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Exhibit 10.2  

 
 

MANAGEMENT SERVICES AGREEMENT    
    

        This MANAGEMENT SERVICES AGREEMENT (the "Agreement"), dated as of September 13, 2004 (the
"Effective Date"), is entered into by and between Rag Shops, Inc., a Delaware corporation with offices at 111 Wagaraw Road, Hawthorne, NJ 07506
(the "Company"), and Sun Capital Partners Management III, LLC, a Delaware limited liability company with offices at 5200 Town Center Circle, Suite 470,
Boca Raton, Florida 33486 (the "Manager"). Capitalized terms used but not defined herein have the meanings assigned to them in the Agreement and Plan of
Merger dated as of the date hereof (the "Merger Agreement") among the Company, Crafts Retail Holding Corp. and Crafts Retail Acquisition Corp. 

        WHEREAS,
the Company desires to receive financial and management consulting services from the Manager and to obtain the benefit of the experience of the Manager in business and financial
management; 

        WHEREAS,
the Manager desires to provide financial and management consulting services to the Company pursuant to the terms of this Agreement; and 

        WHEREAS,
the compensation arrangements set forth in this Agreement are designed to compensate the Manager for providing such financial and management consulting services to the Company; 

        NOW,
THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto agree as follows: 

        1.    Agreement; Term.

        (a)    The
Company hereby retains the Manager to perform, and the Manager agrees to render to the Company, on the terms herein set forth, management and consulting services
regarding the business of the Company and such other services relating to the Company as may from time to time be reasonably requested by the Board of Directors or executive officers of the Company.
Without limiting the generality of the foregoing, the parties currently contemplate that these services shall include advice regarding improvements to the Company's financial reporting, accounting and
management information systems and staffing. 

        (b)    It
is expressly understood and agreed that the Manager shall devote only so much time, and shall consult with and advise the officers and managers of the Company only to
such extent and at such times and places as may be mutually convenient to the Company and the Manager. The Manager shall be free to provide similar services to such other business enterprises or
activities as the Manager may deem fit without any limitation or restriction whatsoever. 

        (c)    The
term of this Agreement shall commence as of the Effective Date and shall terminate on the earlier of (i) the tenth anniversary of the Effective Date and
(ii) the date on which Sun One Price, LLC and its affiliates and co-investors no longer own or control at least 30% of the voting power of the Company. 

        2.    Compensation and Expenses.

        (a)    For
the services to be rendered by the Manager hereunder, the Manager shall receive an annual fee (the "Management Fee")
equal to the greater of (i) $400,000 or (ii) 6% of the Company's EBITDA (as such term is hereinafter defined), computed without taking into consideration the fees payable under this
Section 2, as determined by the Company's regular auditors, or in the absence thereof, by the Company's Board of Directors, with respect to each fiscal year. The Company shall pay the
Management Fee in quarterly installments in advance equal to the greater of (i) $100,000 or (ii) 6% of EBITDA (as such term is hereinafter defined) for the immediately preceding quarter,
computed without taking into consideration the fees payable under this Section 2. At the end of each fiscal year during the term of this Agreement, an amount shall 

 

be
paid to the Manager based on any adjustments made to the calculation of EBITDA described above as a result of an audit of the Company's financial statements. On the date hereof, the Company shall
pay the Manager $83,516, representing the pro rata portion of the Management Fee for the quarter ending November 27, 2004. For purposes of this Agreement, the term
"EBITDA" means, for any period, the sum of the amounts for such period of (A) net income (or loss) after taxes of the Company and its direct and
indirect subsidiaries on a consolidated basis ("Net Income"), plus (B) interest expense which has been deducted in the determination of Net
Income, plus (C) federal, state and local taxes which have been deducted in determining Net Income, plus (D) depreciation and amortization expenses which have been deducted in
determining Net Income, including without limitation amortization of capitalized transaction expenses incurred in connection with the acquisition of certain shares of Common Stock of the Company by a
subsidiary of Sun Crafts Retail, LLC (including, without limitation, the acquisition of shares of Common Stock of the Company by Sub pursuant to the Stock Purchase Agreement and upon consummation of
the Offer, the "Crafts Acquisition"), plus (E) extraordinary losses which have been deducted in the determination of Net Income, plus
(F) uncapitalized transaction expenses incurred in connection with the Crafts Acquisition, plus (G) all other non-cash charges, minus (H) extraordinary gains which
have been included in the determination of Net Income. Each item used in calculating EBITDA shall be determined in accordance with generally accepted accounting principles, consistent with that used
in prior periods. 

        (b)    The
Company shall reimburse the Manager for the cost of all reasonable out-of-pocket fees and expenses incurred by the Manager and its affiliates
in the performance of the services hereunder and all matters related thereto, including, without limitation, the salaries, fees, bonuses, benefits and other compensation of any type paid by the
Manager or its affiliates to any person employed, retained or otherwise engaged by any of them to perform services primarily for or on behalf of the Company. 

