FIRST SUPPLEMENT TO DEBENTURE PURCHASE AGREEMENT
This FIRST SUPPLEMENT TO DEBENTURE PURCHASE AGREEMENT ("Supplement")
dated as of July 11, 2000, is made and entered into by and between CORPORATE
TECHNOLOGIES USA, INC., a Minnesota corporation ("Company"), and CONVERGENT
CAPITAL PARTNERS I, L.P., a Delaware limited partnership ("Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser entered into that certain
Debenture Purchase Agreement dated as of March 9, 2000 (as the same may be
supplemented or amended from time to time, the "Debenture Agreement")
authorizing the issuance and sale of Debentures in the aggregate original
principal amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000);
and
WHEREAS, Vicom, Incorporated, a Minnesota corporation ("Vicom") owns
all of the issued and outstanding stock of the Company; and
WHEREAS, the parties contemplated that the Company and Vicom may secure
long term financing after execution of the Debenture Agreement; and
WHEREAS, the Company and Vicom now desire to secure such long-term
financing; and
WHEREAS, in accordance with Article 11 of the Debenture Agreement and
to facilitate the Company's long term financing needs, the Purchaser has agreed
to exchange the Debenture for a Junior Secured Debenture issued by the Company
and guaranteed by Vicom upon satisfaction of the following conditions.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained, and for other good an valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, it is agreed as follows:
1. DEFINED TERMS. Capitalized terms used in this Supplement which are
defined in the Debenture Agreement shall have the same meanings as
defined therein, unless otherwise defined herein.
2. AMENDED AND SUPPLEMENTAL DEFINITIONS. Section 12.1 of Article 12 of the
Debenture Agreement is amended by inserting or replacing the following
defined terms:
"Capital Expenditure" means, without duplication, any payment
made directly or indirectly for the purpose of acquiring or
constructing fixed assets, real property or equipment which in
accordance with GAAP would be added as a debit to the fixed asset
account of the Person making such expenditure, including, without
limitation, amounts paid or payable under any conditional sale or other
title retention agreement or under any lease or other periodic payment
arrangement which is of such a nature that payment
obligations of the lessee or obligor thereunder would be required by
GAAP to be capitalized and shown as liabilities on the balance sheet of
such lessee or obligor.
"EBITDA" shall mean for any period of determination, Net
Income for such period, plus the aggregate amounts deducted in
determining Net Income in respect of (a) income taxes for such period,
(b) interest expense for such period, and (c) depreciation and
amortization expense and other non-cash charges for such period, in
each case determined on a consolidated basis in accordance with GAAP.
"Funded Indebtedness" means the sum of the outstanding Senior
Debt plus the outstanding Obligations.
"Guarantor" means Vicom, Incorporated, a Minnesota
corporation.
"Guarantor Security Agreement" means the Security Agreement
dated July11, 2000 executed by the Guarantor in favor of the Purchaser.
"Guaranty" means, collectively, the Guaranty of even date
herewith, executed by the Guarantor in favor of the Purchaser, as
originally executed and as may be amended, modified or supplemented
from time to time by written agreement between the Guarantor and the
Purchaser.
"Net Income" shall mean, for any period of determination, the
net income (but not loss) of the Company and its Subsidiaries for such
period determined in accordance with GAAP, excluding any extraordinary
gains or losses during such period; PROVIDED, HOWEVER, for purposes of
determining Net Income for any period, if under GAAP any Subsidiary is
treated as a consolidated Subsidiary for part of such period, such
Subsidiary shall be deemed to be consolidated Subsidiary for such
entire period.
