**EXHIBIT 10.3**

 

**SECOND AMENDMENT TO EMPLOYMENT AGREEMENT**

 

This Second Amendment toEmployment Agreement (the “Amendment”) is made and entered into effective as ofJanuary 1, 2009, by and between The Neiman Marcus Group, Inc., aDelaware 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., aDelaware corporation (“Merger Sub”) entered into an Employment Agreementeffective 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 aresult of such merger the separate existence of Merger Sub thereafter ceasedand NMG continued as the surviving corporation; and

 

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

 

WHEREAS, NMG, Parent and theExecutive now desire to amend the Employment Agreement for compliance withInternal Revenue Code Section 409A and the Treasury Regulationsthereunder, and to make certain other changes;

 

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

 

1.                                       Paragraph 1(d) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

2.                                       Paragraph 1(e) ofthe Employment Agreement is hereby deleted in its entirety, with such paragraphreserved for future use.

 

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

 

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Inaddition to the foregoing, if the Executive experiences a “separation fromservice” (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 NMGwithout the consent of the Executive, the separation from service shallconstitute “Good Reason” hereunder; provided that the Executive delivers aNotice of Termination to NMG within 10 days following such separation fromservice.

 

4.                                       Paragraph 1(n) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

5.                                       Paragraph 2 ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

2.                                       Employment;Prior Agreements.  NMG agreesto continue to employ the Executive, and the Executive agrees to continue to beemployed, for the period set forth in Paragraph 3, in the position and with theduties and responsibilities set forth in Paragraph 4, and upon the other termsand conditions set out in this Agreement.  The employment agreemententered into between the Executive and NMG, dated August 3, 2003, ishereby terminated and replaced in its entirety by this Agreement withoutfurther right or obligation thereunder on the part of either party thereto(other than to pay or provide the Executive any unpaid compensationthereunder).

 

6.                                       Paragraph 5(c)(ii) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(ii)                                  Upon theoccurrence 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 nosuch bonus will be paid unless (A) the Executive remains employed with NMGthrough the earlier of (x) the date of the Change of Control, (y) theInitial Public Offering or (z) the fourth anniversary of the EffectiveDate, and (B) the internal rate of return to the Majority Stockholder (asdefined in the Stockholders’ Agreement) in respect of their direct and indirectinvestment in Parent is positive.  The Majority Stockholder’s internalrate of return shall be calculated in the case of an Initial Public Offering asif the Majority Stockholder sold all of its direct and indirect equity interestsin 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 interestsimplied by the transaction giving rise to the Change of Control, and in eachcase, taking into account all 

 

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

 

7.                                       Paragraph 5(c)(iii) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(iii)                               If, during theEmployment Term and prior to any Change of Control or Initial Public Offering,Parent declares and pays an extraordinary dividend, the Parent shall payExecutive a cash bonus equal to the amount that he would receive if he ownedall the shares initially underlying the Newco Options (as defined in thatcertain letter agreement, dated October 4, 2005, by and among NMG, Parentand Executive, the “Letter Agreement”), whether or not Executive has exercisedany of the Newco Options; provided, however, that the Newco Options which haveexpired pursuant to the terms of the Option Grant Agreement (as defined in theLetter Agreement) shall not be taken into consideration for purposes of thisParagraph 5(c)(iii).  Such bonus paymentshall be made no later than 2 1⁄2 months after the end of the taxable year inwhich the extraordinary dividend is declared.

 

8.                                       Paragraph 5(c)(iv) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(iv)                              SERPEnhancement.  At the time of the Executive’s termination of employmentwith NMG and all of its Affiliates, the Executive’s years of service forpurposes of calculating his benefit under The Neiman Marcus Group, Inc.Supplemental Executive Retirement Plan (the “SERP”) shall be determined bymultiplying his actual service for purposes of the SERP by 2, subject to the25-year maximum set forth in 

 

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theSERP, and by then providing the Executive with an additional credit for eachyear of service by the Executive to NMG following his attainment of agesixty-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 anyway that adversely affects the Executive without the consent of the Executive.