        (c)    In
connection with additional management services required in connection with certain corporate events, the Manager shall also be entitled to additional customary and
reasonable fees for management consulting services provided to the Company or to any of its direct or indirect subsidiaries or shareholders, including with respect to, without limitation,
refinancings, restructurings, equity or debt offerings, acquisitions, mergers, consolidations, business combinations, sales and divestitures (each a "Management Consulting
Event"). In the event that at any time during the term hereof, there shall occur a Management Consulting Event involving the Company or any of the Company's direct or indirect
subsidiaries or shareholders, the Company shall pay the Manager a management consulting fee, in cash, equal to 1% of the aggregate consideration (including assumed debt and long-term
liabilities) paid to or by the Company or to or by any of its direct or indirect subsidiaries or shareholders in consideration for the Manager's performance of management consulting services in
connection with such Management Consulting Event. The Manager and the Company acknowledge and agree that upon the earlier to occur of the Effective Time and the expiration of the 90-day
period following the date of this Agreement, the management consulting fee be paid by the Company in connection with the portion(s) of the Crafts Acquisition that have been completed at such time
shall be due and payable. 

        (d)    If
for any reason the Company is unable to pay any or all of the amounts otherwise owed to the Manager pursuant to this Agreement, the Company shall make such payments
as soon as the Company is able to do so. 

        3.    Relationship of the Parties.    The Manager is providing services hereunder as an independent contractor,
retaining control and responsibility for its operations and personnel. Nothing in this Agreement shall be deemed to constitute the parties hereto joint venturers, partners or participants in an
unincorporated business or other separate entity, nor in any manner create any employer-employee 

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relationship
between the Company on the one hand, and the Manager or any of the Manager's employees on the other hand. 

        4.    Board of Directors and Officers.    Nothing in this Agreement shall be construed to relieve the directors or
officers of the Company from the performance of their respective duties or limit the exercise of their powers in accordance with the Company's Articles of Incorporation or Bylaws, any applicable
provisions of the applicable corporate law, or otherwise. The activities of the Company shall at all times be subject to the control and direction of its Board of Directors and officers. The Company
reserves the right to make all decisions with regard to any matter upon which the Manager has rendered its advice and consultation. 

        5.    Limitation of Liability.    Neither the Manager nor any of its affiliates, members, partners, managers,
officers, employees or agents shall be liable to the Company or any of its subsidiaries or affiliates for any loss, liability, damage or expense arising out of or in connection with the performance of
services contemplated by this Agreement, unless such loss, liability, damage or expense shall be proven to result directly from the willful misconduct of such person. In no event will the Manager or
any of its affiliates, members, partners, managers, officers, employees or agents be liable to the Company for special, indirect, punitive or consequential damages, including, without limitation, loss
of profits or lost business, even if the Manager has been advised of the possibility of such damages. Under no circumstances will the liability of the Manager and its affiliates, members, partners,
managers, officers, employees or agents exceed, in the aggregate, the fees actually paid to the Manager hereunder. 

        6.    Indemnification.    The Company shall reimburse, defend, indemnify and hold the Manager and its affiliates,
members, partners, managers, officers, employees and agents, harmless from and against any damage, loss, liability, deficiency, diminution in value, action, suit, claim, proceeding, investigation,
audit, demand, assessment, fine, judgment, cost and other expense (including, without limitation, reasonable legal fees and expenses) arising out of, related to or in connection with (a) any
act or omission of, or on behalf of, the Company or the Manager, except to the extent proven to result directly from the willful misconduct of the person seeking indemnification, or (b) any act
or omission made at the direction of the Company. 

        7.    Notices.    Any notice, request, demand or other communication permitted or required to be given hereunder shall
be in writing, shall be sent by one of the following means to the addressee at the address set forth in the preamble to this Agreement (or at such other address as shall be designated hereunder by
notice to the other party hereto, effective upon actual receipt) and shall be deemed
conclusively to have been given: (a) on the first business day following the day timely deposited with a nationally recognized overnight delivery service with an order for next-day
delivery, with the cost of delivery prepaid for the account of the sender; (b) on the fifth business day following the day duly sent by certified or registered United States mail, postage
prepaid and return receipt requested; or (c) if delivered by other means, when actually received by the addressee on a business day (or on the next business day if received after the close of
normal business hours or on any non-business day). 

