principal amounts, may mature atdifferent times, may bear interest (if any) at different rates, may be subjectto different redemption provisions (if any), may be subject to differentsinking, purchase or analogous funds (if any), may be subject to differentcovenants and Events of Default and may otherwise vary as provided orpermitted in the Indenture. This Note is one of the series of Securities ofthe Company issued pursuant to the Indenture and designated as the 6.65%Senior Notes Due 2008 (herein called the "Notes"), limited in aggregateprincipal amount to $125,000,000.

The Notes of this series are not redeemable prior to the Stated Maturityof the principal hereof except as provided herein and will not be subject toany sinking fund.

This Note is redeemable, as a whole or in part, at the option of theCompany at any time, at a redemption price equal to the greater of (a) 100% ofthe principal amount of this Note to be redeemed and (b) the sum of thepresent values of the Remaining Scheduled Payments thereon discounted to theredemption date on a semiannual basis (assuming a 360-day year consisting oftwelve 30-day months) at the Treasury Rate plus 15 basis points, plus accruedinterest on the principal amount being redeemed to the date of redemption.

"Treasury Rate" means, with respect to any redemption date, the rate perannum equal to the semiannual equivalent yield to maturity of the ComparableTreasury Issue, assuming a price for the Comparable Treasury Issue (expressedas a percentage of its principal amount) equal to the Comparable TreasuryPrice for such redemption date.

-2-

"Comparable Treasury Issue" means the United States Treasury securityselected by an Independent Investment Banker as having a maturity comparableto the remaining term of the Notes that would be utilized, at the time ofselection and in accordance with customary financial practice, in pricing newissues of corporate debt securities of comparable maturity to the remainingterm of such Securities. "Independent Investment Banker" means one of theReference 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 thirdbusiness day preceding such redemption date, as set forth in the dailystatistical release (or any successor release) published by the FederalReserve Bank of New York and designated "Composite 3:30 p.m. Quotations forU.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) theaverage of the Reference Treasury Dealer Quotations for such redemption date,after excluding the highest and lowest such Reference Treasury DealerQuotations, or (ii) if the Trustee obtains fewer than four such ReferenceTreasury Dealer Quotations, the average of all such Quotations. "ReferenceTreasury Dealer Quotations" means, with respect to each Reference TreasuryDealer and any redemption date, the average, as determined by the Trustee, ofthe bid and asked prices for the Comparable Treasury Issue (expressed in eachcase as a percentage of its principal amount) quoted in writing to the Trusteeby such Reference Treasury Dealer at 5:00 p.m. New York time on the thirdbusiness day preceding such redemption date.

"Reference Treasury Dealer" means each of Salomon Brothers Inc, ChaseSecurities Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated andtheir respective successors and any such other Primary Treasury Dealer as theCompany designates; provided, however, that if any of the foregoing shallcease to be a primary U.S. Government securities dealer in New York City (a"Primary Treasury Dealer"), the Company shall substitute therefor anotherPrimary Treasury Dealer.

"Remaining Scheduled Payments" means the remaining scheduled payments ofthe principal of the Notes to be redeemed and interest thereon that would bedue after the related redemption date but for such redemption; provided,however, that, if such redemption date is not an Interest Payment Date, theamount of the next succeeding scheduled interest payment thereon will bereduced by the amount of interest accrued thereon to such redemption date.

Unless the Company defaults in payment of the redemption price, on andafter the applicable redemption date, interest will cease to accrue on theSecurities or portions thereof called for redemption.

If an Event of Default with respect to the Notes shall occur and becontinuing, the principal of all of the Notes may be declared due and payablein the manner, with the effect and subject to the conditions provided in theIndenture.

-3-

The Indenture permits, with certain exceptions as therein provided, theCompany and the Trustee to enter into supplemental indentures to the Indenturefor the purpose of adding any provisions to or changing in any manner oreliminating any of the provisions of the Indenture or of modifying in anymanner the rights or the Holders of the Securities of each series under theIndenture with the consent of the Holders of not less than a majority inprincipal amount of the Securities at the time Outstanding of each series tobe 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 ofthe Securities at the time Outstanding of each series on behalf of the Holdersof all Securities of such series, to waive compliance by the Company withcertain provisions of the Indenture and certain past defaults and theirconsequences with respect to such series under the Indenture. Any suchconsent or waiver by the Holder of this Note shall be conclusive and bindingupon such Holder and upon all future Holders of this Note and of any Noteissued upon the registration of transfer hereof or in exchange hereof or inlieu hereof, whether or not notation of such consent or waiver is made upon

this Note or such other Notes.

No reference herein to the Indenture and no provision of this Note or ofthe Indenture shall alter or impair the obligation of the Company, which isabsolute and unconditional, to pay the principal and any premium of and anyinterest on this Note at the place, rate and respective times and in the coinor currency herein and in the Indenture prescribed.

As provided in the Indenture and subject to the satisfaction of certainconditions therein set forth, including the deposit of certain trust funds intrust, at the Company's option, either the Company shall be deemed to havepaid and discharged the entire indebtedness represented by, and theobligations under, the Securities of any series and to have satisfied all theobligations (with certain exceptions) under the Indenture relating to theSecurities of such series or the Company shall cease to be under anyobligation to comply with any term, provision or condition of certainrestrictive covenants or provisions with respect to the Securities of suchseries.

The Notes are issuable in registered form without coupons indenominations of $1,000 and any integral multiple of $1,000. Notes may beexchanged for a like aggregate principal amount and Stated Maturity of Notesof other authorized denominations at the office or agency of the Company inthe Borough of Manhattan, The City of New York, designated for such purposeand in the manner and subject to the limitations provided in the Indenture.

Upon due presentment for registration of transfer of this Note at theoffice or agency of the Company in the Borough of Manhattan, The City of NewYork designated for such purpose, a new Note or Notes of authorizeddenominations for a like aggregate principal amount and Stated maturity willbe issued to the transferee in exchange therefor, subject to the limitationsprovided in the Indenture.

-4-

No charge shall be made for any such transfer or exchange, but theCompany may require payment of a sum sufficient to cover any tax or othergovernmental charge imposed in connection therewith. Prior to due presentment for registration of transfer of this Note, theCompany, the Trustee and any agent of the Company or the Trustee may treat thePerson in whose name this Note is registered as the owner hereof for allpurposes, whether or not this Note is overdue, and neither the Company, theTrustee nor any such agent shall be affected by notice to the contrary.

Unless otherwise defined herein, all terms used in this Note which aredefined in the Indenture shall have the meanings assigned to them in theIndenture.

This Note shall be construed in accordance with and governed by the lawsof the State of New York.

Unless the certificate of authentication hereon has been manuallyexecuted by or on behalf of the Trustee under the Indenture, this Note shallnot be entitled to any benefits under the Indenture, or be valid or obligatoryfor any purpose

IN WITNESS WHEREOF, THE NEIMAN MARCUS GROUP, INC. has caused this Noteto 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)

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This is one of the Securities referred to in the within-mentionedIndenture.

The Bank of New York, as Trustee,

By: s/ Mary Jane Schmalzel Authorized Signatory

Dated: May 27, 1998

EXHIBIT 4.3

Unless this certificate is presented by an authorized representative ofThe Depository Trust Company, a New York corporation ("DTC"), to Issuer or itsagent for registration of transfer, exchange or payment and any certificateissued is registered in the name of Cede & Co. or in such other name as isrequested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OROTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFULinasmuch 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 existingunder the laws of the State of Delaware (herein called the "Company," whichterm includes any successor under the Indenture hereinafter referred to), forvalue received, hereby promises to pay to

Cede & Co.

or registered assigns, the principal sum of $125,000,000 at the office oragency of the Company in the Borough of Manhattan, The City of New York, onJune 1, 2028 in such coin or currency of the United States of America as atthe time of payment shall be legal tender for the payment of public andprivate debts, and to pay interest on said principal sum semiannually on June1 and December 1 of each year (each an "Interest Payment Date"), commencingDecember 1, 1998 at said office or agency, in like coin or currency, at therate per annum specified in the title hereof, from the most recent InterestPayment Date to which interest on the Debentures has been paid, or, if nointerest 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 June1 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 Bankof New York, Trustee (herein called the "Trustee"), be paid to the Person inwhose name this Debenture (or one or more Predecessor Securities) isregistered at the close of business on the 15th day of the next preceding Mayor November (herein called the "Regular Record Date") whether or not aBusiness Day, and may, at the option of the Company, be paid by check mailedto 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 tobe payable to the registered Holder on such Regular Record Date and may bepaid either to the Person in whose name this Debenture (or one or morePredecessor Securities) is registered at the close of business on a SpecialRecord Date for the payment of such Defaulted Interest to be fixed by theTrustee, notice whereof shall be given to Holders of Debentures not less than10 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 berequired by such exchange, if such manner of payment shall be deemed practicalby the Trustee, all as more fully provided in the Indenture.

The Bank of New York will be the Paying Agent and the Security Registrarwith respect to this Debenture. The Company reserves the right at any time tovary 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 throughwhich any Paying Agent or Security Registrar acts; provided, that there willat 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 beissued under and pursuant to the Indenture, to which Indenture and all otherindentures supplemental thereto reference is hereby made for a statement ofthe respective rights, limitations of rights, obligations, duties andimmunities thereunder of the Trustee and any agent of the Trustee, any PayingAgent, the Company and the Holders of the Securities and the terms upon whichthe Securities are issued and are to be authenticated and delivered.

The Securities may be issued in one or more series, which differentseries may be issued in various aggregate principal amounts, may mature atdifferent times, may bear interest (if any) at different rates, may be subjectto different redemption provisions (if any), may be subject to differentsinking, purchase or analogous funds (if any), may be subject to differentcovenants and Events of Default and may otherwise vary as provided orpermitted in the Indenture. This Debenture is one of the series of Securitiesof the Company issued pursuant to the Indenture and designated as the 7.125%Senior Debentures Due 2028 (herein called the "Debentures"), limited inaggregate principal amount to $125,000,000.

The Debentures of this series are not redeemable prior to the StatedMaturity of the principal hereof except as provided herein and will not besubject to any sinking fund.

This Debenture is redeemable, as a whole or in part, at the option ofthe 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 sumof the present values of the Remaining Scheduled Payments thereon discountedto the redemption date on a semiannual basis (assuming a 360-day yearconsisting 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 ofredemption.

"Treasury Rate" means, with respect to any redemption date, the rate perannum equal to the semiannual equivalent yield to maturity of the ComparableTreasury Issue, assuming a price for the Comparable Treasury Issue (expressedas a percentage of its principal amount) equal to the Comparable TreasuryPrice for such redemption date.

-2-

"Comparable Treasury Issue" means the United States Treasury securityselected by an Independent Investment Banker as having a maturity comparableto the remaining term of the Debentures that would be utilized, at the time ofselection and in accordance with customary financial practice, in pricing newissues of corporate debt securities of comparable maturity to the remainingterm of such Securities. "Independent Investment Banker" means one of theReference 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 thirdbusiness day preceding such redemption date, as set forth in the dailystatistical release (or any successor release) published by the FederalReserve Bank of New York and designated "Composite 3:30 p.m. Quotations forU.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) theaverage of the Reference Treasury Dealer Quotations for such redemption date,after excluding the highest and lowest such Reference Treasury DealerQuotations, or (ii) if the Trustee obtains fewer than four such ReferenceTreasury Dealer Quotations, the average of all such Quotations. "ReferenceTreasury Dealer Quotations" means, with respect to each Reference TreasuryDealer and any redemption date, the average, as determined by the Trustee, ofthe bid and asked prices for the Comparable Treasury Issue (expressed in eachcase as a percentage of its principal amount) quoted in writing to the Trusteeby such Reference Treasury Dealer at 5:00 p.m. New York time on the thirdbusiness day preceding such redemption date.

"Reference Treasury Dealer" means each of Salomon Brothers Inc, ChaseSecurities Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated andtheir respective successors and any such other Primary Treasury Dealer as theCompany designates; provided, however, that if any of the foregoing shallcease to be a primary U.S. Government securities dealer in New York City (a"Primary Treasury Dealer"), the Company shall substitute therefor anotherPrimary Treasury Dealer.

"Remaining Scheduled Payments" means the remaining scheduled payments ofthe principal of the Debentures to be redeemed and interest thereon that wouldbe due after the related redemption date but for such redemption; provided,however, that, if such redemption date is not an Interest Payment Date, theamount of the next succeeding scheduled interest payment thereon will bereduced by the amount of interest accrued thereon to such redemption date.

Unless the Company defaults in payment of the redemption price, on andafter the applicable redemption date, interest will cease to accrue on theSecurities or portions thereof called for redemption.

If an Event of Default with respect to the Debentures shall occur and becontinuing, the principal of all of the Debentures may be declared due andpayable in the manner, with the effect and subject to the conditions providedin the Indenture.