 

9.                                       Paragraph 7(a) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(a)                                  Death.  Ifthe 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 EmploymentTermination Date (i) any unpaid portion of the Executive’s Base Salarythrough the Employment Termination Date and any bonus payable for the precedingfiscal year that has otherwise not already been paid, provided that the paymentof any such bonus may not be delayed past the date the bonus is payable underthe terms of any bonus plan (together, the “Compensation Payment”), (ii) anyaccrued but unused vacation days (the “Vacation Payment”), (iii) anyreimbursement for business travel and other expenses to which the Executive isentitled (the “Reimbursement”), and (iv) 85% of the Base Salary in effectimmediately 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 includingthe Employment Termination Date and the denominator of which is 365 (the “ProratedBonus”).  This Paragraph 7(a) does not limit the entitlement of theExecutive’s estate or beneficiaries to any death or other vested benefits towhich the Executive may be entitled under any life insurance, stock ownership,stock options, or other benefit plan or policy that is maintained by NMG forthe Executive’s benefit, including any amounts Executive is entitled topursuant to Paragraph 5(c).

 

10.                                 Paragraph 7(b) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(b)                                 Inability toPerform.  If the Executive’s employment is terminated by reason of theExecutive’s Inability to Perform, NMG shall pay to the Executive within 60 daysof the Employment Termination Date (i) the Compensation Payment, providedthat the payment of the bonus portion of the Compensation Payment may not bedelayed past the date the bonus is payable under the terms of any bonus plan, (ii) theVacation Payment, (iii) the Reimbursement, and (iv) the ProratedBonus.  This Paragraph 7(b) does not limit the entitlement of theExecutive to any amounts payable pursuant to the terms of any applicabledisability insurance plan, policy, or similar arrangement that is maintained byNMG for the Executive’s benefit.  This Paragraph 7(b) does not limitthe entitlement of the Executive’s estate or beneficiaries to any death orother 

 

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vestedbenefits to which the Executive may be entitled under any life insurance, stockownership, stock options, or other benefit plan or policy that is maintained byNMG for the Executive’s benefit, including any amounts Executive is entitled topursuant to Paragraph 5(c).

 

11.                                 Paragraph 7(c) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

12.                                 Paragraph 7(d) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

13.                                 Paragraph 7(e) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(e)                                  Terminationwithout Cause or with Good Reason; Change of Control Resignation.

 

(i)                                     If (x) the Executive’semployment is terminated by NMG for any reason other than death, Inability toPerform, or 

 

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Cause,or is terminated by the Executive for Good Reason or (y) the Executive’semployment terminates by reason of a Change of Control Resignation, NMG shallpay to the Executive (1) the Compensation Payment, provided that thepayment of the bonus portion of the Compensation Payment may not be delayedpast the date the bonus is payable under the terms of any bonus plan, (2) theVacation Payment, and (3) the Reimbursement.

 

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

 

(iii)                               The payments provided underParagraph 7(e)(i) shall be made within 60 days of the EmploymentTermination Date.  The payment providedunder Paragraph 7(e)(ii) shall be made (x) in the event the Executive’stermination of employment constitutes a “separation from service” underTreasury 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 fromservice 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 whichconstitutes Good Reason under Paragraph 1(k) prior to his termination ofemployment, on the 65th day following such separation from service.  Notwithstanding the foregoing, if theExecutive experiences a separation from service which does not constitute GoodReason under Paragraph 1(k) prior to his termination of employment, thenthe payment due to the Executive under Paragraph 7(e)(ii) shall beforfeited.

 

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

 

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

 

(B)                                the Executive is arrested orindicted for any felony, other serious criminal offense, or any violation offederal or state securities laws, or has any civil enforcement action broughtagainst him by any regulatory agency, for actions or omissions related to hisemployment with NMG or any of its Affiliates, or NMG reasonably believes thatthe Executive has committed any act or omission, either during his employmentunder this Agreement or, if related to such employment thereafter, that duringhis employment would have entitled NMG to terminate his employment for Causeunder provisions (i), (ii), (iv), or (vi) of the definition of Cause andthe Executive is found guilty or enters into a plea agreement, consent decreeor 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 oromission.  If any such criminal or civil proceedings do not result in afinding of guilt or the entry of a plea agreement or consent decree or similararrangement, or if the Board makes a finding that the Executive has notcommitted such an act or omission, the Executive shall not be required to repayany amounts hereunder.

