EXHIBIT 10.11
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (this "First Amendment"),
dated as of September 17, 2004, is by and among DIRECTED ELECTRONICS, INC., a
California corporation ("Company"), DEI HOLDINGS, INC., a Florida corporation
("Holdings"), and DEI HEADQUARTERS, INC., a Florida corporation ("Headquarters",
and together with Company and Holdings, the "Loan Parties"), the note purchasers
that are now and hereafter at any time parties to the Note Purchase Agreement,
as defined below, (each a "Purchaser" and collectively, "Purchasers"), and
AMERICAN CAPITAL FINANCIAL SERVICES, INC., a Delaware corporation, as
administrative agent for Purchasers (in such capacity "Agent").
WITNESSETH
WHEREAS, the Loan Parties, Purchasers and Agent are parties to that certain
Note Purchase Agreement dated as of June 17, 2004 (as amended, modified,
supplemented or restated from time to time, the "Note Purchase Agreement";
capitalized terms used herein shall have the meanings ascribed thereto in the
Note Purchase Agreement unless otherwise defined herein);
WHEREAS, Holdings has agreed to purchase the assets (the "Acquired Assets")
of Definitive Technology LLP, a Maryland limited liability partnership
("Definitive") pursuant to the terms of that certain DT Purchase Agreement (as
defined in Section 2.1(a), below) by and among Holdings, Definitive, Xxxxx
Xxxxx, Xxxxxx Xxxxxxx and Xxxxxx Xxxxx for an aggregate amount, including (i)
all related fees and expenses, (ii) a working capital adjustment in an amount
not to exceed $1,000,000 and (iii) the DT Deferred Payment (as defined in
Section 2.1(a), below), not exceeding $54,000,000, with the Acquired Assets to
be acquired from Definitive by Company and Headquarters (the "DT Acquisition");
WHEREAS, the Loan Parties have requested that Agent and Purchasers waive
the prohibition under Section 7.2(p) of the Note Purchase Agreement (i) to allow
Holdings to enter into and consummate the transactions contemplated by the DT
Purchase Agreement (with Company and Headquarters actually acquiring the
Acquired Assets), and (ii) to allow Holdings to issue shares of its common stock
to Trivest and its assigns in connection with the DT Acquisition (the "Trivest
Stock Issuance");
WHEREAS, the Loan Parties have requested that Agent and Purchasers waive
the terms of Sections 7.1(a), 7.2(e) and 7.2(j) of the Note Purchase Agreement
to allow Company to change its domicile of incorporation to Florida (the
"Redomestication");
WHEREAS, the Company has requested an increase of the Term Loan Committed
Amount (as defined in the Senior Credit Agreement) in an aggregate principal
amount not to exceed $45,000,000 for purposes of funding the DT Acquisition (the
"Term Loan Increase");
WHEREAS, the Loan Parties have requested that Agent and Purchasers permit
the DT Acquisition, the Redomestication, the Trivest Stock Issuance, and the
Term Loan Increase and agree to certain modifications to the terms of the Note
Purchase Agreement in connection therewith;
WHEREAS, Agent and Purchasers have agreed to permit the DT Acquisition, the
Redomestication, the Trivest Stock Issuance, and the Term Loan Increase, and
amend the Note Purchase Agreement in connection therewith, in each case on the
terms and conditions set forth herein; and
WHEREAS, the Loan Parties have requested that Agent and Purchasers agree to
an extension, and Agent and Purchasers have agreed to extend, the period by
which the Loan Parties shall have obtained the Key-Man Insurance.
NOW, THEREFORE, in consideration of the agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1
WAIVER
1.1 Agent and Purchasers hereby waive Sections 7.1(a), 7.2(e) and 7.2(j) of
the Note Purchase Agreement to the extent the same prohibits the
Redomestication.
