Professional Services Agreement
This Professional Services Agreement (this "Agreement") is made as of April
7, 2004, by and among Bear Stearns Merchant Manager II, LLC, a Delaware limited
liability company ("BSMB"), AC Safety Holding Corp., a Delaware corporation
("Holding"), and AC Safety Acquisition Corp., a Delaware corporation
("Acquisition"), and Aearo Company I, a Delaware corporation ("Aearo Company").
Certain capitalized terms used herein are defined in Section 9 below.
WHEREAS, Aearo Corporation, a Delaware corporation (the "Surviving
Corporation"), Holding and Acquisition are parties to an Agreement and Plan of
Merger, dated as of March 10, 2004 (the "Merger Agreement"), pursuant to which,
among other things, Acquisition will merge with and into the Surviving
Corporation (the "Merger"); and
WHEREAS, Holding and, on behalf of itself, the Surviving Corporation,
Acquisition and Aearo Company desire to retain BSMB with respect to the services
described herein.
NOW, THEREFORE, the parties agree as follows:
1. Term. This Agreement shall commence on the date hereof and shall terminate
(except as provided in the immediately following sentence) on the earliest
to occur of (a) the consummation of a Qualified Public Offering, (b) the
consummation of a Realization Event, (c) termination by BSMB upon 30 days
written notice to Acquisition (or, after the Merger, the Surviving
Corporation) and (d) the tenth anniversary of the date hereof (the "Term");
provided, however, that if no Qualified Public Offering or Realization
Event has been consummated prior to the tenth anniversary, the Term shall
be automatically extended thereafter on a year to year basis unless (i)
Acquisition (or, after the Merger, the Surviving Corporation) provides
written notice to BSMB of its desire to terminate this Agreement or (ii)
BSMB provides written notice to Acquisition (or, after the Merger, to the
Surviving Corporation) of its desire to terminate this Agreement, in each
case, 30 days prior to the expiration of the Term or any extension thereof;
or at such time as a Qualified Public Offering or Realization Event is
consummated. The provisions of Sections 3(e), 3(g), 6, 7, 8, 10, 11, 12,
13, 14 and 15 and obligations to pay any outstanding unpaid fees hereunder
and accrued interest thereon shall survive the termination of this
Agreement.
2. Services. BSMB shall perform or cause to be performed such services for
Holding, Acquisition (and, after the Merger, the Surviving Corporation) and
their respective subsidiaries as mutually agreed by Holding's or
Acquisition's (and, after the Merger, the Surviving Corporation's) board of
directors, as the case may be and BSMB, which may include, without
limitation, the following:
(a) general advisory and management services;
(b) business development functions, including identification, support,
negotiation and analysis of acquisitions and dispositions by Holding,
Acquisition (and, after the Merger, the Surviving Corporation) and
their respective subsidiaries;
(c) support, negotiation and analysis of financing alternatives,
including, without limitation, in connection with acquisitions,
capital expenditures and refinancing of existing indebtedness;
(d) finance functions, including assistance in the preparation of
financial projections, and monitoring of compliance with financing
agreements;
(e) marketing functions, including monitoring of marketing plans and
strategies;
(f) human resource functions, including searching, identifying and hiring
of executives and directors; and
(g) other services for Holding, Acquisition (and, after the Merger, the
Surviving Corporation) and their respective subsidiaries upon which
Holding's or Acquisition's (and, after the Merger, the Surviving
Corporation's) board of directors, as the case may be, and BSMB agree.
1
3. Advisory Fee.
(a) In consideration of BSMB's undertaking to provide advisory services
hereunder, Acquisition (and, after the Merger, the Surviving
Corporation) or Aearo Company shall pay BSMB an annual advisory fee
(the "Advisory Fee") in an aggregate amount for each fiscal year equal
to the greater of (i) $700,000 and (ii) 1.25% of the Adjusted
Consolidated EBITDA (as hereinafter defined) for such fiscal year,
calculated as provided below and payable in arrears in quarterly
installments (based on twelve 30-day months), for the period beginning
on the date hereof and ending upon the termination of this Agreement
as provided in Section 1 hereof. The Advisory Fees shall be payable by
Acquisition (or, after the Merger, the Surviving Corporation) whether
or not Acquisition (or, after the Merger, the Surviving Corporation)
actually requests that BSMB provide the services described in Section
2 above.
