Exhibit 10.2

 

Execution Copy

 

Newton Acquisition, Inc.

 

October 4, 2005

 

Mr. Burton Tansky
Chief Executive Officer
The Neiman Marcus Group, Inc.
1618 Main Street
Dallas, Texas 75201

 

Re:  Opportunity to Acquire Shares and Options

 

Dear Burt,

 

As you know, The Neiman Marcus Group, Inc. (“NMG”) is in the process of
undergoing a change of control, and following the change of control, 100% of its
outstanding shares will be owned by an entity called Newton Acquisition, Inc.
(“Newco”).  This transaction is pursuant to an Agreement and Plan of Merger,
dated as of May 1, 2005, by and among Newco, Newton Acquisition Merger Sub, Inc.
and NMG (the “Merger Agreement”).  Although a delay is possible, we expect that
the closing of the transaction will occur on October 6, 2005 (the “Closing”).

 

In connection with the transaction, we are pleased to offer you the opportunity
to invest in shares of common stock of Newco (the “Shares”) on the terms and
conditions set out below.  In addition, pursuant to the terms of the
non-qualified stock option agreements (each, an “Option Grant Agreement”)
awarding those options as set forth on Schedule I hereto (the “Rollover
Options”), the Committee (as defined in each such Option Grant Agreement) has
determined on October 3, 2005 (the “Committee Determination”) that these
Rollover Options will not be subject to the cash-out provisions of Section 2.2
of the Merger Agreement and will therefore remain outstanding as of the Closing
unless you choose to exercise them prior thereto, and Newco has agreed to assume
and adjust the Rollover Options not so exercised to provide you with options to
purchase shares of common stock of Newco (the “Newco Options” and together with
the Shares, your “Newco Equity”) on the same terms and conditions as set forth
in the applicable Option Grant Agreement and the plan pursuant to which such
awards were made, except as expressly set forth herein.  In addition to the
Rollover Options, you hold shares of common stock of NMG and are being given the
opportunity to invest on a tax-deferred basis by “rolling over” some of these
shares of common stock of NMG (any such shares being rolled over, the “Rollover
Shares”).

 

1.             Merger Consideration; Rollover Equity.  As a result of the
transactions contemplated by the Merger Agreement, absent an election to
contribute or “rollover” the Rollover Shares as contemplated in this agreement
(this “Agreement”), you would be entitled, with respect to your

 

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Rollover Shares, to the “Merger Consideration” (as defined in the Merger
Agreement).  In particular, you would be entitled to the Merger Consideration in
exchange for each Rollover Share (the aggregate such amount with respect to the
Rollover Shares, the “Rollover Share Merger Consideration”).  You would also be
entitled to the same consideration for shares you received pursuant to an
election, prior to the Closing, to exercise some or all of the Rollover Options
(the aggregate such amount with respect to the Rollover Options, the “Rollover
Option Merger Consideration” and, with the Rollover Share Merger Consideration,
the “Rollover Merger Consideration”).  By completing the Acceptance Form below,
you agree (i) not to exercise the Rollover Options and (ii) to contribute your
Rollover Shares to Newco.  Newco agrees to accept your Rollover Shares and
assume and adjust your Rollover Options as provided herein.  This rollover will
occur as set forth below in “Sale and Purchase of Newco Equity; Rollover
Mechanics”, and you hereby agree that as a result you will not be entitled to
receive any Rollover Merger Consideration.

 

2.             Sale and Purchase of Newco Shares; Rollover Mechanics.  By
completing and returning the Acceptance Form below, you agree to, immediately
prior to the Closing, contribute your Rollover Shares to Newco and agree to
forego any Rollover Share Merger Consideration to which you would otherwise have
been entitled absent an election to invest in the Shares.  The Rollover Shares
so contributed will be canceled and retired without any conversion thereof or
payment or distribution thereon, as set forth in Section 2.1(b) of the Merger
Agreement.  Additionally, pursuant to the terms of the Option Grant Agreements,
you will, immediately prior to the Closing, cease to have any rights with
respect to your Rollover Options including any Rollover Option Merger
Consideration to which you would otherwise have been entitled absent the
Committee Determination and your agreement not to exercise the Rollover
Options.  The Rollover Options will be converted into the Newco Options without
any payment or distribution thereon.

