Exhibit 10.19

 

EXECUTION VERSION

 

MANAGEMENT SERVICES AGREEMENT

 

This Management Services Agreement (the “Agreement”) is entered into as of
October 6, 2005 by and among Newton Acquisition Merger Sub, Inc., a Delaware
corporation (together with its subsidiaries, “MergerSub”), Newton
Acquisition, Inc., a Delaware corporation (“Newton”, and together with
MergerSub, the “Companies”), TPG GenPar IV, L.P., TPG GenPar III, L.P. (“TPG”)
and Warburg Pincus LLC (“Warburg”, together with TPG, the “Managers”).

 

WHEREAS, each of the Companies will engage in a transaction in which MergerSub
will merge with and into The Neiman Marcus Group, Inc., a Delaware corporation
(“Neiman Marcus”), with Neiman Marcus surviving (the “Merger”) pursuant to an
Agreement and Plan of Merger, dated as of May 1, 2005 (as amended from time to
time, the “Merger Agreement”); and

 

WHEREAS, the Companies wish to retain the Managers to provide certain management
and advisory services to the Companies, and the Managers are willing to provide
such services on the terms set forth below.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:

 

1.             Services.  Each of the Managers hereby agrees that, during the
term of this Agreement (the “Term”), it will provide the following consulting
and advisory services to the Companies as reasonably requested from time to time
by the Companies:

 

(A)           ADVICE IN CONNECTION WITH THE NEGOTIATION AND CONSUMMATION OF
AGREEMENTS, CONTRACTS, DOCUMENTS AND INSTRUMENTS NECESSARY TO PROVIDE THE
COMPANIES WITH FINANCING ON TERMS AND CONDITIONS SATISFACTORY TO THE COMPANIES;

 

(B)           ADVICE IN CONNECTION WITH ACQUISITION, DISPOSITION AND CHANGE OF
CONTROL TRANSACTIONS INVOLVING ANY OF THE COMPANIES OR ANY OF THEIR DIRECT OR
INDIRECT SUBSIDIARIES OR ANY OF THEIR RESPECTIVE SUCCESSORS;

 

(C)           FINANCIAL, MANAGERIAL AND OPERATIONAL ADVICE IN CONNECTION WITH
DAY-TO-DAY OPERATIONS, INCLUDING, WITHOUT LIMITATION, ADVICE WITH RESPECT TO THE
DEVELOPMENT AND IMPLEMENTATION OF STRATEGIES FOR IMPROVING THE OPERATING,
MARKETING AND FINANCIAL PERFORMANCE OF THE COMPANIES; AND

 

(D)           SUCH OTHER SERVICES (WHICH MAY INCLUDE FINANCIAL AND STRATEGIC
PLANNING AND ANALYSIS, CONSULTING SERVICES, HUMAN RESOURCES AND EXECUTIVE
RECRUITMENT SERVICES AND OTHER SERVICES) AS SUCH MANAGER AND THE COMPANIES MAY
FROM TIME TO TIME AGREE IN WRITING.

 

Each of the Managers will devote such time and efforts to the performance of the
services contemplated hereby as such Manager deems reasonably necessary or
appropriate; provided, however, that no minimum number of hours is required to
be devoted by any Manager on a

 

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weekly, monthly, annual or other basis.  The Companies acknowledge that each of
the Manager’s services are not exclusive to the Companies and that each Manager
may render similar services to other persons and entities.  The Managers and the
Companies understand that the Companies may at times engage one or more
investment bankers or financial advisers to provide services in addition to, but
not in lieu of, services provided by the Managers under this Agreement; provided
that any such engagement will be made pursuant to the terms of the Amended and
Restated Limited Liability Operating Agreement (the “LLC Agreement”) of Newton
Holding, LLC (“Holding”) among affiliates of the Managers and certain other
parties.  In providing services to the Companies, each Manager will act as an
independent contractor and it is expressly understood and agreed that this
Agreement is not intended to create, and does not create, any partnership,
agency, joint venture or similar relationship and that no party has the right or
ability to contract for or on behalf of any other party or to effect any
transaction for the account of any other party.

 

2.             Payment of Fees.

 

(a)           On the date hereof, the Companies, jointly and severally, will pay
to TPG (or such affiliates as they may designate) a transaction fee (the
“Transaction Fee”) of $25,000,000.

