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EXHIBIT 10.2
MONITORING AND OVERSIGHT AGREEMENT
THIS MONITORING AND OVERSIGHT AGREEMENT (this "Agreement") is made and
entered into effective as of June 4, 1998, among Home Interiors & Gifts, Inc.,
a Texas corporation (together with its successors, the "Company"), Dallas
Woodcraft, Inc., a Texas corporation (together with its successors,
"Woodcraft"), GIA, Inc., a Nebraska corporation (together with its successors,
"GIA"), Homco, Inc., a Texas corporation (together with its successors,
"Homco"), Homco Puerto Rico, Inc., a Delaware corporation (together with its
successors, "HPR"), Spring Valley Scents, Inc., a Texas corporation ("SVS"),
Homco de Mexico, S.A. de C.V., a Mexico corporation ("HDM" and, together with
the Company, Woodcraft, GIA, Homco, HPR and SVS, the "Clients"), and Xxxxx,
Muse & Co. Partners, L.P., a Texas limited partnership (together with its
successors, "HMCo").
1. Retention. The Clients hereby acknowledge that they have
retained HMCo to, and HMCo acknowledges that, subject to reasonable advance
notice in order to accommodate scheduling, HMCo will, provide financial
oversight and monitoring services to the Clients as requested by the board of
directors of the Company during the term of this Agreement.
2. Term. The term of this Agreement shall continue until the
date on which Hicks, Muse, Xxxx & Xxxxx Incorporated ("HMTF") or its affiliated
successors and their respective affiliates (including, without limitation, any
equity fund sponsored by HMTF or its affiliated successors) shall cease to (i)
at any time prior to a Qualified IPO (as hereinafter defined), own
beneficially, directly or indirectly, at least 25% of the then outstanding
shares of Common Stock (as hereinafter defined) of the Company and be
contractually entitled to designate, or shall have otherwise designated, at
least one director to the board of directors of the Company or (ii) at any time
after a Qualified IPO, own beneficially, directly or indirectly, at least 10%
of the then outstanding shares of Common Stock of the Company and be
contractually entitled to designate, or shall have otherwise designated, at
least one director to the board of directors of the Company; provided, however,
that notwithstanding the foregoing, this Agreement shall in any event terminate
on the tenth anniversary of the date hereof. As used herein, "Qualified IPO"
means a firm commitment underwritten public offering of common stock, par value
$0.10 per share ("Common Stock"), of the Company pursuant to a registration
statement under the Securities Act of 1933, as amended, where both (i) the
proceeds to the Company (prior to deducting any underwriters' discounts and
NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS
IN PARAGRAPH 5 THAT APPLY TO CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES
THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR
PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE OF HMCO OR ANY
OTHER INDEMNIFIED PERSON IDENTIFIED THEREIN.
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commissions) equal or exceed Twenty-Five Million Dollars ($25,000,000) and (ii)
upon consummation of such offering, the Common Stock is listed on the New York
Stock Exchange or authorized to be quoted and/or listed on the Nasdaq National
Market.
3. Compensation.
(a) As compensation for HMCo's services to the Clients
under this Agreement, the Clients hereby irrevocably agree, jointly and
severally, to pay to HMCo an aggregate annual fee (the "Monitoring Fee") of
$1,000,000 (the "Base Fee"), subject to adjustment pursuant to paragraphs (b)
and (c) below and prorated on a daily basis for any partial calendar year
during the term of this Agreement. The Monitoring Fee shall be payable in
equal quarterly installments on each January 1, April 1, July 1 and October 1
during the term of this Agreement (each a "Payment Date"), beginning with the
first Payment Date following the date hereof; provided, however, that for so
long as an Event of Default (as hereinafter defined) has occurred and is
continuing under the Credit Agreement (as hereinafter defined) or the Indenture
(as hereinafter defined), the Monitoring Fee shall continue to accrue but shall
not be payable until such time as such Event of Default has been cured, at
which time all accrued and unpaid installments of the Monitoring Fee shall be
due and payable immediately (provided that to do so would not constitute an
Event of Default). All payments shall be made by wire transfer of immediately
available funds to the account described on Exhibit A hereto (or such other
account as HMCo may hereafter designate in writing). As used herein, (i)
"Credit Agreement" means that certain Credit Agreement, dated as of the date
hereof, among the Company, the lenders from time to time party thereto, The
Chase Manhattan Bank, as syndication agent, National Westminster Bank, PLC, as
documentation agent, Prudential Insurance Company of America, as a co-agent,
Societe Generale, as a co-agent, Citicorp USA, Inc., as a co-agent, and
NationsBank, N.A., as administrative agent (as amended, waived, supplemented or
otherwise modified from time to time, together with any substitution or
replacement therefor), (ii) "Indenture" means that certain Indenture, dated as
of the date hereof, among the Company, Woodcraft, GIA, Homco, HPR, SVS and the
United States Trust Company of New York (as amended, waived, supplemented or
otherwise modified from time to time, together with any substitution or
replacement therefor) and (iii) "Event of Default" shall have the meaning given
such term in the Credit Agreement or the Indenture, as applicable.