 

In exchange for the Rollover Shares, you will receive such number of Shares
having an aggregate value equal (based on the valuation and capitalization set
forth in Schedule I) to the aggregate value of the Rollover Shares immediately
prior to the Closing as indicated on the Acceptance Form.  As soon as
practicable following the Closing, you will either become the holder of record
or receive physical certificates of the Shares.

 

3.             Rollover Share Certificates; Assumption and Adjustment of the
Rollover Options.  With respect to the Rollover Shares, you hereby authorize NMG
to take such action as may be necessary to cause the Rollover Shares to be
rolled over.

 

You agree that you will not exercise the Rollover Options prior to the Closing. 
Newco agrees to assume the Rollover Options on their current terms and
conditions, except that:

 

(a)   the Newco Options will be fully vested at all times, except as provided in
Section 7(b) below;

 

(b)   the Newco Options will be exercisable for Shares;

 

(c)   the exercise price per Share of each Newco Option will equal the lesser of
(i) 25% of the fair market value of a Share, or (ii) the percentage of the fair
market value of a Share that equals the ratio of the exercise price per NMG
share of such option to the Merger Consideration;

 

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(d)   the number of Shares underlying each Newco Option shall be as set forth in
Schedule I; and

 

(e)   at least 10 days prior to the termination or expiration of any Newco
Option for any reason, if there is not a Public Market (as defined in the
Stockholders’ Agreement) for the Shares, Newco will permit you to exercise any
such vested Newco Options through net-physical settlement (i.e., by delivery of
Shares net of the number of Shares having a Fair Market Value (as defined in the
Stockholders’ Agreement, defined below) equal to the applicable exercise price
and applicable withholding taxes at the minimum statutory rate), unless
(i) Newco’s independent auditors determine that net-physical settlement of any
such Newco Options would produce less-favorable accounting consequences for
Newco or its affiliates than if you paid the exercise price for any such vested
Newco Options in cash (other than those that would have an immaterial effect) or
(ii) Newco receives advice from counsel, in accordance with Section 10 below,
that such net-physical exercise would result in a penalty under Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”).  If, in accordance
with this paragraph, you are entitled to exercise Newco Options through
net-physical exercise, Fair Market Value will be determined as set forth in the
Stockholders’ Agreement, including any right to an Outside Appraisal (as defined
therein).

 

4.             Acceptance and Closing; Conditions.  You may accept this offer
and the terms of this Agreement by completing and returning the Acceptance
Form below, in which case the closing of the acquisition of your Newco Equity
will occur immediately after the Closing.  This offer is conditioned upon the
occurrence of the Closing.  If the Closing does not occur on or before
October 17, 2005 (the “Closing Deadline”), this Agreement will be canceled and
you will have no rights with respect hereto and any Rollover Shares that you
have transferred or cash payment that you have made pursuant to Section 3 will
be returned to you; provided, that if Newco determines on or before the Closing
Deadline and in good faith that the Closing is likely to occur on or before
October 31, 2005, the Closing Deadline shall automatically be extended to
October 31, 2005.

 

5.             Limitation.  Newco, in its discretion, may limit the number of
Shares that you may purchase, and therefore may choose not to accept the full
amount of your investment election with respect to your Rollover Shares. 
Rollover Shares not so accepted pursuant to the preceding sentence will be
treated in accordance with the provisions of the Merger Agreement.

 

6.             Vesting.  Your Shares when issued will be fully vested.

 

7.             Stockholders’ Agreement; Certain Other Agreements.

 

(a)   By completing and returning the Acceptance Form below, you agree to become
a party to the Management Stockholders’ Agreement, a copy of which is attached
hereto as Annex A, as may be amended from time to time in accordance with its
terms (the “Stockholders’ Agreement”) and you will be subject to the terms and
conditions thereof with respect to your Shares; provided that the Shares shall
not be subject to the call right in Section 3(b).  Newco agrees that it will,
and that it will cause the Majority Stockholder (as defined below) to, also
become a party to the Stockholders’ Agreement.