1.2 Agent and Purchasers hereby waive Section 7.2(f) of the Note Purchase
Agreement to the extent that same prohibits the Company from paying Trivest a
one-time fee of $1,450,000 pursuant to Section 6(c)(i) of the Management
Agreement at the closing of the DT Acquisition (subject, however, to Trivest
waiving any increase in the "Base Compensation" otherwise required by Section
6(b) of the Management Agreement in connection with the DT Acquisition).
1.3 Agent and Purchasers hereby waive Section 7.2(p) of the Note Purchase
Agreement to the extent the same prohibits Holdings from executing, delivering,
and performing the obligations of the DT Purchase Agreement and to the extent
the same prohibits the Trivest Stock Issuance.
1.4 Except for the specific waivers set forth herein, nothing contained
herein shall be deemed to constitute a waiver of (i) any rights or remedies
Agent or any Purchaser may have under the Note Purchase Agreement or any other
Purchase Document or under applicable law or (ii) the Loan Parties' obligation
to comply fully with any duty, term, condition, obligation or covenant contained
in the Note Purchase Agreement and the other Purchase Documents not specifically
waived. The specific waivers set forth herein are one-time waivers and shall be
effective only in this specific instance and shall not obligate Agent or
Purchasers to waive any Default or Event of Default, now existing or hereafter
arising.
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SECTION 2
AMENDMENTS
2.1 AMENDMENTS TO SECTION 1.1.
(a) The following definitions are hereby added to the Note Purchase
Agreement to read as follows:
"DT Acquisition" shall mean the acquisition by Company and
Headquarters of substantially all of the assets of DT Seller for an
aggregate amount, including (i) all related fees and expenses, (ii) a
working capital adjustment in an amount not to exceed $1,000,000 and (iii)
the DT Deferred Payment, not exceeding $54,000,000, consummated pursuant to
the terms of the DT Purchase Agreement.
"DT Deferred Payment" shall mean the deferred payment in an aggregate
amount not to exceed $2,000,000 paid or payable pursuant to the DT Purchase
Agreement.
"DT Purchase Agreement" shall mean, that certain Asset Purchase
Agreement, dated as of the First Amendment Effective Date, by and among
Holdings, the DT Seller, Xxxxx Xxxxx, Xxxxxx Xxxxxxx and Xxxxxx Xxxxx.
"DT Seller" shall mean Definitive Technology, LLP, a Maryland limited
liability partnership.
"First Amendment Effective Date" shall mean September 17, 2004.
(b) The definition of "Consolidated EBITDA" in Section 1.1 of the Note
Purchase Agreement is hereby amended and restated in its entirety as follows:
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (a) Consolidated Net Income plus, to the extent deducted
in determining Consolidated Net Income, (i) Consolidated Interest Expense,
(ii) provisions for taxes based on income, (iii) total depreciation
expense, (iv) total amortization expense, (v) management fees paid to
Trivest pursuant to the Management Agreement to the extent permitted by
Section 7.2(f), (vi) other non-recurring and non-cash items reducing
Consolidated Net Income in an aggregate amount not to exceed $3,000,000,
(vii) other one time add-backs set forth on Annex C attached hereto (it
being understood that such one-time add-backs shall roll-off on a quarterly
basis and shall not affect Consolidated EBITDA after one year following the
Closing Date) and (viii) other one time add-backs related to the DT Seller
set forth on Annex D attached hereto (it being understood that such one
time add backs shall roll-off on a quarterly basis and shall not affect
Consolidated EBITDA after one year following the First Amendment Effective
Date, less (b) interest income and any non-operating, non-recurring and
non-operating, non-cash items increasing Consolidated Net Income, all of
the foregoing as determined on a
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consolidated basis for the Loan Parties in conformity with GAAP; provided
that in calculating any such items for such period, any Asset Sales or
other acquisitions or dispositions of assets during such period shall have
been deemed to have occurred on the first day of such period.