(b) Except as otherwise provided in Section 3(d), 3(e) or 3(f) hereof, (i)
the first installment of the Advisory Fee, for the period beginning on
the date hereof and ending June 30, 2004, shall be payable on June 30,
2004 (unless otherwise directed by BSMB) in an amount equal to
$175,000 multiplied by a fraction (A) the numerator of which is the
actual number of days from and including the date hereof to and
including June 30, 2004 and (B) the denominator of which is 90, and
(ii) the second installment of the Advisory Fee, for the period
beginning on July 1, 2004 and ending on September 30, 2004, shall be
payable on September 30, 2004 (unless otherwise directed by BSMB) in
an amount equal to $175,000.
(c) Except as otherwise provided in Section 3(d), 3(e) or 3(f) hereof, all
subsequent payments of the Advisory Fee shall be in quarterly
installments, payable in arrears on March 31, June 30, September 30
and December 31 of each year, in an amount equal to the greater of (i)
$175,000 and (ii) 0.3125% of the Adjusted Consolidated EBITDA for the
preceding fiscal year, based on the audited consolidated financial
statements of Holding and its subsidiaries for such preceding fiscal
year.
(d) Promptly upon receipt of its audited consolidated financial statements
for each fiscal year (commencing with the fiscal year ending September
30, 2004), Holding will certify the Adjusted Consolidated EBITDA for
the preceding fiscal year to BSMB.
(i) To the extent that the aggregate installments of the Advisory Fee
paid to BSMB with respect to such preceding fiscal year exceed
the greater of (a) $700,000 and (b) 1.25% of the Adjusted
Consolidated EBITDA for the preceding fiscal year, then
Acquisition (or, after the Merger, the Surviving Corporation) may
set off the amount of such excess (the "Excess ------- Fee
Amount") against their obligation to pay the next installment of
the Advisory Fee ---------- (and subsequent installments as
needed to recover such Excess Fee Amount in full); provided,
however, that for the fiscal year ending September 30, 2004, only
the excess -------- ------- of the sum of the first two
installments of the Advisory Fee that exceed the product of (x) a
fraction (i) the numerator of which is the actual number of days
from and including the date hereof to and including September 30,
2004 and (ii) the denominator of which is 180 (such fraction
hereinafter the "Initial Period Fraction"), multiplied
----------------------- ----------- by (y) the greater of (i)
$350,000 and (ii) 0.625% of the Adjusted Consolidated EBITDA --
for the fiscal year ending September 30, 2004 shall be deemed to
be an Excess Fee Amount for purposes of this Section 3(d)(i).
---------------
(ii) To the extent that the aggregate installments of the Advisory Fee
paid to BSMB with respect to such preceding fiscal year are less
than the greater of (a) $700,000 and (b) 1.25% of the Adjusted
Consolidated EBITDA for the preceding fiscal year, then
Acquisition (or, after the Merger, the Surviving Corporation)
shall pay BSMB the amount of such deficiency at such time as they
are obligated to pay the next installment of the Advisory Fee;
provided, however, that for the fiscal year ending September 30,
2004, -------- ------- Acquisition shall only make a payment
pursuant to this Section 3(d)(ii) to the extent -----------------
that the product of (x) the Initial Period Fraction multiplied by
(y) the greater of -------------- (i) $350,000 and (ii) 0.625% of
the Adjusted Consolidated EBITDA for the fiscal year ending
September 30, 2004 exceeds the sum of the first two installments
of the Advisory Fee.
2
(e) Upon the consummation of a Qualified Public Offering, Acquisition (or,
after the Merger, the Surviving Corporation) or Aearo Company shall be
obligated to pay to BSMB an amount equal to (i) any accrued but unpaid
Advisory Fee for the period during which such Qualified Public
Offering is consummated, plus (ii) the Advisory Fee that would be
payable to BSMB pursuant to this Section 3 in respect of the next four
successive three-month periods calculated based on the Advisory Fee
paid or payable for the then current three-month period.
(f) Notwithstanding anything to the contrary contained herein, Acquisition
(or, after the Merger, the Surviving Corporation) or Aearo Company
shall accrue but not pay the Advisory Fee if and for so long as (i)
any such payment would constitute a default (or any event which might,
with the lapse of time or the giving of notice or both, constitute a
default) under Holding's and Acquisition's (or, after the Merger, the
Surviving Corporation's) financing agreements (a "Default"); provided,
however, that Acquisition (or, after the Merger, the Surviving
Corporation) or Aearo Company shall be obligated to pay any accrued
Advisory Fees deferred under this Section 3(f)(i) to the extent that
such payment would not constitute a Default or (ii) BSMB instructs
Acquisition (or, after the Merger, the Surviving Corporation) and
Aearo Company not to pay all or any portion of the Advisory Fee during
any fiscal year. Interest will accrue on all due and unpaid Advisory
Fees not paid pursuant to clause (i) of the preceding sentence at the
Default Rate until such Advisory Fees are paid, and such interest
shall compound annually. The "Default Rate" shall be LIBOR (as such
term is defined in the Senior Facility) plus 4.25% per annum.