 

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(b)   In addition to the terms and conditions of the Stockholders’ Agreement,
with respect to Newco Options for a total of 1,810.4095 Shares, as determined
pursuant to Schedule I (the “Excess Options”), in the event that, on or before
the first anniversary of the Closing, your employment with NMG or any of its
affiliates terminates as a result of NMG or its affiliates terminating your
employment for Cause (as such term is defined in your employment agreement with
NMG, dated October 6, 2005 (your “Employment Agreement”)), your voluntary
resignation other than for your retirement or for Good Reason (as such term is
defined in your Employment Agreement), Newco and its affiliates shall have the
right, at any time until the earlier of (x) the fifth anniversary of the Closing
or (y) a Public Market (as such term is defined in the Stockholders’ Agreement)
exists for the Shares, to, at any time after delivery of a notice to you or your
estate:

 

i.            Cancel each Excess Option in exchange for a cash payment for each
Share underlying such Excess Option being canceled equal to the difference
between (1) the lesser of (A) Fair Market Value of the Share (as such term is
defined in the Stockholders’ Agreement and subject to any right to seek an
Outside Appraisal in accordance with the Stockholders’ Agreement) underlying
such Excess Option and (B) $1,445 (whichever such amount applies, the “Excess
Share Buyout Price”) and (2) the per Share exercise price of such Excess Option
being canceled; or

 

ii.           Purchase any or all Shares you hold as a result of the exercise of
any or all of the Excess Options for the Excess Buyout Price.

 

(c)   If, after the Closing Date but prior to the existence of a Public Market,
Newco or Newton Holding, LLC (“Newton LLC”) proposes to issue additional shares
of common stock of Newco or membership interests of Newton LLC (in each case
with the exception of any issuance in connection with any merger, acquisition or
similar corporate event or to employees pursuant to an employee incentive plan),
Newco or Newton LLC, as applicable, shall provide written notice (the “Issuance
Notice”) to you of such anticipated issuance no later than ten (10) days prior
to the anticipated issuance date.  The Issuance Notice shall set forth the
material terms and conditions of the issuance, including the proposed purchase
price for the new shares of common stock of Newco or membership interests of
Newton LLC.  You shall have the right, upon receipt of the Issuance Notice, to
purchase additional shares of common stock of Newco up to your pro rata portion
(based on the number of shares of common stock of Newco you own or subject to
vested stock options you hold immediately prior to such issuance), at the price
and on the terms and conditions specified in the Issuance Notice by delivering
an irrevocable written notice to Newco no later than five (5) days before the
anticipated issuance date, setting out the number of new shares of common stock
of Newco for which the right is exercised; provided that if the issuance is of
membership interests in Newton LLC, your pro rata portion shall be calculated as
if the shares of common stock of Newco held by you and all other holders of the
shares of common stock of Newco (other than Newton LLC) were converted into
membership interests in Newton LLC and you held such membership interests
together with all of the holders of membership interests in Newton LLC on the
date the notice was delivered.  If you fail to exercise all or a portion of your
preemptive rights, Newco or Newton LLC, as applicable, shall be permitted to
complete the proposed issuance without any further notice or action related to
the rights provided in this Section 7(d).  In the event that Newton LLC proposes
to issue new membership interests, Newton LLC and Newco may determine, in their
sole discretion, to permit

 

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you to exercise your preemptive rights to purchase membership interests in
Newton LLC rather than additional shares of common stock of Newco.

 

8.             Tax Reporting.  It is intended that the rollover of the Rollover
Shares and Rollover Options contemplated herein shall be treated as a tax-free
transfer under the Code.

 

All discussions of U.S. federal tax considerations in this document have been
written to support the marketing of the Shares.  Such discussions were not
intended or written to be used, and cannot be used by any taxpayer, for the
purpose of avoiding U.S. federal tax penalties.  You should consult your own tax
advisers in determining the tax consequences of the rollover and of holding the
Shares, including the application to your particular situation of the U.S.
federal tax considerations discussed herein, as well as the application of
state, local, foreign, or other tax laws.

