1
EXHIBIT 10.22
MONITORING AND OVERSIGHT AGREEMENT
THIS MONITORING AND OVERSIGHT AGREEMENT (this "Agreement") is made and
entered into as of October 27, 1995, among Hedstrom Holdings, Inc.
("Holdings"), a Delaware corporation, Hedstrom Corporation (the "Company"), a
Delaware corporation, and Hicks, Muse & Co. Partners, L.P., a Texas limited
partnership (together with its successors, "HMCo").
WHEREAS, the Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HMTF")
has acquired substantially all of the common stock of Holdings pursuant to a
Stock Purchase Agreement dated October 27, 1995, among HMTF, Holdings and the
other parties thereto (the "Acquisition"); and
WHEREAS, Holdings and the Company have requested that HMCo render
financial advisory and monitoring services to them;
NOW, THEREFORE, in consideration of the services to be rendered by
HMCo to Holdings and the Company, and to evidence the obligations of Holdings
and the Company to HMCo and the mutual covenants herein contained, Holdings and
the Company hereby jointly and severally agree as follows:
1. Retention. Holdings and the Company hereby acknowledge that
they have retained HMCo, and HMCo acknowledges that, subject to reasonable
advance notice in order to accommodate scheduling, HMCo will provide financial
oversight and monitoring services to Holdings and the Company as requested by
the board of directors of each of Holdings and the Company during the term of
this Agreement.
2. Term. The term of this Agreement shall continue until the
earlier to occur of (i) the tenth anniversary of the date hereof or (ii) the
date on which HMTF is dissolved, liquidated, and wound up (the "Primary Term"),
and shall continue on a year to year basis thereafter unless terminated by
Holdings and the Company or HMCo by written notice delivered to the other
parties on or before the 30th day prior to the expiration of the Primary Term
or prior to the expiration of any subsequent yearly term.
3. Compensation.
(a) Subject to the next succeeding paragraph hereof, as
compensation for HMCo's financial oversight and monitoring services pursuant to
Section 1, the Company shall pay HMCo an aggregate fee of $175,000 per year
(the "Oversight and Monitoring
2
Fee"), payable in equal quarterly installments in the initial amount of $43,750
each. The first installment shall be paid on January 31, 1996 (including a
prorated amount attributable to the period from the date of this Agreement
through January 31, 1996), and the succeeding installments shall be paid each
three months thereafter.
(b) On July 31 of each calendar year during the term of
this Agreement (beginning with July 31, 1996), the Oversight and Monitoring Fee
shall automatically be increased or decreased, as applicable, to an amount per
year equal to .1% of the net sales of Holdings and the Company (on a
consolidated basis) during the fiscal year ending on such date, or, in the
event the fiscal year of the Company does not end on July 31, to an amount per
year equal to .1% of the net sales of Holdings and the Company (on a
consolidated basis) during the twelve month period ending on such July 31;
provided that in no event shall the Oversight and Monitoring Fee be less than
$175,000 per year. Any such increase or decrease shall take effect as of
August 1 of the calendar year immediately following such adjustment and shall
be reflected in the quarterly payment due on October 30 of such calendar year.
4. Reimbursement of Expenses. In addition to the compensation to
be paid pursuant to Section 3 hereof, Holdings and the Company agree to
reimburse HMCo, promptly following demand therefor, together with invoices or
reasonably detailed descriptions thereof, for all reasonable disbursements and
out-of-pocket expenses (including fees and disbursements of counsel) incurred
by HMCo in connection with the performance by it of the services contemplated
by Section 1 hereof.
5. Indemnification. Holdings and the Company hereby jointly and
severally agree to indemnify HMCo, its affiliates, and certain other
indemnitees as provided in that certain letter agreement dated of even date
herewith by and among Holdings, the Company, and HMCo (a copy of which is
attached hereto as Exhibit A). The indemnity provisions contained in such
letter agreement shall remain operative and in full force and effect
notwithstanding termination of this Agreement.