 

(b)           During the Term, the Companies, jointly and severally, will pay to
the Managers an aggregate annual Monitoring Fee (the “Monitoring Fee”) equal to
the lesser of (i) 0.25% of the consolidated annual revenue of the Companies and
(ii) $10,000,000 as compensation for the services provided by the Managers under
this Agreement, such fee being payable by the Companies quarterly in arrears. 
The Monitoring Fee will be divided between the Managers as follows (i) TPG will
be entitled to 50% and (ii) Warburg will be entitled to 50%.  The percentages
set forth in the preceding sentence are herein referred to as the “Relative
Interests”.

 

(C)           DURING THE TERM, THE MANAGERS WILL ADVISE THE COMPANIES IN
CONNECTION WITH FINANCING, ACQUISITION, DISPOSITION AND CHANGE OF CONTROL
TRANSACTIONS INVOLVING THE COMPANIES OR ANY OF THEIR DIRECT OR INDIRECT
SUBSIDIARIES (HOWEVER STRUCTURED), AND THE COMPANIES WILL PAY TO THE MANAGERS AN
AGGREGATE FEE (THE “SUBSEQUENT FEE”) IN CONNECTION WITH EACH SUCH TRANSACTION
EQUAL TO CUSTOMARY FEES CHARGED BY INTERNATIONALLY-RECOGNIZED INVESTMENT BANKS
FOR SERVING AS A FINANCIAL ADVISOR IN SIMILAR TRANSACTIONS, SUCH FEE TO BE DUE
AND PAYABLE FOR THE FOREGOING SERVICES AT THE CLOSING OF SUCH TRANSACTION. 
NOTWITHSTANDING THE FOREGOING, NO SUBSEQUENT FEE IN RESPECT OF ANY TRANSACTION
WILL EXCEED ONE PERCENT (1%) OF THE GROSS TRANSACTION VALUE OF SUCH TRANSACTION
AS REASONABLY DETERMINED BY THE MANAGERS.  EACH SUBSEQUENT FEE WILL BE DIVIDED
BETWEEN THE MANAGERS IN PROPORTION TO THEIR RELATIVE INTERESTS.

 

(d)           The parties hereto acknowledge and agree that an objective of the
Companies is to maximize value for their direct and indirect equity holders,
which may include the consummation by either of the Companies, one or more of
their subsidiaries or any of their successors of a qualified public offering (an
“QPO”), as such term is defined in the LLC Agreement, or the sale of either of
the Companies or their successors (through merger or otherwise) or a sale of all
or substantially all of the assets of either of the Companies or their
successors (any such sale transaction, a “Sale”).  The services provided to the
Companies by the

 

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Managers will help to facilitate the consummation of a QPO or Sale, should the
Companies determine to pursue such a transaction.  In the event a QPO or Sale is
consummated, the Companies will pay in cash on the date of consummation of such
QPO or Sale (in lieu of any Subsequent Fee) an aggregate success fee (the
“Success Fee”) in an amount equal to the product of (i) $10,000,000 and (ii) 50%
of (x) the Total Enterprise Value of the Companies divided by (y) the Companies’
consolidated EBITDA for the most recent period of four consecutive fiscal
quarters.  For such calculation, EBITDA will be the consolidated earnings before
interest, taxes, depreciation and amortization of the Companies (excluding
extraordinary gains and losses) derived by the Managers from the Companies’
consolidated statement of earnings for such period.  The Success Fee will be
divided between the Managers in proportion to their Relative Interests.  For
purposes of this provision, “Total Enterprise Value” means the enterprise value
of the Companies and their subsidiaries, taken as a whole, as determined by the
Managers in their reasonable discretion, using customary and appropriate
valuation methodologies.

 

(e)           Each payment made pursuant to this Section 2 will be paid by wire
transfer of immediately available funds to the accounts specified on Schedule 1
hereto, or to such other account(s) as the Managers may specify to the Companies
in writing prior to such payment.  In the event of a QPO or a Sale that includes
non-cash consideration, each Manager may elect to receive all or any portion of
its fee in the form of such non-cash consideration, valued at the sale price.

 

3.             Deferral.  Any fee that would have been payable to the Managers
pursuant to Section 2 above absent the restrictions, if any, in any financing or
similar agreements (the “Financing Documents”) applicable to the Companies (the
“Deferred Fees”) will accrue upon the immediately succeeding period in which
such amounts could, consistent with the Financing Documents, be paid, and will
be paid in such succeeding period (in addition to such other amounts that would
otherwise be payable at such time) in the manner set forth in Section 2.