(c) The definition of "Permitted Acquisition" in Section 1.1 of the Note
Purchase Agreement is hereby amended and restated in its entirety as follows:
"Permitted Acquisition" shall mean (a) the DT Acquisition and (b) an
acquisition or any series of related acquisitions by a Loan Party of (i)
all or substantially all of the assets or a majority of the outstanding
voting stock or economic interests of a Person that is incorporated, formed
or organized in the United States or Canada or (ii) any division, line of
business or other business unit of a Person that is incorporated, formed or
organized in the United States or Canada (such Person or such division,
line of business or other business unit of such Person shall be referred to
herein as the "Target"), in each case that is a type of business (or assets
used in a type of business) permitted to be engaged in by the Loan Parties
pursuant to Section 7.2(l) hereof, so long as (A) no Default or Event of
Default shall then exist or would exist after giving effect thereto, (B)
Company shall demonstrate to the reasonable satisfaction of Agent and the
Required Purchasers that, after giving effect to the acquisition on a pro
forma basis (giving effect to adjustments for owner compensation for such
period, documented to the reasonable satisfaction of Agent, to the extent
such compensation does not continue after such acquisition) (I) the
Consolidated Total Leverage Ratio shall be less than or equal to the ratio
that is 0.25 lower than the Consolidated Total Leverage Ratio then required
under Section 7.3 and (II) the Loan Parties are in compliance with each of
the financial covenants set forth in Section 7.3, (C) the Target shall have
earnings before interest, taxes, depreciation and amortization for the four
fiscal quarter period prior to the acquisition date in an amount greater
than $0, as adjusted for owner compensation for such period, documented to
the reasonable satisfaction of the Agent, to the extent such compensation
does not continue after such acquisition (provided that the aggregate
consideration paid by the Loan Parties shall not exceed $5,000,000 for any
Target which, but for such owner compensation adjustment, would have
negative earnings for such period), (D) such acquisition shall not be a
"hostile" acquisition and shall have been approved by the board of
directors and/or shareholders of the applicable Loan Party and the Target,
(E) the Company shall have provided at least ten (10) days prior written
notice of such acquisition to Agent, (F) after giving effect to such
acquisition, there shall be at least $5,000,000 of borrowing availability
under the revolver facility pursuant to the Senior Financing and (G) the
aggregate consideration (including without limitation equity consideration,
earn outs or deferred compensation or non-competition arrangements and the
amount of Indebtedness and other liabilities assumed by the Loan Parties)
paid by the Loan Parties (I) in connection with any such acquisition of a
Target organized in Canada shall not exceed $7,000,000, (II) in connection
with any such acquisition shall not exceed $10,000,000 and (III) for all
acquisitions (other than the DT Acquisition) made during any twelve month
period shall not exceed $20,000,000.
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2.2 AMENDMENT TO SECTION 7.1(C)(II). Section 7.1(c)(ii) of the Note
Purchase Agreement is amended such that the reference in the first sentence to
"ninety (90) calendar days" is hereby deleted and replaced with "one hundred
thirty-five (135) calendar days".
2.3 AMENDMENT TO SECTION 7.2(A)(II). Section 7.2(a)(ii) of the Note
Purchase Agreement is amended such that the reference to "$150,000,000" is
hereby deleted and replaced with "$195,000,000".
2.4 AMENDMENT TO SECTION 7.2(G). A new clause (vi) is hereby added to
Section 7.2(g) of the Note Purchase Agreement to read as follows:
(vi) Company may dividend up to $2,000,000 to Holdings to pay the DT
Deferred Payment in accordance with the terms of the DT Purchase Agreement.
