Document:

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:

 

 

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 1⁄2 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” 

 

13

 

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:

 

14

 

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.

 

15

 

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

  

 

16Exhibit 10.5

 

AMENDMENT TO LETTER AGREEMENT

 

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

 

W I T N E S S E T H:

 

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

 

WHEREAS, the
Company and Tansky now desire to amend the Letter Agreement for compliance with
Internal Revenue Code Section 409A and the Treasury Regulations
thereunder;

 

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

 

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

 

(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 an arm’s length transaction (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
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(c).  In the
event that Newton LLC proposes to issue new membership interests, Newton LLC
and Newco may determine, in their sole discretion, to permit you to exercise
your preemptive rights to purchase membership interests in Newton LLC rather
than additional shares of common stock of Newco.

 

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

 

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 you an additional amount (the “Gross-Up Payment”)
such that the net amount retained by you 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.  The Gross-Up Payment shall be paid to you
within ten (10) business days of you providing notice to NMG that the related
taxes are due, but in no event later than the end of your taxable year next
following the taxable year in which such related taxes are remitted.

 

2

 

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 during your lifetime as a result of
the Internal Revenue Service’s challenge, Newco will indemnify you for such
penalties and interest on a net after-tax basis as described in the preceding
paragraph.  Any such payment or
reimbursement shall be made within ten (10) business days of you providing
notice to NMG that such penalties and interest have been incurred, but in any
event no later than the last day of your taxable year following the taxable
year in which the expense was incurred. 
Further, the amount of penalties or interest eligible for payment or
reimbursement during a taxable year shall not affect the amount eligible for
payment or reimbursement in any other taxable year.

 

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

 

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

 

	
   

  	
   

  	
   

  	
    NEIMAN
  MARCUS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Nelson
  A. Bangs

  
	
   

  	
   

  	
  Its:

  	
  Senior Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
    /s/
  Burton M. Tanksy

  

 

3

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