Exhibit 10.4
Execution
Copy
Newton Acquisition, Inc.
October 4, 2005
Mr. Burton Tansky
Chief Executive Officer
The Neiman Marcus Group, Inc.
1618 Main Street
Dallas, Texas 75201
Re: Opportunity to Acquire Shares and
Options
Dear Burt,
As you know, The Neiman Marcus
Group, Inc. (“ NMG ”) is in the process of
undergoing a change of control, and following the change of
control, 100% of its outstanding shares will be owned by an entity
called Newton Acquisition, Inc. (“ Newco
”). This transaction is pursuant to an Agreement and
Plan of Merger, dated as of May 1, 2005, by and among Newco,
Newton Acquisition Merger Sub, Inc. and NMG (the “
Merger Agreement ”). Although a delay is
possible, we expect that the closing of the transaction will occur
on October 6, 2005 (the “ Closing
”).
In connection with the transaction,
we are pleased to offer you the opportunity to invest in shares of
common stock of Newco (the “ Shares ”) on the
terms and conditions set out below. In addition, pursuant to
the terms of the non-qualified stock option agreements (each, an
“ Option Grant Agreement ”) awarding those
options as set forth on Schedule I hereto (the “
Rollover Options ”), the Committee (as defined in each
such Option Grant Agreement) has determined on October 3, 2005
(the “ Committee Determination ”) that these
Rollover Options will not be subject to the cash-out provisions of
Section 2.2 of the Merger Agreement and will therefore remain
outstanding as of the Closing unless you choose to exercise them
prior thereto, and Newco has agreed to assume and adjust the
Rollover Options not so exercised to provide you with options to
purchase shares of common stock of Newco (the “ Newco
Options ” and together with the Shares, your “
Newco Equity ”) on the same terms and conditions as
set forth in the applicable Option Grant Agreement and the plan
pursuant to which such awards were made, except as expressly set
forth herein. In addition to the Rollover Options, you hold
shares of common stock of NMG and are being given the opportunity
to invest on a tax-deferred basis by “rolling over”
some of these shares of common stock of NMG (any such shares being
rolled over, the “ Rollover Shares
”).
1.
Merger Consideration; Rollover
Equity . As a
result of the transactions contemplated by the Merger Agreement,
absent an election to contribute or “rollover” the
Rollover Shares as contemplated in this agreement (this “
Agreement ”), you would be entitled, with respect to
your
Rollover Shares, to the “Merger
Consideration” (as defined in the Merger Agreement). In
particular, you would be entitled to the Merger Consideration in
exchange for each Rollover Share (the aggregate such amount with
respect to the Rollover Shares, the “ Rollover Share
Merger Consideration ”). You would also be entitled
to the same consideration for shares you received pursuant to an
election, prior to the Closing, to exercise some or all of the
Rollover Options (the aggregate such amount with respect to the
Rollover Options, the “ Rollover Option Merger
Consideration ” and, with the Rollover Share Merger
Consideration, the “ Rollover Merger Consideration
”). By completing the Acceptance Form below, you
agree (i) not to exercise the Rollover Options and
(ii) to contribute your Rollover Shares to Newco. Newco
agrees to accept your Rollover Shares and assume and adjust your
Rollover Options as provided herein. This rollover will occur
as set forth below in “Sale and Purchase of Newco Equity;
Rollover Mechanics”, and you hereby agree that as a result
you will not be entitled to receive any Rollover Merger
Consideration.
2.
Sale and Purchase of Newco
Shares; Rollover Mechanics . By completing and returning the
Acceptance Form below, you agree to, immediately prior to the
Closing, contribute your Rollover Shares to Newco and agree to
forego any Rollover Share Merger Consideration to which you would
otherwise have been entitled absent an election to invest in the
Shares. The Rollover Shares so contributed will be canceled
and retired without any conversion thereof or payment or
distribution thereon, as set forth in Section 2.1(b) of
the Merger Agreement. Additionally, pursuant to the terms of
the Option Grant Agreements, you will, immediately prior to the
Closing, cease to have any rights with respect to your Rollover
Options including any Rollover Option Merger Consideration to which
you would otherwise have been entitled absent the Committee
Determination and your agreement not to exercise the Rollover
Options. The Rollover Options will be converted into the
Newco Options without any payment or distribution
thereon.