(b) On January 1 of each calendar year during the term of
this Agreement, the Monitoring Fee shall be adjusted to an amount equal to (i)
the consolidated annual EBITDA of the Company and its subsidiaries for the then
current fiscal year, multiplied by (ii) 1.0% (the "Percentage"); provided,
however, that in no event shall the annual Monitoring Fee exceed $1,500,000;
provided, further, that in no event shall the annual Monitoring Fee be less
than the Base Fee.
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(c) On each occasion that the Company or any of its
subsidiaries shall acquire another entity or business during the term of this
Agreement, the annual Monitoring Fee for the calendar year in which such
acquisition occurs shall be adjusted prospectively (i.e., for periods
subsequent to such acquisition until the next adjustment pursuant to clause (b)
above), as of the closing of such acquisition, to an annual amount equal to (i)
the pro forma combined budgeted consolidated annual EBITDA of the Company and
its subsidiaries for the entire then-current fiscal year of the Company
(including the EBITDA of the acquired entity or business for such entire fiscal
year, on a pro forma basis), multiplied by (ii) the Percentage; provided,
however, that in no event shall the annual Monitoring Fee be less than the Base
Fee.
(d) All past due payments in respect of the Monitoring
Fee shall bear interest at the lesser of the highest rate of interest which may
be charged under applicable law or the prime commercial lending rate per annum
of The Chase Manhattan Bank or its successors (which rate is a reference rate
and is not necessarily its lowest or best rate of interest actually charged to
any customer) (the "Prime Rate") as in effect from time to time, plus five
percent (5.0%), from the due date of such payment to and including the date on
which payment is made to HMCo in full, including such interest accrued thereon.
4. Reimbursement of Expenses. In addition to the compensation to
be paid pursuant to Section 3 hereof, the Clients agree, jointly and severally,
to pay or reimburse HMCo for all "Reimbursable Expenses," which shall consist
of all reasonable disbursements and out-of-pocket expenses (including, without
limitation, reasonable fees and expenses of counsel to HMCo and costs of
travel, postage, deliveries, communications, etc.) incurred by HMCo or its
affiliates for the account of any Client or in connection with the performance
by HMCo of the services contemplated by Section 1 hereof. Promptly (but not
more than 10 days) after request by or notice from HMCo, the applicable Client
shall pay HMCo, by wire transfer of immediately available funds to the account
described on Exhibit A hereto (or such other account as HMCo may hereafter
designate in writing), the Reimbursable Expenses for which HMCo has provided
such Client invoices or reasonably detailed descriptions. All past due
payments in respect of the Reimbursable Expenses shall bear interest at the
lesser of the highest rate of interest which may be charged under applicable
law or the Prime Rate plus 5.0% from the Payment Date to and including the date
on which such Reimbursable Expenses plus accrued interest thereon are fully
paid to HMCo.