        8.    Assignment; Successors and Assigns.    This Agreement and the rights, duties and obligations of the Company
hereunder may not be assigned or delegated by the Company without the prior written consent of the Manager. This Agreement and the rights, duties and obligations of the Manager hereunder may not be
assigned or delegated by the Manager, other than to an affiliate of the Manager, without the prior written consent of the Company. All covenants, promises and agreements by or on behalf of the parties
contained in this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 

        9.    Amendments.    No amendment, supplement or waiver of any provision of this Agreement shall be effective unless
the same shall be in writing and signed by the Manager and the Company (in the case of an amendment or supplement) or by the waiving party (in the case of a waiver). 

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        10.    Applicable Law.    This Agreement shall be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware, without giving effect to principles of conflicts of law or choice of law that would compel the application of the substantive laws of any other jurisdiction. 

        11.    Section Headings.    The headings of each section are contained herein for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement. 

        12.    Entire Agreement.    This Agreement sets forth the entire agreement of the parties hereto with regard to the
subject matter hereof and supersedes and replaces all prior agreements, understandings and representations, oral or written, with regard to such matters. 

        13.    Severability.    If any provision of this Agreement or application thereof under any circumstances is
adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect
without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void,
invalid or unenforceable
with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 

        14.    Counterparts.    This Agreement may be executed in counterparts, each of which shall be an original, and both
of which together shall constitute one and the same document. Any counterpart may be executed by facsimile signature and such facsimile signature shall be deemed an original. 

[SIGNATURES
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        IN WITNESS WHEREOF, the parties have executed this Management Services Agreement as of the date first above written. 

	 	 	SUN CAPITAL PARTNERS

MANAGEMENT III, LLC
	

 	
 	

By:	
 	

/s/  MICHAEL FIELDSTONE      

	 	 	Name:

Title:	 	Michael Fieldstone

Vice President
	

 	
 	

RAG SHOPS, INC.
	

 	
 	

By:	
 	

/s/  JEFFREY C. GERSTEL      

	 	 	Name:

Title:	 	Jeffrey C. Gerstel

President

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Exhibit 4.1  

 
 

AMENDMENT NO. 2 TO
  RIGHTS AGREEMENT    
    

        This AMENDMENT NO. 2, dated as of September 7, 2004 (this "Second Amendment") to the Rights Agreement (the
"Rights Agreement"), dated as of January 25, 1995, by and between Ultimate Electronics, Inc., a Delaware corporation (the
"Company") and Wells Fargo Bank, N.A. (formerly known as Norwest Bank Minnesota, N.A.) (the "Rights
Agent") as amended by that certain Amendment No. 1 to the Rights Agreement, dated as of January 31, 1995 (the "First
Amendment"), is entered into by and between the Company and the Rights Agent. Capitalized terms used without definition herein are as defined in the Rights Agreement. 

        WHEREAS,
the parties hereto now wish to amend the Rights Agreement in accordance with Section 27 of the Rights Agreement. 

        NOW,
THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration the receipt and sufficiency of which the parties
expressly acknowledge, the parties agree as follows. 

        1.     Amendment to Section 7(a). Section 7(a) shall be amended by deleting Section 7(a) in
its entirety and replacing it with the following: 

        (a)   Except
as otherwise provided herein, the Rights shall become exercisable on the Distribution Date, and thereafter the registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part, upon surrender of the Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office or agency of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-hundredths
of a Preferred Share as to which the Rights are exercised, at any time which is both after the Distribution Date and prior to the earliest of (i) the close of business on February 10,
2007 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the time at which such Rights
are exchanged as provided in Section 24 hereof. 

        2.     Miscellaneous. 

        2.1.  The
terms and provisions of the Rights Agreement shall remain in full force and effect except as specifically modified by the First Amendment and this Second Amendment. 

        2.2.  This
Second Amendment may be executed in one or more counterparts and delivered by facsimile, all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 

        2.3.  The
First Amendment, this Second Amendment and the Rights Agreement (including schedules and exhibits hereto and thereto) sets forth the entire understanding of the
parties relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter hereof. This Second
Amendment may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of the parties hereto. 

        2.4.  Each
party shall execute and deliver such further documents and instruments and shall take such other further actions as may be required to carry out the intent and
purposes of this Second Amendment. 

[Signature
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        IN
WITNESS WHEREOF, the undersigned have executed this Second Amendment as of the date first above written. 

	

 	
 	

ULTIMATE ELECTRONICS, INC.
	

 	
 	

By:	
 	

/s/  DAVID A. CARTER      

	 	 	Name:	 	David A. Carter
	 	 	Title:	 	Senior Vice-President Finance, Chief Financial Officer, and Secretary
	

 	
 	

WELLS FARGO BANK, N.A.

(successor to Norwest Bank Minnesota, N.A.)
	

 	
 	

By:	
 	

/s/  CHERYL KELLY      

	 	 	Name:	 	Cheryl Kelly
	 	 	Title:	 	Officer and Account Manager

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