2.5 AMENDMENT TO SECTION 7.3. Sections 7.3(a) of the Note Purchase
Agreement is hereby amended and restated in its entirety to read as follows:
(a) (i) Maximum Consolidated Total Leverage Ratio. The Loan Parties
shall not permit the Consolidated Total Leverage Ratio as of the last day of any
Fiscal Quarter ending during any of the periods set forth below to exceed the
correlative ratio indicated:
Period Maximum Consolidated Total Leverage Ratio
------ -----------------------------------------
July 1, 2004 to June 30, 2005 6.0 to 1.0
July 1, 2005 to June 30, 2006 5.5 to 1.0
July 1, 2006 to June 30, 2007 5.0 to 1.0
July 1, 2007 to June 30, 2008 4.0 to 1.0
July 1, 2008 and thereafter 3.5 to 1.0
(ii) Maximum Consolidated Senior Leverage Ratio. The Loan Parties
shall not permit the Consolidated Senior Leverage Ratio as of the last day of
any Fiscal Quarter ending during any of the periods set forth below to exceed
the correlative ratio indicated:
Period Maximum Consolidated Senior Leverage Ratio
------ ------------------------------------------
Closing Date to March 31, 2005 4.4 to 1.0
April 1, 2005 to September 30, 2005 4.0 to 1.0
October 1, 2005 to June 30, 2006 3.5 to 1.0
July 1, 2006 and thereafter 3.0 to 1.0
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(iii) Minimum Fixed Charge Coverage Ratio. The Loan Parties shall not
permit the ratio of (A) Consolidated EBITDA minus Consolidated Capital
Expenditures to (B) Consolidated Fixed Charges for any four consecutive Fiscal
Quarter periods ending during the term of this Agreement (excluding the Fiscal
Quarter period ending on June 30, 2004) to be less than 1.05 to 1.0.
2.6 AMENDMENT TO ANNEXES AND SCHEDULES OF THE NOTE PURCHASE AGREEMENT.
Annex D attached hereto as Exhibit A is hereby added to the Note Purchase
Agreement. To the extent the Loan Parties are required to amend Schedules
5.1(a), 5.1(q) or 5.1(r) to the Note Purchase Agreement due to the DT
Acquisition, Agent and the Purchasers agree that the Loan Parties may deliver
such amended schedules to the Agent no later than 10 Business Days after the
date hereof.
SECTION 3
CLOSING CONDITIONS
3.1 CONDITIONS PRECEDENT. This First Amendment shall become effective as of
the date hereof upon the receipt by Agent of the following:
(a) Executed Agreement. Receipt by Agent of a duly executed signature
page to the First Amendment to the Note Purchase Agreement from each of the
Loan Parties, Agent and Purchasers;
(b) Consents. All consents and approvals of the boards of directors,
shareholders, governmental authorities and other applicable third parties
necessary in connection with the DT Acquisition and the financing thereof
shall have been obtained;
(c) Acquisition Documents. All documentation related to the DT
Acquisition (including without limitation the DT Purchase Agreement and all
schedules thereto) shall have been duly executed and delivered by the
parties thereto, shall be satisfactory in form and substance to Agent and
the DT Acquisition shall have been consummated in accordance with such
terms, and the Agent shall have received a copy of the DT Purchase
Agreement and all other documentation related thereto, certified as true,
correct and complete by an officer of Company;
(d) Joinder Agreements. Any new Subsidiaries of the Loan Parties (each
a "New Subsidiary") created or acquired in connection with the DT
Acquisition shall have entered into a joinder agreement (the "Joinder
Agreement") to the Note Purchase Agreement and to the other Purchase
Documents whereby each such New Subsidiary shall become a Loan Party
contemporaneously with or promptly after such entity becomes a Subsidiary
of a Loan Party, on terms reasonably satisfactory to Agent;
(e) Authority Documents.
