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 


 

















 


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

  
					



 

















 


	
   

  	
  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

  
						



 

















 


 


	
   

  	
  Warburg Pincus LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
    /s/ Kewsong Lee

  	
   

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Kewsong Lee 

  
	
   

  	
   

  	
   

  	
  Title: 

  	
  Managing Director

  
						



 

















 


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