EXHIBIT 10.3

 

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

 

This Second Amendment to Employment Agreement (the “Amendment”) is made and
entered into effective as of January 1, 2009, by and between The Neiman Marcus
Group, Inc., a Delaware corporation (“NMG”), Neiman Marcus, Inc., a Delaware
corporation (formerly known as Newton Acquisition, Inc.) (“Parent”) and Burton
M. Tansky (the “Executive”).

 

W I T N E S S E T H:

 

WHEREAS, NMG, Parent, the Executive and Newton Acquisition Merger Sub, Inc., a
Delaware corporation (“Merger Sub”) entered into an Employment Agreement
effective as of October 6, 2005 (the “Employment Agreement”); and

 

WHEREAS, Merger Sub merged with and into NMG on or about October 6, 2005, and as
a result of such merger the separate existence of Merger Sub thereafter ceased
and NMG continued as the surviving corporation; and

 

WHEREAS, NMG, Parent and the Executive previously amended the Employment
Agreement to revise the term of the Employment Agreement effective December 21,
2007; and

 

WHEREAS, NMG, Parent and the Executive now desire to amend the Employment
Agreement for compliance with Internal Revenue Code Section 409A and the
Treasury Regulations thereunder, and to make certain other changes;

 

NOW, THEREFORE, in consideration of the premises, the parties do hereby agree as
follows:

 

1.                                       Paragraph 1(d) of the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

(d)                                 “Change of Control” shall have the meaning
set forth in the Stockholders’ Agreement.  For purposes of clarification, the
closing of the transactions contemplated by the Merger Agreement will not
constitute a “Change of Control” for any purpose under this Agreement.

 

2.                                       Paragraph 1(e) of the Employment
Agreement is hereby deleted in its entirety, with such paragraph reserved for
future use.

 

3.                                       Paragraph 1(k) of the Employment
Agreement is hereby amended by the addition of the following sentence:

 

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In addition to the foregoing, if the Executive experiences a “separation from
service” (as determined in accordance with Treasury Regulation
Section 1.409A-1(h)) prior to his termination of employment as a result of
action taken by NMG without the consent of the Executive, the separation from
service shall constitute “Good Reason” hereunder; provided that the Executive
delivers a Notice of Termination to NMG within 10 days following such separation
from service.

 

4.                                       Paragraph 1(n) of the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

(n)                                 “Management Equity Incentive Plan” means the
Neiman Marcus, Inc. Management Equity Incentive Plan (formerly known as the
Newton Acquisition, Inc. Management Equity Incentive Plan), adopted November 29,
2005.

 

5.                                       Paragraph 2 of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

2.                                       Employment; Prior Agreements.  NMG
agrees to continue to employ the Executive, and the Executive agrees to continue
to be employed, for the period set forth in Paragraph 3, in the position and
with the duties and responsibilities set forth in Paragraph 4, and upon the
other terms and conditions set out in this Agreement.  The employment agreement
entered into between the Executive and NMG, dated August 3, 2003, is hereby
terminated and replaced in its entirety by this Agreement without further right
or obligation thereunder on the part of either party thereto (other than to pay
or provide the Executive any unpaid compensation thereunder).

 

6.                                       Paragraph 5(c)(ii) of the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

(ii)                                  Upon the occurrence of the earlier of a
Change of Control or an Initial Public Offering, the Executive will be paid a
cash bonus equal to $3,080,911, provided that no such bonus will be paid unless
(A) the Executive remains employed with NMG through the earlier of (x) the date
of the Change of Control, (y) the Initial Public Offering or (z) the fourth
anniversary of the Effective Date, and (B) the internal rate of return to the
Majority Stockholder (as defined in the Stockholders’ Agreement) in respect of
their direct and indirect investment in Parent is positive.  The Majority
Stockholder’s internal rate of return shall be calculated in the case of an
Initial Public Offering as if the Majority Stockholder sold all of its direct
and indirect equity interests in Parent at a per share price equal to the
Initial Public Offering price or, in the case of a Change of Control, based on
the value of its equity interests implied by the transaction giving rise to the
Change of Control, and in each case, taking into account all

