MANCHESTER BUSINESS SERVICES, INC
RETAINER AGREEMENT
THIS AGREEMENT (the "Agreement") dated as of April 7, 1999 confirms that HEALTH
FITNESS CORPORATION ("COMPANY") has engaged, as of the date hereof, Manchester
Business Services, Inc. ("MBSI") to perform certain Organization
Reengineering/Renewal Services (the "Services") for COMPANY. In connection with
the foregoing, COMPANY and MBSI agree that:
1. Retention. COMPANY hereby retains MBSI on an exclusive basis,
subject to COMPANY'S existing consulting arrangements, in
connection with providing Organization Reengineering/Renewal
Services for COMPANY as described herein.
2. Termination. The initial terms of this Agreement shall be for
twelve (12) months commencing on the date hereof. During the
initial twelve (12) month term, this Agreement may not be
terminated by either COMPANY or MBSI except for failure to
provide, using reasonable business practices, the Services
described herein. Following expiration of the initial twelve
(12) month term of this Agreement, either MBSI or COMPANY may
terminate this Agreement at any time upon 30 days written
notice, delivered to the other, and without liability or
continuing obligation on the part of MBSI. However, COMPANY'S
obligations to MBSI shall continue after the termination of
this Agreement.
3. Services to be performed:
A. Evaluate and analyze the business operations,
financing and capitalization of the COMPANY and its
Divisions and make recommendations for improvement to
COMPANY's management and the Board. MBSI's activities
will include, but not be limited to; review of cash
flow projections, review of cost accounting systems,
review of inventory controls, review of overall
accounting/control environment, recommendations for
expediting collection of accounts receivable,
negotiations with trade creditors, negotiations with
banks regarding credit agreements, negotiations with
major suppliers/customers regarding outstanding
issues, review of sales/pricing mechanisms, and
assistance with decision/management oversight and
processes.
B. Develop a short-term intervention management plan for
the COMPANY to achieve positive cash
flow/profitability.
C. Review and recommend appropriate actions regarding
impending NASDAQ de-listing.
D. Evaluate "Strategic Options" for the COMPANY
including merger, sale, divestiture of division(s)
and or the COMPANY's assets (including its corporate
structure). If it is determined that a sale
transaction is an appropriate strategic option for
the COMPANY, the COMPANY may decide to retain
Manchester Financial Group, Inc., upon terms to be
mutually agreed.
E. Make recommendations regarding refinancing as
appropriate. Should MBSI become involved in such
financing activities they would be handled under a
separate agreement with Manchester Financial Group,
Inc. ("MFGI"), an affiliate of MBSI. Fees for such
services are described in Section 4C herein.
F. Develop/implement strategy for communications to
shareholders, employees, creditors and equity
markets.
G. Reengineer operations to achieve acceptable gross
margins.
H. Refocus/restructure the organization in accordance
with the intervention management plan.
I. Assure organizational effectiveness through
appropriate policies, procedures, HR management and
system controls.
J. Develop reliable financial reporting
systems/procedures including the timely preparation
and review of Bank, SEC, NASDAQ and other Regulatory
reporting/compliance documents.
K. Provide the Board with timely updates on progress.
Seek audit committee approval for any significant
changes in the COMPANY's current financial reporting
policies and procedures.
L. Assist the COMPANY in developing a definitive
business plan including, but not limited to,
business/industry description, management team
resumes, products/services features and functions,
market research/analysis, estimated market
share/sales, design/development plans, operations
plan, overall schedule and critical risks/problems.
It is our mutual understanding that MBSI would serve as consultants to
the COMPANY. However, MBSI will be vested by the COMPANY's Board with
the appropriate authority to effectively execute the intervention
management plan, subject to prior approval thereof by the COMPANY's
Board, and the Services described herein. MBSI will report only to the
COMPANY's Board of Directors.
MBSI does not provide legal advice and the COMPANY agrees to rely upon
advice from its own legal counsel as to all legal matters. COMPANY
acknowledges it is entering into this Retainer Agreement: (i) without
any undue influence by an third party including any creditor, and (ii)
without any promises or representations by MBSI or any third party as
to actual results that will be achieved by MBSI.