-3-

The Indenture permits, with certain exceptions as therein provided, theCompany and the Trustee to enter into supplemental indentures to the Indenturefor the purpose of adding any provisions to or changing in any manner oreliminating any of the provisions of the Indenture or of modifying in anymanner the rights or the Holders of the Securities of each series under theIndenture with the consent of the Holders of not less than a majority inprincipal amount of the Securities at the time Outstanding of each series tobe 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 ofthe Securities at the time Outstanding of each series on behalf of the Holdersof all Securities of such series, to waive compliance by the Company withcertain provisions of the Indenture and certain past defaults and theirconsequences with respect to such series under the Indenture. Any suchconsent or waiver by the Holder of this Debenture shall be conclusive andbinding upon such Holder and upon all future Holders of this Debenture and ofany Debenture issued upon the registration of transfer hereof or in exchangehereof 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 Debentureor of the Indenture shall alter or impair the obligation of the Company, whichis absolute and unconditional, to pay the principal and any premium of and anyinterest on this Debenture at the place, rate and respective times and in thecoin or currency herein and in the Indenture prescribed.

As provided in the Indenture and subject to the satisfaction of certainconditions therein set forth, including the deposit of certain trust funds intrust, at the Company's option, either the Company shall be deemed to havepaid and discharged the entire indebtedness represented by, and theobligations under, the Securities of any series and to have satisfied all theobligations (with certain exceptions) under the Indenture relating to theSecurities of such series or the Company shall cease to be under anyobligation to comply with any term, provision or condition of certainrestrictive covenants or provisions with respect to the Securities of suchseries.

The Debentures are issuable in registered form without coupons indenominations of $1,000 and any integral multiple of $1,000. Debentures maybe exchanged for a like aggregate principal amount and Stated Maturity ofDebentures of other authorized denominations at the office or agency of theCompany in the Borough of Manhattan, The City of New York, designated for suchpurpose and in the manner and subject to the limitations provided in theIndenture.

Upon due presentment for registration of transfer of this Debenture atthe office or agency of the Company in the Borough of Manhattan, The City ofNew York designated for such purpose, a new Debenture or Debentures ofauthorized denominations for a like aggregate principal amount and Statedmaturity will be issued to the transferee in exchange therefor, subject to thelimitations provided in the Indenture.

-4-

No charge shall be made for any such transfer or exchange, but theCompany may require payment of a sum sufficient to cover any tax or othergovernmental 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 treatthe Person in whose name this Debenture is registered as the owner hereof forall purposes, whether or not this Debenture is overdue, and neither theCompany, the Trustee nor any such agent shall be affected by notice to thecontrary.

Unless otherwise defined herein, all terms used in this Debenture whichare defined in the Indenture shall have the meanings assigned to them in theIndenture.

This Debenture shall be construed in accordance with and governed by thelaws of the State of New York.

Unless the certificate of authentication hereon has been manuallyexecuted by or on behalf of the Trustee under the Indenture, this Debentureshall not be entitled to any benefits under the Indenture, or be valid orobligatory for any purpose

IN WITNESS WHEREOF, THE NEIMAN MARCUS GROUP, INC. has caused thisDebenture 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)

-5-


This is one of the Securities referred to in the within-mentionedIndenture.

The Bank of New York, as Trustee,

By: s/ Mary Jane Schmalzel Authorized Signatory

Dated: May 27, 1998

TERMINATION AND CHANGE OF CONTROL AGREEMENT

1. This Termination and Change of Control Agreement ("Agreement") isentered into as of September 17, 1998 between Gerald A. Sampson ("Mr.Sampson") and The Neiman Marcus Group, Inc. ("NMG")

2. Mr. Sampson is employed "at-will" as Neiman Marcus Stores' President andChief Operating Officer, and Mr. Sampson or NMG may terminate Mr. Sampson'semployment at any time, with or without notice, for any reason.Notwithstanding this at-will employment, (a) Mr. Sampson agrees to provide NMGwith three months advance notice of his resignation when such resignation doesnot follow a change of control of NMG, as a change of control is defined inparagraph 4.c., and (b) NMG wishes to provide some protection to Mr. Sampsonif his employment is terminated or if he resigns under certain circumstances.

3. a. While Mr. Sampson is employed at-will, if NMG terminates Mr. Sampson's employment other than "for cause" or other than due to "total disability" or death, NMG agrees to provide Mr. Sampson with a termination package consisting of (a) an amount equivalent to one and one-half times his then-current, annual base salary, less required withholding, which amount would be paid in an 18 month period in regular, monthly installments following such termination; and (b) continuation of the medical and dental insurance coverage in which he participates at the time of such termination (or as such coverage may be changed from time-to-time for employees generally) for 18 months or until he starts full-time employment, whichever is sooner. Mr. Sampson will be responsible for paying his portion of monthly premiums for the medical and dental insurance coverage at the same rate paid by active employees, and Mr. Sampson authorizes NMG to deduct such amounts from the payments it makes to him. b. If Mr. Sampson's services are terminated by a successor to NMG other than "for cause" or other than due to "total disability" or death within two years of a change of control of NMG, as a change of control is defined in paragraph 4.c., or if the Executive resigns his employment within two years of such a change of control because he is not permitted to continue in a position comparable in duties and responsibilities to that which he held before such a change of control, Mr. Sampson shall receive the termination package set forth in paragraph 3.a.

c. Notwithstanding the payment obligations set forth in paragraphs 3.a. and 3.b., if Mr. Sampson is engaged in employment (including contract employment or self-employment) of any kind or if Mr. Sampson receives severance pay of any kind during the period beginning six months after a covered termination or resignation, NMG's payments to Mr. Sampson will be reduced dollar-for-dollar by the amount Mr. Sampson earns through such employment or receives as severance pay.

4. For the purposes of determining Mr. Sampson's eligibility for thetermination package set forth in this Agreement:

a. "For cause" means, in NMG's reasonable judgment, a breach of duty by Mr. Sampson in the course of his employment involving fraud, acts of dishonesty, or moral turpitude, repeated insubordination, failure to devote his full, working time and best efforts to the performance of his duties, or conviction of a felony or other criminal offense. b. "Total disability" means that, in NMG's reasonable judgment, Mr. Sampson is unable to perform his duties for (i) 45 consecutive business days or (ii) a total of 90 business days during any nine month period.

c. "Change of control" means (i) the sale of all or substantially all of the stock or assets of Neiman Marcus Stores to an entity other than Harcourt General, Inc. or an entity wholly owned or controlled by Harcourt General, Inc; (ii) the sale of all or substantially all of the stock or assets of NMG to an entity other than Harcourt General, Inc. or an entity wholly owned or controlled by Harcourt General, Inc. or (iii) any person, entity or group having greater voting power in the election of NMG's directors than Harcourt General, Inc. or an entity wholly owned or controlled by Harcourt General, Inc.

5. Payment by NMG of the termination package set forth in paragraph 3constitutes full satisfaction of NMG's obligations to Mr. Sampson, if any,(including the right to any severance payments) which arise from or relate inany way to the termination of Mr. Sampson's employment. However, nothing inthis Agreement is intended to limit any earned, vested benefits (other thanany entitlement to severance pay) that Mr. Sampson may have under theapplicable provisions of any benefit plan in which Mr. Sampson isparticipating at the time of his termination of employment or resignation.

6. The unenforceability of any provision of this Agreement shall not affectthe enforceability of any other provision of this Agreement.

7. This Agreement contains the entire agreement between the parties andsupersedes all prior agreements and understandings, oral or written, withrespect to the termination of Mr. Sampson's at-will employment and the subjectmatter of the Agreement. This Agreement may not be changed orally. It may bechanged only by written agreement signed by the party against whom any waiver,change amendment, modification or discharge is sought.

8. The validity, performance and enforceability of this Agreement will bedetermined and governed by the laws of the Commonwealth of Massachusettswithout regard to its conflict of laws principles.

The Neiman Marcus Group, Inc.

s/Gerald A. Sampson By: s/ Robert A. Smith Gerald A. Sampson

EXHIBIT 10.14


DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

Effective January 17, 1997

As Amended and Restated June 8, 1998

THE NEIMAN MARCUS GROUP, INC. DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

Table of ContentsARTICLE PAGE

ARTICLE I Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1. Adoption, amendment and restatement . . . . . . . . . . . . . . 1

ARTICLE 2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1. "Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2. "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3. "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4. "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.5. "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.6. "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.7. "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . 2 2.8. "Market Price" . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.9. "Non-Employee Director" . . . . . . . . . . . . . . . . . . . . 2 2.10 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.11."Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.12."Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.13."Unforeseen Emergency" . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE 3 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.1. Commencement of participation . . . . . . . . . . . . . . . . . 3 3.2. Continuation of participation . . . . . . . . . . . . . . . . . 3

ARTICLE 4 Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.1. Elective deferrals . . . . . . . . . . . . . . . . . . . . . . . 3 4.2. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.3. Investment equivalent alternatives . . . . . . . . . . . . . . . 4 4.4. Time of payment . . . . . . . . . . . . . . . . . . . . . . . . 6 4.5. Form of payment . . . . . . . . . . . . . . . . . . . . . . . . 6 4.6. Death prior to payment . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE 5 Non-Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . 8 5.1. Crediting of Common Stock equivalent units . . . . . . . . . . 8 5.2. Method of payment . . . . . . . . . . . . . . . . . . . . . . . 8 5.3. Modification of form or time of payment . . . . . . . . . . . . 8

ARTICLE 6 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6.1. Plan administration and interpretation . . . . . . . . . . . . . 9 6.2. Powers, duties, procedures, etc . . . . . . . . . . . . . . . . 9 6.3. Information . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE 7 Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . 10 7.1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7.2. Termination of Plan . . . . . . . . . . . . . . . . . . . . . . 10 7.3. Existing rights . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE 8 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.1. No funding . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.2. Grantor trust . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.3. Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . 11 8.4. Limitation of Participants' rights . . . . . . . . . . . . . . . 12 8.5. Participants bound . . . . . . . . . . . . . . . . . . . . . . . 12 8.6. Receipt and release . . . . . . . . . . . . . . . . . . . . . . 12 8.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.8. Unforeseen Emergency . . . . . . . . . . . . . . . . . . . . . . 12 8.9. Governing law . . . . . . . . . . . . . . . . . . . . . . . . . 13 8.10.Headings and subheadings . . . . . . . . . . . . . . . . . . . . 13


DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

ARTICLE I

Introduction

1.1. Adoption, amendment and restatement. The Company adopted the Plan

effective January 17, 1997 to provide a means by which members of the Board

who are not employees of the Company may elect to defer receipt of designated

amounts of Compensation earned in that capacity. The Plan has been amended

and restated effective June 8, 1998, to provide for non-elective deferred

compensation as set forth in Article 5.

1.2. Status of Plan. The Plan is intended neither to be a qualified plan

within the meaning of 401(a) of the Internal Revenue Code of 1986, as amended

(the "Code"), nor to constitute a "pension benefit plan" or a "welfare benefit

plan" subject to the requirements of the Employee Retirement Income Security

Act of 1974. The Plan shall be administered and interpreted to the extent

possible in a manner consistent with that intent.

ARTICLE 2

Definitions

Whenever used herein, the following terms have the meanings set forth

below, unless a different meaning is clearly required by the context:

2.1. "Account" means, for each Participant, the account maintained for

his or her benefit under Section 4.2 or 5.1.

2.2. "Board" means the Board of Directors of the Company.

2.3. "Committee" means the Compensation Committee of the Board.

1

2.4. "Common Stock" means the Common Stock, $.01 par value, of the

Company.

2.5. "Company" means The Neiman Marcus Group, Inc., a Delaware

corporation, and any successor to all or substantially all of the Company's

assets or business which assumes the obligations of the Company.

2.6. "Compensation" means the amount of retainer payable for service on

the Board, plus any fees payable for attendance at or participation in a

meeting, for service as Chair or Vice Chair of the Board, or for service on or

as a chair of any committee of the Board, determined without reduction for any

elective deferrals under Article 4. Notwithstanding the foregoing,

Compensation does not include any Common Stock equivalent units which may be

credited pursuant to Section 5.1, which amounts are not subject to the

elective deferral provisions of Section 4.1.

2.7. "Effective Date" means January 17, 1997.

2.8. "Market Price" means, as of any date, the mean of the highest and

lowest sales prices of the Common Stock on such date (or, if no trading shall

have occurred on such date, on the next previous date on which trading shall

have occurred), as reported on the New York Stock Exchange Composite Tape.

2.9. "Non-Employee Director" means a member of the Board who is not an

officer or employee of the Company or Harcourt General, Inc. or any of the

subsidiaries of either the Company or Harcourt General, Inc.

2.10. "Participant" means any Non-Employee Director who participates in

the Plan as set forth in Article 3.

2.11. "Plan" means The Neiman Marcus Group, Inc. Deferred Compensation

Plan for Non-Employee Directors as set forth herein and all subsequent

amendments hereto.

2

2.12. "Plan Year" means the calendar year.

2.13. "Unforeseen Emergency" means a severe financial hardship to a

Participant resulting from illness or accident of the Participant or of a

dependent (as defined in 152(a) of the Code) of the Participant, loss of

property due to casualty, or other similar extraordinary and unforeseeable

circumstances arising as a result of events beyond the control of the

Participant.