 

(v)                                 This Paragraph 7(e) doesnot limit the entitlement of the Executive’s estate or beneficiaries to anydeath or other vested benefits to which the Executive may be entitled under anylife insurance, stock ownership, stock options, or other benefit plan or 

 

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

 

14.                                 Paragraph 7(f) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

(f)                                    WelfareBenefits.  If (x) the Executive’semployment with NMG or any Affiliate of NMG ends on account of a termination byNMG for any reason other than for death or Cause, a termination by theExecutive for Good Reason, or the Executive’s employment terminates by reasonof a Change of Control Resignation, and (y) the Executive’s termination ofemployment 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 theEmployment Termination Date the Executive participates in group medical ordental coverage offered by NMG and the Executive is eligible for and electscontinued coverage in accordance with the Consolidated Omnibus BudgetReconciliation Act of 1985 (“COBRA”) or any successor law, NMG will reimbursethe Executive monthly during the period of COBRA continuation coverage for thetotal amount of the monthly COBRA premiums actually paid by Executive; and

 

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

 

15.                                 Paragraph 7(g) ofthe Employment Agreement is hereby deleted in its entirety, with such paragraphreserved for future use.

 

16.                                 Paragraph 7(i) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

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17.                                 Paragraph 7(j) ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

18.                                 Paragraph 12 ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

12.                                 Assistance inLitigation.  After theEmployment Term and for the life of the Executive, the Executive shall, uponreasonable notice, furnish such information and assistance to NMG or any of itsAffiliates as may reasonably be requested by NMG in connection with anylitigation in which NMG or any of its Affiliates is, or may become, a party.  NMG shall reimburse the Executive for allreasonable out-of-pocket expenses, including travel expenses, meals andlodging, incurred by the Executive in rendering such assistance, but shall haveno obligation to compensate the Executive for his time in providing informationand assistance in accordance with this Paragraph 12.  The Executive shall provide to NMG a receiptor voucher for any reimbursable expense within 60 days of the occurrence ofsuch expense.  Any such reimbursementshall be made as soon as administratively possible, but in any event no laterthan 10 business days following receipt of such receipt or voucher.  Further, the amount of expenses eligible forreimbursement during the Executive’s taxable year shall not affect the expenseseligible for reimbursement in any other taxable year.

 

19.                                 Paragraph 16 ofthe Employment Agreement is hereby amended and restated in its entirety asfollows:

 

16.                                 Excise TaxProvisions in Connection with a Change of Control.  If, after the Effective Date, there occurs atransaction that constitutes a “change of control” under Treasury Regulation Section 1.280G-1and, immediately prior to the consummation of such change of control, NMG is anentity whose stock is readily tradable on an established securities market (orotherwise) 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 shallbe determined that any payment, benefit or distribution (or combinationthereof) by NMG, or any of its Affiliates, to or for the benefit of theExecutive (whether paid or payable or distributed or distributable pursuant tothe terms of this Agreement, or otherwise) which must be taken into accountunder Section 280G of the Code in determining the amount of any “parachutepayment” (each a “Payment” and collectively the “Payments”) is subject to theexcise tax imposed by Section 4999 of the Code or any interest orpenalties are incurred by Executive with respect to such excise tax (suchexcise tax, together with any such interest and penalties, hereinaftercollectively referred to as the “Excise Tax”), Executive shall be entitled to receivean additional payment (a “Gross-Up Payment”) in an amount such that afterpayment by Executive of all taxes (including any interest or penalties imposedwith respect to such taxes), including, without limitation, any income taxes(and any interest and penalties imposed with respect thereto) and the ExciseTax imposed upon the Gross-Up Payment, Executive retains an amount of theGross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Paragraph 16(a), if itshall be determined that Executive is entitled to a Gross-Up Payment, but thatthe Payments do not exceed 110% of the greatest amount that could be paid toExecutive without giving rise to any Excise Tax (the “Safe Harbor Amount”),then no Gross-Up Payment shall be made to Executive and the amounts payableunder this Agreement shall be reduced so that the Payments, in the aggregate,are reduced to the Safe Harbor Amount.  The reduction of the amountspayable hereunder, if applicable, shall be made by first reducing the Paymentprovided under Paragraph 7(e)(ii), and, if needed, such additionalPayments that are not subject to Code Section 409A.