 

9.             Representations; Acknowledgements.  By signing below and
completing and returning the Acceptance Form, you hereby represent and warrant
to Newco and NMG that:

 

(i)                                     you have the requisite power, authority
and capacity to execute this Agreement and to deliver or cause to be delivered
the Rollover Shares, to perform your obligations under this Agreement and to
consummate the transactions contemplated hereby;

 

(ii)                                  the Acceptance Form has been duly and
validly executed and delivered by you and constitutes your legal, valid and
binding obligation, enforceable against you in accordance with its terms, except
to the extent that such validly binding effect and enforceability may be limited
by applicable bankruptcy, reorganization, insolvency, moratorium and other laws
relating to or affecting creditors’ rights generally;

 

(iii)                               the Shares are being acquired for your own
account, for investment purposes only and not with a view to or in connection
with any distribution, reoffer, resale, public offering or other disposition
thereof not in compliance with the Securities Act of 1933 (the “Securities
Act”), as may be amended from time to time, or any applicable United States
federal or state securities laws or regulations;

 

(iv)                              you are an “accredited investor”, as defined
in Rule 501(a) under the Securities Act, which means you are:

 

a.               A person whose individual net worth, or joint net worth with
your spouse, exceeds $1,000,000;         OR

 

b.              A person whose income exceeded $200,000 in each of the two most
recent years, or joint income with your spouse exceeded $300,000 in each of
those years, and you have a reasonable expectation of reaching the same income
level in this year;

 

(v)                                 you possess such expertise, knowledge, and
sophistication in financial and business matters generally, and in the type of
transaction in which NMG and Newco propose to engage in particular;

 

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(vi)                              you have had access to all of the information
and individuals with respect to the Shares and your investment that you deem
necessary to make a complete evaluation thereof;

 

(vii)                           you have had an opportunity to consult an
independent tax and legal advisor and your decision to acquire the interest for
investment has been based solely upon your evaluation;

 

(viii)                        you are aware that the Internal Revenue Service or
other relevant taxing authority may take a position regarding the rollover
contemplated in this Agreement and/or the tax classification of Newco and the
Shares contrary to that intended by Newco as provided in this Agreement and
except as specifically provided in Section 10 herein you shall be solely
responsible for any and all tax or other liabilities that may result from the
IRS’s or other relevant taxing authority’s position; and

 

(ix)                                you are aware that the Stockholders’
Agreement provides significant restrictions on your ability to dispose of the
Newco Equity.

 

By electing to contribute the Rollover Shares and not to exercise your Rollover
Options pursuant to this Agreement, you acknowledge that you are instructing
Newco and its affiliates to distribute to you, following the Closing, Shares and
Newco Options instead of cash, as described above, and you hereby acknowledge
that you do not have, and will not assert that you have, any claim against
Newco, the Majority Stockholder (as defined below) or their respective
affiliates to receive the Merger Consideration or any other payment in exchange
for the Rollover Shares, except as contemplated herein.

 

The “Majority Stockholder” shall mean, collectively or individually as the
context requires, Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV,
L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P.,
Warburg Pincus Netherlands Private Equity VIII C.V. I, Warburg Pincus Germany
Private Equity VIII K.G, Warburg Pincus Private Equity IX, L.P and/or their
respective affiliates, successors or assigns.

 

10.           Section 409A of the Code; Other Tax Provisions.  If Newco receives
the advice of counsel selected by Newco and reasonably acceptable to you that
any payment or distribution with respect to the Rollover Shares or Rollover
Options (or the Shares and Newco Options you receive as a result of rolling over
the Rollover Shares or Rollover Options) or the conversion of the Rollover
Shares or Rollover Options into Shares and Newco Options pursuant to the terms
of this Agreement (the “Payment”) would result in the imposition of a 20%
additional tax pursuant to Section 409A of the Code, Newco shall have the right
to make such modifications or amendments to Shares and/or Newco Options as are
reasonably necessary to avoid the application of Section 409A of the Code, after
consultation with you and your counsel.  In making any such amendments or
modifications, Newco shall take all steps to put you in substantially the same
economic position as you would have been in had such modifications or amendments
not been made, to the extent reasonably practical.  You hereby stipulate that
Cleary Gottlieb Steen and Hamilton LLP is acceptable counsel for purposes of
this Section 10.  If, after giving effect to any such modifications or
amendments, any Payment results in the imposition of an 20% additional tax,
penalties and interest under Section 409A of the Code, Newco will pay the
Executive an additional amount (the “Gross-Up Payment”) such that the net amount
retained