(i) Articles of Incorporation; Partnership Agreement. Copies of
the articles of incorporation, partnership agreement or other charter
documents of
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each New Subsidiary certified to be true and complete as of a recent
date by the appropriate Governmental Authority of the state of its
organization or formation;
(ii) Officer's Certificates. Copies of the articles of
incorporation, partnership agreement, or other charter documents of
each Loan Party certified by an officer of such Loan Party, as of the
First Amendment Effective Date, to be true and correct, in force and
effect, and complete as of such date;
(iii) Resolutions. Copies of resolutions of the board of
directors or other comparable governing body of each Loan Party and
each New Subsidiary approving and adopting this Amendment (and, with
respect to each New Subsidiary, the Joinder Agreement and the other
Purchase Documents), the transactions contemplated herein (and
therein) and authorizing execution and delivery hereof (and thereof),
certified by an officer of such Loan Party or such New Subsidiary, as
applicable, as of the First Amendment Effective Date to be true and
correct and in force and effect as of such date;
(iv) Bylaws. A copy of the bylaws or other operating agreement of
each Loan Party and each New Subsidiary certified by an officer of
such Loan Party or such New Subsidiary, as applicable, as of the First
Amendment Effective Date to be true and correct and in force and
effect as of such date;
(v) Good Standing. Copies of (i) certificates of good standing,
existence or its equivalent with respect to each Loan Party and each
New Subsidiary certified as of a recent date by the appropriate
Governmental Authorities of the state of incorporation and each other
state in which such Loan Party or such New Subsidiary, as applicable,
is qualified to do business and (ii) to the extent readily available,
a certificate indicating payment of all corporate and other franchise
taxes certified as of a recent date by the appropriate governmental
taxing authorities; and
(vi) Incumbency. An incumbency certificate of each Loan Party and
each New Subsidiary certified by a secretary or assistant secretary of
such Loan Party or such New Subsidiary, as applicable, to be true and
correct as of the First Amendment Effective Date;
(f) Corporate Structure. The corporate and capital structure and the
management of the Loan Parties after giving effect to the DT Acquisition
and the financing thereof, and all legal, tax, accounting, environmental
and other matters relating to the Loan Parties after giving effect thereto,
shall be reasonably satisfactory in all material respects to Agent;
(g) Material Adverse Change. No material adverse change shall have
occurred in the business, properties, operations or condition (financial or
otherwise) of the Loan Parties taken as a whole;
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(h) Litigation and Bankruptcy. There shall be no material pending or
overtly threatened litigation, bankruptcy or insolvency, injunction, order
or claim with respect to any of the Loan Parties that would have a Material
Adverse Effect;
(i) Existing Indebtedness. All of the existing indebtedness for
borrowed money associated with the Acquired Assets shall be repaid in full
and all liens relating thereto extinguished (or arrangements satisfactory
to Agent shall have been made therefor) on or prior to the date hereof;
(j) Legal Opinions. The Company shall deliver opinions of counsel
(including local counsel opinions) in form and substance reasonably
acceptable to Agent;
(k) Financial Statements. All financial statements (including, without
limitation, (i) unaudited financials of Definitive's historical results for
the years ended December 31, 2001, 2002 and 2003, (ii) unaudited financials
for the six (6) month period ending June 30, 2004 and (iii) seven-year
projections requested by Agent) shall have been delivered and be in form
and substance reasonably satisfactory thereto;
(l) Financial Covenants. Immediately after giving effect to the DT
Acquisition, the financing thereof and the other transactions contemplated
hereby, (i) the Consolidated Total Leverage Ratio of the Loan Parties,
calculated on a pro forma basis as of July 31, 2004, shall not exceed 5.15
to 1.0 and (ii) the Consolidated Senior Leverage Ratio of the Loan Parties,
calculated on a pro forma basis as of July 31, 2004, shall not exceed 3.55
to 1.0;
(m) EBITDA. Immediately after giving effect to the DT Acquisition, the
financing thereof and the other transactions contemplated hereby,
Consolidated EBITDA of the Loan Parties, calculated on a pro forma basis as
of July 31, 2004 shall be not less than $45,000,000;
(n) Equity Contribution. The Company shall have received cash proceeds
from the Trivest Equity Issuance in an aggregate amount not less than
$6,000,000 on terms and conditions satisfactory to Agent;
(o) Waiver of Base Compensation. Trivest shall deliver evidence that
it has waived any increase in the "Base Compensation" otherwise required by
Section 6(b) of the Management Agreement in connection with the DT
Acquisition;
(p) Fees and Expenses. Agent and Purchasers shall have received from
the Company the aggregate amount of fees and expenses payable in connection
with the consummation of the transactions contemplated hereby; and
(q) Senior Financing. Agent shall have received satisfactory evidence
that the Senior Lenders shall have approved the DT Acquisition and made
such amendments as are necessary thereunder to permit the transactions
contemplated hereby, and the Company shall have received aggregate cash
proceeds from the applicable Senior Lenders of $45 million pursuant to the
Term Loan Increase on terms and conditions satisfactory to Agent.