5. Indemnification. The Clients jointly and severally shall
indemnify and hold harmless each of HMCo, its affiliates, and their respective
directors, officers, controlling persons (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20(a) of the Securities
Exchange Act of 1934, as amended), if any, agents and employees (HMCo, its
affiliates, and such other specified persons being collectively referred
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to as "Indemnified Persons," and individually as an "Indemnified Person") from
and against any and all claims, liabilities, losses, damages and expenses
incurred by any Indemnified Person (including those arising out of an
Indemnified Person's negligence and reasonable fees and disbursements of the
respective Indemnified Person's counsel) which (A) are related to or arise out
of (i) actions taken or omitted to be taken (including, without limitation, any
untrue statements made or any statements omitted to be made) by any of the
Clients or (ii) actions taken or omitted to be taken by an Indemnified Person
with any Client's consent or in conformity with any Client's instructions or
any Client's actions or omissions or (B) are otherwise related to or arise out
of HMCo's engagement, and will reimburse each Indemnified Person for all costs
and expenses, including, without limitation, reasonable fees and disbursements
of any Indemnified Person's counsel, as they are incurred, in connection with
investigating, preparing for, defending or appealing any action, formal or
informal claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, caused by or arising out of
or in connection with HMCo's acting pursuant to HMCo's engagement, whether or
not any Indemnified Person is named as a party thereto and whether or not any
liability results therefrom. None of the Clients will, however, be responsible
for any claims, liabilities, losses, damages or expenses pursuant to clause (B)
of the preceding sentence that have resulted primarily from HMCo's bad faith,
gross negligence or willful misconduct. The Clients also agree that neither
HMCo nor any other Indemnified Person shall have any liability to any Client
for or in connection with such engagement except for any such liability for
claims, liabilities, losses, damages or expenses incurred by any Client that
have resulted primarily from HMCo's bad faith, gross negligence or willful
misconduct. The Clients further agree that none of them will, without the
prior written consent of HMCo, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of HMCo and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding. EACH
CLIENT HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO
ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES THAT HAVE RESULTED FROM OR
ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR
CONCURRENT ORDINARY NEGLIGENCE OF HMCO OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that HMCo and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any
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claim which is subject to this Agreement is brought against HMCo or any other
Indemnified Person.
It is understood that, in connection with HMCo's engagement, HMCo may
also be engaged to act for a Client or Clients in one or more additional
capacities, and that the terms of any such additional engagement(s) may be
embodied in one or more separate written agreements. This indemnification
shall apply to any such additional engagement(s) (whether written or oral) and
any modification of such additional engagement(s) and shall remain in full
force and effect following the completion or termination of such additional
engagement(s).
Each of the Clients further understands and agrees that if HMCo is
asked to furnish any Client a financial opinion letter or act for any Client in
any other formal capacity, such further action may be subject to a separate
agreement containing provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance
of the services hereunder, HMCo agrees not to divulge any confidential
information, secret processes or trade secrets disclosed by any Client or any
of its subsidiaries to it solely in its capacity as a financial advisor, unless
such Client consents to the divulging thereof or such information, secret
processes or trade secrets are publicly available or otherwise available to
HMCo without restriction or breach of any confidentiality agreement or unless
required by any governmental authority or in response to any valid legal
process.
7. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided, however, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned (other than with respect to the rights and obligations of HMCo,
which may be assigned to any one or more of its principals or affiliates) by
any of the parties without the prior written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
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10. Other Understandings. All discussions, understanding and
agreements heretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the agreement of the parties hereto. All calculations of
the Monitoring Fee and Reimbursable Expenses shall be made by HMCo and, in the
absence of mathematical or other manifest error, shall be final and conclusive.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
XXXXX, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC.,
its General Partner
By:
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Xxxxxxxx X. Xxxxxx, Xx.
Managing Director and Principal,
Executive Vice President
HOME INTERIORS & GIFTS, INC.
By:
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Xxxxxx X. Xxxxxx, Xx.
Chief Executive Officer
DALLAS WOODCRAFT, INC.
By:
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Xxxxxx X. Xxxxxx, Xx.
Executive Vice President
GIA, INC.
By:
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Xxxxxx X. Xxxxxx, Xx.
Executive Vice President
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HOMCO, INC.
By:
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Xxxxxx X. Xxxxxx, Xx.
Executive Vice President
HOMCO PUERTO RICO, INC.
By:
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Xxxxxx X. Xxxxxx, Xx.
President
SPRING VALLEY SCENTS, INC.
By:
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Xxxxxx X. Xxxxxx, Xx.
President
HOMCO DE MEXICO, S.A. DE C.V.
By:
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Xxxxxx X. Xxxxxx, Xx.
President
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EXHIBIT A
Wire Transfer Instructions
Texas Commerce Bank
ABA #: 000000000
Account E: 08805113824
Credit: Xxxxx, Muse & Co. Partners
Reference: Payment of Monitoring Fees or
Reimbursable Expenses by Home Interiors
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