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 Holdings or the
Company to it solely in its capacity as a financial advisor, unless Holdings
and the Company 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
2
3
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 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 to
Thomas O. Hicks, John R. Muse, Charles W. Tate and/or Jack D. Furst or to any
entity controlled by any one or more of Thomas O. Hicks, John R. Muse, Charles
W. Tate and/or Jack D. Furst) 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.
10. Other Understandings. All discussions, understandings, and
agreements theretofore 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.
3
4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC.,
its General Partner
By: /s/ ALAN B. MENKES
----------------------------
Alan B. Menkes
Vice President
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
5
Exhibit A
October 27, 1995
Hicks, Muse & Co. Partners, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
In connection with the engagement (herein so called) of Hicks,
Muse & Co. Partners, L.P. ("HMC") pursuant to the Monitoring and Oversight
Agreement, dated as of October 27, 1995, by and among HMC, Hedstrom Holdings,
Inc. ("Holdings") and Hedstrom Corporation (the "Company"), Holdings and the
Company jointly and severally will indemnify and hold harmless each of HMC, its
affiliates, and their respective directors, officers, controlling persons
(within the meaning of Section 15 of the Securities Act of 1933 or Section
20(a) of the Securities Exchange Act of 1934), if any, agents and employees of
HMC or any of its affiliates (HMC, its affiliates, and such other specified
persons being collectively referred 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 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 any untrue statements made or any statements omitted to
be made) by Holdings and/or the Company or (ii) actions taken or omitted to be
taken by an Indemnified Person with Holdings' or the Company's consent or in
conformity with Holdings' or the Company's instructions or Holdings' or the
Company's actions or omissions or (B) are otherwise related to or arise out of
HMC's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees 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 HMC's acting pursuant to the
engagement, whether or not any Indemnified Person is named as a party thereto
and whether or not any liability results therefrom. Neither Holdings nor the
Company 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 HMC's bad faith, gross negligence or willful
misconduct. Holdings and the Company also agree that neither HMC nor any other
6
Hicks, Muse & Co. Partners, L.P.
October 27, 1995
Page 2
Indemnified Person shall have any liability to Holdings or the Company for or
in connection with such engagement except for any such liability for claims,
liabilities, losses, damages, or expenses incurred by Holdings and/or the
Company that have resulted primarily from HMC's bad faith, gross negligence or
willful misconduct. Holdings and the Company further agree that neither of
them will, without the prior written consent of HMC, 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 indemnifications 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 HMC and each other
Indemnified Person hereunder from all liability arising out of such claim,
action, suit or proceeding.
The foregoing right to indemnity shall be in addition to any
rights that HMC 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. Holdings and the Company hereby consent to
personal jurisdiction and to service and venue in any court in which any claim
which is subject to this agreement is brought against HMC or any other
Indemnified Person.
It is understood that, in connection with HMC's engagement,
HMC may also be engaged to act for Holdings and/or the Company in one or more
additional capacities, and that the terms of this engagement or any such
additional engagement may be embodied in one or more separate written
agreements. This indemnification shall apply to the engagement specified in
the first paragraph hereof as well as to any such additional engagement(s)
(whether written or oral) and any modification of said engagement or such
additional engagement(s) and shall remain in full force and effect following
the completion or termination of said engagement or such additional
engagements.
Holdings and the Company further understand that if HMC is
asked to furnish Holdings and/or the Company a financial opinion letter or act
for Holdings and/or the Company in any other formal capacity, such further
action may be subject to a separate agreement containing provisions and terms
to be mutually agreed upon.
7
Hicks, Muse & Co. Partners, L.P.
October 27, 1995
Page 3
This letter agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof. This letter agreement and all provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
Very truly yours,
HEDSTROM HOLDINGS, INC.
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
HEDSTROM CORPORATION
By: /s/ ARNOLD E. DITRI
-------------------------------------
Name: Arnold E. Ditri
-----------------------------------
Title: Chairman & President
----------------------------------
AGREED AND ACCEPTED:
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC., its
General Partner
By: /s/ ALAN B. MENKES
---------------------------
Alan B. Menkes
Vice President