 

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investments made directly or indirectly in Parent, all management and
transaction fees paid by Parent or its subsidiaries to the Majority Stockholder
and all expenses incurred by the Majority Stockholder in connection with the
investment.  If the Executive’s employment hereunder terminates for other than
Cause prior to the bonus payment becoming due as described above and, subsequent
to such termination, a Change of Control or Initial Public Offering occurs in
which the Majority Stockholder recognizes a positive internal rate of return
determined in accordance with the foregoing provisions, the Executive will be
entitled to a payment equal to the product of $3,080,911 and the percentage
determined as follows:  (1) if the termination of employment is pursuant to
Paragraph 6(a) or 6(b), 100%; (2) if the termination of employment is by the
Executive pursuant to Paragraph 6(e), 25% multiplied by the number of full years
(and not fractions thereof) from the Effective Date to the Employment
Termination Date; and (3) if the termination is by the Executive pursuant to
Paragraph 6(d) or by NMG pursuant to Paragraph 6(e), the sum (not to exceed
100%) of 25% multiplied by the number of full years and fractions thereof from
the Effective Date to the Employment Termination Date and 25%.

 

7.                                       Paragraph 5(c)(iii) of the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

(iii)                               If, during the Employment Term and prior to
any Change of Control or Initial Public Offering, Parent declares and pays an
extraordinary dividend, the Parent shall pay Executive a cash bonus equal to the
amount that he would receive if he owned all the shares initially underlying the
Newco Options (as defined in that certain letter agreement, dated October 4,
2005, by and among NMG, Parent and Executive, the “Letter Agreement”), whether
or not Executive has exercised any of the Newco Options; provided, however, that
the Newco Options which have expired pursuant to the terms of the Option Grant
Agreement (as defined in the Letter Agreement) shall not be taken into
consideration for purposes of this Paragraph 5(c)(iii).  Such bonus payment
shall be made no later than 2 ½ months after the end of the taxable year in
which the extraordinary dividend is declared.

 

8.                                       Paragraph 5(c)(iv) of the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

(iv)                              SERP Enhancement.  At the time of the
Executive’s termination of employment with NMG and all of its Affiliates, the
Executive’s years of service for purposes of calculating his benefit under The
Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan (the “SERP”)
shall be determined by multiplying his actual service for purposes of the SERP
by 2, subject to the 25-year maximum set forth in

 

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the SERP, and by then providing the Executive with an additional credit for each
year of service by the Executive to NMG following his attainment of age
sixty-five (65) (disregarding the 25-year maximum set forth in the SERP). 
During the Employment Term, the SERP shall not be terminated or amended in any
way that adversely affects the Executive without the consent of the Executive.

 

9.                                       Paragraph 7(a) of the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

(a)                                  Death.  If the Executive’s employment is
terminated by reason of the Executive’s death, NMG shall pay to the Executive’s
estate within 60 days of the Employment Termination Date (i) any unpaid portion
of the Executive’s Base Salary through the Employment Termination Date and any
bonus payable for the preceding fiscal year that has otherwise not already been
paid, provided that the payment of any such bonus may not be delayed past the
date the bonus is payable under the terms of any bonus plan (together, the
“Compensation Payment”), (ii) any accrued but unused vacation days (the
“Vacation Payment”), (iii) any reimbursement for business travel and other
expenses to which the Executive is entitled (the “Reimbursement”), and (iv) 85%
of the Base Salary in effect immediately prior to the Employment Termination
Date, multiplied by a fraction, the numerator of which is the number of days
during the fiscal year up to and including the Employment Termination Date and
the denominator of which is 365 (the “Prorated Bonus”).  This Paragraph
7(a) does not limit the entitlement of the Executive’s estate or beneficiaries
to any death or other vested benefits to which the Executive may be entitled
under any life insurance, stock ownership, stock options, or other benefit plan
or policy that is maintained by NMG for the Executive’s benefit, including any
amounts Executive is entitled to pursuant to Paragraph 5(c).

