Exhibit 10.3
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement"), dated as of
July 31, 1998 is entered into by and MSS-Delaware, Inc., a Delaware corporation
(the "Company"), and MSS Acquisition Corp. II, a Delaware corporation ("Bear
Xxxxxxx").
WHEREAS, Specialty Acquisition Corporation has, pursuant to an
Acquisition Agreement dated July 22, 1998 (the "Acquisition Agreement") with
Federated Specialty Stores, Inc. ("Federated"), acquired all the issued and
outstanding stock of the Company, a subsidiary of Federated (the "Purchase").
WHEREAS, Bear Xxxxxxx has agreed to acquire Common Stock and
Series B Preferred Stock of Specialty, pursuant to the terms of a Stock Purchase
Agreement dated July 31, 1998 (the "Stock Purchase Agreement") by and between
Specialty and Bear Xxxxxxx.
WHEREAS, pursuant to the terms of the Stock Purchase Agreement,
Bear Xxxxxxx has agreed that it is in the best interests of the Company for Bear
Xxxxxxx to provide management services to the Company pursuant to the terms and
conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the premises and mutual
agreements set forth in this Agreement, and subject to the terms and conditions
set forth herein, the parties hereby agree as follows:
Section 1. Definitions
Capitalized terms used herein, unless otherwise defined herein,
shall have the meanings ascribed to them in the Stock Purchase Agreement.
Section 2. Services
2.1. Bear Xxxxxxx shall advise and assist the board of
directors and the management of the Company regarding the formulation and
implementation of the business strategies for the Company and its subsidiaries.
Bear Xxxxxxx shall use its reasonable efforts to identify and assist the Company
in evaluating corporate opportunities, including marketing opportunities, and
financial strategies and to assist the Company and its subsidiaries with respect
to lender, securityholder and public and government relations matters. The
precise nature of the services to be performed hereunder by Bear Xxxxxxx shall
be determined by the mutual agreement of Bear Xxxxxxx and the board of directors
of the Company, and Bear Xxxxxxx shall devote such time and resources as are
reasonably necessary to provide such services. In connection with rendering
services hereunder, Bear Xxxxxxx shall designate certain of its principals and
employees to serve on the board of directors of the Company in accordance with
the terms of the Stock Purchase Agreement and the Stockholders Agreement.
Section 3. Consideration
In consideration for the management services to be provided by
Bear Xxxxxxx, the Company shall:
3.1. pay to Bear Xxxxxxx a fee in the amount of $500,000 in
connection with the Purchase, payable on demand by Bear Xxxxxxx at or after the
closing of the Purchase (the "Closing Date").
3.2. pay to Bear Xxxxxxx (or such persons as are designated
by Bear Xxxxxxx) a management fee in respect of each fiscal year of the Company
in an amount equal to the greater of (i) $200,000 ($ 100,000 in respect of the
period from, August 1, 1998 through January 31, 1999 (the "Partial Period")) and
(ii) 3.0% (1.5% in respect of the Partial Period) of EBITDA (as defined in
Section 3.6 below), up to a maximum of $450,000 per annum. ($225,000 in respect
of the Partial Period), in exchange for the services provided to the Company by
Bear Xxxxxxx (or such affiliates of Bear Xxxxxxx as are designated by Bear
Xxxxxxx), as more fully described in Section 2 of this Agreement. The first
$200,000 per annum of this management fee shall accrue quarterly from the
Closing Date and be payable quarterly in advance on May 1, August 1, November I
and February I of each year this Agreement remains in effect (provided that the
first such, payment, for August 1, 1998, will be paid upon closing of the
Purchase). Any balance of the management fee payable in respect of any fiscal
year pursuant to Section 3.2(ii) above shall be paid within 45 days following
the end of such fiscal year or upon delivery by the auditors of the Company of
audited financial statements for the relevant fiscal year, if later. If this
Agreement shall terminate during a fiscal period, the fees due pursuant to this
Section 3.2 shall be calculated on a pro rata basis, based on the number of days
which have elapsed prior to termination during such period, and upon termination
any unpaid balance of such fees shall be paid by the Company to Bear Xxxxxxx, or
Bear Xxxxxxx shall repay any excess fees it has been paid under this Section 3.2
(as applicable).
3.3. during the Term, retain Bear Xxxxxxx to participate in
the negotiation and consummation of any acquisition transactions by the Company
or any of its direct or indirect subsidiaries (not including the Purchase), and
pay to Bear Xxxxxxx (or such persons as are designated by Bear Xxxxxxx) a fee in
connection therewith equal to two-percent (2%) of the gross purchase price of
the entity acquired in such transaction (including all long term (one year or
more) liabilities assumed or otherwise included in the transaction), such fee to
be due and payable for the foregoing services on demand by Bear Xxxxxxx at or
after the closing of such transaction.
