**Exhibit 10.5**

 

**AMENDMENT TO LETTER AGREEMENT**

 

This Amendmentto Letter Agreement (the “Amendment”) is made effective as of January 1,2009, by and between Neiman Marcus, Inc., a Delaware corporation (formerlyknown as Newton Acquisition, Inc.) (the “Company”) and Burton M. Tansky (“Tansky”).

 

W I T N E S S E T H:

 

WHEREAS, theCompany and Tansky entered into a letter agreement dated October 4, 2005,regarding the opportunity to acquire shares and options (the “Letter Agreement”);and

 

WHEREAS, theCompany and Tansky now desire to amend the Letter Agreement for compliance withInternal Revenue Code Section 409A and the Treasury Regulationsthereunder;

 

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

 

1.             Section 7(c) of theLetter Agreement is hereby amended and restated in its entirety as follows:

 

(c)  If, after the Closing Date but prior to the existence ofa Public Market, Newco or Newton Holding, LLC (“Newton LLC”) proposes toissue additional shares of common stock of Newco or membership interests ofNewton LLC in an arm’s length transaction (in each case with the exception ofany issuance in connection with any merger, acquisition or similar corporateevent or to employees pursuant to an employee incentive plan), Newco or NewtonLLC, as applicable, shall provide written notice (the “Issuance Notice”)to you of such anticipated issuance no later than ten (10) days prior tothe anticipated issuance date.  The Issuance Notice shall set forth thematerial terms and conditions of the issuance, including the proposed purchaseprice for the new shares of common stock of Newco or membership interests ofNewton LLC.  You shall have the right, upon receipt of the IssuanceNotice, to purchase additional shares of common stock of Newco up to your prorata portion (based on the number of shares of common stock of Newco you ownimmediately prior to such issuance), at the price and on the terms andconditions specified in the Issuance Notice by delivering an irrevocablewritten notice to Newco no later than five (5) days before the anticipatedissuance date, setting out the number of new shares of common stock of Newcofor which the right is exercised; provided that if the issuance is ofmembership interests in Newton LLC, your pro rata portion shall be calculatedas if the shares of common stock of Newco held by you and all 

 

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other holdersof the shares of common stock of Newco (other than Newton LLC) were convertedinto membership interests in Newton LLC and you held such membership intereststogether with all of the holders of membership interests in Newton LLC on thedate the notice was delivered.  If you fail to exercise all or a portionof your preemptive rights, Newco or Newton LLC, as applicable, shall bepermitted to complete the proposed issuance without any further notice oraction related to the rights provided in this Section 7(c).  In theevent that Newton LLC proposes to issue new membership interests, Newton LLCand Newco may determine, in their sole discretion, to permit you to exerciseyour preemptive rights to purchase membership interests in Newton LLC ratherthan additional shares of common stock of Newco.

 

2.             Section 10 of the LetterAgreement is hereby amended and restated in its entirety as follows:

 

10.           Section 409A of the Code;Other Tax Provisions.  If Newcoreceives the advice of counsel selected by Newco and reasonably acceptable toyou that any payment or distribution with respect to the Rollover Shares orRollover Options (or the Shares and Newco Options you receive as a result ofrolling over the Rollover Shares or Rollover Options) or the conversion of theRollover Shares or Rollover Options into Shares and Newco Options pursuant tothe terms of this Agreement (the “Payment”) would result in the impositionof a 20% additional tax pursuant to Section 409A of the Code, Newco shallhave the right to make such modifications or amendments to Shares and/or NewcoOptions as are reasonably necessary to avoid the application of Section 409Aof the Code, after consultation with you and your counsel.  In making anysuch amendments or modifications, Newco shall take all steps to put you insubstantially the same economic position as you would have been in had suchmodifications or amendments not been made, to the extent reasonablypractical.  You hereby stipulate that Cleary Gottlieb Steen and HamiltonLLP is acceptable counsel for purposes of this Section 10.  If, aftergiving effect to any such modifications or amendments, any Payment results inthe imposition of an 20% additional tax, penalties and interest under Section 409Aof the Code, Newco will pay you an additional amount (the “Gross-Up Payment”)such that the net amount retained by you after deduction of any 20% additionaltax imposed under Section 409A of the Code, and any federal, state andlocal income, employment and excise tax imposed upon any Gross-Up Payment shallbe equal to such 20% additional tax, penalties and interest.  The Gross-Up Payment shall be paid to youwithin ten (10) business days of you providing notice to NMG that the relatedtaxes are due, but in no event later than the end of your taxable year nextfollowing the taxable year in which such related taxes are remitted.

 

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In addition, the parties hereto expect that the rollover will betreated for federal income tax purposes as a tax-free rollover.  In theevent the Internal Revenue Service challenges the structure of the rollover ofyour Rollover Shares or Rollover Options into Newco Equity, as set forthherein, the parties shall use their reasonable efforts and take reasonableactions to minimize any adverse tax treatment, including, without limitation,exercising Options.  If, after taking all reasonable and appropriateactions, you incur penalties or interest during your lifetime as a result ofthe Internal Revenue Service’s challenge, Newco will indemnify you for suchpenalties and interest on a net after-tax basis as described in the precedingparagraph.  Any such payment orreimbursement shall be made within ten (10) business days of you providingnotice to NMG that such penalties and interest have been incurred, but in anyevent no later than the last day of your taxable year following the taxableyear in which the expense was incurred. Further, the amount of penalties or interest eligible for payment orreimbursement during a taxable year shall not affect the amount eligible forpayment or reimbursement in any other taxable year.

 

3.             Except as otherwise specificallyset forth herein, all other terms and conditions of the Letter Agreement shallremain in full force and effect.

 

IN WITNESSWHEREOF, the parties hereto have caused this Amendment to be executed on thisthe 28 day of December, 2008.

 
|   |   |   |   NEIMAN  MARCUS, INC.  |
|--------|--------|--------|-----------------------------------|
|   |   |   |                              |
|   |   | By:    | /s/ Nelson  A. Bangs              |
|   |   | Its:   | Senior Vice  President            |
|   |   |   |                              |
|   |   |   |                              |
|   |   |   |   /s/  Burton M. Tanksy |

 

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