(g) In addition to the Advisory Fee, Acquisition (on behalf of itself and
the Surviving Corporation) or Aearo Company shall reimburse BSMB,
promptly upon request, for all reasonable out-of-pocket expenses
incurred by BSMB in connection with BSMB's obligations hereunder,
including, but not limited to, the fees and expenses paid to
consultants, subcontractors and other third parties in connection with
such obligations.
4. Transaction Fees.
(a) Acquisition (on behalf of itself and the Surviving Corporation) or
Aearo Company hereby agrees to pay to BSMB upon the date hereof a fee
(the "Closing Fee") for services rendered in connection with securing,
structuring and negotiating the acquisition, equity and debt
financing, including but not limited to the Senior Facility, a bridge
loan and a high-yield offering for the transactions contemplated by
the Merger Agreement and certain other management services, in an
amount equal to $6,000,000. The Closing Fee shall be payable by wire
transfer of immediately available funds to BSMB or one or more of its
designees.
(b) If Holding or Acquisition (or, after the Merger, the Surviving
Corporation) shall determine that it is advisable to hire a financial
advisor, consultant, investment banker or any similar agent in
connection with any transaction (other than a Realization Event)
relating to (i) an acquisition, divestiture, or other transaction
(whether by merger, recapitalization or otherwise), (ii) issuance of
securities (including, without limitation, an initial public offering
by Holding or any of its subsidiaries) or (iii) a debt or equity
financing, in each case, by or involving Holding, Acquisition (or,
after the Merger, the Surviving Corporation) or any of their
subsidiaries, it shall promptly notify BSMB of such determination in
writing. Promptly thereafter, upon the request of BSMB, Holding,
Acquisition (or, after the Merger, the Surviving Corporation) or such
subsidiary, as the case may be, shall hire BSMB or its Affiliates to
act as a financial advisor to Holding, Acquisition (or, after the
Merger, the Surviving Corporation) or such subsidiary, as the case may
be, on a non-exclusive basis in connection with such transaction. At
the closing of any such transaction, BSMB shall receive a fee (a
"Transaction Fee") the amount of which shall be agreed to by the
parties in good faith prior to such closing. In the event the parties
are unable to agree to such fee, the Transaction Fee shall equal 1.00%
of the aggregate enterprise value paid or provided by Holding,
Acquisition (or, after the Merger, the Surviving Corporation), or such
subsidiary, as the case may be (including the aggregate value of (x)
equity securities, warrants, rights and options acquired or retained,
(y) indebtedness acquired, assumed or refinanced and (z) any other
consideration or compensation paid in connection with such
transaction). In addition, Holding, Acquisition (or, after the Merger,
the Surviving Corporation) or such subsidiary, as the case may be,
shall reimburse BSMB, promptly upon request, for all reasonable
out-of-pocket expenses incurred by BSMB in connection with BSMB's
obligations hereunder in connection with such transaction, including,
but not limited to, the fees and expenses paid to consultants,
subcontractors and other third parties in connection with such
obligations. BSMB may assign its rights under this Section 4(b)
generally or in connection with any actual or prospective transaction
to any of its affiliates or to any of The Bear Stearns Companies Inc.
and its subsidiaries.
3
(c) If Holding or Acquisition (or, after the Merger, the Surviving
Corporation) shall determine that it is advisable to hire a financial
advisor, consultant, investment banker or any similar agent in
connection with a Realization Event, it shall promptly notify BSMB of
such determination in writing. Promptly thereafter, upon the request
of BSMB, Holding or Acquisition (or, after the Merger, the Surviving
Corporation), as the case may be, shall hire BSMB or its Affiliates to
act as a financial advisor to Holding or Acquisition (or, after the
Merger, the Surviving Corporation) on a non-exclusive basis in
connection with such Realization Event. Upon the consummation of a
Realization Event, BSMB shall be entitled to receive from Holdings or
Acquisition (or, after the Merger, the Surviving Corporation) or Aearo
Company, as the case may be, a fee (a "Company Sale Fee") equal to
0.65% of the aggregate enterprise value paid to Holding or Acquisition
(or, after the Merger, the Surviving Corporation), as the case may be,
in connection with such Realization Event (including the aggregate
value of (x) equity securities, warrants, rights and options acquired
or retained, (y) indebtedness acquired, assumed or refinanced and (z)
any other consideration or compensation paid in connection with such
transaction).