ARTICLE 3

Participation

3.1. Commencement of participation. Each Non-Employee Director shall

become a Participant in this Plan upon the later of (a) the Effective Date or

(b) the day on which he or she becomes a Non-Employee Director.

3.2. Continuation of participation. An individual who has become a

Participant in the Plan shall continue to be a Participant so long as he or

she remains a Non-Employee Director, and so long thereafter as any amount is

payable to him or her in accordance with Article 4 or 5.

ARTICLE 4

Elective Deferrals

4.1. Elective deferrals. An individual who is a Non-Employee Director on

January 17, 1997 may elect, by filing a written election with the Committee

prior to February 14, 1997, to defer all or a specified portion of his or her

Compensation for services to be performed on or after such deferral election.

An individual who is a Non-Employee Director on the first day of any fiscal

year of the Company after the Effective Date may elect to defer all or a

specified portion of his or her Compensation for services to be performed on

or after such date by filing a written election with the Committee before such

3

date. An individual who has been nominated or elected to serve as a Non-

Employee Director, and who was not a Non-Employee Director immediately prior

to such nomination or election, may elect before or within thirty (30) days

after becoming a Non-Employee Director to defer all or a specified portion of

his or her Compensation for services to be performed after such deferral

election.

Each deferral election under this Section 4.1 shall be made on a form

approved or prescribed by the Committee and shall also specify the time and

form of distribution of the amounts deferred and the investment equivalent

alternative described in Section 4.3 to be applied to such amounts.

An election to defer Compensation and to specify the time and form of

distribution may be revoked or modified, effective for amounts earned on and

after the first day of any fiscal year of the Company, by an election filed

before that date, but may not otherwise be revoked or modified except as

provided in Section 8.8 in the event of an Unforeseen Emergency.

4.2. Accounts. The Committee shall maintain a bookkeeping account (the

"Account") for each Participant reflecting elective deferrals made for the

Participant's benefit under Section 4.1, and the value of such elective

deferrals determined in accordance with Section 4.3, together with any

adjustments hereunder. Elective deferrals shall be credited to the Account as

of the day such amounts become payable to the Participant. As of each

February 15th, the Committee shall provide the Participant with a statement of

his or her Account as of the end of the preceding Plan Year.

4.3. Investment equivalent alternatives. When a Participant elects to

make elective deferrals in accordance with Section 4.1, he or she shall also

4

elect whether the value of such elective deferrals shall be determined under

the cash-based option or the stock-based option described below.

(a) Cash-based option:

Under the cash-based option, elective deferrals shall accrue

interest, to be compounded at the end of each fiscal quarter of the

Company, at a rate equal to the average of the top rates paid by major

New York banks on primary new issues of three-month negotiable

certificates of deposit (usually on amounts of $1,000,000 or more) as

quoted in the Wall Street Journal on the last business day of the fiscal

quarter.

(b) Stock-based option:

Under the stock-based option, elective deferrals will be converted

hypothetically into Common Stock equivalent units. The number of such

units shall be determined by dividing the amount of elective deferrals

in each fiscal quarter by the average of the Market Prices of the Common

Stock during the last five (5) trading days of such fiscal quarter.

Units will be calculated to the nearest thousandth. On each dividend

payment date, if any, for the Common Stock dividend equivalents in the

form of additional units representing Common Stock will be credited to

the Participant's Account equal to (i) the per-share cash dividend

divided by the Market Price of Common Stock on the dividend payment

date, multiplied by (ii) the number of such units reflected in such

Account on the day before the dividend payment date.

At the end of the period of deferral elected by the Participant, the

Common Stock equivalent units will be valued for payment by multiplying the

applicable number of units by the average of the Market Prices of Common Stock

5

during the last ten (10) trading days before the date on which the value of

the elective deferrals is to be paid or begin to be paid.

If the outstanding shares of Common Stock are increased, decreased or

exchanged for a different number or kind of shares or other securities, or if

additional shares or new or different shares or other securities are

distributed with respect to such shares of Common Stock or other securities

through merger, consolidation, sale of all or substantially all the property

of the Company, reorganization, recapitalization, reclassification, stock

dividend, stock split, reverse stock split or other distribution with respect

to such shares of Common Stock or other securities, appropriate adjustments

will be made by the Company in the number of Common Stock equivalent units

credited to a Participant's Account.

4.4. Time of payment. When a Participant elects to make elective

deferrals in accordance with Section 4.1, the Participant shall also elect

whether the value of the elective deferrals shall be paid, or begin to be

paid, (a) at a specified date at least twenty-four months in the future (which

date shall be the last day of a fiscal quarter) or (b) upon termination of his

or her service as a member of the Board. If alternative (a) under this Section

4.4 is elected, payment will be made or will commence on the date specified.

If alternative (b) under this Section 4.4 is elected, payment will be made or

will commence at the end of the fiscal quarter in which the Participant's

service as a member of the Board terminates. The foregoing election shall be

made on a form approved or prescribed by the Committee.

Payment of a Participant's Account shall be made in accordance with the

Participant's elections under this Section 4.4 and Section 4.5. Each

Participant's Account shall be reduced by the amount of any payment made to or

6

on behalf of the Participant (including interest paid with respect to such

payment) as of the date such payment is made.

4.5. Form of payment. When a Participant elects to make elective

deferrals in accordance with Section 4.1, the Participant shall also elect

whether the value of such elective deferrals shall be paid in (a) a lump sum,

or (b) a specified number of annual installments (not to exceed 10). Each

installment (other than the first) shall accrue interest from the date of the

first installment to the date on which such installment is paid, compounded

quarterly at a rate equal to the average of the top rates paid by major New

York banks on primary new issues of three-month negotiable certificates of

deposit (usually on amounts of $1,000,000 or more) as quoted in the Wall

Street Journal on the last business day of the fiscal quarter. The foregoing

election shall be made on a form approved or prescribed by the Committee.

4.6. Death prior to payment. In the event that a Participant dies prior

to complete distribution of his or her Account, the balance of his or her

Account shall be paid in a single lump sum to the beneficiary or beneficiaries

designated by the Participant. If no such beneficiary has been designated or

if no designated beneficiary survives the Participant, the balance of such

Account shall be paid to the Participant's estate. Payment of such amount

shall be made within sixty (60) days from the date of receipt by the office of

the Secretary of the Company of notice of the Participant's death. Such

designation or designations of beneficiary must be in writing, dated and

signed by the Participant, and no such designation shall require Company

consent. No beneficiary designation shall be deemed effective unless the same

is on file in the office of the Secretary of the Company prior to the death of

the Participant. The Company may rely in all cases on the genuineness,

7

accuracy and date of any such beneficiary designation and shall be fully

protected in making payment in accordance therewith. Any beneficiary

designation filed in the office of the Secretary of the Company prior to the

death of the Participant shall be deemed to have revoked all earlier

designations, and no beneficiary designation filed after the date of a

Participant's death shall be deemed effective.

8

ARTICLE 5

Non-Elective Deferrals

5.1 Crediting of Common Stock equivalent units. It is contemplated

that Board compensation after the Effective Date may, in the Board's sole

discretion, include credits to the Accounts of Participants consisting of

Common Stock equivalent units, and that the value thereof shall be determined

under the stock-based option described in Section 4.3(b). For this purpose,

for each Participant who has not elected to defer Compensation pursuant to

Section 4.1, an Account shall be established. Any amounts so credited shall

remain in each Participant's Account until termination of his or her service

as a member of the Board, and payment from such Account will be made or will

commence at the end of the fiscal quarter in which the Participant's service

as a member of the Board terminates.

5.2 Method of payment. At the Participant's election, made prior to

October 1, 1998, on a form approved or prescribed by the Committee, the value

of any amount so credited shall be paid in a lump sum or in annual

installments (not to exceed 10), and if the latter, installments (other than

the first) shall accrue interest as described in Section 4.5. In the event

that a Participant dies prior to complete distribution of any amounts credited

to his or her Account pursuant to Section 5.1, the balance of such amounts

shall be paid in the manner prescribed and to the persons specified in Section

4.6.

5.3 Modification of form or time of payment. Each election under

Section 5.2 as to form of payment may be modified, effective for any amounts

credited under Section 5.1 for service on or after the first day of any fiscal

year of the Company, by an election filed before such date. Moreover, a

9

majority of the disinterested members of the Committee may, at their

discretion, at the request or with the consent of a Participant, change the

form (or, in the case of elective deferrals, the time) of payment elected by

such Participant with respect to amounts previously credited to his or her

Account pursuant to Article 4 or this Article 5, provided that (a) the revised

form of payment be one of the forms permitted by Sections 4.5 and 5.2, and (b)

no such change shall be effective unless made at least 24 months prior to the

date such amounts would otherwise have been paid.

ARTICLE 6

Administration

6. 1. Plan administration and interpretation. The Plan shall be

administered by the Committee which may appoint persons to assist in the

administration of the Plan. The Committee shall have complete control and

authority to determine the rights and benefits and all claims, demands and

actions arising out of the provisions of the Plan of any Participant or other

person having or claiming to have any interest under the Plan. The Committee

shall have the exclusive power to interpret the Plan and to decide all matters

under the Plan. Such interpretation and decision shall be final, conclusive

and binding on all Participants and any person claiming under or through any

Participant, in the absence of clear and convincing evidence that the

Committee acted arbitrarily and capriciously. Any individual serving on the

Committee who is a Participant will not vote or act on any matter relating

solely to himself or herself. When making a determination or calculation, the

Committee shall be entitled to rely on information furnished by a Participant

or the Company.

10

6.2. Powers, duties, procedures, etc. The Committee shall have such

powers and duties, may adopt such rules and tables, may act in accordance with

such procedures, may appoint such officers or agents, and may delegate such

powers and duties as it deems necessary or advisable for the administration of

the Plan.

6.3. Information. To enable the Committee to perform its functions, the

Company shall supply full and timely information to the Committee on all

matters relating to the service of

Participants as members of the Board and such other pertinent facts as the

Committee may require.

ARTICLE 7

Amendment and Termination

7.1. Amendments. The Board shall have the right to amend the Plan from

time to time, subject to Section 7.3, by an instrument in writing approved by

the Board and executed on the Company's behalf by a duly authorized officer.

7.2. Termination of Plan. The Plan is strictly a voluntary undertaking

on the part of the Company and shall not be deemed to constitute a contract

between the Company and any Participant or a consideration for, or an

inducement or condition of, the performance of services by any Participant as

a member of the Board. The Board reserves the right to terminate the Plan at

any time, subject to Section 7.3, by an instrument in writing approved by the

Board and executed on the Company's behalf by a duly authorized officer. Upon

termination of the Plan, no further benefits shall accrue on behalf of any

individual then a Participant, nor shall any individual not a Participant as

of the date of termination be eligible to become a Participant thereafter.

11

7.3. Existing rights. No amendment or termination of the Plan shall

reduce:

(a) any benefits payable to (or in respect of) a Participant who has

ceased to be a member of the Board, or

(b) any benefits to which a current Board member would have been

entitled, currently or in the future, in the event his or her service as a

Board member had terminated on the date of such amendment or termination.

ARTICLE 8

Miscellaneous

8.1. No funding. Nothing in the Plan will be construed to create a

trust or to obligate the Company or any other person to segregate a fund,

purchase an insurance contract, or in any other way currently to fund the

future payment of any benefits hereunder, nor will anything herein be

construed to give any Participant or any other person rights to any specific

assets of the Company or of any other person. The Plan constitutes a mere

promise by the Company to make benefit payments in the future, and is intended

to be unfunded for tax purposes. Any benefits which become payable hereunder

shall be paid from the general assets of the Company, and the rights of any

Participant or of his or her estate or beneficiary shall be those of an

unsecured general creditor.

8.2. Grantor trust. The Company in its sole discretion may establish a

trust (a "grantor trust") of which it is treated as the owner under Subpart E

of Subchapter J, Chapter 1 of the Code to provide for the payment of benefits

hereunder, subject to the claims of the Company's general creditors in the

event of insolvency, and subject to such other terms and conditions as the

Company may deem necessary or advisable to ensure that benefits are not

12

includable, by reason of the trust, in the income of trust beneficiaries prior

to their actual distribution.

8.3. Nonassignability. None of the benefits, payments, proceeds or

claims of any Participant shall be subject to any claim of any creditor and,

in particular, the same shall not be subject to attachment or garnishment or

other legal process by any creditor of the Participant or his or her

beneficiary, nor shall any Participant or beneficiary have any right to

alienate, anticipate, commute, pledge, sell, transfer, encumber or assign any

of the benefits or payments or proceeds which he or she may expect to receive,

contingently or otherwise, under the Plan.

8.4. Limitation of Participants' rights. Participation in the Plan

shall not give any Participant the right to be retained as a member of the

Board or any right or interest in the Plan other than as herein provided.

8.5. Participants bound. Any action with respect to the Plan taken by

the Committee, the Board or the Company or any action authorized by or taken

at the direction of the Committee, the Board or the Company shall be

conclusive upon all Participants entitled to benefits under the Plan.

