FIRST AMENDMENT TO SUBORDINATED LOAN
AND INVESTMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of April 18,
2001 by and between COMPUDYNE CORPORATION, a Nevada corporation (the
"Company"), and WILLIAM BLAIR MEZZANINE CAPITAL FUND II, L.P., an
Illinois limited partnership (the "Lender").
RECITALS
A. The Company and the Lender are parties to that certain
Subordinated Loan and Investment Agreement dated November 30, 1998
(the "Loan Agreement").
B. The Company has requested that the Lender consent to certain
proposed transactions pursuant to the Loan Agreement.
C. The Company and the Lender desire to amend certain provisions
of the Loan Agreement.
D. Capitalized terms not defined herein shall have the meaning
ascribed to them in the Loan Agreement.
AGREEMENTS
In consideration of the recitals and the mutual agreements set
forth below, the parties agree:
1. Consent. Subject to the satisfaction of the conditions to
effectiveness set forth in section 3 below, and subject to the
Company's covenant in section 4 below, the Lender hereby consents to:
(a) the acquisition by the Company of $3,000,000 face value
7.5% convertible preferred stock of Tiburon, Inc. ("Tiburon"), and
625,000 shares of Tiburon common stock, for an aggregate purchase price
of $6,000,000 ("Phase I");
(b) the Company entering into an Agreement and Plan of
Merger pursuant to which the Company will acquire the balance of the
outstanding Tiburon common stock at an initial price of $4.80 per
share, subject to adjustment and on the terms and conditions otherwise
described in the letter of intent between the Company and Tiburon dated
December 27, 2000 (as subsequently amended (a) to change the conversion
rights of Tiburon stock option holders, and (b) to provide that the
acquisition of the outstanding Tiburon common stock will be effected by
means of a merger of Tiburon with a wholly-owned subsidiary of the
Company (the "Merger") and that Tiburon shareholders representing
approximately 90% of Tiburon's issued and outstanding common stock
will enter into a "lock-up" shareholders agreement to vote for the
Merger in connection with Phase II); and
(c) the Company's consummation of the Merger ("Phase II").
2. Amendments. Subject to the satisfaction of the conditions
to effectiveness set forth in section 3 below, the Loan Agreement is
hereby amended as follows:
(a) Section 2.3(a) of the Loan Agreement is amended to add
the following at the end of section 2.3(a):
In addition, if the Company intends to consummate Phase
II, the Company shall provide written notice to the Lender
at least 60 days prior thereto (the "Phase II Notice"). The
Lender may, by written notice to the Company (the "Prepayment
Notice") within ten days after the Lender has received the
Phase II Notice, require that the Loan be repaid in full and,
upon receipt of such notice from the Lender, the Company
shall, no later than simultaneously with the closing of the
Phase II transaction, prepay the Loan in full, including
all accrued interest and all other fees, expenses and amounts
payable to the Lender, including the Prepayment Fee. If the
Lender has given the Company notice requiring prepayment of
the Loan and the Company nonetheless fails to repay the Loan,
the Company shall not consummate Phase II. Notwithstanding
the receipt of a Prepayment Notice, if the Company fails to
consummate Phase II, the Company shall not be required to
prepay the Note.
(b) Section 6.5 of the Loan Agreement is amended to read in
its entirety as follows:
6.5 Change Capital Structure. Excluding the transactions
listed on Schedule 6.5, increase or decrease the number of
its authorized shares, or vary or alter the terms, par value
or rights of shares of any class or type of stock, or issue
or agree to issue any capital stock or other securities of
the Company, or any options, warrants or other rights to
acquire such capital stock or other equity securities, or
securities convertible into Common Stock or other equity
securities of the Company, or create any new class of stock
of the Company; provided, however, the Company may issue:
(i) up to 555,000 shares of Common Stock to members of the
Company's management, and an additional 45,000 shares if the
Company's EBITDA for 2001 is greater than $13 million, all on
terms acceptable to the Lender pursuant to an incentive stock
option program to be implemented by the Company, subject to
the Lender's approval, after Closing, and pursuant to the
directors' option plan described on Schedule 6.2; plus (ii)
additional issuances of up to 300,000 shares of Common Stock
in the aggregate, on such terms as the Board of Directors may
approve; plus (iii) the shares of Common Stock issuable in
connection with the consummation of Phase I and Phase II;
plus (iv) 300,000 shares of Common Stock to provide for new
stock option grants for Tiburon personnel after the
completion of Phase II.
