**Exhibit 10.19**

 

**EXECUTIONVERSION**

 

**MANAGEMENTSERVICES AGREEMENT**

 

This Management ServicesAgreement (the “Agreement”) is entered into as of October 6, 2005by 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 theCompanies will engage in a transaction in which MergerSub will merge with andinto The Neiman Marcus Group, Inc., a Delaware corporation (“NeimanMarcus”), with Neiman Marcus surviving (the “Merger”) pursuant to anAgreement and Plan of Merger, dated as of May 1, 2005 (as amended fromtime to time, the “Merger Agreement”); and

 

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

 

NOW, THEREFORE, in consideration of the mutualcovenants 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 thefollowing consulting and advisory services to the Companies as reasonablyrequested from time to time by the Companies:

 

### (a)           advice in connection with the negotiation and consummationof agreements, contracts, documents and instruments necessary to provide theCompanies with financing on terms and conditions satisfactory to the Companies;

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### (b)           advice in connection with acquisition, disposition andchange of control transactions involving any of the Companies or any of theirdirect or indirect subsidiaries or any of their respective successors;

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### (c)           financial, managerial and operational advice in connectionwith day-to-day operations, including, without limitation, advice with respectto the development and implementation of strategies for improving theoperating, marketing and financial performance of the Companies; and

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### (d)           such other services (which may include financial andstrategic planning and analysis, consulting services, human resources and executiverecruitment services and other services) as such Manager and the Companies mayfrom time to time agree in writing.

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

 

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weekly, monthly, annualor other basis.  The Companiesacknowledge that each of the Manager’s services are not exclusive to theCompanies and that each Manager may render similar services to other personsand entities.  The Managers and theCompanies understand that the Companies may at times engage one or moreinvestment bankers or financial advisers to provide services in addition to,but not in lieu of, services provided by the Managers under this Agreement; providedthat any such engagement will be made pursuant to the terms of the Amended andRestated Limited Liability Operating Agreement (the “LLC Agreement”) ofNewton Holding, LLC (“Holding”) among affiliates of the Managers andcertain other parties.  In providingservices to the Companies, each Manager will act as an independent contractorand it is expressly understood and agreed that this Agreement is not intendedto create, and does not create, any partnership, agency, joint venture orsimilar relationship and that no party has the right or ability to contract foror on behalf of any other party or to effect any transaction for the account ofany other party.

 

2.             Paymentof Fees.

 

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

 

(b)           During theTerm, the Companies, jointly and severally, will pay to the Managers anaggregate annual Monitoring Fee (the “Monitoring Fee”) equal to thelesser of (i) 0.25% of the consolidated annual revenue of the Companiesand (ii) $10,000,000 as compensation for the services provided by theManagers under this Agreement, such fee being payable by the Companiesquarterly in arrears.  The Monitoring Feewill be divided between the Managers as follows (i) TPG will be entitledto 50% and (ii) Warburg will be entitled to 50%.  The percentages set forth in the precedingsentence are herein referred to as the “Relative Interests”.

 

### (c)           During the Term, the Managers will advise the Companies inconnection with financing, acquisition, disposition and change of controltransactions involving the Companies or any of their direct or indirectsubsidiaries (however structured), and the Companies will pay to the Managersan aggregate fee (the “Subsequent Fee”) in connection with each suchtransaction equal to customary fees charged by internationally-recognizedinvestment banks for serving as a financial advisor in similar transactions,such fee to be due and payable for the foregoing services at the closing ofsuch transaction.  Notwithstanding theforegoing, no Subsequent Fee in respect of any transaction will exceed one percent(1%) of the gross transaction value of such transaction as reasonablydetermined by the Managers.  EachSubsequent Fee will be divided between the Managers in proportion to theirRelative Interests.

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(d)           The parties heretoacknowledge and agree that an objective of the Companies is to maximize valuefor their direct and indirect equity holders, which may include theconsummation by either of the Companies, one or more of their subsidiaries orany of their successors of a qualified public offering (an “QPO”), assuch term is defined in the LLC Agreement, or the sale of either of theCompanies or their successors (through merger or otherwise) or a sale of all orsubstantially 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 theconsummation of a QPO or Sale, should the Companies determine to pursue such atransaction.  In the event a QPO or Saleis consummated, the Companies will pay in cash on the date of consummation ofsuch QPO or Sale (in lieu of any Subsequent Fee) an aggregate success fee (the “SuccessFee”) 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’consolidatedEBITDA for the most recent period of four consecutive fiscal quarters.  For such calculation, EBITDA will be theconsolidated earnings before interest, taxes, depreciation and amortization ofthe Companies (excluding extraordinary gains and losses) derived by theManagers from the Companies’ consolidated statement of earnings for such period.  The Success Fee will be divided between theManagers in proportion to their Relative Interests.  For purposes of this provision, “TotalEnterprise Value” means the enterprise value of the Companies and theirsubsidiaries, taken as a whole, as determined by the Managers in theirreasonable discretion, using customary and appropriate valuation methodologies.