 

10.                                 Paragraph 7(b) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(b)                                 Inability to Perform.  If the Executive’s
employment is terminated by reason of the Executive’s Inability to Perform, NMG
shall pay to the Executive within 60 days of the Employment Termination Date
(i) the Compensation Payment, provided that the payment of the bonus portion of
the Compensation Payment may not be delayed past the date the bonus is payable
under the terms of any bonus plan, (ii) the Vacation Payment, (iii) the
Reimbursement, and (iv) the Prorated Bonus.  This Paragraph 7(b) does not limit
the entitlement of the Executive to any amounts payable pursuant to the terms of
any applicable disability insurance plan, policy, or similar arrangement that is
maintained by NMG for the Executive’s benefit.  This Paragraph 7(b) does not
limit the entitlement of the Executive’s estate or beneficiaries to any death or
other

 

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vested benefits to which the Executive may be entitled under any life insurance,
stock ownership, stock options, or other benefit plan or policy that is
maintained by NMG for the Executive’s benefit, including any amounts Executive
is entitled to pursuant to Paragraph 5(c).

 

11.                                 Paragraph 7(c) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(c)                                  Termination by the Executive Without Good
Reason.  If the Executive’s employment is terminated by the Executive pursuant
to and in compliance with Paragraph 6(e) (other than in connection with a Change
of Control Resignation), NMG shall pay to the Executive within 60 days of the
Employment Termination Date (i) the Compensation Payment, provided that the
payment of the bonus portion of the Compensation Payment may not be delayed past
the date the bonus is payable under the terms of any bonus plan, (ii) the
Vacation Payment, and (iii) the Reimbursement.  This Paragraph 7(c) does not
limit the entitlement of the Executive’s estate or beneficiaries to any death or
other vested benefits to which the Executive may be entitled under any life
insurance, stock ownership, stock options, or other benefit plan or policy that
is maintained by NMG for the Executive’s benefit, including any amounts
Executive is entitled to pursuant to Paragraph 5(c).

 

12.                                 Paragraph 7(d) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(d)                                 Termination for Cause.  If the Executive’s
employment is terminated by NMG for Cause, NMG shall pay to the Executive within
60 days of the Employment Termination Date (i) the Compensation Payment,
provided that the payment of the bonus portion of the Compensation Payment may
not be delayed past the date the bonus is payable under the terms of any bonus
plan, (ii) the Vacation Payment, and (iii) the Reimbursement.  This Paragraph
7(d) does not limit the entitlement of the Executive’s estate or beneficiaries
to any death or other vested benefits to which the Executive may be entitled
under any life insurance, stock ownership, stock options, or other benefit plan
or policy that is maintained by NMG for the Executive’s benefit, including any
amounts Executive is entitled to pursuant to Paragraph 5(c).

 

13.                                 Paragraph 7(e) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(e)                                  Termination without Cause or with Good
Reason; Change of Control Resignation.

 

(i)                                     If (x) the Executive’s employment is
terminated by NMG for any reason other than death, Inability to Perform, or

 

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Cause, or is terminated by the Executive for Good Reason or (y) the Executive’s
employment terminates by reason of a Change of Control Resignation, NMG shall
pay to the Executive (1) the Compensation Payment, provided that the payment of
the bonus portion of the Compensation Payment may not be delayed past the date
the bonus is payable under the terms of any bonus plan, (2) the Vacation
Payment, and (3) the Reimbursement.

 

(ii)                                  In addition, subject to the occurrence of
the conditions in subparagraph (i) above, if the Executive executes a mutual
release and waiver of claims against NMG in the form attached as Exhibit B
within 45 days of the Employment Termination Date and does not revoke such
release and waiver within any revocation period, then NMG shall pay the
Executive a lump-sum payment equal to:  the Prorated Bonus, plus an amount equal
to the monthly COBRA premium applicable to Executive at his Termination Date
based upon the coverage in effect for Executive under NMG’s group medical plan
immediately prior to his Termination Date multiplied by thirty-six (36), as a
supplement for the cost of post-employment welfare benefits, plus (A) if such
termination is not a Change of Control Resignation, three (3) times the sum of
the Executive’s Base Salary and Target Bonus in effect on the Employment
Termination Date, or (B) if such termination is a Change of Control Resignation,
two (2) times the sum of the Executive’s Base Salary and Target Bonus in effect
on the Employment Termination Date.