(c) The first paragraph of section 6.10 of the Loan Agreement
is amended to read in its entirety as follows:
6.10 Permitted Indebtedness. Create, incur, assume,
guarantee or be or remain liable for, contingently or
otherwise, or suffer to exist any Indebtedness (as defined
below), except: (a) the Senior Debt, as defined below; (b)
the Loan; (c) purchase money indebtedness not to exceed
$300,000, on a consolidated basis, at any time, for capital
expenditures permitted under section 6.12, provided any
related security interest complies with section 6.11(c); (d)
Indebtedness secured by Permitted Liens; (e) Indebtedness
not to exceed $2,100,000 in connection with the IRB financing
contemplated in connection with the Norshield Expansion (as
defined in section 6.12); (f) the Company's obligations under
contract payment and performance bonds entered into in the
ordinary course of business; (g) obligations under any
interest rate, currency or commodity swap agreement, cap
agreement or collar agreement incurred for bona fide hedging
purposes and not for speculation (including, but not limited
to, the interest rate protection required by LaSalle Bank);
(h) Indebtedness of any Subsidiary to the Company or of the
Company to any Subsidiary; (i) Indebtedness described on
Schedule 6.10 and any extension, renewal or refinancing
thereof so long as the principal amount is not increased;
(j) the Company's obligations to indemnify Bruce A. Kelling,
Susan E. Kelling, Thomas V. Dewey and Brookes Dewey in an
aggregate amount not to exceed $4,000,000 in connection with
their indemnification obligations with respect to bid,
payment and performance bonds issued on behalf of Tiburon;
and (k) other Indebtedness, in addition to the Indebtedness
listed above, in an aggregate amount not at any time
exceeding $300,000.
(d) The fourth paragraph of section 6.10 of the Loan
Agreement is amended to read in its entirety as follows:
(i) that portion of the principal amount of the indebtedness
of the Company to LaSalle Bank in excess of $24,500,000,
which amount shall be reduced in such increments and at such
times as correspond to the reduction in principal of the
Company's term loan with LaSalle Bank and to the reductions
in availability under the LaSalle Bank revolving loan;
(e) The table in section 6.12 of the Loan Agreement is
amended to read as follows:
Computation Capital
Period Expenditure Limit
------ -----------------
Fiscal Year 2001 $2,000,000
Fiscal Year 2002 $2,250,000
Fiscal Year 2003 $2,500,000
Fiscal Year 2004 $2,750,000
Fiscal Year 2005 $3,000,000
(f) Section 6.14 of the Loan Agreement is amended to read in
its entirety as follows:
6.14 Operating Leases. Create or assume any commitment to
make any direct or indirect payment whether as rent or
otherwise under any lease, rental or other arrangement for
use of real or personal property or both having a
noncancellable term of more than five years with aggregated
payments under such arrangements, on a consolidated basis,
exceeding $3,000,000 in any fiscal year of the Company plus
$800,000 in respect of all vehicle leases outstanding at any
time.
(g) A new section 6.17(d) is added to the Loan Agreement to
read in its entirety as follows:
(d) Indebtedness Ratio. Permit the Company's
Indebtedness Ratio (as defined below) to be greater than 4.0
for any Computation Period. "Indebtedness Ratio" means, for
any Computation Period, the ratio of (i) Indebtedness (as
defined in section 6.10) on the last day of such Computation
Period to (ii) EBITDA for such Computation Period.
(h) A new section 10.12 is added to the Loan Agreement to
read in its entirety as follows:
10.12 Put Option.
(a) The occurrence of any of the following shall
constitute a "Put Event" hereunder: (i) the consummation
of Phase II by the Company, or (ii) the repayment, on a
cumulative basis, of 50% or more of the original principal
amount of the Loan.
(b) The Company shall give to the Lender written
notice (a "Put Event Notice") not less than 60 days prior
to any Put Event. At any time within ten days after the
delivery of a Put Event Notice or, if earlier, the occurrence
of a Put Event, the Lender shall have the right (the "Put")
to require the Company to purchase all, but not less than
all, of the Shares, the Warrant and the Issued Warrant Shares
then held by the Lender by delivering to the Company a
written exercise notice (the "Put Notice"). (The date of
delivery of the Put Notice is herein referred to as the "Put
Notice Date.")