 

(e)           Eachpayment made pursuant to this Section 2 will be paid by wire transfer ofimmediately available funds to the accounts specified on Schedule 1hereto, or to such other account(s) as the Managers may specify to theCompanies 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 ofsuch non-cash consideration, valued at the sale price.

 

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

 

4.             Term.  This Agreement will continue in full forceand effect unless terminated by the unanimous consent of the Managers; providedthat this agreement will terminate automatically upon the consummation of a QPOor a Sale that constitutes a Sale of the Companies taken as a whole or all orsubstantially all the assets of the Companies taken as a whole (in each case,following payment of the Success Fee); provided, further, thatthe termination of this Agreement will not relieve a party from liability forany breach of this Agreement on or prior to such termination.  In the event of a termination of thisAgreement, the Companies will pay the Managers (or its designees) all unpaidTransaction 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 9will survive termination of this Agreement.

 

5.             Expenses;Indemnification.

 

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

 

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

 

(b)           Indemnityand 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 andagents and each of the partners, shareholders, members, affiliates, directors,officers, fiduciaries, managers, controlling persons, employees and agents ofeach of the foregoing (collectively, the “Indemnitees”) free andharmless from and against any and all actions, causes of action, suits, claims,liabilities, losses, damages and costs and out-of-pocket expenses in connectiontherewith (including attorneys’ fees and expenses) incurred by the Indemniteesor any of them before or after the date of this Agreement (collectively, the “IndemnifiedLiabilities”), arising out of any action, cause of action, suit,arbitration, investigation or claim arising out of, or in any way relating to (i) thisAgreement, the Merger Agreement, any transaction to which any of the Companiesis a party or any other circumstances with respect to any of the Companies or (ii) operationsof, or services provided by any of the Managers to, the Companies, or any oftheir respective affiliates from time to time; providedthat theforegoing indemnification rights will not be available to the extent that anysuch Indemnified Liabilities arose on account of such Indemnitee’s grossnegligence or willful misconduct; and furtherprovided that ifand to the extent that the foregoing undertaking may be unavailable orunenforceable for any reason, the Companies hereby agree to make the maximumcontribution to the payment and satisfaction of each of the IndemnifiedLiabilities which is permissible under applicable law.  For purposes of this Section 5(b), noneof the circumstances described in the limitations contained in the two provisosin the immediately preceding sentence will be deemed to apply absent a finalnon-appealable judgment of a court of competent jurisdiction to such effect, inwhich case to the extent any such limitation is so determined to apply to anyIndemnitee as to any previously advanced indemnity payments made by theCompanies, then such payments will be promptly repaid by such Indemnitee to theCompanies without interest.  The rightsof any Indemnitee to indemnification hereunder will be in addition to any otherrights any such person may have under any other agreement or instrumentreferenced above or any other agreement or instrument to which such Indemniteeis or becomes a party or is or otherwise becomes a beneficiary or under law orregulation.

 

6.             Disclaimerand Limitation of Liability; Opportunities.

 

(a)           Disclaimer;Standard of Care.  None of theManagers makes any representations or warranties, express or implied, inrespect of the services to be provided by the Managers hereunder.  In no event will the Managers or Indemniteesbe 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 grossnegligence or willful misconduct of such Manager as determined by a final,non-appealable determination of a court of competent jurisdiction.

 

(b)           Freedomto Pursue Opportunities.  Inrecognition that each Manager and its respective Indemnitees currently have,and will in the future have or will consider acquiring, investments in numerouscompanies with respect to which each Manager or its respective Indemnitees mayserve as an advisor, a director or in some other capacity, and in recognitionthat each Manager and its respective Indemnitees have myriad duties to variousinvestors and partners, and in anticipation that the Companies, on the one handand the Managers (or one or more affiliates, associated investment funds orportfolio companies), on the other hand, may engage in the same or similaractivities or lines of business and have an interest in the same areas ofcorporate opportunities, and in recognition of the benefits to be derived bythe Companies hereunder and in recognition of the difficulties which mayconfront any advisor who desires and endeavors fully to satisfy such advisor’sduties in determining the full scope of such duties in any particularsituation, the provisions of this Section 6(b) are set forth toregulate, define and guide the conduct of certain affairs of the Companies asthey may involve such Manager.  Except asa Manager may otherwise agree in writing after the date hereof:

 

(i)            SuchManager and its respective Indemnitees will have the right:  (A) to directly or indirectly engage inany business (including, without limitation, any business activities or linesof business that are the same as or similar to those pursued by, or competitivewith, the Companies and their subsidiaries), (B) to directly or indirectlydo business with any client or customer of the Companies and theirsubsidiaries, (C) to take any other action that such Manager believes ingood faith is necessary to or appropriate to fulfill its obligations asdescribed in the first sentence of this Section 6(b), and (D) not topresent potential transactions, matters or business opportunities to theCompanies or any of their subsidiaries, and to pursue, directly or indirectly,any such opportunity for itself, and to direct any such opportunity to anotherPerson.