"Permitted Indebtedness" means (a) any Senior Debt in favor of
the Senior Lender under the Senior Loan Agreement and created pursuant
thereto;(b) any Indebtedness in favor of the Holders under this
Agreement and/or the Other Agreements and created pursuant thereto; (c)
purchase money Indebtedness, operating leases, and Capital Leases
incurred or entered into by the Company to finance the acquisition of
capital assets by the Company (whether pursuant to a loan or a Capital
Lease), provided that such Indebtedness does not exceed One Hundred
Thousand Dollars ($100,000); (d) Indebtedness secured by Permitted
Liens; (e) Indebtedness assumed pursuant to an acquisition permitted
pursuant to the provisions of SECTION 8.3, provided that such
Indebtedness was not entered into, extended or renewed in contemplation
of such acquisition, and provided that the aggregate amount of all such
Indebtedness shall not exceed Fifty Thousand Dollars ($50,000); (f)
Indebtedness consisting of deferred seller financing incurred in
connection with an acquisition permitted pursuant to the provisions of
SECTION 8.3, which Indebtedness is unsecured and subordinated to the
Obligations in a manner which is reasonably acceptable to the
Purchaser; (g) other unsecured Indebtedness not exceeding One Hundred
Thousand Dollars ($100,000) in the aggregate at any time outstanding;
and (h) the other Indebtedness set forth on Schedule 5.10.
2
"Senior Debt" means, at any given time, the Indebtedness
(whether now outstanding or hereafter incurred) of the Company in
respect of the Senior Loan Agreement, in a principal amount not to
exceed Four Million Dollars ($4,000,000) in revolving loans, plus
interest, fees, expenses, indemnities and all other amounts payable
under the Senior Loan Agreement and any notes, security documents,
guaranties or other loan documents referred to therein or pursuant
thereto, secured by all assets of the Company.
"Senior Lender" means Coast Business Credit, a division of
Southern Pacific Bank.
"Senior Loan Agreement" means the [Credit Agreement] between
the Company and the Senior Lender, dated as of [June __, 2000] and all
documents and instruments delivered pursuant thereto in connection with
the loans and advances made thereunder, as amended, restated or
modified from time to time (to the extent permitted hereunder and under
the Subordination Agreement) and including any permitted refinancing or
replacement thereof.
"Senior Loan Documents" means the Senior Loan Agreement and
the agreements, documents and instruments executed in connection
therewith or contemplated thereby, and all amendments thereto.
"Senior Loans" means revolving loans in the maximum principal
amount of Four Million Dollars ($4,000,000) made to the Company by the
Senior Lender under the Senior Loan Agreement and any permitted
replacements and refinancings thereof.
"Subordination Agreement" means the Subordination Agreement
dated as of July __, 2000 by and among the Purchaser, the Senior
Lender, and the Company.
"Termination Date" means the earliest to occur of (a) June 1,
2005, (b) the date on which the Debenture is accelerated pursuant to
SECTION 9, or (c) the date on which the Obligations are paid in full.
3. EXCHANGE DATE. Subject to the terms and conditions set forth herein, as
of July 11, 2000 ("Exchange Date"), the Debenture described in the
Debenture Agreement shall be converted to a Junior Secured Debenture.
4. DESCRIPTION OF DEBENTURE AND COMMITMENT. Section 1.1 of Article 1 of
the Debenture Agreement is deleted in its entirety and replaced with
the following:
1.1 DESCRIPTION OF DEBENTURE. The Company will authorize
the issuance and sale of its Debenture which shall be dated as of the
Exchange Date, shall be in the aggregate original principal amount of
Two Million Two Hundred Fifty Thousand Dollars ($2,250,000), and shall
bear interest at the fixed rate of fourteen percent (14.00%); PROVIDED,
HOWEVER, that upon the occurrence of any Event of Default under
SECTIONS 9.1(a) or (c) (but only if such Event of Default arises from a
failure to comply with SECTION 7.1), and during the continuation
thereof, the unpaid principal amount, and the past due interest, if
any, of the Debenture shall bear interest at the rate of sixteen
3
percent (16%) percent per annum. Interest on the Debenture shall be
computed on the basis of a three hundred sixty (360) day year and paid
for the actual number of days elapsed. The Debenture shall be
substantially in the form attached hereto as EXHIBIT A..