8.6. Receipt and release. Any payment to any Participant in accordance

with the provisions of the Plan shall, to the extent thereof, be in full

satisfaction of all claims against the Company, the Board and the Committee

under the Plan, and the Committee may require such Participant, as a condition

precedent to such payment, to execute a receipt and release to such effect. If

any Participant is determined by the Committee to be incompetent by reason of

physical or mental disability to give a valid receipt and release, the

Committee may cause the payment or payments becoming due to such person to be

made to another person for his or her benefit without responsibility on the

13

part of the Committee, the Board or the Company to follow the application of

such funds.

8.7. Notices. All notices and elections to be delivered hereunder to

the Committee, the Board or the Company shall be delivered to the attention of

the Secretary of the Company.

8.8. Unforeseen Emergency. A Participant who has an Unforeseen

Emergency may, with the consent of a majority of the disinterested members of

the Committee, receive a distribution of that portion of his or her Account

which the Committee determines is necessary to satisfy the emergency need,

including any amounts necessary to pay any federal, state or local income

taxes reasonably anticipated to result from the distribution, but only to the

extent such need is not covered by insurance and cannot reasonably be relieved

by the liquidation of the Participant's assets (to the extent that such

liquidation would not in itself cause a severe financial hardship) or by

cessation of elective deferrals under the Plan. A Participant who has an

Unforeseen Emergency may also cease or reduce future deferrals under the Plan

with the consent of a majority of the disinterested members of the Committee.

A Participant requesting a distribution, or a cessation or reduction of future

deferrals, on account of an Unforeseen Emergency shall apply in writing in a

letter submitted to the Committee and shall provide such information as the

Committee may require.

8.9 Governing law. The Plan shall be construed, administered, and

governed in all respects under and by the laws of the Commonwealth of

Massachusetts. If any provision shall be held by a court of competent

jurisdiction to be invalid or unenforceable, the remaining provisions hereof

shall continue to be fully effective.

14

8.10. Headings and subheadings. Headings and subheadings in the Plan

are inserted for convenience only and are not to be considered in the

construction of the provisions hereof.

IN WITNESS WHEREOF, The Neiman Marcus Group, Inc. has caused the Plan to

be

amended and restated by its duly authorized officer this 8th day of June,

1998.


By: s/ Eric P. Geller Eric P. Geller, Senior Vice President, General Counsel and Secretary

15

[PAGE 23]

THE NEIMAN MARCUS GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS

OverviewThe Company's financial performance reflects a focused strategy executed in afavorable economic environment during the past three years and the strongcompetitive position of its three operating entities: Neiman Marcus Stores,Bergdorf Goodman and NM Direct. Management believes that the Company's successcan be attributed to its business strategy, which is designed to increaseproductivity, sales and operating earnings. Key elements of the strategyinclude: (i) offering an extensive and carefully edited assortment of high-endfashion merchandise; (ii) providing a high level of customer service; (iii)investing in the Company's store base and supporting infrastructure; (iv)opening new stores; and (v) expanding its customer base by broadening theCompany's reach through both creative marketing techniques and its directmarketing operations, NM Direct. As a result of the Company's successfulimplementation of this strategy, revenues rose to $2.37 billion in fiscal1998, representing a 14.4% increase over revenues of $2.08 billion in fiscal1996. Net earnings increased 37.3% from $77.4 million to $106.3 million duringthe same period.

Comparable sales were down 4.9% for the first nine weeks (ended October 3,1998) of fiscal 1999. Management is unable at this time to predict whetherthis weakness in sales will continue through the year and, therefore, whetherthe Company will be able to maintain the positive revenue and earnings trendsof the last three fiscal years.

Approximately 77% of the Company's revenues are generated by Neiman MarcusStores with the balance split between Bergdorf Goodman and NM Direct. Revenuegrowth over the last three fiscal years at Neiman Marcus Stores and BergdorfGoodman can be attributed primarily to increases in comparable store sales andnew store openings. Since August 1995, the Company has opened three new NeimanMarcus stores in the Northeast market and a new store in Hawaii in September1998. The Company currently also plans to open new Neiman Marcus stores inCoral Gables, Florida, in 2001 (120,000 gross square feet), in Palm Beach,Florida, in 2000 (49,000 gross square feet), in Plano, Texas, in 2002 (150,000gross square feet), in Houston, Texas, in 2001 (150,000 gross square feet),and in Tampa, Florida, in 2002 (90,000 gross square feet). The Plano, Texasstore will replace an existing store in nearby Prestonwood, Texas and theHouston store will replace the existing Town & Country store. In fiscal 1998,average sales per gross square foot reached all-time highs of $416 at NeimanMarcus Stores and $867 at Bergdorf Goodman, representing increases of 9.5% and10.3%, respectively, over fiscal 1996 levels. The Company has consistentlyfocused on renovating and modernizing its stores to improve productivity. TheCompany aims to improve average transaction amounts and comparable salesgrowth with programs which are designed to increase the customers' awarenessof other merchandise offerings in the store and serve more of theirmerchandise needs. In addition, to meet the demands of their customers forfine merchandise, Neiman Marcus Stores and Bergdorf Goodman have placed agreater emphasis on higher quality merchandise at higher opening price points.

In fiscal 1998, the Company announced a new retail concept, "The Galleries ofNeiman Marcus." The Galleries is a concept of smaller retail stores ofapproximately 10,000 to 15,000 square feet focusing on precious and finejewelry, gifts and home accessories. The Company plans to open Galleriesstores in Cleveland, Ohio, in November 1998, in Phoenix, Arizona, in January1999 and in Seattle, Washington, in the summer of 1999 to test this concept.In January 1998, the Company acquired Chef's Catalog, a direct marketer ofgourmet cookware and high-end kitchenware for $31 million. The operations ofChef's Catalog have been integrated with NM Direct.

In fiscal 1998, the Company's operating earnings rose to $199.1 million from$181.0 million in fiscal 1997 and $159.5 million in fiscal 1996. Because asubstantial portion of the Company's selling, general and administrativeexpenses consists of fixed charges, comparable sales increases improve theCompany's operating profit margin. Management believes that various programsdesigned to increase sales, coupled with improved use of technology andinformation systems in the Company's merchandising and inventory control, havecontributed to the Company's increased operating earnings.

In addition to opening new stores, the Company continues to make significantcapital investments that it believes will result in increased productivity. Inparticular, during fiscal 1996, 1997 and 1998, the Company invested a total ofapproximately $220 million in remodeling its existing store base andconstructing three new Neiman Marcus stores. In fiscal 1999, major projectswill include the commencement of multiyear construction projects to remodeland expand Neiman Marcus stores in San Francisco and Las Vegas, as well as theremodeling of the plaza level of the main store of Bergdorf Goodman.

In connection with the repurchase of its redeemable preferred stock in fiscal1997, the Company incurred a nonrecurring, non-cash charge to earningsapplicable to common shareholders of approximately $22.4 million, orapproximately $.48 per share.

[PAGE 24]

MANAGEMENT'S DISCUSSION AND ANALYSIS THE THINGS THAT COUNT

OPERATING RESULTS Fiscal Years Ended .................................. August 1, August 2, August 3,(Dollars in Millions) 1998 1997 1996(2)REVENUES ---------- ---------- ---------- Neiman Marcus Stores $ 1,815.6 $ 1,696.8 $ 1,566.7Bergdorf Goodman 273.9 253.7 251.9NM Direct 283.8 259.4 256.4 ---------- ---------- ----------Total $ 2,373.3 $ 2,209.9 $ 2,075.0 ========== ========== ==========

OPERATING EARNINGSNeiman Marcus Stores $ 173.6 $ 151.7 $ 134.0Bergdorf Goodman 24.5 18.2 16.5NM Direct 15.6 25.5 22.7Corporate expenses (14.6) (14.4) (13.7) ---------- ---------- ----------Total $ 199.1 $ 181.0 $ 159.5 ========== ========== ==========

OPERATING PROFIT MARGINNeiman Marcus Stores 9.6% 8.9% 8.6%Bergdorf Goodman 8.9% 7.2% 6.6%NM Direct 5.5% 9.8% 8.9% ---------- ---------- ----------Total(1) 8.4% 8.2% 7.7% ========== ========== ==========

(1) After corporate expenses.(2) In fiscal 1996, the reporting period included 53 weeks as compared to 52weeks in each of fiscal years 1998 and 1997.

FISCAL 1998 COMPARED TO FISCAL 1997Revenues in fiscal 1998 increased to $2.37 billion from $2.21 billion infiscal 1997. The 7.4% increase was primarily attributable to comparable salesgrowth of 7.0% and 8.0% at Neiman Marcus Stores and Bergdorf Goodman,respectively. NM Direct revenues increased in comparison to the prior yearperiod as a result of the inclusion of sales from Chef's Catalog, a directmarketer of gourmet cookware and high-end kitchenware, which was acquired inJanuary 1998. On a comparable basis, revenues at NM Direct decreased 2.3%.

Cost of goods sold increased 6.6% to $1.60 billion in fiscal 1998, primarilydue to incremental sales. As a percentage of revenues, cost of goods sold was67.6% in fiscal 1998 compared to 68.1% in fiscal 1997. The decrease in fiscal1998 resulted primarily from proportionately lower buying and occupancy costs.Gross margins at both Neiman Marcus Stores and Bergdorf Goodman wereessentially unchanged, while gross margins at NM Direct decreased incomparison to the prior year primarily as a result of higher markdowns.

Selling, general and administrative expenses increased 9.1% in fiscal 1998 to$556.1 million. As a percentage of revenues, selling, general andadministrative expenses increased to 23.4% in fiscal 1998 from 23.1% in fiscal1997. The proportionate increase in 1998 was primarily due to higher cataloguecirculation costs at NM Direct and pre-opening expenses associated with thenew Neiman Marcus store in Hawaii.

Corporate expenses, which consist primarily of charges for salaries, benefitsand overhead for the individuals who provide services under the intercompanyservices agreement with Harcourt General, and professional fees, increased1.8% to $14.6 million in fiscal 1998 compared to fiscal 1997. The increase wasprimarily due to higher professional fees.

Operating earnings increased by 10% to $199.1 million from $181.0 million inthe prior year. This increase is attributed to higher sales volume,particularly the comparable sales increases at Neiman Marcus Stores andBergdorf Goodman.

[PAGE 25]


Interest expense decreased 17.0% in fiscal 1998 to $21.9 million. The decreaseresulted from lower average borrowings as well as a lower effective interestrate which resulted from the repayment at maturity of the Company's fixed ratesenior notes with borrowings under its revolving credit facility.

The Company's effective income tax rate was 40% in fiscal 1998, as compared to41% in fiscal 1997.

FISCAL 1997 COMPARED TO FISCAL 1996Revenues in fiscal 1997 increased to $2.21 billion from $2.08 billion infiscal 1996. The 6.5% increase was primarily attributable to comparable salesgrowth of 5.3% at Neiman Marcus Stores, and to new Neiman Marcus stores openedin King of Prussia, Pennsylvania, in February 1996 and Paramus, New Jersey, inAugust 1996. Comparable sales increases at Bergdorf Goodman and NM Direct were2.1% and 2.9%, respectively.

Cost of goods sold increased 6.3% to $1.50 billion in fiscal 1997, primarilydue to incremental merchandise sold. As a percentage of revenues, cost ofgoods sold was 68.1% in fiscal 1997 compared to 68.3% in fiscal 1996. Thedecrease in fiscal 1997 resulted primarily from improved gross margins across

all divisions, and proportionately lower buying and occupancy costs.

Selling, general and administrative expenses increased 5.0% in fiscal 1997 to$509.7 million. As a percentage of revenues, selling, general andadministrative expenses decreased to 23.1% in fiscal 1997 from 23.4% in fiscal1996. The proportionate decrease was primarily due to higher revenues.

Corporate expenses, which consist primarily of charges for salaries, benefitsand overhead for the individuals who provide services under the intercompanyservices agreement with Harcourt General, and professional fees, increased4.7% to $14.4 million in fiscal 1997 compared to fiscal 1996. This increasewas primarily due to higher professional fees.

Operating earnings increased by 13.5% to $181.0 million from $159.5 million inthe prior year. This increase is attributed to higher sales volume,particularly at Neiman Marcus Stores, and improved gross margins.

Interest expense decreased 6.7% in fiscal 1997 to $26.3 million. Higheraverage borrowings were offset by a lower effective interest rate whichresulted from repayment at maturity of a portion of the Company's fixed ratesenior notes with borrowings under its revolving credit facility.

The Company's effective income tax rate of 41% in fiscal 1997 was unchangedfrom the prior fiscal year.

REVIEW OF FINANCIAL CONDITIONIn fiscal 1998, the Company had sufficient cash flows from operations and itsrevolving credit facility to finance its working capital needs, capitalexpenditures and the acquisition of Chef's Catalog. Operating activitiesprovided net cash of $182.6 million in fiscal 1998 compared to $109.2 millionin fiscal 1997.