 

(ii)           SuchManager and its respective Indemnitees will have no duty (contractual orotherwise) to communicate or present any corporate opportunities to theCompanies or any of their affiliates or to refrain from any actions specifiedin Section 6(b)(i), and the Companies, on their own behalf and on behalfof their affiliates, hereby renounce and waive any right to require suchManager or any of its Indemnitees to act in a manner inconsistent with theprovisions of this Section 6(b).

 

(iii)          Noneof such Manager, nor any of its Indemnitees will be liable to the Companies orany of their affiliates for breach of any duty (contractual or otherwise) byreason of any activities or omissions of the types referred to in this Section 6(b) orof any such Person’s participation therein.

 

### (c)           Limitation of Liability.  In no event will the Managers or any of theirIndemnitees be liable to the Companies or any of their affiliates for anyindirect, special, incidental or consequential damages, including, withoutlimitation, lost profits or savings, 

 

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### whetheror not such damages are foreseeable, or for any third party claims (whetherbased in contract, tort or otherwise), relating to the services to be providedby the Managers hereunder.

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7.             Assignment,etc.  Except as provided below, noneof the parties hereto will have the right to assign this Agreement without theprior written consent of each of the other parties.  Notwithstanding the foregoing, (a) anyManager may assign all or part of its rights and obligations hereunder to anyof its respective affiliates which provides services similar to those calledfor by this Agreement, in which event such Manager will be released of itsrights to fees under Section 2 and reimbursement of expenses under Section 5(a) andall of its obligations hereunder and (b) the provisions hereof for thebenefit of Indemnitees of the Managers will inure to the benefit of suchIndemnitees and their successors and assigns.

 

8.             Amendmentsand Waivers.  No amendment or waiverof any term, provision or condition of this Agreement will be effective, unlessin writing and executed by each Manager and the Companies; provided,that any Manager may waive any portion of any fee to which it is entitledpursuant 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 toor effect or be construed as a waiver of any right or remedy on any futureoccasion.  No course of dealing of anyperson nor any delay or omission in exercising any right or remedy willconstitute an amendment of this Agreement or a waiver of any right or remedy ofany party hereto.

 

9.             GoverningLaw; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED INACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THECONFLICTS OF LAW PRINCIPLES THEREOF.  ANYACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BEBROUGHT AND ENFORCED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR (TOTHE EXTENT SUBJECT MATTER JURISDICTION EXISTS THEREFOR) THE UNITED STATESDISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN MANHATTAN, ANDTHE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF BOTH SUCH COURTS INRESPECT OF ANY SUCH ACTION OR PROCEEDING.

 

10.           EntireAgreement.  This Agreement containsthe entire understanding of the parties with respect to the subject matterhereof and supersedes any prior communication or agreement with respectthereto.

 

11.           Notice.  All notices, demands, and communicationsrequired or permitted under this Agreement will be in writing and will beeffective if served upon such other party and such other party’s copied personsas specified below to the address set forth for it below (or to such otheraddress as such party will have specified by notice to each other party) if (i) deliveredpersonally, (ii) sent and received by facsimile, (iii) sent byelectronic mail or (iv) sent by certified or registered mail or by FederalExpress, 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 notconstitute 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 toTPG, to:

 

TexasPacific Group

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

Email:dspuria@texpac.com

 

with acopy (which will not constitute notice) to:

 

Cleary, Gottlieb, Steen & HamiltonLLPOne Liberty PlazaNew York, NY  10006Attention:  David Leinwand, Esq.

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

Email: dleinwand@cgsh.com

 

If toWarburg, 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 acopy (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 orother communications will be deemed effective, (a) on the date received,if personally delivered or sent by facsimile or electronic mail during normalbusiness hours, (b) on the business day after being received if sent byfacsimile or electronic mail other than during normal business hours, (c) onebusiness day after being sent by Federal Express, DHL or UPS or othercomparably reputable delivery service and (d) five business days afterbeing sent by registered or certified mail. Each of the parties hereto will be entitled to specify a differentaddress by giving notice as aforesaid to each of the other parties hereto.

 

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

 

13.           Counterparts.  This Agreement may be executed in any numberof 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 ofwhich together will constitute one and the same agreement.

 

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INWITNESS WHEREOF, each of the parties has duly executed this Agreement as of thedate 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.

AccountNumber:  46108216111

 

***Wire Transfer Instructions for Warburg:***

 

Bank:  JPMorgan Chase

ABA#:  021000021

Account:Warburg Pincus LLC

AccountNumber:  006-083528

 

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