 

(iii)                               The payments provided under Paragraph
7(e)(i) shall be made within 60 days of the Employment Termination Date.  The
payment provided under Paragraph 7(e)(ii) shall be made (x) in the event the
Executive’s termination of employment constitutes a “separation from service”
under Treasury Regulation Section 1.409A-1(h), on the 65th day following the
Employment Termination Date, (y) in the event the Executive does not experience
a separation from service until after his termination of employment, on the
65th day following such separation from service, or (z) in the event the
Executive experiences a separation from service which constitutes Good Reason
under Paragraph 1(k) prior to his termination of employment, on the 65th day
following such separation from service.  Notwithstanding the foregoing, if the
Executive experiences a separation from service which does not constitute Good
Reason under Paragraph 1(k) prior to his termination of employment, then the
payment due to the Executive under Paragraph 7(e)(ii) shall be forfeited.

 

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(iv)                              Any provision of this Agreement to the
contrary notwithstanding, the Executive shall be required to repay the amounts
described in Paragraph 7(e)(ii) if:

 

(A)                              the Executive receives written notice from NMG
that in the reasonable judgment of NMG, the Executive engaged or is engaging in
any conduct that violates Paragraph 8 or engaged or is engaging in any of the
Restricted Activities described in Paragraph 9, unless within 30 days of the
date NMG so notifies the Executive in writing, the Executive provides
information to NMG that NMG determines is sufficient to establish that the
Executive did not engage in any conduct that violated Paragraph 8 or engage in
any of the Restricted Activities described in Paragraph 9; or

 

(B)                                the Executive is arrested or indicted for any
felony, other serious criminal offense, or any violation of federal or state
securities laws, or has any civil enforcement action brought against him by any
regulatory agency, for actions or omissions related to his employment with NMG
or any of its Affiliates, or NMG reasonably believes that the Executive has
committed any act or omission, either during his employment under this Agreement
or, if related to such employment thereafter, that during his employment would
have entitled NMG to terminate his employment for Cause under provisions (i),
(ii), (iv), or (vi) of the definition of Cause and the Executive is found guilty
or enters into a plea agreement, consent decree or similar arrangement with
respect to any such criminal or civil proceedings, or if the Board makes a
finding that the Executive has committed such an act or omission.  If any such
criminal or civil proceedings do not result in a finding of guilt or the entry
of a plea agreement or consent decree or similar arrangement, or if the Board
makes a finding that the Executive has not committed such an act or omission,
the Executive shall not be required to repay any amounts hereunder.

 

(v)                                 This Paragraph 7(e) does not limit the
entitlement of the Executive’s estate or beneficiaries to any death or other
vested benefits to which the Executive may be entitled under any life insurance,
stock ownership, stock options, or other benefit plan or

 

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policy that is maintained by NMG for the Executive’s benefit, including any
amounts Executive is entitled to pursuant to Paragraph 5(c).

 

14.                                 Paragraph 7(f) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(f)                                    Welfare Benefits.  If (x) the Executive’s
employment with NMG or any Affiliate of NMG ends on account of a termination by
NMG for any reason other than for death or Cause, a termination by the Executive
for Good Reason, or the Executive’s employment terminates by reason of a Change
of Control Resignation, and (y) the Executive’s termination of employment
constitutes a “separation from service” under Treasury Regulation
Section 1.409A-1(h), then the Executive shall be entitled to the following:

 

(i)                                     If immediately prior to the Employment
Termination Date the Executive participates in group medical or dental coverage
offered by NMG and the Executive is eligible for and elects continued coverage
in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985
(“COBRA”) or any successor law, NMG will reimburse the Executive monthly during
the period of COBRA continuation coverage for the total amount of the monthly
COBRA premiums actually paid by Executive; and

 

(ii)                                  For a period of 3 years following the
Employment Termination Date, NMG will provide the Executive and the Executive’s
spouse and dependents life insurance coverage at the same benefit level as
provided to Executive immediately prior to the Employment Termination Date and
at the same cost to Executive as is generally provided to similarly situated
active employees of NMG.