4. Fees and Expenses.
A. A monthly fee of $25,000 beginning with the effective
date of MBSI's engagement and on the same day of each
month thereafter for a period of eleven (11) months.
If the COMPANY enters into the Engagement Agreement
referred in paragraph 3.D above for investment
banking services, the $25,000 monthly fee would then
be allocated between MBSI and MFGI.
B. Notwithstanding the foregoing and except as provided
below in this paragraph if whether or not directly or
indirectly introduced by MBSI or its affiliate MFGI,
during the term of this Agreement the COMPANY enters
into a contract or letter of intent to sell, exchange
or otherwise dispose of all or a material (more than
10%) portion of the COMPANY, whether accomplished by
a sale of stock or assets by or through the COMPANY
and/or its shareholders, and if the COMPANY engages
MBSI or MFGI to assist it in such transaction, then
MBSI or MFGI will be paid a financial advisory fee at
the closing of such transaction, with no deductions
for retainers previously paid by the COMPANY of two
and one half percent (2.5%) of total transaction
consideration.
If it is determined by the COMPANY's Board that MBSI
or MFGI is to be involved in investment banking
activities with respect to the sale of the physical
therapy business of the COMPANY to Health South or
Healthcare Innovations, the accomplishment fee
payable to MFGI shall be reduced by twenty-five
percent, but in no event less than $150,000.00.
C. In the event, at the request of the COMPANY's Board,
MBSI or MFGI arrange for debt or equity financing,
the following fees and Warrants would be payable,
unless otherwise agreed at the time of such
engagement:
o Senior Debt Financing: Two percent (2%)
o Junior Debt Financing: Five percent (5%)
o Equity Financing: Eight percent (8%)
In addition, with regard to each Financing, MBSI/MFGI
or its designees will be granted a Warrant or
Warrants to purchase 100,000 shares of the COMPANY's
common stock (the "Warrants"). Such Warrants will be
exercisable at any time for a period of five (5)
years from the date of issuance at an exercise price
equal to the average closing price of the COMPANY's
stock during the ten (10) trading days before the
announcement of the respective Transaction. The
Warrants shall contain a net exercise provision,
customary anti-dilution provisions and shall provide
for participation of the shares underlying the
Warrants on a "piggy-back" basis in any registration
by the COMPANY during the Warrants duration and two
(2) years thereafter, and registration to be at the
expense of the COMPANY. The Warrants will also
contain ratchet-down provisions which will result in
the repricing of the Warrants in the event that
shares, options or warrants are subsequently issued
by the COMPANY at a lower price.
D. COMPANY agrees to, on an as-incurred basis, as
documented by MBSI, to reimburse MBSI for all
reasonable out-of-pocket expenses incurred in
connection with the rendering of the Services. MBSI
will submit expense reimbursement bills on a monthly
basis, and COMPANY agrees that they will be paid
within 10 days. Any individual expense in excess of
$200 will be subject to COMPANY's prior written
approval. MBSI's fees do not include any fees which
may be charged by other related or non-related
entities involved in pursuit of the execution of the
Services outlined herein. Such other fees may
include, but are not limited to, those charged by
legal counsel, auditors and tax advisors, appraisal
companies, environment testing concerns, lenders,
industry consultants and other consultants or
professionals as may be mutually determined to be
necessary.
5. Cooperation. COMPANY will cooperate with MBSI and provide,
where possible, information reasonably required by MBSI in
connection with fulfilling service obligations under this
Agreement. In addition, MBSI will require the involvement of,
and COMPANY agrees to provide reasonable access to the Senior
Management of COMPANY.
6. Confidentiality.
A. This Agreement and its contents, including any
proprietary COMPANY information, will be treated by
COMPANY and MBSI as confidential except as required
by law. MBSI will also treat as confidential the
contemplated plans and strategies of COMPANY. Neither
COMPANY nor MBSI will, unless required by a statute,
rule, regulation, agency or court, make any public or
private statements about COMPANY, their financing or
structure, without the prior consent of the other
parties to this Agreement.