(c) On the Put Payment Date, the Company shall purchase
and the Lender shall sell the Shares, the Warrant and the
Issued Warrant Shares at the Put Price.
(d) On the Put Payment Date, at a mutually agreeable
time and place, the Lender shall deliver to the Company
certificates representing the Shares, the Warrant and the
Issued Warrant Shares and the Company shall pay to the
Lender, by wire transfer in immediately available funds, the
Put Price, as reduced by the Aggregate Exercise Price
attributable to the Warrant. At its option, the Company may
pay all or a portion of the Put Price by issuing to the
Lender, at Closing, a Put Deferral Note, in principal amount
equal to the deferred portion of the Put Price, in the form
attached hereto as Exhibit 10.12.
(e) If the Company shall default in the performance of
its obligations under section 10.12(d) when due on the Put
Payment Date, the Lender shall retain all rights and remedies
arising out of such default and, in addition, the portion
which is not so paid shall bear interest, payable on demand,
from the Put Payment Date until paid at the Default Rate
specified in section 2.2(b).
(f) Upon receipt of the Put Price determination, the
Lender may, by written notice to the Company prior to the Put
Payment Date, rescind the Put Notice. If the Lender rescinds
a Put Notice in connection with a Put Event described in
section 10.12(a)(ii), the Lender shall be liable for the
costs of the appraisal of Total Equity Value.
(g) If the Company has issued a Put Deferral Note, and
if while the Put Deferral Note is outstanding (i) a sale of
50% or more of the capital stock of the Company or a sale of
80% or more of the assets of the Company or a merger or
consolidation of the Company with another entity shall occur
(or the Company or its stockholders have entered into an
agreement or letter of intent regarding any such transaction,
or the Company or its officers or directors have engaged
in discussions with a third party regarding such a
transaction, and such transaction is consummated after the
Company has prepaid the Put Deferral Note) and (ii) the
valuation of the entire Company for such transaction
("Company Valuation") exceeds the Total Equity Value as of
the Put Notice Date, then the Company shall pay to the
Lender at the closing of such transaction an amount equal
to the excess of (x) the per share Company Valuation
multiplied by the number of Shares, Issued Warrants Shares
and Issuable Warrant Shares repurchased pursuant to the Put,
over (y) the Put Price. For the purposes of this section
10.12(g), the per share Company Valuation shall be based
upon the purchase price or liquidation proceeds per share
(equitably adjusted for any stock splits, stock dividends or
reverse stock splits occurring after the Put Payment Date)
of Common Stock in such transaction.
(h) If the Company issues a Put Deferral Note: (i) the
Affirmative Covenants in sections 5.1 through 5.12 of the
Loan Agreement, and the negative comments contained in
sections 6.2 and 6.17 of the Loan Agreement, shall remain in
effect until the Put Deferral Note has been paid in full;
and (ii) the negative covenants contained in section 6.1 and
sections 6.3 through 6.16 of the Loan Agreement shall remain
in effect until (y) the Company has paid to the Lender at
least 50% of the Put Price, in cash, on a cumulative basis,
and (z) the principal balance of the Put Deferral Note is
less than $5 million.
(i) A new section 10.13 is added to the Loan Agreement to
read in its entirety as follows:
10.13. Call Option.
(a) At any time after the date (the "Call Trigger
Date"): (i) the Lender prohibits the Company from completing
an acquisition or investment which has been approved by the
Company's Board of Directors (a "Blocked Transaction"), or
(ii) one year after the earlier of (x) the date of the
repayment of the Loan in full, or (y) the consummation of
Phase II, the Company shall have the right (the "Call") to
elect, by delivering to the Lender written notice (the "Call
Notice"), to purchase all, but not less than all, of the
Shares, the Warrant and the Issued Warrant Shares. (The
date of delivery of the Call Notice is herein referred to
as the "Call Notice Date".) Notwithstanding the foregoing,
the Company may only deliver a Call Notice within the 30-day
period following the Call Trigger Date or within the 30-day
period following each anniversary of the Call Trigger Date.
(b) On the Call Payment Date, the Company shall
purchase, and the Lender shall sell, all of the Shares, the
Warrant and the Issued Shares.
(c) On the Call Payment Date at a mutually agreeable
time and place, (i) the Lender shall deliver to the Company
certificates representing the Shares, the Warrant and the
Issued Warrant Shares; (ii) the Company shall pay to the
Lender the Call Price, as reduced by the Aggregate Exercise
Price attributable to the Warrant; and (iii) at the Lender's
option, exercised by written notice to the Company prior to
the Call Payment Date, the Company shall prepay any and all
outstanding principal and all unpaid interest accruing
through the Call Payment Date on the Loan, and all other
fees, expenses and amounts payable to the Lender, including
the Prepayment Fee.
(d) If the Company exercises the Call and then fails
for any reason to pay to the Lender the Call Price at the
Call Payment Date, the Company's exercise of the Call shall
be deemed cancelled, the Lender shall have all rights arising
out of such default and shall have no obligation to sell the
Shares, the Warrant and the Issued Shares, and all rights of
the Company to exercise the Call hereunder shall terminate.
(e) If within 18 months following the Call Payment Date
(i) a sale of 50% or more of the capital stock of the Company
or a sale of 80% or more of the assets of the Company or a
merger or consolidation of the Company with another entity
shall occur (or the Company or its stockholders have entered
into an agreement or letter of intent regarding any such
transaction) and (ii) the valuation of the entire Company for
such transaction ("Company Valuation") exceeds Total Equity
Value as of the Call Notice Date, then the Company shall pay
to the Lender at the closing of such transaction an amount
equal to the excess of (x) the per share Company Valuation
multiplied by the number of Shares, Issued Warrant Shares
and Issuable Warrant Shares repurchased pursuant to the Call,
over (y) the Call Price. For the purposes of this section
10.13(e), the per share Company Valuation shall be based
upon the purchase price or liquidation proceeds per share
(equitably adjusted for any stock splits, stock dividends or
reverse stock splits occurring after the Call Payment Date)
of Common Stock in such transaction.
(j) A new section 10.14 is added to the Loan Agreement to
read in its entirety as follows:
10.14. Appointment of Appraiser; Additional Definitions.
(a) Within five business days after the Put Notice Date
or the Call Notice Date, as applicable, the Company will send
the Lender a written notice identifying the independent
investment banker the Company proposes to engage to determine
Total Equity Value (the "Company's Appraiser"). Unless the
Lender has objected in writing (the "Objection Notice"),
within ten business days after receiving such notice, the
Company's Appraiser shall be engaged to determine Total
Equity Value. If the Lender timely objects to the Company's
Appraiser, the Lender shall, in the Objection Notice,
propose a different independent investment banker to
determine Total Equity Value (the "Lender's Appraiser").
Unless the Company has objected, in writing, within ten
business days of receiving the Objection Notice, the Lender's
Appraiser shall be engaged to determine Total Equity Value.
If the Company timely objects to the Lender's Appraiser, then
the Company's Appraiser and the Lender's Appraiser shall,
within ten business days of the Company's objection, together
select an independent investment banker to determine Total
Equity Value.
(b) In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings set
forth below:
"Call Price" shall mean the Call Fraction times the
Total Equity Value; provided, however, if the Call Trigger
Date is described in section 10.13(a)(ii)(x) or (y), the Call
Price shall be the greater of (a) the Call Fraction times the
Total Equity Value, or (b) an amount per share equal to $8.25
plus appreciation thereon at a compound annual rate of 10%
per year from the date of the First Amendment to Subordinated
Loan and Investment Agreement through the Call Payment Date.
"Call Fraction" shall mean a fraction, the numerator of
which is the aggregate number of Shares, Issued Warrant
Shares and Issuable Warrant Shares and the denominator of
which is the number of shares of Common Stock Deemed
Outstanding.
"Call Payment Date" shall mean, as applicable, (i) the
date of the closing of a Blocked Transaction in connection
with a Call under section 10.13(a)(i), or (ii) the 60th day
after the delivery to the Lender of the appraiser's written
determination of Total Equity Value with respect to any other
Call.
"Common Stock Deemed Outstanding" shall mean, at any
date as to which the number of shares is to be determined,
(a) all of the shares of Common Stock issued at such date,
excluding shares then owned or held by or for the account of
the Company, and (b) all shares of Common Stock issuable upon
the exercise, exchange or conversion of any unexpired right
or option (including the Warrant) to subscribe for, purchase
or receive Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock, regardless
of whether any of the foregoing are actually exercisable
on such date.
"Issued Warrant Shares" shall mean the cumulative total
of the shares of Common Stock issued from time to time upon
exercise of the Warrant.