 

(b)                                 All determinationsrequired to be made under this Paragraph 16, including whether and when a Gross-UpPayment is required and the amount of such Gross-Up Payment and the assumptionsto be utilized in arriving at such determination, shall be made by a nationallyrecognized accounting firm selected by NMG (the “Accounting Firm”) which shallprovide detailed supporting calculations both to NMG and the Executive withinten business days of the receipt of notice from Executive that there has been aPayment, or such earlier time as is requested by NMG.  All fees andexpenses of the Accounting Firm shall be borne solely by NMG.  AnyGross-Up Payment, as determined pursuant to this Paragraph 16, shall bepaid by NMG to the Executive (or to the appropriate taxing authority on theExecutive’s behalf) when the applicable tax is due.  If the AccountingFirm determines that no Excise Tax is payable by the Executive, it shall soindicate to the Executive in writing.  Any determination by the AccountingFirm shall be binding upon NMG and the Executive.  As a result of theuncertainty in the application of Section 4999 of the Code, it is possiblethat the amount of the Gross-Up Payment determined by the Accounting Firm to bedue 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) andthe Executive thereafter is required to make a payment of any Excise Tax, theAccounting Firm shall determine the amount of the Underpayment that hasoccurred and any such Underpayment shall be paid by NMG to or for the benefitof the Executive within 10 business days after receipt of the Accounting Firm’sdetermination.  In no event shall theGross-Up Payment or the Underpayment be made later than the end of the Executive’staxable year next following the Executive’s taxable year in which the relatedtaxes are remitted to the taxing authority.

 

(c)                                  The Executive shallnotify NMG in writing of any claim by the Internal Revenue Service that, ifsuccessful, would require the payment by NMG of any Gross-Up Payment. Such notification shall be given as soon as practicable but no later than tenbusiness days after the Executive is informed in writing of such claim andshall apprise NMG of the nature of such claim and the date on which such claimis requested to be paid.  The Executive shall not pay such claim prior tothe expiration of the thirty day period following the date on which it givessuch notice to NMG (or such shorter period ending on the date that any paymentof taxes with respect to such claim is due).  If NMG notifies theExecutive in writing prior to the expiration of such period that it desires tocontest such claim, the Executive shall (i) give NMG any informationreasonably requested by NMG relating to such claim, (ii) take such actionin connection with contesting such claim as NMG shall reasonably request inwriting from time to time, including, without limitation, accepting legalrepresentation with respect to such claim by an attorney reasonably selected byNMG, (iii) cooperate with NMG in good faith in order to effectivelycontest such claim and (iv) permit NMG to participate in any proceedingsrelating to such claim; provided, however, that NMG shall bear and pay directlyall costs and expenses (including additional interest and penalties) incurredin connection with such contest and shall indemnify and hold the Executiveharmless, on an after-tax basis, for any Excise Tax or income tax (includinginterest and penalties with respect thereto) imposed as a result of suchrepresentation and payment of costs and expenses.  The payment of costs and expenses shall bemade 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’staxable year following the Executive’s taxable year in which the taxes that arethe subject of the contest are remitted to the taxing authority, or where as aresult of such contest no taxes are remitted, the end of the Executive’staxable year following the Executive’s taxable year in which the audit iscompleted or there is a final and nonappealable settlement or other resolutionof the litigation.  Any Excise Taxes orincome 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 10business days after they are incurred but in any event no later than the end ofthe Executive’s taxable year next following the Executive’s taxable year inwhich the Executive remits the related taxes.  Without limitation on theforegoing provisions of this Paragraph 16(c), NMG shall control allproceedings taken in connection with such contest and, at its sole option, maypursue or forego any and all administrative appeals, proceedings, hearings andconferences with the taxing authority in respect of such claim and may, at itssole option, either direct the Executive to pay the tax claimed and sue for arefund or contest the claim in any permissible manner, and the Executive agreesto prosecute such contest to a determination before any administrativetribunal, in a court of initial jurisdiction and in one or more appellatecourts, as NMG shall determine; provided, further, that if NMG directs theExecutive to pay such claim and sue for a refund, NMG shall advance the amountof such payment to the Executive, on an interest-free basis, and shallindemnify and hold the Executive harmless, on an after-tax basis, from anyExcise Tax or income tax (including interest or penalties with respect thereto)imposed with respect to such advance or with respect to any imputed income withrespect to such advance; provided, further, that if the Executive is requiredto extend the statute of limitations to enable NMG to contest such claim, theExecutive may limit this extension solely to such contested amount.  Any Excise Taxes or income taxes imposed as aresult of such advance shall be reimbursed to the Executive within 10 businessdays after they are incurred but in any event no later than the end of theExecutive’s taxable year next following the Executive’s taxable year in whichthe Executive remits the related taxes.  NMG’s control of the contestshall be limited to issues with respect to which a Gross-Up Payment would bepayable hereunder and the Executive shall be entitled to settle or contest, asthe case may be, any other issue raised by the Internal Revenue Service or anyother taxing authority.