The Company's capital expenditures in fiscal 1998 related principally to theconstruction of a new store in Hawaii and renovations of existing stores.Capital expenditures were $81.2 million in fiscal 1998, $53.0 million infiscal 1997 and $85.7 million in fiscal 1996. The Company opened new NeimanMarcus stores in Paramus, New Jersey, in August 1996 (141,000 gross squarefeet) and in Honolulu's Ala Moana Center in September 1998 (160,000 grosssquare feet). The Company currently plans to open six new full-line NeimanMarcus stores over the next five years, two of which are replacement stores,adding more than 400,000 gross square feet in total. Capital expenditures arecurrently estimated to approximate $120 million for fiscal 1999.

In January 1998, the Company acquired Chef's Catalog for approximately $31.0million in cash. The acquisition was funded primarily through borrowings underthe Company's revolving credit facility.

In May 1998, the Company issued $250 million of senior notes and debentures tothe public. The proceeds of the debt offering were used to repay borrowingsoutstanding on the Company's revolving credit facility. The debt is comprisedof $125 million 6.65% senior notes due 2008 and $125 million 7.125% seniordebentures due 2028. Interest on the securities is payable semiannually inarrears beginning December 1998. At August 1, 1998, the Company had $615.0million available under its $650.0 million revolving credit facility, whichexpires in October 2002. The Company believes that it will have sufficientresources to fund its planned capital growth and operating requirements.

[PAGE 26]

MANAGEMENT'S DISCUSSION AND ANALYSIS THE THINGS THAT COUNT

In October 1996, the Company issued 8.0 million shares of common stock to thepublic at $35.00 per share. The net proceeds were used in November 1996,together with 3.9 million shares of the Company's common stock and borrowingsof approximately $20.0 million, to purchase all of its outstanding redeemablepreferred stock from Harcourt General and pay accrued and unpaid dividends.The repurchase of the preferred stock resulted in a reduction of dividendpayments of $21.3 million in fiscal 1997 compared to fiscal 1996 andeliminated all related future preferred dividend and sinking fundrequirements.

The Company declared and paid the final dividends on its preferred stock inthe first quarter of fiscal 1997 in the amount of $5.8 million on November 12,1996 concurrent with the repurchase of this preferred stock.

SEASONALITYThe specialty retail industry is seasonal in nature, and a disproportionatelyhigh level of the Company's sales and earnings are generated in the fall andholiday selling seasons. The Company's working capital requirements andinventories increase substantially in the first quarter in anticipation of theholiday selling season.

IMPACT OF INFLATIONThe Company has adjusted selling prices to maintain certain profit levels andwill continue to do so as competitive conditions permit. In general,management believes that the impact of inflation or of changing prices has nothad a material effect on the Company's results of operations during the lastthree fiscal years.

RECENT ACCOUNTING PRONOUNCEMENTSIn June 1997, the Financial Accounting Standards Board (FASB) issued Statementof Financial Accounting Standards No. 131, "Disclosures about Segments of anEnterprise and Related Information" (SFAS 131). Under the new standard,companies will be required to report certain information about operatingsegments in consolidated financial statements. Operating segments will bedetermined based on the method that management uses to organize its businessesfor making operating decisions and assessing performance. The standard alsorequires that companies report certain information about their products andservices, the geographic areas in which they operate, and their majorcustomers. The Company is currently evaluating the additional disclosuresrequired by SFAS 131, which will be effective for fiscal 1999.

In February 1998, the FASB issued Statement of Financial Accounting StandardsNo. 132, "Employers' Disclosures about Pensions and Other PostretirementBenefits" (SFAS 132). Upon adoption in fiscal 1999, the Company will providethe additional disclosures required by SFAS 132.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS133), which will require recognition of all derivatives as either assets orliabilities on the balance sheet at fair value. The Company is currentlyevaluating the additional disclosures required in implementing SFAS 133, whichwill be effective for fiscal 2000.

YEAR 2000 DATE CONVERSIONThe Company has completed its assessment of its hardware and software systems,including the embedded systems in the Company's buildings, property andequipment, and is implementing plans to ensure that the operation of suchsystems will not be adversely affected by the Year 2000 date change.

The Company is presently in the process of renovating non-compliant systemsand implementing converted and replaced systems for substantially all of itshardware and software systems. The Company estimates that its efforts to makethese systems Year 2000 compliant are approximately 60% complete, withsubstantial completion of the Year 2000 project currently anticipated forFebruary 1999.

The Company has established an ongoing program to communicate with its

significant suppliers and vendors to determine the extent to which theCompany's systems and operations are vulnerable to those third parties'failure to rectify their own Year 2000 issues. Based on responses to theCompany's inquiries, the Company has identified those suppliers and vendorsmost at risk for failing to achieve Year 2000 compliance on a timely basis andis monitoring their continuing progress. The Company is not presently aware ofany significant exposure arising from potential third party failures. However,there can be no assurance that the systems of other companies on which theCompany's systems or operations rely will be timely converted or that anyfailure of such parties to achieve Year 2000 compliance would not have anadverse effect on the Company's results of operations.

[PAGE 27]


The Company has engaged both internal and external resources to assess,reprogram, test and implement its systems for Year 2000 compliance. Based onmanagement's current estimates, the costs of Year 2000 remediation, includingsystem renovation, modifications and enhancements, which have been and will beexpensed as incurred, are not expected to be material to the results ofoperations or the financial position of the Company. Additionally, suchexpenditures have not adversely affected the Company's ability to continue itsinvestment in new technology in connection with its ongoing systemsdevelopment plans.

Management presently believes the Company's most reasonably likely worst caseYear 2000 scenario could arise from a business interruption caused bygovernmental agencies, utility companies, telecommunication service companies,shipping companies or other service providers outside the Company's control.There can be no assurance that such providers will not suffer businessinterruption caused by a Year 2000 issue. Such an interruption could have amaterial adverse effect on the Company's results of operations.

The Company is in the process of developing a contingency plan for continuingoperations in the event of Year 2000 failures, and the current target forcompleting that plan is December 1998.

FORWARD-LOOKING STATEMENTSStatements in this report referring to the expected future plans andperformance of the Company are forward-looking statements. Actual futureresults may differ materially from such statements. Factors that could affectfuture performance include, but are not limited to: changes in economicconditions or consumer confidence; changes in consumer preferences or fashiontrends; delays in anticipated store openings; adverse weather conditions,particularly during peak selling seasons; changes in demographic or retailenvironments; competitive influences; failure of the Company or third partiesto be Year 2000 compliant; significant increases in paper, printing andpostage costs; and changes in the Company's relationships with designers and other resources.

[PAGE 28]

CONSOLIDATED BALANCE SHEETS THE THINGS THAT COUNT

August 1, August 2,(Dollar Amounts in Thousands) 1998 1997 ---------- ----------

AssetsCURRENT ASSETS Cash and equivalents $ 56,644 $ 16,861 Undivided interests in NMG Credit Card Master Trust 138,867 128,341 Accounts receivable, less allowance for doubtful accounts of $1,800 and $1,700 53,571 55,041 Merchandise inventories 499,068 460,412 Deferred income taxes 24,058 19,049 Other current assets 61,188 54,339 ---------- ---------- TOTAL CURRENT ASSETS 833,396 734,043 ---------- ----------PROPERTY AND EQUIPMENT Land, buildings and improvements 435,166 428,325 Fixtures and equipment 310,726 300,579 Construction in progress 66,927 26,029 ---------- ---------- 812,819 754,933 Less accumulated depreciation and amortization 333,563 300,800 ---------- ----------

PROPERTY AND EQUIPMENT, NET 479,256 454,133 ---------- ----------

OTHER ASSETS 125,140 99,684 ---------- ---------- $1,437,792 $1,287,860 ========== ==========

Liabilities and Shareholders' EquityCURRENT LIABILITIES Notes payable and current maturities of long-term liabilities $ 5,963 $ 8,810 Accounts payable 201,490 174,952 Accrued liabilities 180,809 147,730 ---------- ---------- TOTAL CURRENT LIABILITIES 388,262 331,492 ---------- ----------

LONG-TERM LIABILITIES Notes and debentures 284,617 300,000 Other long-term liabilities 71,083 69,738 ---------- ---------- 355,700 369,738 ---------- ---------- Deferred Income Taxes 37,139 31,902

COMMITMENTS AND CONTINGENCIESCOMMON STOCK Common stock - $.01 par value Authorized - 100,000,000 shares Issued and outstanding - 49,759,686 and 49,873,347 shares 498 499ADDITIONAL PAID-IN CAPITAL 481,295 485,658RETAINED EARNINGS 174,898 68,571 ---------- ---------- $1,437,792 $1,287,860 ========== ==========

See Notes to Consolidated Financial Statements.

[PAGE 29]

THE NEIMAN MARCUS GROUP CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended .................................. August 1, August 2, August 3,(In Thousands Except for Per Share Data) 1998 1997 1996 ---------- ---------- ----------

Revenues $2,373,347 $2,209,891 $2,075,003Cost of goods sold including buying and occupancy costs 1,603,602 1,504,858 1,416,296Selling, general and administrative expenses 556,051 509,687 485,533Corporate expenses 14,620 14,364 13,719 ---------- ---------- ----------

Operating earnings 199,074 180,982 159,455Interest expense 21,862 26,330 28,228 ---------- ---------- ----------

Earnings before income taxes 177,212 154,652 131,227Income taxes 70,885 63,407 53,803 ---------- ---------- ----------

Net earnings 106,327 91,245 77,424Loss on redemption of redeemable preferred stocks - (22,361) -Dividends and accretion on redeemable preferred stocks - (6,201) (29,104) ---------- ---------- ----------Net earnings applicable to common shareholders $ 106,327 $ 62,683 $ 48,320 ========== ========== ==========

Weighted average number of common and common equivalent shares outstanding: Basic 49,808 47,162 38,000 ========== ========== ========== Diluted 49,981 47,335 38,218 ========== ========== ==========Earnings per share applicable to common shareholders: Basic $ 2.13 $ 1.33 $ 1.27 ========== ========== ========== Diluted $ 2.13 $ 1.32 $ 1.26 ========== ========== ==========


[PAGE 30]

CONSOLIDATED STATEMENTS OF CASH FLOWS THE THINGS THAT COUNT

Years Ended .................................. August 1, August 2, August 3,(In Thousands) 1998 1997 1996CASH FLOWS FROM OPERATING ACTIVITIES ---------- ---------- ---------- Net earnings $ 106,327 $ 91,245 $ 77,424Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 60,097 59,820 56,305 Deferred income taxes 228 1,190 (2,047) Other 1,629 2,199 2,447Changes in current assets and liabilities: Accounts receivable 2,431 (3,991) (5,401) Merchandise inventories (33,006) (16,464) (84,856) Accounts payable and accrued liabilities 48,841 (15,790) 15,751 Other (3,985) (8,971) (6,958) ---------- ---------- ----------NET CASH PROVIDED BY OPERATING ACTIVITIES 182,562 109,238 52,665 ---------- ---------- ----------

CASH FLOWS USED FOR INVESTING ACTIVITIES

CASH FLOWS USED FOR INVESTING ACTIVITIESAdditions to property and equipment (81,176) (53,037) (85,736)Purchases of held-to-maturity securities (636,342) (461,791) (502,604)Maturities of held-to-maturity securities 625,816 447,842 492,673Acquisition of Chef's Catalog (31,000) - - ---------- ---------- ----------NET CASH USED FOR INVESTING ACTIVITIES (122,702) (66,986) (95,667) ---------- ---------- ----------

CASH FLOWS USED FOR FINANCING ACTIVITIESProceeds from borrowings 249,617 113,500 109,917Repayment of debt (265,000) (132,000) (41,571)Payment of redemption of preferred stock - (281,426) -Issuance (repurchase) of common stock (4,694) 267,672 740Dividends paid - (5,796) (27,120) ---------- ---------- ----------NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (20,077) (38,050) 41,966 ---------- ---------- ----------CASH AND EQUIVALENTSIncrease/(Decrease) during the year 39,783 4,202 (1,036)Beginning balance 16,861 12,659 13,695 ---------- ---------- ----------Ending balance $ 56,644 $ 16,861 $ 12,659 ========== ========== ==========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid during the year for: Interest $ 20,932 $ 28,441 $ 27,816 ========== ========== ========== Income taxes $ 59,656 $ 63,951 $ 56,523 ========== ========== ==========


[PAGE 31]

THE NEIMAN MARCUS GROUP CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY

Retained Additional Earnings Common Stock Paid-in (Accumulated(In Thousands) Shares Amount Capital Deficit) ---------- ---------- ---------- ---------- Balance - July 30, 1995 37,960 $ 380 $ 82,366 $ (56,199)Net earnings - - - 77,424Accretion of redeemable preferred stock - - - (1,984)Preferred dividends - - - (27,120)Other equity transactions 44 - 740 - ---------- ---------- ---------- ----------Balance - August 3, 1996 38,004 380 83,106 (7,879)

Net earnings - - - 91,245Accretion of redeemable preferred stock - - - (405)Preferred dividends - - - (5,796)Loss on redemption of redeemable preferred stock - - - (8,594)Issuance of common stock 11,857 119 402,161 -Other equity transactions 12 - 391 - ---------- ---------- ---------- ----------

Balance - August 2, 1997 49,873 499 485,658 68,571

Net earnings - - - 106,327Repurchase of common stock (160) (2) (4,692) -Other equity transactions 47 1 329 - ---------- ---------- ---------- ----------Balance - August 1, 1998 49,760 $ 498 $ 481,295 $ 174,898 ========== ========== ========== ==========


[PAGE 32]

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT

NOTEONE Summary of Significant Accounting Policies

BASIS OF REPORTINGThe Company's specialty retailing businesses include Neiman Marcus Stores, NMDirect and Bergdorf Goodman. The consolidated financial statements include theaccounts of all of the Company's wholly-owned subsidiaries. All significantintercompany accounts and transactions have been eliminated. The Company'sfiscal year ends on the Saturday closest to July 31. In fiscal 1996, thereporting period included 53 weeks as compared to 52 weeks in each of fiscalyears 1997 and 1998.