3.4. during the Term of the Agreement, retain Bear Xxxxxxx to
participate in the negotiation and consummation of any debt or equity financing
(but excluding (i) any capital lease transactions by the Company, (ii) any
internal reorganization of debt or equity of the Company which does not result
in an increase in the aggregate amount of debt and equity of the Company and its
subsidiaries, (iii) any debt or equity financing involving either any
stockholder of the Company immediately after the date hereof to the extent such
financing is provided by such stockholder or any lender providing funds or
committing to provide funds to the Company, which lender is a party to any
agreement to which the Company is a party on the date hereof IBC Stirred
Business (including for this purpose, BankBoston Retail Finance, Inc. ("BRF"),
IBJ Xxxxxxxx Business Credit Corp., Inc. and their respective affiliates or (iv)
any funds provided under that certain Revolving Credit Facility of even date
herewith among the Company, BRF and the other parties thereto as amended from
time to time) by the Company or any of its direct or indirect subsidiaries, and
pay to Bear Xxxxxxx (or such persons as are designated by Bear Xxxxxxx) a fee in
connection therewith equal to one-percent (1%) of the committed amounts of such
debt or equity, such fee to be due and payable for the foregoing services on
demand by Bear Xxxxxxx at or after the closing of such transaction.
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3.5. If Bear Xxxxxxx participates in the negotiation and
consummation of any transaction which would result in fees otherwise being
payable pursuant to both Sections 3.3 and 3.4, the Company shall only pay to
Bear Xxxxxxx (or such persons as are designated by Bear Xxxxxxx) the fee
pursuant to this Section 3 that is the greater of (i) the fee as calculated
pursuant to Section 3.3 or (ii) the fee as calculated pursuant to Section 3.4.
3.6. Each payment made pursuant to this Section 3 shall be
paid by wire transfer of immediately available funds to such account for Bear
Xxxxxxx (or to such designee of Bear Xxxxxxx as provided herein). All fees paid
to Bear Xxxxxxx pursuant to this Section 3 shall be in addition to any fees paid
to Bear Xxxxxxx or any of its affiliates pursuant to which Bear Xxxxxxx or any
of its affiliates act as underwriter, initial purchaser, placement agent or in a
similar capacity in an equity or debt offering of securities by the Company.
For the purposes of this Section 3, "EBITDA" shall mean
consolidated earnings, for the then current fiscal year of the Company and its
subsidiaries before interest, taxes, depreciation, amortization and the fees
payable to Bear Xxxxxxx (pursuant to this Section 3 only) for such fiscal year.
Section 4. Term
This Agreement shall take effect as of the date first above
written and shall continue until the earliest of (the "Term"): (i) a Qualified
Public Offering (as defined in the Stockholders Agreement) of Common Stock by
the Company, (ii) redemption of all of the outstanding Series B Preferred Stock
and (iii) Bear Xxxxxxx and its Affiliate or Related Party (each as defined in
the Stockholders Agreement) transferees no longer retain ownership of at least
50% of the shares of Common Stock held by Bear Xxxxxxx on the Closing Date
(after giving effect to all transactions set forth in the Stock Purchase
Agreement).
Section 5. Reimbursement: Indemnification
In addition, the Company agrees to reimburse Bear Xxxxxxx, its
affiliates and their respective directors, officers, employees, agents and
controlling persons (each an "Indemnified Party") promptly upon demand for
reasonable out-of-pocket expenses (including reasonable fees and expenses of
legal counsel) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim, or any
litigation, proceeding or other action in respect of the engagement of Bear
Xxxxxxx under this Agreement, or any actions taken or omitted or services
performed under, by or in connection with this Agreement (including the
appointment of Directors of the Company pursuant to the Stock Purchase Agreement
and the Stockholders Agreement). The Company also agrees (in connection with the
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foregoing) to indemnify and hold harmless each Indemnified Party from and
against any and all losses, claims, damages and liabilities, joint or several,
to which any Indemnified Party may become subject, including any amount paid in
settlement of any litigation or other action (commenced or threatened), whether
or not any Indemnified Party is a party and whether or not liability resulted;
provided, however, that the Company shall not be liable pursuant to this Section
5 in respect of any loss, claim, damage or liability to the extent that a court
having competent jurisdiction shall have determined by final judgment (not
subject to further appeal) that such loss, claim, damage or liability resulted
primarily and directly from the willful misfeasance or gross negligence of such
Indemnified Party. The provisions of this Section 5 shall survive any
termination of this Agreement.
Section 6. Miscellaneous
6.1. Assignment. This Agreement may not be assigned or
transferred by the Company without the express written consent of the other
party.
6.2. Amendment. This Agreement may not be amended except by a
written instrument executed by both of the parties.
6.3. Choice of Law. This Agreement is made under and shall be
construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, the Company and Bear Xxxxxxx have duly
executed and delivered this Agreement or have caused this Agreement to be duly
executed on their respective behalf by their respective officers thereunto, duly
authorized, as of the day and year first above written.
MSS-DELAWARE, INC.,
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: President
MSS ACQUISITION CORP. II,
a Delaware corporation
By: /s/ Xxxx Xxxxxx
----------------------------
Name: Xxxx Xxxxxx
Title: President