5. Personnel. BSMB shall provide and devote to the performance of this
Agreement such partners, employees and agents of BSMB as BSMB shall deem
appropriate to the furnishing of the services required.
6. Liability. None of BSMB, any of its affiliates nor their respective
partners, members, employees or agents (collectively, the "BSMB Group")
shall be liable to Holding, Acquisition, the Surviving Corporation or their
subsidiaries or affiliates for any loss, liability, damage or expense
(collectively, a "Loss") arising out of or in connection with this
Agreement or the performance of services contemplated hereunder (including,
without limitation, the performance of services provided pursuant to
Section 4 above), unless and then only to the extent that such Loss is
determined by a court in a final order from which no appeal can be taken,
to have resulted solely from the willful misconduct on the part of such
member of the BSMB Group. BSMB makes no representations or warranties,
express or implied, in respect of the services to be provided by the BSMB
Group. Except as BSMB may otherwise agree in writing on or after the date
hereof: (a) each member of the BSMB Group shall have the right to, and
shall have no duty (contractual or otherwise) not to, directly or
indirectly: (i) engage in the same or similar business activities or lines
of business as Holding, Acquisition (or, after the Merger, the Surviving
Corporation) or their respective subsidiaries and (ii) do business with any
client, customer, supplier, lender or investor of, to or in Holding,
Acquisition (or, after the Merger, the Surviving Corporation) or their
respective subsidiaries; (b) no member of the BSMB Group shall be liable to
Holding, Acquisition (or, after the Merger, the Surviving Corporation) or
their respective subsidiaries or affiliates for breach of any duty
(contractual or otherwise) by reason of any such activities or of such
person's participation therein; and (c) in the event that any member of the
BSMB Group acquires knowledge of a potential transaction or matter that may
be a corporate opportunity for both (A) Holding, Acquisition (or, after the
Merger, the Surviving Corporation) or their respective subsidiaries, on the
one hand, and (B) BSMB, on the other hand, or any other person, no member
of the BSMB Group shall have any duty (contractual or otherwise) to
communicate or present such corporate opportunity to Holding, Acquisition
(or, after the Merger, the Surviving Corporation) or their respective
subsidiaries and, notwithstanding any provision of this Agreement to the
contrary, shall not be liable to Holding, Acquisition (or, after the
Merger, the Surviving Corporation), their respective subsidiaries or any of
their affiliates for breach of any duty (contractual or otherwise) by
reasons of the fact that any member of the BSMB Group directly or
indirectly pursues or acquires such opportunity for itself, directs such
opportunity to another person, or does not present such opportunity to
Holding, Acquisition (or, after the Merger, the Surviving Corporation),
their respective subsidiaries or any of their affiliates. In no event will
any of the parties hereto be liable to any other party hereto for any
punitive, exemplary, indirect, special, incidental or consequential
damages, including lost profits or savings, whether or not such damages are
foreseeable, or in respect of any liabilities relating to any third party
claims (whether based in contract, tort or otherwise) other than for the
Claims (as defined in Section 7) relating to the services which may be
provided by BSMB hereunder.
7. Indemnity. Holding, Acquisition (and, after the Merger, the Surviving
Corporation) and their subsidiaries shall defend, indemnify and hold
harmless each member of the BSMB Group from and against any and all Losses
arising from any claim by any person with respect to, or in any way related
to, this Agreement (including attorneys' fees) (collectively, "Claims")
resulting from any act or omission of any member of the BSMB Group except
to the extent that such Loss is determined by a court in a final order from
which no appeal can be taken to have resulted solely from the willful
4
misconduct of such member of the BSMB Group. Holding, Acquisition (and,
after the Merger, the Surviving Corporation) and their subsidiaries shall
defend at their own cost and expense any and all suits or actions (just or
unjust) which may be brought against Holding, Acquisition (or, after the
Merger, the Surviving Corporation) and their subsidiaries or any member of
the BSMB Group, or in which any member of the BSMB Group may be impleaded
with others, upon any Claims, or upon any matter, directly or indirectly,
related to or arising out of this Agreement or the performance of the
obligations hereunder by the BSMB Group (including, without limitation, the
performance of services pursuant to Section 4 above), except that if such
damage shall be proven to be result solely from the willful misconduct by a
member of the BSMB Group then such member of the BSMB Group shall reimburse
Holding and its subsidiaries for the costs of defense and other costs
incurred by Holding and its subsidiaries. Notwithstanding anything to the
contrary contained in this Agreement, in no event will the liability of the
BSMB Group in connection with this Agreement exceed the aggregate amount of
all Advisory Fees, Closing Fees, Transaction Fees and Company Sale Fees
paid to BSMB hereunder.