CASH AND EQUIVALENTSCash and equivalents consist of cash and highly liquid investments withmaturities of three months or less from the date of purchase.

UNDIVIDED INTERESTS IN NMG CREDIT CARD MASTER TRUSTIn March 1995, the Company sold all of its Neiman Marcus credit cardreceivables through a subsidiary to The Neiman Marcus Group Credit Card MasterTrust (the "Trust") in exchange for certificates representing undividedinterests in such receivables. The undivided interests in the Trust includethe interests retained by the Company's subsidiary which are represented bythe Class C Certificate ($54.0 million) and the Seller's Certificate (theexcess of the total receivables transferred to the Trust over the portionrepresented by certificates sold to investors and the Class C Certificate).The undivided interests in the Trust represent securities which the Companyintends to hold to maturity in accordance with Statement of FinancialAccounting Standards No. 115, "Accounting for Certain Investments in Debt andEquity Securities." Due to the short-term revolving nature of the credit cardportfolio, the carrying value of the Company's undivided interests in theTrust approximates fair value.

MERCHANDISE INVENTORIESInventories are stated at the lower of cost or market. Substantially all ofthe Company's inventories are valued using the retail method on the last-in,first-out (LIFO) basis. While the Company believes that the LIFO methodprovides a better matching of costs and revenues, some specialty retailers usethe first-in, first-out (FIFO) method and, accordingly, the Company hasprovided the following data for comparative purposes.

If the FIFO method of inventory valuation had been used to value allinventories, merchandise inventories would have been $14.5 million and $15.0million higher than reported at August 1, 1998 and August 2, 1997,respectively. As a result of using the LIFO valuation method, net earningswere $0.3 million higher in 1998, $0.9 million lower in 1997, and $0.4 millionhigher in 1996 than they would have been using the FIFO method.

DERIVATIVESThe Company uses treasury lock agreements (a derivative) as a means ofmanaging interest-rate risk associated with current debt or anticipated debttransactions. The differentials to be received or paid under these contractsdesignated as hedges are deferred and amortized to interest expense over theremaining life of the associated debt. Derivative financial instruments arenot held for trading purposes.

DEPRECIATION AND AMORTIZATIONDepreciation and amortization are provided on a straight-line basis over the

shorter of the estimated useful lives of the related assets or the lease term. Buildings and improvements are depreciated over 15 to 30 years while fixturesand equipment are depreciated over two to 15 years.

When property and equipment are retired or have been fully depreciated, thecost and the related accumulated depreciation are eliminated from therespective accounts. Gains or losses arising from dispositions are reported asincome or expense.

Intangibles are amortized on a straight-line basis over their estimated usefullives, not exceeding 40 years. Amortization expense was $4.8 million in 1998and $3.7 million in 1997 and 1996.

Upon occurrence of an event or a change in circumstances, the Company comparesthe carrying value of its long-lived assets against projected undiscountedcash flows to determine any impairment and to evaluate the reasonableness ofthe depreciation or amortization periods.

[PAGE 33]

THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXESIncome taxes are calculated in accordance with Statement of FinancialAccounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS109 requires the asset and liability method of accounting for income taxes.

REVENUE RECOGNITIONThe Company recognizes revenue at point-of-sale or upon shipment.

RECEIVABLES AND FINANCE CHARGE INCOMEThe Company's credit operations generate finance charge income, which isrecognized as income when earned and is recorded as a reduction of selling,general and administrative expenses. Finance charge income amounted to $47.8million in 1998, $47.0 million in 1997 and $47.7 million in 1996. Thesecuritization of the Company's credit card receivables, which was completedin March 1995, had the effect of reducing finance charge income by $19.0million in each of 1998, 1997 and 1996.

Concentration of credit risk with respect to trade receivables is limited dueto the large number of customers to whom the Company extends credit. Ongoingcredit evaluation of customers' financial position is performed, andcollateral is not required as a condition of extending credit. The Companymaintains reserves for potential credit losses.

In 1997, the Company adopted Statement of Financial Accounting Standards No.125, "Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities" (SFAS 125). The effect of adopting SFAS 125was not material to the Company's consolidated financial position or resultsof operations.

PREOPENING EXPENSESCosts associated with the opening of new stores are expensed as incurred.

ADVERTISING AND CATALOGUE COSTSDirect response advertising relates primarily to the production anddistribution of the Company's catalogues and is amortized over the estimatedlife of the catalogue. All other advertising costs are expensed in the periodincurred. Advertising expenses were $114.4 million, $108.7 million and $104.2million in 1998, 1997 and 1996, respectively. Direct response advertisingamounts included in other current assets in the consolidated balance sheets of

August 1, 1998 and August 2, 1997 were $7.6 million and $6.9 million,respectively.

EARNINGS PER COMMON AND COMMON EQUIVALENT SHAREIn 1998, the Company adopted Statement of Financial Accounting Standards No.128 (SFAS 128) "Earnings per Share." All earnings per share amounts for allperiods presented have been restated to conform to the requirements of SFAS128.

SIGNIFICANT ESTIMATESIn the process of preparing its consolidated financial statements, the Companyestimates the appropriate carrying value of certain assets and liabilitieswhich are not readily apparent from other sources. The primary estimatesunderlying the Company's consolidated financial statements include allowancesfor doubtful accounts, accruals for pension and postretirement benefits andother matters. Actual results could differ from these estimates. Managementbases its estimates on historical experience and on various assumptions whichare believed to be reasonable under the circumstances.

RECENT ACCOUNTING DEVELOPMENTSIn June 1997, the Financial Accounting Standards Board (FASB) issued Statementof Accounting Standards No. 131, "Disclosures about Segments of an Enterpriseand Related Information" (SFAS 131). The Company is currently evaluating theadditional disclosures required by SFAS 131, which will be effective forfiscal 1999.

In February 1998, the FASB issued SFAS 132, "Employers' Disclosures aboutPensions and other Postretirement Benefits." Upon adoption in fiscal 1999, theCompany will provide the additional disclosures required by SFAS 132.

In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instrumentsand Hedging Activities," which will require recognition of all derivatives aseither assets or liabilities on the balance sheet at fair value. The Companyis currently evaluating the effect of implementing SFAS 133, which will beeffective for fiscal 2000.

[PAGE 34]


NOTETWO Acquisition of Chef's Catalog

On January 5, 1998 the Company acquired Chef's Catalog for approximately $31.0million in cash. Chef's Catalog is a direct marketer of gourmet cookware andhigh-end kitchenware, and its operations have been integrated with NM Direct.The acquisition has been accounted for by the purchase method of accountingand, accordingly, the results of operations of Chef's Catalog for the periodfrom the date of acquisition are included in the accompanying consolidatedfinancial statements. Intangible assets acquired, consisting primarily oftrademarks, customer lists and goodwill, are amortized on a straight-linebasis over their estimated useful lives.

NOTETHREE Company Public Offering

In October 1996, the Company completed a public offering of 8.0 million sharesof its common stock at a price of $35.00 per share. The net proceeds from theoffering ($267.3 million) were used by the Company to partially fund therepurchase of all of the Company's issued and outstanding preferred stocks

from Harcourt General, Inc., the Company's majority shareholder. In additionto the net proceeds, on November 12, 1996 the Company issued Harcourt General3.9 million shares of the Company's common stock (valued at $135.0 million at$35.00 per share) and completed the exchange for all of the Company's issuedand outstanding preferred stocks. The total consideration paid by the Companyto Harcourt General in connection with the repurchase was $416.4 million,representing 98% of the aggregate stated value of the preferred stock, plusaccrued and unpaid dividends through the date of the closing of the publicoffering.

In connection with the transaction, the Company incurred a non-recurringcharge to net earnings applicable to common shareholders of $22.4 million,comprised of two components: (i) $8.6 million representing the differencebetween the book value of the preferred stock and the total purchase price,and (ii) $13.8 million representing the fair value of shares issued toHarcourt General in excess of the number of shares that would have been issuedin accordance with the conversion terms of the 6% Preferred Stock.

Had the public offering and repurchase of the preferred stock taken place onJuly 30, 1995, diluted net earnings per share applicable to commonshareholders would have been $1.82 in 1997 and $1.55 in 1996.

NOTEFOUR Other Assets

Other assets consisted of the following:

August 1, August 2,(In Thousands) 1998 1997 ---------- ---------- Trademarks $ 88,300 $ 73,000Goodwill 33,202 22,729Other 40,894 36,394 ---------- ---------- 162,396 132,123Accumulated amortization (37,256) (32,439) ---------- ---------- $ 125,140 $ 99,684 ========== ==========

Trademarks and goodwill are amortized using the straight-line method overtheir estimated useful lives, ranging from 30 to 40 years. Mailing lists(which are included in Other) are amortized using the straight-line methodover their estimated useful lives, ranging from four to 11 years.

[PAGE 35]


NOTEFIVE Accrued Liabilities

Accrued liabilities consisted of the following:

August 1, August 2,(In Thousands) 1998 1997 ---------- ----------

Accrued salaries and related liabilities $ 37,857 $ 29,322Self-insurance reserves 24,694 23,478Income taxes payable 26,552 15,551Other 91,706 79,379 ---------- ---------- $ 180,809 $ 147,730 ========== ==========

NOTESIX Long-term Liabilities

Long-term liabilities consisted of the following:

Interest August 1, August 2,(In Thousands) Rate 1998 1997 ---------- ---------- ----------

Revolving credit facility (a) Variable $ 35,000 $ 300,000Senior notes (b) 6.65% 124,848 -Senior debentures (b) 7.125% 124,769 -Capital lease obligations (c) 7.63-10.25% 5,598 6,142Other long-term liabilities (d) Various 71,448 72,406 ---------- ----------Total long-term liabilities 361,663 378,548Less current maturities (5,963) (8,810) ---------- ---------- $ 355,700 $ 369,738 ========== ==========

(a) The Company has a revolving credit facility with 20 banks, pursuant towhich the Company may borrow up to $650 million. The facility, which expiresin October 2002, may be terminated by the Company at any time on threebusiness days' notice. The rate of interest payable (5.9% at August 1, 1998)varies according to one of four pricing options selected by the Company. Therevolving credit facility contains covenants which require the Company tomaintain certain leverage and fixed charge ratios.

(b) In May 1998, the Company issued $250 million of senior notes anddebentures to the public. The proceeds of the debt offering were used to repayborrowings outstanding on the Company's revolving credit facility. The debt iscomprised of $125 million 6.65% senior notes due 2008 and $125 million 7.125%senior debentures due 2028. Interest on the securities is payable semiannuallyin arrears beginning December 1998.

(c) The amount of assets under capital leases included in property andequipment net of amortization was $2.7 million at August 1, 1998 and $3.1million at August 2, 1997.

(d) Other long-term liabilities consisted primarily of certain employeebenefit obligations, postretirement health care benefits and the liability forscheduled rent increases.

The aggregate maturities of all long-term liabilities and capital leaseobligations are $6.0 million in 1999, $4.0 million in 2000, $4.4 million in2001, $39.6 million in 2002, $4.3 million in 2003 and $303.4 millionthereafter.

[PAGE 36]


NOTESEVEN Redeemable Preferred Stocks

The Company is authorized to issue up to 50,000,000 shares of preferred stock.In fiscal 1997, the Company repurchased its issued and outstanding preferredstocks which consisted of 1,000,000 shares of 6% Cumulative ConvertiblePreferred Stock and 500,000 shares of 9 1/4% Cumulative Redeemable PreferredStock, all of which were owned by Harcourt General.

NOTEEIGHT Common Shareholders' Equity

OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERALHarcourt General owns approximately 26.4 million shares of Common Stock,representing approximately 53% of the issued and outstanding shares of CommonStock of the Company.

The Company and Harcourt General are parties to an agreement pursuant to whichHarcourt General provides certain management, accounting, financial, legal,tax and other corporate services to the Company. The fees for these servicesare based on Harcourt General's costs and are subject to the approval of acommittee of directors of the Company who are independent of Harcourt General.This agreement may be terminated by either party on 180 days' notice. Chargesto the Company under this agreement were $5.4 million in 1998, $5.7 million in1997 and $6.9 million in 1996.