 

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by the Executive after deduction of any 20% additional tax imposed under
Section 409A of the Code, and any federal, state and local income, employment
and excise tax imposed upon any Gross-Up Payment shall be equal to such 20%
additional tax, penalties and interest.

 

In addition, the parties hereto expect that the rollover will be treated for
federal income tax purposes as a tax-free rollover.  In the event the Internal
Revenue Service challenges the structure of the rollover of your Rollover Shares
or Rollover Options into Newco Equity, as set forth herein, the parties shall
use their reasonable efforts and take reasonable actions to minimize any adverse
tax treatment, including, without limitation, exercising Options.  If, after
taking all reasonable and appropriate actions, you incur penalties or interest
as a result of the Internal Revenue Service’s challenge, Newco will indemnify
you for such penalties and interest costs on a net after-tax basis as described
in the preceding paragraph.

 

11.           Other NMG Interests.  You acknowledge that any other equity or
equity-based interests that you hold in NMG that you do not elect to roll over,
or which are not accepted for rollover for any reason pursuant to this
Agreement, will be treated in accordance with the Merger Agreement.

 

12.           Governing Law.  All questions concerning the construction,
validity and interpretation of this Agreement will be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of Delaware.

 

13.           Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.

 

*              *              *              *              *

 

[Signature Page Follows]

 

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Please sign your name on the space provided below and please indicate whether
and how you would like to invest in Newco by completing and executing the
Acceptance Form attached to the end of this Agreement.  Please return an
executed copy of this Agreement and the Acceptance Form in original form or by
FAX no later than 1:00 p.m. (Central Daylight Time) on Monday, October 4, 2005
to the attention of Marita O’Dea, The Neiman Marcus Group, 1618 Main Street
Dallas, TX 75201. The fax number is 214-743-7605.  (If you fax your election
form on Monday, the original should be delivered to Marita O’Dea no later than
Wednesday, October 5, 2005).

 

 

Sincerely,

 

 

 

/s/ David Spuria

 

 

Newton Acquisition, Inc.

 

By:

David Spuria

 

 

Title:

Vice President

 

 

 

 

 

Agreed to and Accepted by:

 

 

 

 

 

 

 

/s/ Burton M. Tansky

 

 

 

 

Burton M. Tansky

 

 

 

 

 

 

 

 

 

By execution below, NMG and its respective affiliates agree, if so directed by
you, to use reasonable efforts to effect a rollover pursuant to this Agreement
as a tax-free distribution, unless otherwise required pursuant to a final
determination, as defined in Section 1313 of the Code:

 

 

 

/s/ Nelson A. Bangs

 

for The Neiman Marcus Group, Inc.

By:

Nelson A. Bangs

 

Title:

Senior Vice President

 

 

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Acceptance of Offer to Acquire Shares and Options of Newco (the “Acceptance
Form”)

 

Pursuant to the terms and conditions set forth in letter to me dated October 4,
2005 (the “Letter”), I, Burton M. Tansky, hereby elect make an investment in
Newco in the amount and manner below:

 

 

1.  I will purchase Shares by contributing to Newco 13,419 shares of common
stock of NMG having a value of $1,341,900 (at $100 per share).

 

2. I will not exercise any of the options to purchase NMG shares listed on
Schedule I, which have an aggregate in-the-money value of $7,908,125.

 

Aggregate Investment = $9,250,025 (sum of 1 and 2)

 

 

/s/ Burton M. Tansky

 

 

Burton M. Tansky

 

 

 

 

 

October 4, 2005

 

 

Date

 

 

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