8. Independent Contractor. The parties acknowledge and agree that BSMB is and
shall act as an independent contractor of Holding and Acquisition (and,
after the Merger, the Surviving Corporation) in the performance of its
duties hereunder. BSMB is not, and in the performance of its duties will
not hold itself out as, an employee, agent or partner of Holding,
Acquisition (or, after the Merger, the Surviving Corporation) or any of
their respective subsidiaries.
9. Notices. All notices hereunder shall be in writing and shall be delivered
personally or mailed by United States mail, postage prepaid, addressed to
the parties as follows:
to Acquisition (and, after the Merger, the Surviving Corporation) or
Aearo Company:
Aearo Corporation
Aearo Company I
5457 West 79th Street
Indianapolis, IN 46268
Attention: Mr. Michael McLain
Tel: (317) 692-6557
Fax: (317) 692-6784
with copies, which shall not constitute notice; to:
Bear Stearns Merchant Banking
c/o Bear, Stearns & Co. Inc.
383 Madison Avenue, 40th Floor
New York, New York 10179-5706
Attention: Mr. Douglas R. Korn
Tel.: 212-272-4154
Fax: 212-272-7425
to Holding or BSMB:
Bear Stearns Merchant Manager II, LLC
c/o Bear, Stearns & Co. Inc.
383 Madison Avenue, 40th Floor
New York, New York 10179-5706
Attention: Mr. Douglas R. Korn
Tel.: 212-272-4154
Fax: 212-272-7425
with a copy, which shall not constitute notice, to:
O'Melveny & Myers LLP
Times Square Tower
7 Times Square
New York, NY 10036
Attention: Adam Weinstein, Esq.
Tel.: (212) 408-2400
Fax: (212) 408-2420
10. Certain Definitions. Capitalized terms used but not otherwise defined
herein shall have the meaning given such term in the Stockholders'
Agreement dated as of the date hereof by and among Holding and the
stockholders party thereto. In addition, for purposes of this Agreement,
"Adjusted Consolidated EBITDA" means, with respect to any period, the sum
of (i) Consolidated EBITDA (as such term is defined in the Senior Facility
on the date hereof), plus (ii) to the extent deducted in arriving at
5
this Agreement and any fees paid to Vestar Capital Partners or any of its
Affiliates, in each of clauses (i) and (ii) above, during such period.
"Senior Facility" means the Credit Agreement dated as of the date hereof
among Holding, the Surviving Corporation, Aearo Company I, the Lenders
thereunder, Bear Stearns Corporate Lending, as Syndication Agent, and
Deutsche Bank Trust Company Americas, as Administrative Agent. "Realization
Event" shall have the meaning given to such term in the 2004 Stock
Incentive Plan.
11. Assignment. Except as provided in Section 4(b), no party hereto may assign
any obligations hereunder to any other party without the prior written
consent of the other parties (which consent shall not be unreasonably
withheld); provided, however, that BSMB may, without the consent of Holding
or Acquisition (or, after the Merger, the Surviving Corporation), assign
its rights under this Agreement to any of its affiliates.
12. No Waiver. The failure of a party to this Agreement to insist upon strict
adherence to any term of this Agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement. Any
waiver must be in writing.
13. Successors. This Agreement and all the obligations and benefits hereunder
shall inure to the successors and permitted assigns of the parties.
14. Counterparts. This Agreement may be executed and delivered by each party
hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
15. Entire Agreement; Modification; Governing Law. The terms and conditions
hereof constitute the entire agreement between the parties hereto with
respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of
any kind whatsoever, except as expressly set forth herein. No modifications
of this Agreement nor waiver of the terms or conditions thereof shall be
binding upon either party unless approved in writing by an authorized
representative of such party. All issues concerning this agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the law of any
jurisdiction other than the State of New York.
16. WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR (B)
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. EACH PARTY TO THIS
AGREEMENT HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION,
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
* * * * *
6
IN WITNESS WHEREOF, the parties have executed this Professional Services
Agreement as of the date first written above.
AC SAFETY HOLDING CORP.
By:
Name:
Title:
On behalf of itself and, after the Merger, Aearo Corporation, the Surviving
Corporation:
AC SAFETY ACQUISITION CORP.
By:
Name:
Title:
AEARO Company I
By:
Name: Michael A. McLain
Title: Chief Executive Officer and
President
BEAR STEARNS MERCHANT MANAGER II, LLC
By: JDH Management LLC, its Manager,
By:
Name:
Title: