**EXHIBIT 10.39**

 

**AMENDMENT NO. 1 TO THE NEIMAN MARCUS GROUP,INC.**

**KEY EMPLOYEE DEFERRED COMPENSATION PLAN**

**(Amended and Restated Effective January 1,2008)**

 

Pursuant tothe provisions of Section 8.1 thereof, The Neiman Marcus Group, Inc.Key Employee Deferred Compensation Plan (Amended and Restated Effective January 1,2008) (the “Plan”) is hereby amended effective as of January 1, 2008 inthe following respects only:

 

FIRST:  Section 2.4of the Plan is hereby amended by restatement in its entirety to read as follows:

 

2.4                                 “**Bonus**”means an annual cash bonus payable by an Employer to an employee, including anyportion of such a bonus that would have been payable to the employee but for anelection under Section 125 of the Code, a deferral election under the SavingsPlan or the Retirement Savings Plan, or a deferral election under this Plan,provided, however, that the term “Bonus” shall not include any amount arisingfrom, or paid under or in connection with a long-term incentive program, or astock appreciation right, stock option, restricted stock or stock unit, orother equity-based incentive award, plan or arrangement.  A “**PerformanceBonus**” means any Bonus that satisfies the requirements to beperformance-based compensation within the meaning of Treasury Regulation Section 1.409A-1(e).

 

SECOND: Section 2.10 of the Plan is hereby amended by restatement in itsentirety to read as follows:

 

2.10                           “**Compensation**”means Base Pay and any Performance Bonus payable by an Employer to an employee.

 

THIRD:  Section 2.26of the Plan is hereby amended by restatement in its entirety to read asfollows:

 

2.26                           “**Separationfrom Service**” means the termination of services provided by aParticipant to his or her Employer (as defined in (c) below), whethervoluntary or involuntary, as determined by the Committee in accordance withTreasury Regulation Section 1.409A-1(h).  More specifically and asprovided by such regulations, in determining whether a Participant hasexperienced a Separation from Service, the following provisions shall apply:

 

----

 

(a)                                  Exceptas otherwise provided in subsection (b) below, a Separation from Servicewill occur when such Participant has experienced a termination of employmentwith the Employer.  A Participant will be considered to have experienced atermination of employment when the facts and circumstances indicate that theParticipant and his or her Employer reasonably anticipate that either (A) nofurther services will be performed for the Employer after a certain date, or (B) thatthe level of bona fide services the Participant will perform for the Employerafter such date (whether as an employee or as an independent contractor) willpermanently decrease to no more than 20% of the average level of bona fideservices performed by the Participant (whether as an employee or an independentcontractor) over the immediately preceding 36-month period (or the full periodof services to the Employer if the Participant has been providing services tothe Employer less than 36 months).

 

If aParticipant is on military leave, sick leave, or other bona fide leave ofabsence, the employment relationship between the Participant and the Employerwill be treated as continuing, provided that the period of the leave of absencedoes not exceed six months, or if longer, so long as the Participant has aright to reemployment with the Employer under an applicable statute or bycontract.  If the period of a military leave, sick leave, or other bonafide leave of absence exceeds six months and the Participant does not have a rightto reemployment under an applicable statute or by contract, the employmentrelationship will be considered to be terminated for purposes of this Plan asof the first day immediately following the end of such six-month period. In applying the provisions of this paragraph, a leave of absence will beconsidered a bona fide leave of absence only if there is a reasonableexpectation that the Participant will return to perform services for theEmployer.

 

(b)                                 Fora Participant who provides services to an Employer as both an employee and anindependent contractor*,*aSeparation from Service generally will not occur until the Participant hasceased providing services for the Employer as both an employee and anindependent contractor.  Except asotherwise provided herein, in the case of an independent contractor aSeparation from Service will occur upon the expiration of the contract (or inthe case of more than one contract, all contracts) under which services areperformed for the Employer, provided that the expiration of such contract orcontracts is determined by the Employer to constitute a good-faith and completetermination of the contractual relationship between the Participant and theEmployer.  If a Participant ceases providing services for an Employer asan employee and begins providing services for such Employer as an independentcontractor, the Participant will not be considered to have experienced aSeparation from Service until the Participant has ceased providing services forthe Employer in both capacities, as determined in accordance with theapplicable provisions set forth in subsections (a) and (b) of thisSection.