In exchange for the Rollover Shares,
you will receive such number of Shares having an aggregate value
equal (based on the valuation and capitalization set forth in
Schedule I) to the aggregate value of the Rollover Shares
immediately prior to the Closing as indicated on the Acceptance
Form. As soon as practicable following the Closing, you will
either become the holder of record or receive physical certificates
of the Shares.
3.
Rollover Share Certificates;
Assumption and Adjustment of the Rollover Options
. With respect to the Rollover
Shares, you hereby authorize NMG to take such action as may be
necessary to cause the Rollover Shares to be rolled
over.
You agree that you will not exercise
the Rollover Options prior to the Closing. Newco agrees to
assume the Rollover Options on their current terms and conditions,
except that:
(a) the Newco Options will be fully vested at all
times, except as provided in
Section 7(b) below;
(b) the Newco Options will be exercisable for
Shares;
(c) the exercise price per Share of each Newco
Option will equal the lesser of (i) 25% of the fair market
value of a Share, or (ii) the percentage of the fair market
value of a Share that equals the ratio of the exercise price per
NMG share of such option to the Merger Consideration;
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(d) the number of Shares underlying each Newco
Option shall be as set forth in Schedule I; and
(e) at least 10 days prior to the termination or
expiration of any Newco Option for any reason, if there is not a
Public Market (as defined in the Stockholders’ Agreement) for
the Shares, Newco will permit you to exercise any such vested Newco
Options through net-physical settlement (i.e., by delivery of
Shares net of the number of Shares having a Fair Market Value (as
defined in the Stockholders’ Agreement, defined below) equal
to the applicable exercise price and applicable withholding taxes
at the minimum statutory rate), unless (i) Newco’s
independent auditors determine that net-physical settlement of any
such Newco Options would produce less-favorable accounting
consequences for Newco or its affiliates than if you paid the
exercise price for any such vested Newco Options in cash (other
than those that would have an immaterial effect) or (ii) Newco
receives advice from counsel, in accordance with Section 10
below, that such net-physical exercise would result in a penalty
under Section 409A of the Internal Revenue Code of 1986, as
amended (the “ Code ”). If, in accordance
with this paragraph, you are entitled to exercise Newco Options
through net-physical exercise, Fair Market Value will be determined
as set forth in the Stockholders’ Agreement, including any
right to an Outside Appraisal (as defined therein).
4.
Acceptance and Closing;
Conditions . You
may accept this offer and the terms of this Agreement by completing
and returning the Acceptance Form below, in which case the
closing of the acquisition of your Newco Equity will occur
immediately after the Closing. This offer is conditioned upon
the occurrence of the Closing. If the Closing does not occur
on or before October 17, 2005 (the “ Closing
Deadline ”), this Agreement will be canceled and you will
have no rights with respect hereto and any Rollover Shares that you
have transferred or cash payment that you have made pursuant to
Section 3 will be returned to you; provided , that if
Newco determines on or before the Closing Deadline and in good
faith that the Closing is likely to occur on or before
October 31, 2005, the Closing Deadline shall automatically be
extended to October 31, 2005.
5.
Limitation
. Newco, in its discretion,
may limit the number of Shares that you may purchase, and therefore
may choose not to accept the full amount of your investment
election with respect to your Rollover Shares. Rollover
Shares not so accepted pursuant to the preceding sentence will be
treated in accordance with the provisions of the Merger
Agreement.
6.
Vesting . Your Shares when issued will be fully
vested.
7.
Stockholders’ Agreement;
Certain Other Agreements .