5. PRINCIPAL AND INTEREST PAYMENTS. Section 2.1 of Article 2 of the
Debenture Agreement is deleted and replaced by the following:
2.1. Principal and Interest. PRINCIPAL AND INTEREST
PAYMENTS. Principal and interest on the Debenture shall be due and
payable as follows:
1) Unless otherwise accelerated pursuant to the terms
hereof, principal shall be due and payable on the
first day of each month in equal installments of One
Hundred Two Thousand Two Hundred Seventy-Two and
72/100 Dollars ($102,272.72) commencing August 1,
2003.
2) Interest shall be due and payable (i) monthly in
arrears on the first Business Day of each month,
commencing July 1, 2000, and (ii) on the Termination
Date.
6. OPTIONAL PREPAYMENTS. Section 2.2 of Article 2 of the Debenture
Agreement is deleted in its entirety and replaced with the following:
2.2 OPTIONAL PREPAYMENTS.
1) At the Company's option, upon notice given as
provided below, the Company may, at any time and from
time to time, prepay all or any part of the principal
of the Junior Secured Debenture, by payment to
Purchaser of an amount equal to (i) the principal
amount to be prepaid, plus (ii) accrued unpaid
interest on the principal amount so prepaid, plus
(iii) a premium equal to the percentage of the
principal amount so prepaid which is applicable in
accordance with the following table based on the date
on which such prepayment is made ("Prepayment
Premium"):
PREPAYMENT DATE PREMIUM
Months 1-12 following the Exchange Date 5%
Months 13-24 following the Exchange Date 4%
Months 25-36 following the Exchange Date 3%
Month 37 following the Exchange Date and thereafter 0%
Each prepayment under this SECTION 2.2 shall be applied first
to accrued interest and premium (if any) on the principal amount
prepaid, second to installments of principal to be applied in inverse
order of maturity, and third to any expenses and/or damages to which
Purchaser may be entitled. The amount of
4
any such prepayment may not be reborrowed by the Company. The Company
shall give notice of any optional prepayment to Purchaser not less than
fifteen (15) days nor more than thirty (30) days before the date for
prepayment, specifying in each such notice the date upon which
prepayment is to be made and the principal amount (together with
accrued interest and any applicable Prepayment Premium) to be prepaid
on such date. Notice of prepayment having been so given, the applicable
prepayment amount shall become due and payable on the specified
prepayment date. The Company shall have no right to prepay the Junior
Secured Debenture except as provided in this SECTION 2.2 or in SECTION
2.3.
7. AFFIRMATIVE COVENANTS.
1) Section 7.19 is deleted in its entirety and replaced with the
following:
7.19. SBIA INFORMATION. The Company will:
(a) as soon as reasonably practical,
but in any event within twenty (20) days after the
request of the Purchaser, furnish to the Purchaser
all information necessary in order for the Purchaser
to prepare and file SBA Form 468 and other
information requested or required by any governmental
authority asserting jurisdiction over the Purchaser;
(b) as soon as reasonably practical
after the written request of the Purchaser, confirm
the use of the proceeds as described in SECTION 1.3
above; and
(c) with reasonable promptness, provide
such information as from time to time the Purchaser
may request to enable the Purchasers to comply with
the SBIA.
2) A new Section 7.20 and 7.21 shall be inserted at the end of
Article 7 of the Debenture Agreement:
7.20 SBIA COMPLIANCE.
(a) So long as the Purchaser is an SBIC
(i) without the prior written consent of such
Purchaser, the Company will not use the proceeds from
the sale of the Junior Secured Debentures for any
purpose other than as set forth in SECTION 1.3 above,
(ii) the Company will not use the proceeds from the
sale of the Junior Secured Debentures for any
prohibited purposes set forth in SECTION 1.3, (iii)
the Company will not change its business activity in
any manner which, by reason of such change in
business activity, would cause the Company to fall
within a different SIC Code and thereby render it
ineligible as a "small business concern" under the
SBIA, and (iv) the Company will at all times comply
with the non-discrimination requirements of 13 CFR
Parts 112, 113 and 117.