 

4.             Term.  This Agreement will continue in full force and effect
unless terminated by the unanimous consent of the Managers; provided that this
agreement will terminate automatically upon the consummation of a QPO or a Sale
that constitutes a Sale of the Companies taken as a whole or all or
substantially all the assets of the Companies taken as a whole (in each case,
following payment of the Success Fee); provided, further, that the termination
of this Agreement will not relieve a party from liability for any breach of this
Agreement on or prior to such termination.  In the event of a termination of
this Agreement, the Companies will pay the Managers (or its designees) all
unpaid Transaction Fees (pursuant to Section 2(a) above), Monitoring Fees
(pursuant to Section 2(b) above), Subsequent Fees (pursuant to
Section 2(c) above), Deferred Fees (pursuant to Section 3 above) and expenses
(pursuant to Section 5(a) below) due with respect to periods prior to the date
of termination.  This Section 4, Section 5 and Section 9 will survive
termination of this Agreement.

 

5.             Expenses; Indemnification.

 

(a)           Expenses.  The Companies, jointly and severally, will pay to the
Managers (or their respective designees) on demand all Reimbursable Expenses. 
As used herein, “Reimbursable Expenses” means (i) all out-of-pocket expenses
incurred from and after the consummation of the merger (the “Closing Date”)
relating to the services provided by the

 

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Managers or their respective affiliates to the Companies or any of their
affiliates from time to time (including, without limitation, all air travel (by
first class on a commercial airline or by charter, as determined by the
appropriate Manager) and other travel related expenses), (ii) all out-of-pocket
legal expenses incurred by any Managers or their respective affiliates from and
after Closing Date in connection with the enforcement of rights or taking of
actions under this Agreement, the Merger Agreement or any related documents or
instruments; and (iii) all expenses incurred from and after the Closing Date by
the Managers and their respective affiliates which are properly allocable to the
Companies under this Agreement.

 

(b)           Indemnity and Liability.  The Companies, jointly and severally,
will indemnify, exonerate and hold each of the Managers, and each of their
respective partners, shareholders, members, affiliates, directors, officers,
fiduciaries, managers, controlling persons, employees and agents and each of the
partners, shareholders, members, affiliates, directors, officers, fiduciaries,
managers, controlling persons, employees and agents of each of the foregoing
(collectively, the “Indemnitees”) free and harmless from and against any and all
actions, causes of action, suits, claims, liabilities, losses, damages and costs
and out-of-pocket expenses in connection therewith (including attorneys’ fees
and expenses) incurred by the Indemnitees or any of them before or after the
date of this Agreement (collectively, the “Indemnified Liabilities”), arising
out of any action, cause of action, suit, arbitration, investigation or claim
arising out of, or in any way relating to (i) this Agreement, the Merger
Agreement, any transaction to which any of the Companies is a party or any other
circumstances with respect to any of the Companies or (ii) operations of, or
services provided by any of the Managers to, the Companies, or any of their
respective affiliates from time to time; provided that the foregoing
indemnification rights will not be available to the extent that any such
Indemnified Liabilities arose on account of such Indemnitee’s gross negligence
or willful misconduct; and further provided that if and to the extent that the
foregoing undertaking may be unavailable or unenforceable for any reason, the
Companies hereby agree to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.  For purposes of this Section 5(b), none of the circumstances
described in the limitations contained in the two provisos in the immediately
preceding sentence will be deemed to apply absent a final non-appealable
judgment of a court of competent jurisdiction to such effect, in which case to
the extent any such limitation is so determined to apply to any Indemnitee as to
any previously advanced indemnity payments made by the Companies, then such
payments will be promptly repaid by such Indemnitee to the Companies without
interest.  The rights of any Indemnitee to indemnification hereunder will be in
addition to any other rights any such person may have under any other agreement
or instrument referenced above or any other agreement or instrument to which
such Indemnitee is or becomes a party or is or otherwise becomes a beneficiary
or under law or regulation.

 

6.             Disclaimer and Limitation of Liability; Opportunities.

 

(a)           Disclaimer; Standard of Care.  None of the Managers makes any
representations or warranties, express or implied, in respect of the services to
be provided by the Managers hereunder.  In no event will the Managers or
Indemnitees be liable to the Companies or any of their respective affiliates for
any act, alleged act, omission or alleged omission that

 

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does not constitute gross negligence or willful misconduct of such Manager as
determined by a final, non-appealable determination of a court of competent
jurisdiction.