The Company's Chairman and Chief Executive Officer; President and ChiefOperating Officer; Senior Vice President and Chief Financial Officer; SeniorVice President and General Counsel; as well as certain other officers, servein similar capacities with Harcourt General. The first two named officers alsoserve as directors of both companies. In addition, two other directors of theCompany serve respectively as Senior Vice President and Chief FinancialOfficer and President and Co-Chief Operating Officer of Harcourt General.

COMMON STOCKCommon Stock is entitled to dividends if and when declared by the Board ofDirectors, and each share carries one vote. Holders of Common Stock have nocumulative voting, conversion, redemption or preemptive rights.

COMMON STOCK INCENTIVE PLANSThe Company has established common stock incentive plans allowing for thegranting of stock options, stock appreciation rights (SARs) and stock-basedawards to its employees. The Company applies Accounting Principles Board (APB)Opinion No. 25 and related interpretations in accounting for its plans. TheCompany has adopted the disclosure-only provision of the Statement ofFinancial Accounting Standards No. 123, "Accounting for Stock-BasedCompensation" (SFAS 123). Accordingly, no compensation cost has beenrecognized for its common stock incentive plans.

Had the fair-value based method of accounting been applied at grant date tothe Company's stock incentive plans, net earnings and earnings per share wouldhave been reduced to pro forma amounts for the years ended August 1, 1998,August 2, 1997 and August 3, 1996 as follows:

(In Thousands, Except Per Share Amounts) 1998 1997 1996 ---------- ---------- ----------Net earnings: As reported $ 106,327 $ 62,683 $ 48,320 Pro forma $ 105,339 $ 62,320 $ 48,214Basic earnings per share: As reported $ 2.13 $ 1.33 $ 1.27 Pro forma $ 2.11 $ 1.32 $ 1.27Diluted earnings per share:

As reported $ 2.13 $ 1.32 $ 1.26 Pro forma $ 2.11 $ 1.32 $ 1.26

[PAGE 37]


The effects on pro forma net earnings and earnings per share of expensing theestimated fair value of stock options are not necessarily representative ofthe effects on reported net earnings for future years due to such factors asthe vesting period of the stock options and the potential for issuance ofadditional stock options in future years. In addition, the disclosurerequirements of SFAS 123 are presently applicable only to options grantedsubsequent to July 30, 1995.

The Company has adopted the 1997 Incentive Plan (the "1997 Plan") which iscurrently used for grants of equity-based awards to employees. All outstandingequity-based awards at August 1, 1998 were granted under the Company's 1997Plan and the 1987 Stock Incentive Plan. At August 1, 1998, there were 2.2million shares of Common Stock available for grants under the 1997 Plan.

Options outstanding at August 1, 1998 were granted at prices (not less than100% of the fair market value on the date of the grant) varying from $11.63 to$33.75. Options generally vest ratably over five years and expire after tenyears. There were 111 employees with options outstanding at August 1, 1998.For all outstanding options at August 1, 1998, the weighted average exerciseprice was $23.83 and the weighted average remaining contractual life wasapproximately 7.1 years.

The Company has allowed SAR treatment in connection with the exercise ofcertain options. Optionees allowed SAR treatment surrendered an exercisableoption in exchange for an amount of cash equal to the excess of the marketprice of the Common Stock at the time of the surrender over the optionexercise price.

The fair value of each option grant is estimated on the date of the grantusing the Black-Scholes option pricing model with the following assumptionsused for grants in 1998, 1997 and 1996, respectively:

1998 1997 1996 ---------- ---------- ---------- Expected life (years) 8 7 7Expected volatility 29.4% 31.1% 24.4%Risk-free interest rate 5.5% 7.0% 7.0% ========== ========== ==========

A summary of the status of the Company's 1987 and 1997 Stock Incentive Plansas of August 1, 1998, and August 2, 1997 and changes during the years endingon those dates is presented below:

1998 1997 1996 ..................... ..................... ..................... Weighted- Weighted- Weighted- Average Average Average

Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- --------- --------- --------- --------- --------- Options outstanding at beginning of year 660,780 $ 17.95 653,077 $ 14.41 784,864 $ 14.47Granted 325,800 32.87 131,050 33.38 128,600 15.38SAR Surrenders (107,240) 17.75 (82,207) 14.45 (202,192) 14.95Exercised (2,300) 14.90 (1,200) 14.53 (2,900) 15.28Canceled (29,080) 24.92 (39,940) 17.85 (55,295) 15.63 --------- --------- --------- --------- --------- ---------Outstanding at end of year 847,960 $ 23.83 660,780 $ 17.95 653,077 $ 14.41 ========= ========= =========

Options exercisable at year-end 286,700 $ 15.53 273,090 $ 14.21 239,247 $ 14.34 ========= ========= =========

The weighted-average fair value of options granted in 1998, 1997 and 1996 was$15.94, $16.32 and $6.88, respectively.

[PAGE 38]


The following summarizes information about the Company's stock options as of August 1, 1998.

Options Outstanding Options Exercisable ............................................................................................... Weighted- Weighted- Weighted- Shares Average Average Shares Average Outstanding Remaining Exercise Outstanding ExerciseRange of Exercise Prices At 8/1/98 Contractual Life Price At 8/1/98 Price- --------------------------------------- ---------------- ----------- ----------- ----------

$11.63 - $12.75 62,070 3.9 $ 12.15 62,070 $ 12.15$13.38 - $16.75 354,040 5.6 $ 14.70 202,620 $ 14.63$29.19 - $33.38 431,850 8.8 $ 33.01 22,010 $ 33.38- --------------- ---------- ---------------- ---------- ---------- ----------$11.63 - $33.38 847,960 7.1 $ 23.83 286,700 $ 15.53- --------------- ---------- ---------------- ---------- ---------- ----------

NOTENINE Stock Repurchase Program

In December 1997, the Board of Directors of the Company authorized therepurchase of up to one million shares of common stock in the open market. Forthe year ended August 1, 1998, the Company repurchased 160,100 shares at anaverage price of $29.32 per share under this stock repurchase program.

In August 1998, the Company repurchased an additional 247,000 shares at anaverage price of $26.85 per share.

NOTETEN Income Taxes

Income tax expense was as follows:

Years Ended ................................... August 1, August 2, August 3,(In Thousands) 1998 1997 1996 ---------- ---------- -----------Current: Federal $ 62,100 $ 53,292 $ 47,517State 8,557 8,925 8,333 ---------- ---------- ---------- 70,657 62,217 55,850 ---------- ---------- ----------Deferred:Federal (101) 836 (1,588)State 329 354 (459) ---------- ---------- ---------- 228 1,190 (2,047) ---------- ---------- ---------- Income tax expense $ 70,885 $ 63,407 $ 53,803 ========== ========== ==========

The Company's effective income tax rate was 40% in 1998 and 41% in both 1997and 1996. The difference between the statutory federal tax rate and theeffective tax rate is due primarily to state income taxes.

[PAGE 39]


Significant components of the Company's net deferred income tax liabilitystated on a gross basis were as follows:

August 1, August 2, (In Thousands) 1998 1997 ---------- ----------Gross deferred income tax assets: Financial accruals and reserves $ 19,901 $ 19,578Employee benefits 25,472 23,630Inventories 12,068 8,276Deferred lease payments 2,618 3,066Other 537 754 ---------- ---------- Total deferred tax assets 60,596 55,304Gross deferred income tax liabilities:Excess tax depreciation (63,092) (57,429)Pension accrual (4,087) (4,581)Other assets previously deducted on tax return (6,498) (6,147) ---------- ---------- Total deferred tax liabilities (73,677) (68,157) ---------- ----------Net deferred income tax liability $ (13,081) $ (12,853) ========== ==========

NOTEELEVEN Pension Plans

The Company has a noncontributory defined benefit pension plan coveringsubstantially all full-time employees. The Company also sponsors an unfundedsupplemental executive retirement plan which provides certain employeesadditional pension benefits. Benefits under the plans are based on theemployees' years of service and compensation over defined periods ofemployment. When funding is required, the Company's policy is to contributeamounts that are deductible for federal income tax purposes. Pension plan

assets consist primarily of equity and fixed income securities.

Components of net pension expense were as follows:

Years Ended ................................... August 1, August 2, August 3,(In Thousands) 1998 1997 1996 ---------- ---------- ---------- Service cost $ 5,527 $ 5,591 $ 5,700Interest cost on projected benefit obligation 10,843 10,055 8,300Actual return on assets (16,750) (40,235) (12,100)Net amortization and deferral 8,658 33,770 5,700 ---------- ---------- ----------Net pension expense $ 8,278 $ 9,181 $ 7,600 ========== ========== ==========

The actuarial assumptions used in the computation of pension expense andvaluation of the benefit obligation were as follows: 1998 1997 1996 ---------- ---------- ----------Discount rate 7.0% 7.5% 7.5%Long-term rate of return on plan assets 9.0% 9.0% 9.0%Rate of increases in future compensation levels 5.0% 5.0% 5.0% ========== ========== ==========

[PAGE 40]


The plans' funded status and amounts recognized in the consolidated balancesheets were as follows:

August 1, 1998 August 2, 1997 ...................... ...................... Funded Unfunded Funded Unfunded(In Thousands) Plan Plan Plan Plan ---------- ---------- ---------- ----------

Vested benefit obligation $ 111,824 $ 22,200 $ 99,591 $ 15,447 ========== ========== ========== ==========Accumulated benefit obligation $ 115,580 $ 27,853 $ 103,100 $ 19,922 ========== ========== ========== ==========

Projected benefit obligation $ 143,206 $ 36,221 $ 119,477 $ 25,199Pension plan assets at fair value 159,092 - 144,288 - ---------- ---------- ---------- ----------Funded (underfunded) projected obligation 15,886 (36,221) 24,811 (25,199)Net amortization and deferral (7,936) 6,878 (14,123) 804 Unrecognized net obligation at transition and unrecognized prior service cost 1,330 6,116 1,579 3,156 ---------- ---------- ---------- ----------Pension asset (liability) recognized in the consolidated balance sheets $ 9,280 $(23,227) $ 12,267 $ (21,239) ========== ========== ========== ==========

The Company has a qualified defined contribution 401(k) plan, which coverssubstantially all employees. Employees make contributions to the plan, and theCompany matches 25% of an employee's contribution up to a maximum of 6% of theemployee's compensation. Company contributions for the years ended August 1,1998, August 2, 1997 and August 3, 1996 were $2.9 million, $2.6 million and$2.3 million, respectively.

NOTETWELVE Postretirement Health Care Benefits

Retirees and active employees hired prior to March 1, 1989 are eligible forcertain limited postretirement health care benefits if they have met certainservice and minimum age requirements. The cost of these benefits is accruedduring the years in which an employee provides services. The Company paidpostretirement health care benefit claims of $1.3 million during 1998, $1.2million during 1997 and $1.2 million during 1996.

The actuarial present value of accumulated postretirement health care benefitobligations and the amounts recognized in the consolidated balance sheets wereas follows:

August 1, August 2,(In Thousands) 1998 1997 ---------- ----------

Retirees $ 10,716 $ 11,202Fully eligible active plan participants 3,381 3,409Other active plan participants 2,844 2,944 ---------- ----------Accumulated postretirement benefit obligation 16,941 17,555Unrecognized net gain 2,020 1,276 ---------- ----------Total $ 18,961 $ 18,831

[PAGE 41]


The periodic postretirement health care benefit cost was as follows:

Years Ended .................................. August 1, August 2, August 3,(In Thousands) 1998 1997 1996 ---------- ---------- ----------

Net periodic cost: Service cost $ 155 $ 48 $ 222 Interest cost on accumulated benefit obligation 1,282 819 1,621 Net amortization and deferral (30) (563) - ---------- ---------- ----------Total $ 1,407 $ 304 $ 1,843 ========== ========== ==========

A health care cost trend rate of 9% was assumed in measuring the accumulatedpostretirement health care benefit obligation at August 1, 1998, graduallydeclining to 5% by the year 2002. Measurement of the accumulatedpostretirement health care benefit obligation was based on an assumed 7.0%discount rate in 1998 and 7.5% in 1997 and 1996. An increase of 1% in thehealth care cost trend rate would increase the accumulated postretirementhealth care benefit obligation as of August 1, 1998 by $1.8 million. Theeffect of this change on the annual net periodic postretirement health carebenefit cost would be an increase of approximately $150,000.

NOTETHIRTEEN Commitments and Contingencies

OPERATING LEASESThe Company's operations are conducted primarily in leased properties whichinclude retail stores, distribution centers and other facilities.Substantially all leases are for periods of up to thirty years with renewaloptions at fixed rentals, except that certain leases provide for additionalrent based on revenues in excess of predetermined levels.Rent expense under operating leases was as follows:

Years Ended ................................... August 1, August 2, August 3,(In Thousands) 1998 1997 1996 ---------- ---------- ----------

Minimum rent $ 31,800 $ 31,200 $ 29,200Rent based on revenues 13,300 11,600 10,700 ---------- ---------- ----------Total rent expense $ 45,100 $ 42,800 $ 39,900 ========== ========== ==========

Future minimum lease payments, excluding renewal options, under operatingleases are as follows: 1999 - $35.0 million; 2000 - $34.8 million; 2001 -$33.7 million; 2002 - $33.3 million; 2003 - $31.9 million; all yearsthereafter - $529.8 million.