5
(b) The Company will at all times
permit the Purchaser and, if necessary, a
representative of the SBA, access to its records and
the Company will provide such information as the
Purchaser may reasonably request in order to verify
compliance with this SECTION 7.20 including, without
limitation, an officer's certificate indicating such
compliance.
(c) As of the Closing and for at least
one year thereafter, at least fifty-one percent (51%)
of the employees (based on total workforce) and
assets (based on the stated value of all tangible
assets reflected on its financial statements) of the
Company, together with its affiliates (as defined in
13 CFR Section 121.103), are and will remain located
within the United States.
7.21 AMENDMENT TO SENIOR LOAN DOCUMENTS. The Company
shall promptly provide Purchaser with copies of all proposed
amendments or modifications to the Senior Loan Documents and
of all other loan agreements to which the Company is a party;
8. FINANCIAL COVENANTS. A new Section 8.10 shall be inserted at the end of
Article 8 of the Debenture Agreement:
8.10 FINANCIAL COVENANTS
1) MINIMUM LEVERAGE RATIO. The Company shall not allow
the ratio of its Consolidated EBITDA (less cash
Capital Expenditures) to the current portion of its
Funded Indebtedness for the applicable period to be
less than the amounts set forth in Schedule 8.10(a)
for the applicable period identified therein.
2) SENIOR DEBT. The Company shall not allow the Senior
Debt to exceed Four Million Dollars ($4,000,000).
9. EVENT OF DEFAULT. The following shall be inserted as a new subparagraph
(m) under Article 9, Section 9.1 of the Debenture Agreement:
(m) The Company or Guarantor shall fail to pay,
when due (whether upon acceleration or otherwise), any
principal, interest or other sums payable under the Senior
Loan Documents; or
10. SECURITY FOR JUNIOR SECURED DEBENTURE. The Junior Secured Debenture
will be secured by the same Collateral securing the Debenture and is
guaranteed pursuant to the Guaranty; PROVIDED, HOWEVER, that the
Purchaser will execute the Subordination Agreement.
11. ADDITIONAL WARRANTS. Section (d) of Article 11 of the Debenture
Agreement is deleted and replaced by the following:
(d) ADDITIONAL WARRANTS. On the Exchange Date, Vicom
shall execute a warrant agreement (the "Additional Warrant Agreement")
in form and substance
6
acceptable to the Purchaser pursuant to which Vicom will issue seven
(7) year detachable warrants to the Purchaser. The Additional Warrant
Agreement shall provide that the Purchaser may purchase Fifty Thousand
(50,000) shares of Vicom's common stock on and after the Exchange Date,
and an additional Thirty Thousand (30,000) shares of Vicom's common
stock on and after the first anniversary of the Exchange Date, and an
additional Thirty Thousand (30,000) shares of Vicom's common stock on
the second anniversary of the Exchange Date. The exercise price shall
be seventy-five percent (75%) of the seven-day average trading price of
Vicom's common stock at each issue date. The Additional Warrant
Agreement shall be executed and delivered to the Purchaser even if the
Company or Vicom determines to prepay the Junior Secured Debenture.