 

2

----

 

Notwithstanding the foregoing provisions in this subsection, if a  Participant provides services for an Employeras both an employee and as a member of the board of directors of an Employer,to the extent permitted by Treasury Regulation Section 1.409A-1(h)(5), theservices provided by the Participant as a director will not be taken into accountin determining whether the Participant has experienced a Separation fromService as an employee.

 

(c)                                  Forpurposes of this Section only, “**Employer**”means:

 

(i)                                     Theentity for whom the Participant performs services and with respect to which thelegally binding right to the payment of benefits under this Plan arises; and

 

(ii)                                  Allother entities with which the entity described in (i) above would beaggregated and treated as a single employer under Code Section 414(b) (controlledgroup of corporations) and Code Section 414(c) (group of trades orbusinesses under common control), as applicable; provided, however, thatan  ownership threshold of 50% shall beused as a substitute for the 80% minimum ownership threshold that appears in,and otherwise must be used when applying, the applicable provisions of (1) CodeSection 1563 and the regulations thereunder for determining a controlledgroup of corporations under Code Section 414(b), and (2) TreasuryRegulation  Section 1.414(c)-2 fordetermining the trades or businesses that are under common control under Code Section 414(c).

 

FOURTH: Section 4.1 of the Plan is hereby amended by restating subsection (b) thereofin its entirety to read as follows:

 

(b)                                 Bonuses.  An individual who is an Eligible Employee mayelect to defer a designated whole percentage, not to exceed 15 percent, of anyPerformance Bonus for a performance period ending after the date of theelection, by filing an irrevocable election with the Committee at least sixmonths prior to the end of any such performance period (or such earlier date asthe Committee may prescribe); provided, however, that the Eligible Employeeperforms services continuously from the later of the beginning of theperformance period or the date the performance criteria are established throughthe date the deferral election is made and that in no event may a deferralelection be made after the Performance Bonus has become readily ascertainableas determined in accordance with Treasury Regulation Section 1.409A-2(a)(8).  A Participant may revoke or otherwise modifyan existing election, or make a new deferral election, effective with respectto a Performance Bonus to be paid for any performance period ending more thansix months subsequent to the date of such revocation, modified election, or newelection by filing an irrevocable election with the Committee at least sixmonths prior to the end of any such performance period (or such earlier date asthe Committee may prescribe); provided, however, that the Eligible Employee performsservices continuously from the later of the beginning of the performance periodor the date the performance criteria are

 

3

----

 

established through the date of therevocation, modified election, or new election, and that in no event may such arevocation, modified, election or new election be made after the PerformanceBonus has become readily ascertainable as determined in accordance withTreasury Regulation Section 1.409A-2(a)(8).  A Bonus that is not a Performance Bonus shallnot be eligible for deferral under the Plan.

 

FIFTH:  Section 4.2of the Plan is hereby amended by restatement in its entirety to read asfollows:

 

4.2                                 MatchingDeferrals.  As of each pay date onwhich a credit is made to a Participant’s Account with respect to suchParticipant’s election to defer Base Pay or Performance Bonus pursuant to Section 4.1,such Participant’s Employer shall credit to the Participant’s Account aMatching Deferral equal to:

 

(a)                                  100%of the sum of (i) the Participant’s Elective Deferrals for such pay dateand (ii) the Participant’s Maximum 401(k) Plan Deferrals for such paydate, to the extent that such sum does not exceed the first two percent (2%) ofhis or her Compensation for such pay date, plus

 

(b)                                 25%of the sum of (i) the Participant’s Elective Deferrals for such pay dateand (ii) the Participant’s Maximum 401(k)  Plan Deferrals for suchpay date, to the extent that such sum does not exceed the next four percent(4%) of his or her Compensation for such pay date, minus

 

(c)                                  the Participant’sMaximum 401(k)  Plan Match for such pay date.

 

SIXTH:  Section 6.1of the Plan is hereby amended by adding the following sentence to the end ofsubsection (a) thereof:

 

Any provisionof Section 6.1 to the contrary notwithstanding, prior to January 1,2009 (or such earlier date as the Committee may prescribe), each Participantmay make a new election for the time and form of payment from among the optionsset forth in this Section for the amounts credited to his or her Accountand such election shall be treated as his or her initial election and thereforeshall not be subject to the rules for election changes provided in Section 6.6;provided, however, that no such election shall be permitted to change anypayment that would otherwise have been made in 2008 and no such election mayaccelerate a payment into 2008 that would not otherwise have been made in 2008.