LITIGATIONThe Company is involved in various suits and claims in the ordinary course ofbusiness. Management does not believe that the disposition of any such suitsand claims will have a material adverse effect upon the consolidated resultsof operations or the financial position of the Company.

LETTERS OF CREDITThe Company had approximately $18.7 million of outstanding irrevocable lettersof credit relating to purchase commitments and insurance liabilities at August1, 1998.

[PAGE 42]


NOTEFOURTEEN Fair Value of Financial Instruments

The estimated fair values of the Company's financial instruments are asreported and disclosed in the consolidated financial statements, and asdiscussed below.

SECURITIZATION OF CREDIT CARD RECEIVABLESIn March 1995 the Company sold all of its Neiman Marcus credit cardreceivables through a subsidiary to The Neiman Marcus Group Credit Card MasterTrust (the "Trust") in exchange for certificates representing undividedinterests in such receivables. Certificates representing undivided interests

in $246.0 million of these receivables were sold to third parties in a publicoffering of $225.0 million of 7.60% Class A certificates and $21.0 million of7.75% Class B certificates. The Company used the proceeds from this offeringto pay down existing debt. The Company's subsidiary will retain the remainingundivided interests in the receivables not represented by the Class A andClass B certificates. A portion of these interests is subordinated to theClass A and Class B certificates. The Company will continue to service allreceivables for the Trust.

In anticipation of the securitization, the Company entered into severalforward interest rate lock agreements. The agreements allowed the Company toestablish a weighted average effective interest rate of approximately 8.0% onthe certificates issued as part of the securitization.

NOTEFIFTEEN Earnings Per Share

Pursuant to the provisions of SFAS 128, the weighted average shares used incomputing basic and diluted earnings per share (EPS) are as presented in thetable below. No adjustments were made to net earnings applicable to commonshareholders for the computations of basic and diluted EPS during the periodspresented. All options were included in the computation of diluted EPS becausethe exercise price of those options was less than the average market price ofthe common shares.

Years Ended .................................. August 1, August 2, August 3,(In Thousands of Shares) 1998 1997 1996 ---------- ---------- ----------

Shares for computation of basic EPS 49,808 47,162 38,000Effect of assumed option exercises 173 173 218 ---------- ---------- ----------Shares for computation of diluted EPS 49,981 47,335 38,218 ========== ========== ==========

[PAGE 43]


NOTESIXTEEN Quarterly Financial Information (unaudited)

Year Ended August 1, 1998 .......................................................... First Second Third Fourth(In Millions Except for Per Share Data) Quarter Quarter Quarter Quarter Total ---------- ---------- ---------- ---------- ----------

Revenues $ 580.5 $ 708.4 $ 547.7 $ 536.7 $ 2,373.3 ========== ========== ========== ========== ==========Gross profit $ 204.4 $ 221.4 $ 179.3 $ 164.6 $ 769.7 ========== ========== ========== ========== ==========

Net earnings applicable to common shareholders $ 32.6 $ 33.5 $ 24.0 $ 16.2 $ 106.3 ========== ========== ========== ========== ==========

Earnings per share applicable to common shareholders:

Basic $ .65 $ .67 $ .48 $ .33 $ 2.13 ========== ========== ========== ========== ==========Diluted $ .65 $ .67 $ .48 $ .33 $ 2.13 ========== ========== ========== ========== ==========

Year Ended August 2, 1997 .......................................................... First Second Third Fourth Quarter Quarter Quarter Quarter Total ---------- ---------- ---------- ---------- ----------

Revenues $ 544.1 $ 661.9 $ 506.5 $ 497.3 $ 2,209.8 ========== ========= ========== ========== ==========Gross profit $ 193.5 $ 201.3 $ 162.7 $ 147.5 $ 705.0 ========== ========= ========== ========== ==========

Net earnings 30.9 25.6 20.7 14.0 91.2Loss on redemption of redeemable preferred stocks (22.4) - - - (22.4)Preferred dividends and accretion (6.2) - - - (6.2) ---------- ---------- ---------- ---------- ----------Net earnings applicable to common shareholders $ 2.3 $ 25.6 $ 20.7 $ 14.0 $ 62.6 ========== ========= ========== ========== ==========

Earnings per share applicable to common shareholders:

Basic $ .06 $ .52 $ .42 $ .28 $ 1.33 ========== ========== ========== ========== ==========Diluted $ .06 $ .52 $ .41 $ .28 $ 1.32 ========== ========== ========== ========== ==========

In the fourth quarter, the effect of adjusting the LIFO reserve forinventories to actual amounts increased net earnings by $3.9 million in 1998and $2.7 million in 1997.

[PAGE 44]


INDEPENDENT AUDITORS' REPORT

Board of Directors and ShareholdersThe Neiman Marcus Group, Inc.Chestnut Hill, Massachusetts

We have audited the accompanying consolidated balance sheets of The NeimanMarcus Group, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997,and the related consolidated statements of earnings, common shareholders'equity and cash flows for each of the three fiscal years in the period endedAugust 1, 1998. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with generally accepted auditingstandards. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of The NeimanMarcus Group, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997,and the results of their operations and their cash flows for each of the threefiscal years in the period ended August 1, 1998, in conformity with generallyaccepted accounting principles.

DELOITTE & TOUCHE LLPBoston, MassachusettsAugust 27, 1998

STATEMENT OF MANAGEMENT'S RESPONSIBILITYFOR FINANCIAL STATEMENTS

The management of The Neiman Marcus Group, Inc. and its subsidiaries isresponsible for the integrity and objectivity of the financial and operatinginformation contained in this Annual Report, including the consolidatedfinancial statements covered by the Independent Auditors' Report. Thesestatements were prepared in conformity with generally accepted accountingprinciples and include amounts that are based on the best estimates andjudgments of management.

The Company maintains a system of internal controls which provides managementwith reasonable assurance that transactions are recorded and executed inaccordance with its authorizations, that assets are properly safeguarded andaccounted for, and that records are maintained so as to permit preparation offinancial statements in accordance with generally accepted accountingprinciples. This system includes written policies and procedures, anorganizational structure that segregates duties, financial reviews and acomprehensive program of periodic audits by the internal auditors. The Companyalso has instituted policies and guidelines which require employees tomaintain a high level of ethical standards.

In addition, the Audit Committee of the Board of Directors, consisting solelyof outside directors, meets periodically with management, the internalauditors and the independent auditors to review internal accounting controls,audit results and accounting principles and practices and annually recommendsto the Board of Directors the selection of independent auditors.

JOHN R. COOKSenior Vice President and Chief Financial Officer

Catherine N. JanowskiVICE PRESIDENT AND CONTROLLER

[PAGE 45]

THE NEIMAN MARCUS GROUP SELECTED FINANCIAL DATA

Years Ended ........................................................... August 1, August 2, August 3, July 29, July 30,(In Millions Except for Per Share Data) 1998 1997 1996(a) 1995 1994 ---------- ---------- ---------- ---------- ----------

OPERATING RESULTS: Revenues $ 2,373.3 $ 2,209.9 $ 2,075.0 $ 1,888.2 $ 1,789.5 Earnings from continuing operations $ 106.3 $ 91.2 $ 77.4 $ 67.3 $ 65.7

Loss from discontinued operations - - - (11.7) (49.8) ========== ========== ========== ========== ==========Net earnings $ 106.3 $ 91.2 $ 77.4 $ 55.6 $ 15.9 ========== ========== ========== ========== ==========Net earnings (loss) applicable to common shareholders $ 106.3 $ 62.7 $ 48.3 $ 26.5 $ (13.2) ========== ========== ========== ========== ==========

Basic amounts per share applicable to common shareholders: Continuing operations $ 2.13 $ 1.33 $ 1.27 $ 1.01 $ .96 Discontinued operations- - - - (.31) ( 1.31) ---------- ---------- ---------- ---------- ----------Basic net earnings (loss) $ 2.13 $ 1.33 $ 1.27 $ .70 $ (.35) ========== ========== ========== ========== ==========

Diluted amounts per share applicable to common shareholders: Continuing operations $ 2.13 $ 1.32 $ 1.26 $ 1.01 $ .96 Discontinued operations - - - (.31) (1.31) ---------- ---------- ---------- ---------- ----------

Diluted net earnings (loss) $ 2.13 $ 1.32 $ 1.26 $ .70 $ (.35) ========== ========== ========== ========== ==========Common dividends $ - $ - $ - $ .10 $ .20 ========== ========== ========== ========== ==========

FINANCIAL POSITION:Total assets $ 1,437.8 $ 1,287.9 $ 1,252.4 $ 1,108.4 $ 1,323.1Long-term liabilities $ 355.7 $ 369.7 $ 361.9 $ 311.1 $ 443.6Redeemable preferred stocks $ - $ - $ 407.4 $ 405.4 $ 403.5 ========== ========== ========== ========== ==========

The selected financial data should be read in conjunction with theConsolidated Financial Statements contained elsewhere in this report.

(a) Fiscal 1996 was a 53 week year.

[PAGE 47]

THE NEIMAN MARCUS GROUP SHAREHOLDER INFORMATION

STOCK INFORMATIONThe Neiman Marcus Group's Common Stock is traded on the New York StockExchange under the symbol NMG. The following table indicates the quarterlyprice range of the Common Stock for the past two fiscal years.

1998 1997 --------------------- ---------------------Quarter High Low High Low --------- --------- --------- --------- First $ 35.56 $ 27.88 $ 35.88 $ 27.13

Second $ 35.36 $ 28.81 $ 36.00 $ 22.75Third $ 41.06 $ 34.63 $ 28.13 $ 23.88Fourth $ 43.44 $ 33.00 $ 29.25 $ 24.50 ========= ========= ========= =========

SHARES OUTSTANDINGThe Neiman Marcus Group has 49.5 million common shares outstanding. HarcourtGeneral, Inc. owns approximately 53% of NMG's outstanding common equity. TheNeiman Marcus Group had 11,619 common shareholders of record at August 1,1998.

Exhibit 21.1


SUBSIDIARIES & AFFILIATES

JURISDICTION OF SUBSIDIARY/AFFILIATE INCORPORATION STOCKHOLDER

Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc.

Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc.

Chef s Catalog, Inc. Delaware The Neiman Marcus Group, Inc.

Ermine Trading Corporation California The Neiman Marcus Group, Inc.

NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc. Neiman Marcus Holdings, Inc.

NM Financial Services, Inc. Delaware The Neiman Marcus Group, Inc.

NM Nevada Trust Massachusetts The Neiman Marcus Group, Inc. Bergdorf Goodman, Inc.

Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc.

Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc.

Neiman Marcus Special Events, Inc. Delaware The Neiman Marcus Group, Inc.

Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.

Worth Avenue Leasing Company Florida The Neiman Marcus Group, Inc.

EXHIBIT 23.1

INDEPENDENT AUDITORS CONSENT

We consent to the incorporation by reference in RegistrationStatement No.33-35299, No.333-35829 and 333-49893 of The NeimanMarcus Group, Inc. and subsidiaries on Forms S-8, S-8 and S-3,respectively, of our report dated August 27, 1998, appearing inthis Annual Report on Form 10-K of The Neiman Marcus Group, Inc.and subsidiaries for the year ended August 1, 1998.

s/ DELOITTE & TOUCHE LLP

Boston, MassachusettsOctober 23, 1998

<ARTICLE> 5<LEGEND>Need to fill in the text in this area.</LEGEND><MULTIPLIER> 1000 <PERIOD-TYPE> 12-MOS<FISCAL-YEAR-END> AUG-01-1998<PERIOD-END> AUG-02-1998<CASH> 56,644<SECURITIES> 138,867<RECEIVABLES> 55,371<ALLOWANCES> 1,800<INVENTORY> 499,068<CURRENT-ASSETS> 833,396<PP&E> 812,819<DEPRECIATION> 333,563<TOTAL-ASSETS> 1,437,792<CURRENT-LIABILITIES> 388,262<BONDS> 284,617<PREFERRED-MANDATORY> 0<PREFERRED> 0<COMMON> 498<OTHER-SE> 656,193<TOTAL-LIABILITY-AND-EQUITY> 1,437,792<SALES> 2,373,347<TOTAL-REVENUES> 2,373,347<CGS> 1,603,602<TOTAL-COSTS> 2,174,273<OTHER-EXPENSES> 0<LOSS-PROVISION> 2,771<INTEREST-EXPENSE> 21,862<INCOME-PRETAX> 177,212<INCOME-TAX> 70,885<INCOME-CONTINUING> 106,327<DISCONTINUED> 0<EXTRAORDINARY> 0<CHANGES> 0<NET-INCOME> 106,327<EPS-PRIMARY> 2.13<EPS-DILUTED> 2.13