1
EXHIBIT 10.7
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement"), dated
as of December 15, 1998, by and between Special Devices, Incorporated, a
Delaware corporation (the "Company"), and J.F. Lehman & Company, a
Delaware corporation (the "Advisor").
WHEREAS, the Company is engaged in the business of designing
and manufacturing precision engineered pyrotechnic devices used in vehicle
airbag and other automotive safety systems as well as in various aerospace
applications.
WHEREAS, key personnel of the Advisor have substantial
expertise that is useful to the Company.
WHEREAS, the Company desires to retain Advisor to provide
management, consulting and financial services to the Company; and
WHEREAS, the Advisor wishes to provide such services to the
Company, and the Company wishes to compensate the Advisor for such services.
NOW, THEREFORE, in consideration of the premises and the
covenants and conditions contained herein, the parties hereto agree as follows:
1. Agreement to Provide Management Services. The Advisor hereby agrees to
provide to the Company at the Company's request the management services
("Services") listed on Schedule "A" hereto. The Advisor's key personnel will
devote as much of their business time and effort to the provision of Services
hereunder as is reasonably required for the prompt and efficient accomplishment
of the Services to be provided.
2. Compensation; Expenses.
(a) Management Fees. In consideration for the advisory and consulting
services to be rendered by the Advisor to the Company hereunder, including
services in connection with strategic financial planning, investment management,
management and administration and other matters relating to the business and
operations of the Company, the Company shall pay to the Advisor a fee (the
"Annual Fee") in the amount of $900,000 per annum for each year during the
period commencing on the effective date of the Merger (the "Effective Date") and
ending on the date of the termination of this Agreement. The Annual Fee shall be
payable quarterly in advance (i) for the period from the Effective Date through
January 31, 1999, as soon as practicable after the Effective Date, (ii) for
every three month period thereafter until the date of the termination of this
Agreement, on the first day of such three month period.
(b) Expenses. The Company shall reimburse the Advisor promptly upon
request for travel and other out-of-pocket expenses incurred by the Advisor in
connection with the performance of services pursuant to this Agreement. Salaries
of employees of
2
2
the Advisor and the ordinary expenses of maintaining the Advisor's offices are
not reimbursable expenses pursuant to this Agreement.
3. Interest. In the event that the Company shall fail to pay all or any part of
the fees or out-of-pocket expenses referred to in Article 2 hereof within 10
days after the date when due, then the Advisor shall be entitled to interest on
the unpaid amount thereof at a rate equal to 10% per annum until paid.
4. Indemnification. The Company will indemnify and hold harmless the Advisor,
its affiliates and their respective partners (both general and limited),
officers, directors, employees, agents and representatives (each such person
being an "Indemnified Party") from and against any and all losses, claims,
damages and liabilities, whether joint or several (the "Liabilities"), related
to, arising out of or in connection with the services contemplated by this
Agreement or the engagement of the Advisor pursuant to, and the performance by
the Advisor of the services contemplated by, this Agreement. The Company will
reimburse any Indemnified Party for all reasonable costs and expenses (including
reasonable attorneys' fees and expenses) as are incurred in connection with
investigating, preparing, pursuing, defending or assisting in the defense of any
action, claim, suit, investigation or proceeding for which the Indemnified Party
would be entitled to indemnification under the terms of the previous sentence,
or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party hereto. The Company will not be liable under the foregoing
indemnification provision with respect to any Indemnified Party, to the extent
that any loss, claim, damage, liability, cost or expense is determined by a
court, in a final judgment from which no further appeal may be taken, to have
resulted primarily from the gross negligence or willful misconduct of the
Advisor.