 

SEVENTH: Section 6.2 of the Plan is hereby amended by adding the followingsentence to the end thereof:

 

4

----

 

In the event a Participant is reemployed by an Employer following aSeparation from Service and any amounts remain credited to such Participant’sAccount attributable to amounts credited to such Account prior to such previousSeparation from Service, such prior Account shall continue to be subject to thepayment provisions of the Plan based on the prior Separation from Service.

 

EIGHTH: Section 6.6 of the Plan is hereby amended by restatement in itsentirety to read as follows:

 

6.6                                 Changes in Time andForm of Payment.  Subject to therequirements below, a Participant may change his or her previous paymentelections under Section 6.1 regarding the time at which his or her Accountwill be paid or begin to be paid, or the form of such payment, or both, providedthat a Participant whose current election with regard to the commencement ofpayments is that provided under Section 6.1(b)(i) may not subsequentlyelect Section 6.1(b)(ii) but may elect to have the payment commencementquarter under Section 6.1(b)(i) deferred for at least five but notmore than 10 years.  Notwithstanding thepreceding:

 

(i)  No such change to a prior paymentelection shall be effective until at least 12 months after the date on which suchmodified election is made.

 

(ii)  No such change to a prior paymentelection with respect to a payment at a specified time or pursuant to a fixedschedule may be made less than twelve months prior to the date the payment isscheduled to be paid or, in the case of installment payments elected pursuantto Section 6.1(c)(ii) (which shall be treated for purposes of thisPlan as a “single payment”), twelve months prior to the date the first amountwas scheduled to be paid.

 

(iii)  The payment with respect to anysuch subsequent election must be deferred for a period of not less than fiveyears from the date such payment would otherwise have been paid or, in the caseof installment payments elected pursuant to Section 6.1(c)(ii) (whichshall be treated for purposes of this Plan as a “single payment”), five yearsfrom the date the first amount was scheduled to be paid.

 

A Participant’s election pursuant to this Section to change his orher previous payment elections shall be made in the manner prescribed by theCommittee and shall become effective and be deemed to be “made” for purposes ofthe above provisions of this Section at the time received by the Committeeor its designee, and shall be irrevocable upon such receipt.  In the case of a payment that is scheduled tobe made during a calendar quarter or such other time period longer than oneday, such payment shall be deemed to be scheduled to be paid for purposes ofthis Section as of the first day of such time period.

 

5

----

 

NINTH:  Section 6.8of the Plan is hereby amended by restating the first and second sentencesthereof in their entirety to read as follows:

 

Any provision of this Plan to the contrary notwithstanding, if aParticipant is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) ofthe Code as of the date of the Participant’s Separation from Service, nodistribution shall be made or commence with respect to such Participantpursuant to this Section sooner than six months from the date of such Participant’sSeparation from Service (or, if earlier, the date of the Participant’s death). Insuch case, all payments that were scheduled to be made within such six-monthperiod shall be accumulated (with interest as provided in Section 5.2) andpaid in a single lump sum in the calendar quarter following the calendarquarter in which such six-month period ends.

 

TENTH:  Section 8.2of the Plan is hereby amended by restating the last sentence thereof in itsentirety to read as follows:

 

The preceding provisions of this Section 8.2 to the contrarynotwithstanding, the Company may in its discretion terminate the Plan at anytime and provide for accelerated payments of all amounts credited to Accountsupon a termination of the Plan to the extent such termination and accelerationof payments satisfies the applicable requirements for such accelerated paymentupon the termination of a plan for purposes of avoiding the tax imposed by CodeSection 409A.

 

IN WITNESSWHEREOF, this Amendment has been executed on this 22nd day of December, 2008.

 
| ** ** | ** ** | **THE NEIMAN MARCUS GROUP, INC.** |
|------------|------------|-----------------------------------|
|       |       |                              |
|       | By:        |                              | /s/  Marita O’Dea |
|       | Its:       | Senior Vice President and         |
|       |       | Chief Human Resource Officer      |
|            |            |                                   |  |

 

6

----