 

15.                                 Paragraph 7(g) of the Employment Agreement
is hereby deleted in its entirety, with such paragraph reserved for future use.

 

16.                                 Paragraph 7(i) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(i)                                     Offset.  The Executive agrees that NMG
may set off against, and he authorizes NMG to deduct from, any payments due to
the Executive, or to his heirs, legal representatives, or successors, as a
result of the termination of the Executive’s employment any specified amounts
which the Board determines in good faith are due and owing to NMG by the
Executive, whether arising under this Agreement or otherwise; provided, however,
that no offset is allowed against payments to the Executive which are subject to
Code Section 409A.

 

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17.                                 Paragraph 7(j) of the Employment Agreement
is hereby amended and restated in its entirety as follows:

 

(j)                                     Mutual Release.  Following receipt of
the Executive’s signed mutual release pursuant to this Agreement, NMG and Parent
shall have ten (10) days from the date such release becomes irrevocable to
execute the release and deliver a copy to the Executive.  If NMG or Parent fail
to execute such release within the time frame established by the preceding
sentence, the release shall be null and void and the Executive shall be entitled
to receive any benefits under this Agreement as he would otherwise be entitled
to receive had the mutual release been fully executed.

 

18.                                 Paragraph 12 of the Employment Agreement is
hereby amended and restated in its entirety as follows:

 

12.                                 Assistance in Litigation.  After the
Employment Term and for the life of the Executive, the Executive shall, upon
reasonable notice, furnish such information and assistance to NMG or any of its
Affiliates as may reasonably be requested by NMG in connection with any
litigation in which NMG or any of its Affiliates is, or may become, a party. 
NMG shall reimburse the Executive for all reasonable out-of-pocket expenses,
including travel expenses, meals and lodging, incurred by the Executive in
rendering such assistance, but shall have no obligation to compensate the
Executive for his time in providing information and assistance in accordance
with this Paragraph 12.  The Executive shall provide to NMG a receipt or voucher
for any reimbursable expense within 60 days of the occurrence of such expense. 
Any such reimbursement shall be made as soon as administratively possible, but
in any event no later than 10 business days following receipt of such receipt or
voucher.  Further, the amount of expenses eligible for reimbursement during the
Executive’s taxable year shall not affect the expenses eligible for
reimbursement in any other taxable year.

 

19.                                 Paragraph 16 of the Employment Agreement is
hereby amended and restated in its entirety as follows:

 

16.                                 Excise Tax Provisions in Connection with a
Change of Control.  If, after the Effective Date, there occurs a transaction
that constitutes a “change of control” under Treasury Regulation
Section 1.280G-1 and, immediately prior to the consummation of such change of
control, NMG is an entity whose stock is readily tradable on an established
securities market (or otherwise) such that the exemption for non-public
companies is not available, the following provisions will apply:

 

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(a)                                  In the event it shall be determined that
any payment, benefit or distribution (or combination thereof) by NMG, or any of
its Affiliates, to or for the benefit of the Executive (whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement, or
otherwise) which must be taken into account under Section 280G of the Code in
determining the amount of any “parachute payment” (each a “Payment” and
collectively the “Payments”) is subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, hereinafter collectively referred to as the “Excise
Tax”), Executive shall be entitled to receive an additional payment (a “Gross-Up
Payment”) in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.  Notwithstanding the foregoing provisions of this
Paragraph 16(a), if it shall be determined that Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount that could be paid to Executive without giving rise to any Excise Tax
(the “Safe Harbor Amount”), then no Gross-Up Payment shall be made to Executive
and the amounts payable under this Agreement shall be reduced so that the
Payments, in the aggregate, are reduced to the Safe Harbor Amount.  The
reduction of the amounts payable hereunder, if applicable, shall be made by
first reducing the Payment provided under Paragraph 7(e)(ii), and, if needed,
such additional Payments that are not subject to Code Section 409A.