(a) By completing and returning the Acceptance
Form below, you agree to become a party to the Management
Stockholders’ Agreement, a copy of which is attached hereto
as Annex A, as may be amended from time to time in accordance with
its terms (the “ Stockholders’ Agreement
”) and you will be subject to the terms and conditions
thereof with respect to your Shares; provided that the
Shares shall not be subject to the call right in
Section 3(b). Newco agrees that it will, and that it
will cause the Majority Stockholder (as defined below) to, also
become a party to the Stockholders’ Agreement.
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(b) In addition to the terms and conditions of the
Stockholders’ Agreement, with respect to Newco Options for a
total of 1,810.4095 Shares, as determined pursuant to
Schedule I (the “ Excess Options ”), in the
event that, on or before the first anniversary of the Closing, your
employment with NMG or any of its affiliates terminates as a result
of NMG or its affiliates terminating your employment for Cause (as
such term is defined in your employment agreement with NMG, dated
October 6, 2005 (your “ Employment Agreement
”)), your voluntary resignation other than for your
retirement or for Good Reason (as such term is defined in your
Employment Agreement), Newco and its affiliates shall have the
right, at any time until the earlier of (x) the fifth anniversary
of the Closing or (y) a Public Market (as such term is defined in
the Stockholders’ Agreement) exists for the Shares, to, at
any time after delivery of a notice to you or your
estate:
i.
Cancel each Excess Option in
exchange for a cash payment for each Share underlying such Excess
Option being canceled equal to the difference between (1) the
lesser of (A) Fair Market Value of the Share (as such term is
defined in the Stockholders’ Agreement and subject to any
right to seek an Outside Appraisal in accordance with the
Stockholders’ Agreement) underlying such Excess Option and
(B) $1,445 (whichever such amount applies, the “
Excess Share Buyout Price ”) and (2) the per
Share exercise price of such Excess Option being canceled;
or
ii.
Purchase any or all Shares you hold
as a result of the exercise of any or all of the Excess Options for
the Excess Buyout Price.
(c) If, after the Closing Date but prior to the
existence of a Public Market, Newco or Newton Holding, LLC (“
Newton LLC ”) proposes to issue additional shares of
common stock of Newco or membership interests of Newton LLC (in
each case with the exception of any issuance in connection with any
merger, acquisition or similar corporate event or to employees
pursuant to an employee incentive plan), Newco or Newton LLC, as
applicable, shall provide written notice (the “ Issuance
Notice ”) to you of such anticipated issuance no later
than ten (10) days prior to the anticipated issuance
date. The Issuance Notice shall set forth the material terms
and conditions of the issuance, including the proposed purchase
price for the new shares of common stock of Newco or membership
interests of Newton LLC. You shall have the right, upon
receipt of the Issuance Notice, to purchase additional shares of
common stock of Newco up to your pro rata portion (based on the
number of shares of common stock of Newco you own or subject to
vested stock options you hold immediately prior to such issuance),
at the price and on the terms and conditions specified in the
Issuance Notice by delivering an irrevocable written notice to
Newco no later than five (5) days before the anticipated
issuance date, setting out the number of new shares of common stock
of Newco for which the right is exercised; provided that if
the issuance is of membership interests in Newton LLC, your pro
rata portion shall be calculated as if the shares of common stock
of Newco held by you and all other holders of the shares of common
stock of Newco (other than Newton LLC) were converted into
membership interests in Newton LLC and you held such membership
interests together with all of the holders of membership interests
in Newton LLC on the date the notice was delivered. If you
fail to exercise all or a portion of your preemptive rights, Newco
or Newton LLC, as applicable, shall be permitted to complete the
proposed issuance without any further notice or action related to
the rights provided in this Section 7(d). In the event
that Newton LLC proposes to issue new membership interests, Newton
LLC and Newco may determine, in their sole discretion, to
permit
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you to exercise your preemptive rights to
purchase membership interests in Newton LLC rather than additional
shares of common stock of Newco.
8.
Tax Reporting
. It is intended that the
rollover of the Rollover Shares and Rollover Options contemplated
herein shall be treated as a tax-free transfer under the
Code.
