Bankrupt sports-equipment distributor Maurice Sporting Goods Inc. came to court last week and intends to sell the business to investment firm, Middleton Management Co. The dilemma that was facing Judge Christopher Sontchi was that Maurice and its primary lender, BMO Harris Bank N.A, were seeking approval for a provision that would allow Middleton to collect a $150,000 breakup fee in the event the sale process falls through, according to a WSJ Pro Bankruptcy commentary. What is unusual in the case of Maurice, according to the commentary, is that the company wanted Judge Sontchi to approve the fee before the parties had finalized an asset purchase agreement or submitted to the court papers outlining how the proposed sale process is expected to play out. What is on file is a signed letter of intent from Middleton to serve as a stalking-horse bidder in a proposed chapter 11 auction for Maurice’s assets. The fee, as well as the conditions under which it would be awarded to Middleton, is outlined in the letter of intent and papers related to a bankruptcy loan being provided by BMO Harris. Despite expressing misgivings about the fee, Judge Sontchi approved the provision, saying he wasn’t willing “to play chicken with the survival of this case” over a relatively small amount of money.
Commerce Secretary Wilbur L. Ross and the firm he founded were sued by three of his former colleagues who say WL Ross & Co. pocketed management fees from the general partnerships that handled its private-equity investments, the Wall Street Journal reported today. The lawsuit, filed yesterday in New York State court, claims that WL Ross covertly took management fees from general partner entities that the investment firm was only allowed to charge to passive, outside investors. David Storper, David Wax and Pamela Wilson said in the lawsuit they were required to invest their own money in return for stakes in those general partnerships, which they retained after leaving the firm. They said that their partnership interests were a “significant part” of their compensation packages but were diluted when the firm took fees it wasn’t entitled to. “These charges are barred by the limited partnership agreements governing the private-equity funds,” the lawsuit said. “The agreements allow management fees to be charged to fund investors, not the general partners.” The plaintiffs claim WL Ross reaped at least $48 million in management fees from the general partnerships that were “completely concealed” until the firm disclosed them on capital statements last year.