 

(b)           Freedom to Pursue Opportunities.  In recognition that each Manager
and its respective Indemnitees currently have, and will in the future have or
will consider acquiring, investments in numerous companies with respect to which
each Manager or its respective Indemnitees may serve as an advisor, a director
or in some other capacity, and in recognition that each Manager and its
respective Indemnitees have myriad duties to various investors and partners, and
in anticipation that the Companies, on the one hand and the Managers (or one or
more affiliates, associated investment funds or portfolio companies), on the
other hand, may engage in the same or similar activities or lines of business
and have an interest in the same areas of corporate opportunities, and in
recognition of the benefits to be derived by the Companies hereunder and in
recognition of the difficulties which may confront any advisor who desires and
endeavors fully to satisfy such advisor’s duties in determining the full scope
of such duties in any particular situation, the provisions of this
Section 6(b) are set forth to regulate, define and guide the conduct of certain
affairs of the Companies as they may involve such Manager.  Except as a Manager
may otherwise agree in writing after the date hereof:

 

(i)            Such Manager and its respective Indemnitees will have the right: 
(A) to directly or indirectly engage in any business (including, without
limitation, any business activities or lines of business that are the same as or
similar to those pursued by, or competitive with, the Companies and their
subsidiaries), (B) to directly or indirectly do business with any client or
customer of the Companies and their subsidiaries, (C) to take any other action
that such Manager believes in good faith is necessary to or appropriate to
fulfill its obligations as described in the first sentence of this Section 6(b),
and (D) not to present potential transactions, matters or business opportunities
to the Companies or any of their subsidiaries, and to pursue, directly or
indirectly, any such opportunity for itself, and to direct any such opportunity
to another Person.

 

(ii)           Such Manager and its respective Indemnitees will have no duty
(contractual or otherwise) to communicate or present any corporate opportunities
to the Companies or any of their affiliates or to refrain from any actions
specified in Section 6(b)(i), and the Companies, on their own behalf and on
behalf of their affiliates, hereby renounce and waive any right to require such
Manager or any of its Indemnitees to act in a manner inconsistent with the
provisions of this Section 6(b).

 

(iii)          None of such Manager, nor any of its Indemnitees will be liable
to the Companies or any of their affiliates for breach of any duty (contractual
or otherwise) by reason of any activities or omissions of the types referred to
in this Section 6(b) or of any such Person’s participation therein.

 

(C)           LIMITATION OF LIABILITY.  IN NO EVENT WILL THE MANAGERS OR ANY OF
THEIR INDEMNITEES BE LIABLE TO THE COMPANIES OR ANY OF THEIR AFFILIATES FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, LOST PROFITS OR SAVINGS,

 

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WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE, OR FOR ANY THIRD PARTY CLAIMS
(WHETHER BASED IN CONTRACT, TORT OR OTHERWISE), RELATING TO THE SERVICES TO BE
PROVIDED BY THE MANAGERS HEREUNDER.

 

7.             Assignment, etc.  Except as provided below, none of the parties
hereto will have the right to assign this Agreement without the prior written
consent of each of the other parties.  Notwithstanding the foregoing, (a) any
Manager may assign all or part of its rights and obligations hereunder to any of
its respective affiliates which provides services similar to those called for by
this Agreement, in which event such Manager will be released of its rights to
fees under Section 2 and reimbursement of expenses under Section 5(a) and all of
its obligations hereunder and (b) the provisions hereof for the benefit of
Indemnitees of the Managers will inure to the benefit of such Indemnitees and
their successors and assigns.

 

8.             Amendments and Waivers.  No amendment or waiver of any term,
provision or condition of this Agreement will be effective, unless in writing
and executed by each Manager and the Companies; provided, that any Manager may
waive any portion of any fee to which it is entitled pursuant to this Agreement,
and, unless otherwise directed by such Manager, such waived portion will revert
to the Companies.  No waiver on any one occasion will extend to or effect or be
construed as a waiver of any right or remedy on any future occasion.  No course
of dealing of any person nor any delay or omission in exercising any right or
remedy will constitute an amendment of this Agreement or a waiver of any right
or remedy of any party hereto.

 

9.             Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.  ANY ACTION OR PROCEEDING AGAINST
THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE BROUGHT AND ENFORCED
EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR (TO THE EXTENT SUBJECT
MATTER JURISDICTION EXISTS THEREFOR) THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK SITTING IN MANHATTAN, AND THE PARTIES IRREVOCABLY
SUBMIT TO THE JURISDICTION OF BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING.

 

10.           Entire Agreement.  This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any prior communication or agreement with respect thereto.