 

(b)                                 All determinations required to be made under
this Paragraph 16, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
accounting firm selected by NMG (the “Accounting Firm”) which shall provide
detailed supporting calculations both to NMG and the Executive within ten
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by NMG.  All fees and expenses of
the Accounting Firm shall be borne solely by NMG.  Any Gross-Up Payment, as
determined pursuant to this Paragraph 16, shall be paid by NMG to the Executive
(or to the appropriate taxing authority on the Executive’s behalf) when the
applicable tax is due.  If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall so indicate to the Executive in writing.  Any
determination by the Accounting Firm shall be binding upon NMG and the
Executive.  As a result of the uncertainty in the application of Section 4999 of
the Code, it is possible that the amount of the Gross-Up Payment determined by
the Accounting Firm to be due to (or on behalf of)

 

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the Executive will be lower than the amount actually due (“Underpayment”).  In
the event that NMG exhausts its remedies pursuant to Paragraph 16(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be paid by NMG to or for the benefit of the
Executive within 10 business days after receipt of the Accounting Firm’s
determination.  In no event shall the Gross-Up Payment or the Underpayment be
made later than the end of the Executive’s taxable year next following the
Executive’s taxable year in which the related taxes are remitted to the taxing
authority.

 

(c)                                  The Executive shall notify NMG in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by NMG of any Gross-Up Payment.  Such notification shall be given as
soon as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise NMG of the nature of such
claim and the date on which such claim is requested to be paid.  The Executive
shall not pay such claim prior to the expiration of the thirty day period
following the date on which it gives such notice to NMG (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due).  If NMG notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall (i) give NMG
any information reasonably requested by NMG relating to such claim, (ii) take
such action in connection with contesting such claim as NMG shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by NMG, (iii) cooperate with NMG in good faith in order to effectively
contest such claim and (iv) permit NMG to participate in any proceedings
relating to such claim; provided, however, that NMG shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.  The payment of costs and
expenses shall be made within 10 business days after they are incurred and any
receipts, if any, are submitted to NMG, but in any event no later than the end
of the Executive’s taxable year following the Executive’s taxable year in which
the taxes that are the subject of the contest are remitted to the taxing
authority, or where as a result of such contest no taxes are remitted, the end
of the Executive’s taxable year following the Executive’s taxable year in which
the audit is completed or there is a final and nonappealable settlement or other
resolution of the litigation.  Any Excise Taxes or income taxes imposed as a
result of such representation and payment of

 

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costs and expenses shall be reimbursed to the Executive within 10 business days
after they are incurred but in any event no later than the end of the
Executive’s taxable year next following the Executive’s taxable year in which
the Executive remits the related taxes.  Without limitation on the foregoing
provisions of this Paragraph 16(c), NMG shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as NMG shall
determine; provided, further, that if NMG directs the Executive to pay such
claim and sue for a refund, NMG shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; provided,
further, that if the Executive is required to extend the statute of limitations
to enable NMG to contest such claim, the Executive may limit this extension
solely to such contested amount.  Any Excise Taxes or income taxes imposed as a
result of such advance shall be reimbursed to the Executive within 10 business
days after they are incurred but in any event no later than the end of the
Executive’s taxable year next following the Executive’s taxable year in which
the Executive remits the related taxes.  NMG’s control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.

 

(d)                                 If, after the receipt by the Executive of an
amount paid or advanced by NMG pursuant to this Paragraph 16, the Executive
becomes entitled to receive any refund with respect to a Gross-Up Payment, the
Executive shall (subject to NMG’s complying with the requirements of
Paragraph 16) promptly pay to NMG the amount of such refund received (together
with any interest paid or credited thereon after taxes applicable thereto).  If,
after the receipt by the Executive of an amount advanced by NMG pursuant to
Paragraph 16, a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and NMG does not notify the Executive
in writing of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of the Gross-Up Payment required
to be paid.