12. CONDITIONS TO EFFECTIVENESS. This Supplement and its effectiveness are
contingent upon the payment by the Company to the Purchaser of its
attorneys fees incurred in the negotiation, preparation and execution
of this Agreement and the Additional Warrant Agreement, and all
out-of-pocket costs incurred by the Bank in connection therewith, as
well as receipt by the Purchaser of the following, each to be in form
and substance satisfactory to the Purchaser, unless otherwise agreed in
writing by the Purchaser:
a. This Supplement duly executed by the Company;
b. The Guaranty, duly executed by an officer of the Guarantor;
c. The Junior Secured Debenture, duly executed by the Company;
d. The Additional Warrant Agreement dated of even dated herewith
duly executed by the Company;
e. Evidence of authorization by the Company's Board of Directors
of execution of this Agreement by the Company and of the
transaction contemplated by this Agreement and any related
documents and agreements;
f. The Company shall pay to Purchaser all expenses related to the
Long-Term Investment including, without limitation,
accountant's fees, legal fees, filing fees,. insurance, fees
for searches on account of the Company, and such further
amounts as shall be sufficient to cover the cost and expenses
incurred by Purchaser with respect to the Long-Term
Investment;
g. A Certificate of the Secretary of the Company certifying as to
(i) the resolutions of the board of directors of the Company
approving the execution and delivery of this Supplement, (ii)
the fact that the articles of incorporation and bylaws of the
Company, which were certified and delivered to the Purchaser
pursuant to the Certificate of Authority of the Company's
secretary or assistant secretary dated as of March 9, 2000 in
connection with the execution and delivery of the Debenture
Agreement continue in full force and effect and have not been
amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the
officers and agents of the Company who have been certified to
the Purchaser, pursuant to the Certificate of Authority of the
7
Company's secretary or assistant secretary dated as of March
9, 2000, as being authorized to sign and to act on behalf of
the Company continue to be so authorized or setting forth the
sample signatures of each of the officers and agents of the
Company authorized to execute and deliver this Supplement and
all other documents, agreements and certificates on behalf of
the Company;
h. A certified copy of the resolutions of the Boards of Directors
of the Guarantor authorizing or ratifying the transactions
contemplated hereby, and the execution, delivery and
performance of the Guaranty and other agreements to which it
is a party, and designating the officers authorized to execute
such documents and to perform the obligations of such
Guarantor thereunder;
i. An opinion of the Company's counsel as to the matters set
forth in Section 13 hereof and as to such other matters as the
Purchaser shall require;
j. The Purchaser's investment committee shall have approved the
Long-Term Investment; and
k. Such other documents, actions and information as the Purchaser
may reasonably request.
13. ADDITIONAL REPRESENTATIONS AND WARRANTIES. In addition to the
Representations and Warranties contained in the Debenture Agreement,
the Company hereby represents and warrants to the Purchaser as follows:
a. The Company has all requisite power and authority to execute
this Supplement, the Junior Secured Debenture, and the
Additional Warrant Agreement and to perform all of its
obligations hereunder, and this Supplement and the Additional
Warrant Agreement have been duly executed and delivered by the
Company and constitute legal, valid and binding obligations of
the Company, enforceable in accordance with their terms;
b. The execution, delivery and performance by the Company of this
Supplement and the Additional Warrant Agreement have been duly
authorized by all necessary corporate action and do not (i)
require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation or of any order,
writ, injunction or decree presently in effect, having
applicability to the Company, or the articles of incorporation
or by-laws of the Company, or (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Company is a party or by which it or its properties may be
bound or affected;
c. As of the Exchange Date, no Default or Event of Default has
occurred and is continuing;
d. As of the Exchange Date, there has been no occurrence or event
which has or could have a Material Adverse Effect;
8
e. All representations and warranties contained in this
Supplement, the Debenture Purchase Agreement, and the Other
Agreements are true and correct as of the Exchange Date as
though made on and as of such date, except to the extent that
such representations and warranties relate solely to an
earlier date.
f. The Company will use the proceeds from the sale of the Junior
Secured Debentures for the purposes set forth on Schedule 1.3
of the Debenture Agreement. No portion of the proceeds from
the sale of the Junior Secured Debenture (a) will be used to
provide capital to an SBIC, (b) will be used outside the
United States (except (i) to acquire materials and industrial
property rights abroad for a domestic operation or (ii) as may
be transferred to a controlled foreign subsidiary, so long as
at least fifty-one percent (51%) of the assets, employees and
activities of the Company will remain within the United
States), or (c) will be used for any purpose "contrary to the
public interest (including but not limited to activities which
are in violation of law) or inconsistent with free competitive
enterprise", within the meaning of 13 CFR Section 107.720. The
Company's primary business activity do not involve, directly
or indirectly, providing funds to others, purchasing or
discounting debt obligations, factoring or long-term leasing
of equipment with no provision for maintenance or repair, and
the Company is not classified under Major Group 65 (Real
Estate) of the Standard Industrial Classification Manual
prepared by the Office of Management and Budget.