 

11.           Notice.  All notices, demands, and communications required or
permitted under this Agreement will be in writing and will be effective if
served upon such other party and such other party’s copied persons as specified
below to the address set forth for it below (or to such other address as such
party will have specified by notice to each other party) if (i) delivered
personally, (ii) sent and received by facsimile, (iii) sent by electronic mail
or (iv) sent by certified or registered mail or by Federal Express, DHL, UPS or
any other comparably reputable overnight courier service, postage prepaid, to
the appropriate address as follows:

 

If to the Companies (with a copy, which will not constitute notice, to TPG and
WP), to:

 

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Newton Acquisition, Inc.
One Marcus Square

1618 Main Street

Dallas, TX  75201

Telephone: 214.741.6911

 

If to TPG, to:

 

Texas Pacific Group

301 Commerce Street, Suite 3300
Fort Worth, Texas 76102
Attention:  David A. Spuria
Telephone:  1 (817) 871-4000
Facsimile No.:  1 (817) 871-4088

Email: dspuria@texpac.com

 

with a copy (which will not constitute notice) to:

 

Cleary, Gottlieb, Steen & Hamilton LLP
One Liberty Plaza
New York, NY  10006
Attention:  David Leinwand, Esq.

Telephone: (212) 225-2000
Facsimile No.:(212) 225-3999

Email:  dleinwand@cgsh.com

 

If to Warburg, to:

Warburg Pincus LLC

466 Lexington Avenue

New York, NY  10017

Attention: Kewsong Lee and Scott A. Arenare

Telephone: (212) 878-0600

Facsimile No.:(212) 878-9100

Email: klee@warburgpincus.com; sarenare@warburgpincus.com

 

with a copy (which will not constitute notice) to:

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY  10019-6099

Attention: Holly K. Youngwood, Esq. and Steven J. Gartner, Esq.

Telephone:  1 (212) 728-8000

Facsimile No.: 1 (212) 728-8111

Email: hyoungwood@willkie.com, sgartner@willkie.com

 

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Unless otherwise specified herein, such notices or other communications will be
deemed effective, (a) on the date received, if personally delivered or sent by
facsimile or electronic mail during normal business hours, (b) on the business
day after being received if sent by facsimile or electronic mail other than
during normal business hours, (c) one business day after being sent by Federal
Express, DHL or UPS or other comparably reputable delivery service and (d) five
business days after being sent by registered or certified mail.  Each of the
parties hereto will be entitled to specify a different address by giving notice
as aforesaid to each of the other parties hereto.

 

12.           Severability.  If in any proceedings a court will refuse to
enforce any provision of this Agreement, then such unenforceable provision will
be deemed eliminated from this Agreement for the purpose of such proceedings to
the extent necessary to permit the remaining provisions to be enforced.  To the
full extent, however, that the provisions of any applicable law may be waived,
they are hereby waived to the end that this Agreement be deemed to be valid and
binding agreement enforceable in accordance with its terms, and in the event
that any provision hereof will be found to be invalid or unenforceable, such
provision will be construed by limiting it so as to be valid and enforceable to
the maximum extent consistent with and possible under applicable law.

 

13.           Counterparts.  This Agreement may be executed in any number of
counterparts and by each of the parties hereto in separate counterparts, each of
which when so executed will be deemed to be an original and all of which
together will constitute one and the same agreement.

 

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IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of
the date first above written.

 

 

 

Newton Acquisition, Inc.

 

 

 

 

 

By:

             /s/ David A. Spuria

 

 

 

Name:

David. A. Spuria

 

 

Title:

Vice President

 

 

 

 

 

 

Newton Acquisition Merger Sub, Inc.

 

 

 

 

 

By:

             /s/ David A. Spuria

 

 

 

Name:

David. A. Spuria

 

 

Title:

Vice President

 

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TPG GenPar IV, L.P.

 

 

 

 

 

By:

TPG Advisors IV, Inc. its General Partner

 

 

 

 

By:

/s/ David A. Spuria

 

 

 

 

Name: David A. Spuria

 

 

 

Title:   Vice President

 

 

 

 

 

 

TPG GenPar III, L.P.

 

 

 

 

 

By:

TPG Advisors III, Inc., its General Partner

 

 

 

 

By:

/s/ David A. Spuria

 

 

 

 

Name: David A. Spuria

 

 

 

Title:   Vice President

 

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Warburg Pincus LLC

 

 

 

 

 

 

By:

  /s/ Kewsong Lee

 

 

 

 

Name:

Kewsong Lee

 

 

 

Title:

Managing Director

 

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Schedule 1

 

Wire Transfer Instructions for TPG:

 

Bank:  JPMorgan Chase

ABA#:  021000021

Account:  TPG GenPar IV, L.P.

Account Number:  46108216111

 

Wire Transfer Instructions for Warburg:

 

Bank:  JPMorgan Chase

ABA#:  021000021

Account: Warburg Pincus LLC

Account Number:  006-083528

 

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