 

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20.                                 Paragraph 22 of the Employment Agreement is
hereby amended and restated in its entirety as follows:

 

22.                                 Costs of Proceedings.  NMG shall pay all
costs and expenses of NMG and, at least monthly, all costs and expenses of the
Executive (including legal fees) which are incurred during the Executive’s
lifetime, in connection with any arbitration relating to the interpretation or
enforcement of any provision of this Agreement, whether or not the Executive
instituted the proceeding and whether or not the Executive prevails; provided
that if the Executive instituted the proceeding and the arbitrator or other
individual presiding over the proceeding affirmatively finds that the Executive
instituted the proceeding in bad faith, the Executive shall reimburse NMG for
all costs and expenses of the Executive previously paid by NMG pursuant to this
Paragraph 22.  The Executive shall provide to NMG a receipt or voucher for any
reimbursable expense within 60 days of the occurrence of such expense.  Any such
payment or reimbursement shall be made within 10 business days following the
receipt of such receipt or voucher.  Further, the amount of expenses eligible
for payment or reimbursement during the Executive’s taxable year shall not
affect the expenses eligible for payment or reimbursement in any other taxable
year.

 

21.                                 Paragraph 23 of the Employment Agreement is
hereby amended and restated in its entirety as follows:

 

23.                                 Section 409A Savings Clause.

 

(a)                                  Notwithstanding anything to the contrary
contained herein, this Agreement is intended to satisfy the requirements of Code
Section 409A.  Accordingly, all provisions herein, or incorporated by reference,
shall be construed and interpreted to satisfy the requirements of Code
Section 409A.  Further, for purposes of Code Section 409A, each payment of
compensation under this Agreement shall be treated as a separate payment of
compensation.  Any reimbursements or in-kind benefits provided under this
Agreement shall be made or provided in accordance with the requirements of Code
Section 409A, including, where applicable, the requirement that (i) any
reimbursement is for expenses incurred during the period of time specified in
this Agreement, (ii) the amount of expenses eligible for reimbursement, or in
kind benefits provided, during a calendar year may not affect the expenses
eligible for reimbursement, or in kind benefits to be provided, in any other
calendar year, (iii) the reimbursement of an eligible expense will be made no
later than the last day of the calendar year following the year in which the
expense is incurred, and (iv) the right to reimbursement or in kind benefits is
not subject to liquidation or exchange for another benefit.  All references to
“separation from service” contained in this Agreement shall mean “separation
from service”

 

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as determined in accordance with Treasury Regulation Section 1.409A-1(h).

 

(b)                                 Notwithstanding anything to the contrary
contained herein, in the event that NMG receives advice of counsel selected by
NMG and reasonably acceptable to the Executive, that payments under this
Agreement are subject to Section 409A of the Code (or the Executive makes such
determination and informs NMG of such determination), after consultation with
the Executive and counsel, NMG may amend the Agreement to make such other
changes it reasonably determines are required to comply with Section 409A of the
Code in a manner that preserves the economics to the Executive to the extent
reasonably practicable.  The Executive hereby stipulates that Cleary Gottlieb
Steen and Hamilton LLP is acceptable counsel for purposes of this Paragraph
23(b).

 

(c)                                  Notwithstanding anything to the contrary
contained herein, in the event the Executive is a “specified employee” (as
defined below) and is entitled to receive a payment on separation from service
that is subject to Code Section 409A, the payment may not be made earlier than
six months following the date of the Executive’s separation from service if
required by Code Section 409A and the regulations thereunder, in which case, the
accumulated postponed amount shall be paid in a lump sum payment within ten
(10) days after the end of the six-month period.  If the Executive dies during
the postponement period prior to the payment of the postponed amount, the
amounts withheld on account of Code Section 409A shall be paid to the personal
representative of the Executive’s estate within 60 days after the date of the
Executive’s death.  A “specified employee” shall mean an employee who, at any
time during the 12-month period ending on the identification date, is a
“specified employee” under Code Section 409A, as determined by the Board.  The
determination of “specified employees,” including the number and identity of
persons considered “specified employees” and the identification date, shall be
made by the Board in accordance with the provisions of Code Sections 416(i) and
409A and the regulations issued thereunder.