B. Without limiting the generality of Section 6(a), any
advice rendered by MBSI pursuant to this Agreement
may not, unless required by an statute, rule,
regulation, agency or court, be disclosed publicly or
privately in any manner without MBSI's prior written
approval and will be treated as confidential.
C. COMPANY will provide MBSI with all reasonable
financial and other information requested by MBSI for
the purpose of rendering its Services pursuant to
this Agreement. All non-public information given to
MBSI by COMPANY will be treated by MBSI as
confidential by it and will not be used by MBSI for
any purposes other than the performance of the
Services rendered to COMPANY under this Agreement.
D. With respect to information about their businesses
provided by COMPANY, MBSI agrees that, for a period
of one (1) year, the information will be kept
confidential by it and that access to the information
will be limited to those persons under its
supervision who may have a need to know the
information. MBSI further agrees that such
information shall be deemed to be the property of
COMPANY and, when in tangible form, shall be returned
to COMPANY upon request. COMPANY's information shall
be used only for purposes expressed herein and may be
used for other purposes only with the prior written
approval of COMPANY. MBSI also agrees to keep
confidential in accordance herewith any analysis,
compilation, study, or other documents prepared by
MBSI for use in connection with the above-mentioned
Services.
E. In the event that any party hereto, or either of its
representatives, are requested or required (by oral
questions, interrogatories, requests for information
or documents, subpoena, Civil Investigative Demand,
similar process or otherwise), to disclose any
information of the other party, it is agreed that the
requested or required party will provide the other
with prompt notice of such request so that the other
may seek an appropriate protective order and/or waive
compliance with the provisions of this Agreement. It
is further agreed that, if in the absence of a
protective order or the receipt of a waiver
hereunder, any party or its representatives is
nonetheless, in the opinion of its respective
counsel, compelled to disclose information or else
stand liable for contempt or suffer other censure or
penalty or other adverse consequences, the requested
party or its representative may disclose such
information without liability hereunder.
F. The phrase "information" does not include information
which (i) is or becomes available to the public other
than as a result of a disclosure in violation of the
terms hereof; (ii) was in the possession of a
respective party on a non-confidential basis prior to
its disclosure under this Agreement; or (iii) becomes
available on a non-confidential basis from a source
other than a party hereto or its respective
representative.
G. Because damages at law would be difficult to
ascertain in the event of the failure or refusal of
either party hereto to comply with the provisions of
this paragraph 6, each party, in addition to, and not
in limitation of, any of the rights, remedies or
damages available at law or in equity, shall (a) be
entitled to seek or restrain any such breach and (b)
be entitled to seek the recovery from the breaching
party of all costs and expenses, including reasonable
attorneys' fees in connection therewith, incurred by
the party seeking to enforce or prevent any breach or
threatened breach of this paragraph 6.
7. Indemnification. If, in connection with any Services or
matters that are the subject of this Agreement, MBSI becomes
involved in any capacity in any action or legal proceeding,
pending or threatened, COMPANY agrees (i) to reimburse MBSI
for the reasonable legal fees, disbursements of counsel and
other expenses (including the cost of investigation and
preparation) incurred by MBSI as such fees, disbursements and
other expenses are incurred; and (ii) to indemnify, defend,
and hold MBSI harmless against any losses, claims, damages, or
liabilities, joint or several, to which MBSI may become
subject arising out of any such action or legal proceeding
unless such claims arise from MBSI's gross negligence or
willful misconduct as determined in a judicial proceeding.
8. Survival. The provisions of this Agreement shall, where
applicable, survive the expiration of the period of this
Agreement, including any extensions thereof.
9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
subject matter hereof and supersedes and cancels as of the
date hereof all prior understandings, written or oral, with
respect to the subject matter hereof.
10. Governing Law. This Agreement and the agreements contained
herein shall be governed by, and construed in accordance with,
the laws of the State of Minnesota, without giving effect to
the principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MANCHESTER BUSINESS SERVICES, INC.
By __________________________________________________
Its __________________________________________________
HEALTH FITNESS CORPORATION
By __________________________________________________
Its __________________________________________________