 

(d)                                 If, after the receiptby the Executive of an amount paid or advanced by NMG pursuant to thisParagraph 16, the Executive becomes entitled to receive any refund withrespect to a Gross-Up Payment, the Executive shall (subject to NMG’s complyingwith the requirements of Paragraph 16) promptly pay to NMG the amount ofsuch refund received (together with any interest paid or credited thereon aftertaxes applicable thereto).  If, after the receipt by the Executive of anamount advanced by NMG pursuant to Paragraph 16, a determination is madethat the Executive shall not be entitled to any refund with respect to suchclaim and NMG does not notify the Executive in writing of its intent to contestsuch denial of refund prior to the expiration of thirty days after suchdetermination, then such advance shall be forgiven and shall not be required tobe 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.                                 Paragraph22 of the Employment Agreement is hereby amended and restated in its entiretyas follows:

 

22.                                 Costs ofProceedings.  NMG shall pay all costsand expenses of NMG and, at least monthly, all costs and expenses of theExecutive (including legal fees) which are incurred during the Executive’slifetime, in connection with any arbitration relating to the interpretation orenforcement of any provision of this Agreement, whether or not the Executiveinstituted the proceeding and whether or not the Executive prevails; providedthat if the Executive instituted the proceeding and the arbitrator or otherindividual presiding over the proceeding affirmatively finds that the Executiveinstituted the proceeding in bad faith, the Executive shall reimburse NMG forall costs and expenses of the Executive previously paid by NMG pursuant to thisParagraph 22.  The Executive shallprovide to NMG a receipt or voucher for any reimbursable expense within 60 daysof the occurrence of such expense.  Anysuch payment or reimbursement shall be made within 10 business days followingthe receipt of such receipt or voucher. Further, the amount of expenses eligible for payment or reimbursementduring the Executive’s taxable year shall not affect the expenses eligible forpayment or reimbursement in any other taxable year.