 

22.                                 Paragraph 25 of the Employment Agreement is
hereby amended and restated in its entirety as follows:

 

25.                                 Entire Agreement.  This Agreement contains
the entire agreement between the parties concerning the subject matter hereof
and supersedes all prior agreements and understandings, written and oral,
between the parties with respect to the subject matter of this Agreement.

 

23.                                 The Employment Agreement is hereby amended
by the addition of the following as Paragraph 30:

 

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30.                                 Section 162(m).  The parties hereto
recognize that NMG is not currently subject to Section 162(m) of the Code but
that it may become subject to said section during the term of this Agreement. 
In such event, NMG retains the right to amend the provisions of this Agreement
that impact, relate to or reference NMG’s annual bonus program if NMG determines
that such an amendment would be necessary or appropriate to ensure that any
performance-based compensation payable under a new bonus plan satisfies the
requirements for exemption under Section 162(m) of the Code, provided, however,
that any such amendment provides the Executive at least the same economic
benefit under this Agreement as he had prior to the amendment.

 

24.                                 Section 2 of Exhibit B to the Employment
Agreement is hereby amended and restated in its entirety as follows:

 

2.                                       Payment and Benefits.  Upon the
effectiveness of the terms set forth herein, NMG shall provide the Employee with
the payments and benefits set forth in Section 7 of the Employment Agreement
between NMG and the Employee, dated as of                                (as
amended from time to time, the “Employment Agreement”).

 

25.                                 The proviso in Section 4 of Exhibit B to the
Employment Agreement is hereby amended and restated in its entirety as follows:

 

provided, however, that nothing herein shall release (i) any obligation of NMG
under Sections 5(c), 7, 16 or 22 of the Employment Agreement, (ii) any
obligation of Newton Acquisition, Inc. under Section 5(c) of the Employment
Agreement and Section 10 of the Letter Agreement (as defined in the Employment
Agreement) or (iii) any right of indemnification or to director and officer
liability insurance coverage under any of the company’s organizational documents
or at law under any plan or agreement and applicable to the Employee.

 

26.                                 The Executive and NMG acknowledge that this
Amendment does not eliminate or reduce the obligations of either party under any
portion of Paragraph 8 or Paragraph 9 of the Employment Agreement.  Moreover,
with respect to Paragraph 8(b) of the Employment Agreement, NMG continues to
acknowledge and agree that the Executive must have and continue to have
throughout his employment the benefits and use of its and its Affiliates’ (as
defined in the Employment Agreement) goodwill and Confidential Information (as
defined in the Employment Agreement) in order to properly carry out his
responsibilities.  NMG accordingly promises upon execution and delivery of this
Amendment to provide the Executive immediate access to new and additional
Confidential Information beyond the Confidential Information to which he
previously has been provided access and to authorize him to engage in activities
that will create new and additional Confidential Information not currently in
existence.

 

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27.                                 Except as otherwise specifically set forth
herein, all other terms and conditions of the Employment Agreement shall remain
in full force and effect.

 

IN WITNESS WHEREOF, NMG and Parent have caused this Amendment to be executed on
each entities behalf by its duly authorized officer, and the Executive has
executed this Amendment, on this the 22nd day of December, 2008.

 

 

 

 

 THE NEIMAN MARCUS GROUP, INC.

 

 

 

By:

 /s/  Marita O’Dea

 

Its:

 Senior Vice President and

 

 

 Chief Human Resource Officer

 

 

 

 

 

 

 NEIMAN MARCUS, INC.

 

 

 

By:

 /s/ Nelson A. Bangs

 

Its:

 Senior Vice President and General Counsel

 

 

 

 

 

 

 EXECUTIVE

 

 

 

 

 /s/ Burton M. Tansky

 

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