14. REFERENCES. All references in the Debenture Agreement to "this
Agreement" shall be deemed to refer to the Debenture Agreement as
amended and supplemented hereby; and any and all references in the
Other Agreements to the Debenture Agreement shall be deemed to refer to
the Debenture Agreement as amended hereby. All references in the
Debenture Agreement or in any other of the Other Agreements to the
Warrant shall hereafter be deemed to refer to the Warrant and
Additional Warrant, as the same may be amended from time to time.
15. NO WAIVER. The execution of this Supplement and acceptance of the
Junior Secured Debentures and any documents related hereto shall not be
deemed to be a waiver of any Default or Event of Default under the
Debenture Agreement or breach, default or event of default under any
Other Agreement held by the Purchaser, whether or not known to the
Purchaser and whether or not existing on the date of this Supplement.
16. RELEASE. The Company hereby absolutely and unconditionally releases and
forever discharges the Purchaser, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations,
insurers, indemnitors, successors and assigns thereof, together with
all of the present and former directors, officers, agents and employees
of any of the foregoing, from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law or
equity or upon contract or tort or under any state or federal law or
otherwise, which the Company has had, now has or has made claim to have
against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and
including the
9
date of this Supplement, whether such claims, demands and causes of
action are matured or unmatured or known or unknown.
17. COSTS AND EXPENSES. The Company hereby reaffirms its agreement under
the Debenture Agreement to pay or reimburse the Purchaser on demand for
all costs and expenses incurred by the Purchaser in connection with the
Debenture Agreement and the Other Agreements contemplated thereby,
including without limitation all reasonable fees and disbursements of
legal counsel. Without limiting the generality of the foregoing, the
Company specifically agrees to pay all fees and disbursements of
counsel to the Purchaser for the services performed by such counsel in
connection with the preparation of this Supplement and the documents
and instruments incidental hereto.
18. MISCELLANEOUS. This Supplement may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
19. NO OTHER CHANGES. Except as explicitly amended by this Supplement, all
of the terms and conditions of the Debenture Agreement shall remain in
full force.
[Signature Pages Follow]
10
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed as of the day and year first above written above.
CONVERGENT CAPITAL PARTNERS I, L.P., CORPORATE TECHNOLOGIES USA, INC.,
a Delaware limited partnership a Minnesota corporation
By: CONVERGENT CAPITAL, LLC
Its: General Partner
By: By:
----------------------------------- -----------------------------------
Name: Name:
--------------------------------- ---------------------------------
Its: Its:
---------------------------------- ----------------------------------
11
SCHEDULE 8.10(a)
TO
FIRST SUPPLEMENT TO DEBENTURE PURCHASE AGREEMENT
MINIMUM LEVERAGE RATIO
Third Quarter - 2000 1.00:1.00
Fourth Quarter - 2000 1.20:1.00
First Quarter - 2001 1.35:1.00
Second Quarter - 2001 1.50:100
Third Quarter - 2001 1.65:1.00
Fourth Quarter - 2001 1.80:100
First Quarter 2002 2.00:1.00
Second Quarter - 2002 2.20:1.00
Third Quarter - 2002 2.40:1.00
Fourth Quarter - 2002 2.65:1.00
First Quarter 2003 2.90:1.00
Second Quarter - 2003 3.20:1.00
Third Quarter - 2003 3.50:1.00
and each quarter thereafer