All discussions of U.S. federal
tax considerations in this document have been written to support
the marketing of the Shares. Such discussions were not
intended or written to be used, and cannot be used by any taxpayer,
for the purpose of avoiding U.S. federal tax penalties. You
should consult your own tax advisers in determining the tax
consequences of the rollover and of holding the Shares, including
the application to your particular situation of the U.S. federal
tax considerations discussed herein, as well as the application of
state, local, foreign, or other tax laws.
9.
Representations;
Acknowledgements .
By signing below and completing and returning the Acceptance Form,
you hereby represent and warrant to Newco and NMG that:
(i)
you have the requisite power,
authority and capacity to execute this Agreement and to deliver or
cause to be delivered the Rollover Shares, to perform your
obligations under this Agreement and to consummate the transactions
contemplated hereby;
(ii)
the Acceptance Form has been
duly and validly executed and delivered by you and constitutes your
legal, valid and binding obligation, enforceable against you in
accordance with its terms, except to the extent that such validly
binding effect and enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium and other laws
relating to or affecting creditors’ rights
generally;
(iii)
the Shares are being acquired for
your own account, for investment purposes only and not with a view
to or in connection with any distribution, reoffer, resale, public
offering or other disposition thereof not in compliance with the
Securities Act of 1933 (the “ Securities Act ”),
as may be amended from time to time, or any applicable United
States federal or state securities laws or regulations;
(iv)
you are an “accredited
investor”, as defined in Rule 501(a) under the
Securities Act, which means you are:
a.
A person whose individual net worth,
or joint net worth with your spouse, exceeds $1,000,000;
OR
b.
A person whose income exceeded
$200,000 in each of the two most recent years, or joint income with
your spouse exceeded $300,000 in each of those years, and you have
a reasonable expectation of reaching the same income level in this
year;
(v)
you possess such expertise,
knowledge, and sophistication in financial and business matters
generally, and in the type of transaction in which NMG and Newco
propose to engage in particular;
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(vi)
you have had access to all of the
information and individuals with respect to the Shares and your
investment that you deem necessary to make a complete evaluation
thereof;
(vii)
you have had an opportunity to
consult an independent tax and legal advisor and your decision to
acquire the interest for investment has been based solely upon your
evaluation;
(viii)
you are aware that the Internal
Revenue Service or other relevant taxing authority may take a
position regarding the rollover contemplated in this Agreement
and/or the tax classification of Newco and the Shares contrary to
that intended by Newco as provided in this Agreement and except as
specifically provided in Section 10 herein you shall be solely
responsible for any and all tax or other liabilities that may
result from the IRS’s or other relevant taxing
authority’s position; and
(ix)
you are aware that the
Stockholders’ Agreement provides significant restrictions on
your ability to dispose of the Newco Equity.
By electing to contribute the
Rollover Shares and not to exercise your Rollover Options pursuant
to this Agreement, you acknowledge that you are instructing Newco
and its affiliates to distribute to you, following the Closing,
Shares and Newco Options instead of cash, as described above, and
you hereby acknowledge that you do not have, and will not assert
that you have, any claim against Newco, the Majority Stockholder
(as defined below) or their respective affiliates to receive the
Merger Consideration or any other payment in exchange for the
Rollover Shares, except as contemplated herein.
The “Majority
Stockholder” shall mean, collectively or individually as the
context requires, Newton Holding, LLC, TPG Newton III, LLC, TPG
Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus
Private Equity VIII, L.P., Warburg Pincus Netherlands Private
Equity VIII C.V. I, Warburg Pincus Germany Private Equity VIII K.G,
Warburg Pincus Private Equity IX, L.P and/or their respective
affiliates, successors or assigns.
10.
Section 409A of the Code;
Other Tax Provisions . If Newco receives the advice of counsel
selected by Newco and reasonably acceptable to you that any payment
or distribution with respect to the Rollover Shares or Rollover
Options (or the Shares and Newco Options you receive as a result of
rolling over the Rollover Shares or Rollover Options) or the
conversion of the Rollover Shares or Rollover Options into Shares
and Newco Options pursu