 

21.                                 Paragraph23 of the Employment Agreement is hereby amended and restated in its entiretyas follows:

 

23.                                 Section 409ASavings Clause.

 

(a)                                  Notwithstandinganything to the contrary contained herein, this Agreement is intended tosatisfy the requirements of Code Section 409A.  Accordingly, all provisions herein, orincorporated by reference, shall be construed and interpreted to satisfy therequirements of Code Section 409A. Further, for purposes of Code Section 409A, each payment ofcompensation under this Agreement shall be treated as a separate payment ofcompensation.  Any reimbursements orin-kind benefits provided under this Agreement shall be made or provided inaccordance with the requirements of Code Section 409A, including, whereapplicable, the requirement that (i) any reimbursement is for expensesincurred during the period of time specified in this Agreement, (ii) theamount 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) thereimbursement of an eligible expense will be made no later than the last day ofthe calendar year following the year in which the expense is incurred, and (iv) theright to reimbursement or in kind benefits is not subject to liquidation orexchange for another benefit.  Allreferences to “separation from service” contained in this Agreement shall mean “separationfrom service” 

 

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

 

(b)                                 Notwithstandinganything to the contrary contained herein, in the event that NMG receivesadvice 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 suchdetermination), after consultation with the Executive and counsel, NMG mayamend the Agreement to make such other changes it reasonably determines arerequired to comply with Section 409A of the Code in a manner thatpreserves the economics to the Executive to the extent reasonablypracticable.  The Executive hereby stipulates that Cleary Gottlieb Steenand Hamilton LLP is acceptable counsel for purposes of this Paragraph 23(b).

 

(c)                                  Notwithstandinganything to the contrary contained herein, in the event the Executive is a “specifiedemployee” (as defined below) and is entitled to receive a payment on separationfrom service that is subject to Code Section 409A, the payment may not bemade earlier than six months following the date of the Executive’s separationfrom service if required by Code Section 409A and the regulationsthereunder, in which case, the accumulated postponed amount shall be paid in alump sum payment within ten (10) days after the end of the six-monthperiod.  If the Executive dies during thepostponement period prior to the payment of the postponed amount, the amountswithheld on account of Code Section 409A shall be paid to the personalrepresentative of the Executive’s estate within 60 days after the date of theExecutive’s death.  A “specified employee”shall mean an employee who, at any time during the 12-month period ending onthe identification date, is a “specified employee” under Code Section 409A,as determined by the Board.  Thedetermination of “specified employees,” including the number and identity ofpersons considered “specified employees” and the identification date, shall bemade by the Board in accordance with the provisions of Code Sections 416(i) and409A and the regulations issued thereunder.

 

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

 

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

 

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

 

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30.                                 Section 162(m).  Theparties hereto recognize that NMG is not currently subject to Section 162(m) ofthe Code but that it may become subject to said section during the term of thisAgreement.  In such event, NMG retainsthe right to amend the provisions of this Agreement that impact, relate to orreference NMG’s annual bonus program if NMG determines that such an amendmentwould be necessary or appropriate to ensure that any performance-basedcompensation payable under a new bonus plan satisfies the requirements forexemption under Section 162(m) of the Code, provided, however, thatany such amendment provides the Executive at least the same economic benefitunder this Agreement as he had prior to the amendment.

 

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

 

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

 

25.                                 The proviso in Section 4 of Exhibit Bto the Employment Agreement is hereby amended and restated in its entirety asfollows:

 

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

 

26.                                 TheExecutive and NMG acknowledge that this Amendment does not eliminate or reducethe obligations of either party under any portion of Paragraph 8 or Paragraph 9of the Employment Agreement.  Moreover,with respect to Paragraph 8(b) of the Employment Agreement, NMG continuesto acknowledge and agree that the Executive must have and continue to havethroughout his employment the benefits and use of its and its Affiliates’ (asdefined in the Employment Agreement) goodwill and Confidential Information (asdefined in the Employment Agreement) in order to properly carry out hisresponsibilities.  NMG accordinglypromises upon execution and delivery of this Amendment to provide the Executiveimmediate access to new and additional Confidential Information beyond theConfidential Information to which he previously has been provided access and toauthorize him to engage in activities that will create new and additionalConfidential Information not currently in existence.

 

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27.                                 Exceptas otherwise specifically set forth herein, all other terms and conditions ofthe Employment Agreement shall remain in full force and effect.

 

IN WITNESS WHEREOF, NMG and Parent have caused this Amendment to beexecuted on each entities behalf by its duly authorized officer, and theExecutive 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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