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SECTION 4
MISCELLANEOUS
4.1 AMENDED TERMS. The term "Note Purchase Agreement" as used in each of
the Purchase Documents shall hereafter mean the Note Purchase Agreement as
amended by this First Amendment. Except as specifically amended hereby or
otherwise agreed, the Note Purchase Agreement is hereby ratified and confirmed
and shall remain in full force and effect according to its terms.
4.2 REPRESENTATIONS AND WARRANTIES OF LOAN PARTIES. The Loan Parties hereby
represent and warrant as follows:
(a) Each Loan Party has taken all necessary action to authorize the
execution, delivery and performance of this First Amendment.
(b) This First Amendment has been duly executed and delivered by such
Person and constitutes such Person's legal, valid and binding obligations,
enforceable in accordance with its terms, except as such enforceability may
be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting creditors'
rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in
equity).
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority or
third party is required in connection with the execution, delivery or
performance by such Person of this First Amendment.
(d) After giving effect to this First Amendment and the transactions
contemplated hereby (including the DT Acquisition), the representations and
warranties set forth in Section 5 of the Note Purchase Agreement are,
subject to the limitations set forth therein, true and correct in all
respects as of the date hereof (except for those which expressly relate to
an earlier date).
(e) After giving effect to this First Amendment and the transactions
contemplated hereby (including the DT Acquisition), no Default or Event of
Default has occurred and is continuing.
4.3 PURCHASE DOCUMENT. This First Amendment shall constitute a Purchase
Document under the terms of the Note Purchase Agreement and shall be subject to
the terms and conditions thereof (including, without limitation, Sections 11.9
and 11.10 of the Note Purchase Agreement).
4.4 ENTIRETY. This First Amendment and the other Purchase Documents embody
the entire agreement between the parties hereto and supersede all prior
agreements and understandings, oral or written, if any, relating to the subject
matter hereof.
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4.5 COUNTERPARTS. This First Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument.
4.6 GOVERNING LAW. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
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SIGNATURE PAGE TO
FIRST AMENDMENT TO THE NOTE PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
LOAN PARTIES:
DIRECTED ELECTRONICS, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title:
---------------------------------
DEI HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title:
---------------------------------
DEI HEADQUARTERS, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title:
---------------------------------
AGENT:
AMERICAN CAPITAL FINANCIAL
SERVICES, INC.
By: /s/ Xxxxx X. Xxxxx
------------------------------------
Name: Xxxxx X. Xxxxx
Title: Vice President
PURCHASERS:
AMERICAN CAPITAL STRATEGIES, LTD.
By: /s/ Xxxxx X. Xxxxx
------------------------------------
Name: Xxxxx X. Xxxxx
Title: Vice President
AMERICAN CAPITAL STRATEGIES, LTD.
(AS SERVICER TO ACS FUNDING TRUST I)
By: /s/ Xxxxx X. Xxxxx
------------------------------------
Name: Xxxxx X. Xxxxx
Title: Vice President
SIGNATURE PAGE
TO FIRST AMENDMENT TO THE NOTE PURCHASE AGREEMENT