5. Term and Termination. This Agreement shall be effective as the date hereof
and shall continue in effect until the earliest to occur of (i) December 31,
2008 and (ii) the closing of a sale to an entity which is not an "Affiliate" (as
defined in Section 12b-2 of the Securities Exchange Act of 1934) of the Company
or to any person that is, on the date hereof, a shareholder of the Company, all
or substantially all of the capital stock or assets of the Company. The
provisions of Section 2(b) and Articles 3 and 4 shall survive the termination of
this Agreement.
6. Permissible Activities. Subject to applicable law, nothing herein shall in
any way preclude the Advisor, its affiliates or their respective partners (both
general and limited), officers, directors, employees, agents or representatives
from engaging in any business activities or from performing services for its or
their own account or for the account of others, including for companies that may
be in competition with the business conducted by the Company.
7. Consulting Relationship. It is understood and agreed that this Advisor shall
for all purposes hereof be deemed to be an independent contractor and shall not,
unless otherwise expressly authorized by the Company, have any authority to act
for or represent
3
3
the Company in any way, execute any transaction on behalf of the Company or
otherwise be deemed an agent of the Company. No federal, state or local
withholding deductions shall be withheld from the fees and other amounts payable
to the Advisor pursuant to this Agreement unless otherwise required by law.
8. Representations and Warranties of the Advisor. The Advisor represents and
warrants that it is not a party to or bound by any agreement or contract or
subject to any restrictions, particularly, but without limitation, in connection
with any previous or other consulting relationship, which prevents the Advisor
from entering into and performing its obligations under this Agreement.
9. Miscellaneous.
(a) No amendment or waiver of any provision of this Agreement,
or consent to any departure by either party hereto from any such provision,
shall be effective unless the same shall be in writing and signed by each of the
parties hereto. Any amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) Any and all notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to the Advisor: J.F. Lehman & Company, Inc.
450 Park Avenue
New York, New York 10022
Attention: Mr. Donald Glickman
Fax: (212) 634-1155
If to the Company: Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
Fax: (805) 254-4721
(c) This Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof, and shall
supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating hereto.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE
4
4
PERFORMED IN THAT STATE. This Agreement shall inure to the benefit of, and be
binding upon, the Advisor and the Company and their respective successors and
permitted assigns. None of the rights or obligations of the parties hereunder
may be assigned by either party without the prior written consent of the other
party hereto, provided that the Advisor may assign its rights and obligations
hereunder to any corporation or other entity controlled by or under common
control with the Advisor.
(e) This Agreement may be executed by one or more parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) The waiver by any party of any breach of this Agreement
shall not operate as or be construed to be a waiver by such party of any
subsequent breach.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(h) Notwithstanding anything set forth herein, payment of any
and all amounts pursuant hereto (including, without limitation, the Annual Fee)
shall be expressly subject to the restrictions, if any, set forth in (x) Section
9.06 of the Credit Agreement, dated as of December 15, 1998, among the Company,
the Banks from time to time party thereto and Bankers Trust Company, as Lead
Arranger and Administrative Agent for such Banks and (y) Section 4.03 of the
Indenture, dated as of December 15, 1998, among the Company, the Guarantors
named therein and United States Trust Company of New York, as trustee, (in each
case as the same may be amended, modified or supplemented from time to time).
5
5
IN WITNESS WHEREOF, this Agreement has been executed all as of
the date first above written.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
---------------------------
Name: John T. Vinke
Title: Chief Financial Officer
J.F. LEHMAN & COMPANY, INC.
By: /s/ Donald Glickman
---------------------------
Name: Donald Glickman
Title: Partner
6
6
Schedule A
MANAGEMENT SERVICES
Strategic planning; development of new products for the U.S. Military
Strategic planning; development of new commercial products
Strategic planning -- marketing
Strategic planning -- other opportunities
Oversight and supervision; contracting and contract compliance
Supervise investor relations
Security compliance
Advice on engineering issues
Application of existing commercial products to military operations
Arrangement/management of domestic bank facilities
Assistance in identifying/retaining key personnel and other service providers
Advice on cash flow management
Advice on potential acquisitions