"LaSalle Bank" shall refer to LaSalle National Bank and
SunTrust Bank, collectively, as the Company's senior lenders
pursuant to a joint credit facility.
"Issuable Warrant Shares" shall mean the number of
shares of Common Stock issuable from time to time upon
exercise of the Warrant.
"Merger" shall mean the merger of Tiburon with a wholly-
owned subsidiary of the Company to be formed for that purpose
generally in accordance with the provisions of the Agreement
and Plan of Merger, a copy of which is attached hereto as
Exhibit 10.14(b).
"Phase II" shall mean the Company's consummation of the
Merger.
"Put Fraction" shall mean a fraction, the numerator of
which is the aggregate number of Shares, Issued Warrant
Shares and Issuable Warrant Shares and the denominator of
which is the total number of shares of Common Stock Deemed
Outstanding.
"Put Payment Date" shall mean, as applicable, (i) the
date of the closing of Phase II in connection with a Put
under section 10.12(a)(i), or (ii) the 15th day after the
delivery to the Lender of the appraiser's written
determination of Total Equity Value with respect to any
other Put.
"Put Price" shall mean an amount equal to the product of
the Put Fraction multiplied by the Total Equity Value.
"Tiburon" shall mean Tiburon, Inc., a corporation
organized and existing under the laws of the Commonwealth of
Virginia.
"Total Equity Value", in effect as of any Valuation
Date, shall mean an amount equal to the fair market value of
the Company's common equity, valuing the Company as a going
concern, without any discount for minority position,
illiquidity or lack of marketability, as determined by an
independent investment banker selected pursuant to section
10.14(a) (the "Appraiser"). The Appraiser will provide the
Company and the Lender with copies of the Appraiser's written
appraisal report promptly upon completion. Except as
provided in section 10.12(f), the Company shall bear the
entire cost of the appraisal. Except as provided in the
next sentence, for purposes of such valuation in connection
with a Put, the Company's investment in Tiburon will be
deemed to have a value of $6,000,000, plus interest from the
date of the Company's investment in Tiburon at a rate equal
to the interest rate paid by the Company on its senior term
debt during such period. For purposes of such valuation in
connection with a Call, or if the Put is exercised pursuant
to clause 10.12(a)(ii) after the expiration without exercise
of the Tiburon Option, the Company's investment in Tiburon
shall be valued at its fair market value.
"Valuation Date" shall mean (a) with respect to
determination of the Put Price, the Put Notice Date; and (b)
with respect to determination of the Call Price, the Call
Notice Date.
3. Conditions to Effectiveness. This Amendment Agreement shall
not be effective until the date of the closing of the Phase I
transaction with Tiburon (the "Effective Date"). The effectiveness of
the waivers and the amendments set forth herein is also subject to the
satisfaction of the following conditions precedent or concurrent,
which must be satisfied by the Effective Date or this Amendment
Agreement shall be null and void:
(a) the delivery to the Lender of a fully executed copy of
this Amendment Agreement;
(b) the delivery to the Lender of a copy of an executed
amendment to the Senior Loan Documents permitting the transactions
contemplated by this Amendment Agreement; and
(c) the payment to the Lender of an amendment fee in the
amount of $30,000.
4. Covenant. The Company covenants and agrees that it will not
amend or modify the terms of the Merger in any respect, including but
not limited to an extension of the 18-month period of time by which the
Company must give notice to Tiburon of its intent to consummate the
Merger.
5. Representations and Warranties. The Company represents and
warrants to the Lender that no Default or Event of Default is in
existence as of the date hereof and as of the Effective Date. The
Company represents and warrants to the Lender, as of the date hereof
and as of the Effective Date, that the execution, delivery and
performance of this Amendment Agreement have been duly authorized by
all requisite corporate action, that this Amendment Agreement is a
valid and binding obligation of the Company, enforceable against the
Company according to its terms, and that the execution, delivery and
performance of this Amendment Agreement by the Company will not
constitute a breach of, or default under, any material agreement or
instrument to which the Company is a party or by which it is bound.
6. Expenses. The Company agrees to pay promptly all reasonable
out-of-pocket expenses incurred by it and the Lender in connection with
the negotiation, preparation and delivery of this Amendment Agreement.
It is expressly agreed and understood that the Company shall promptly,
within ten days of request therefor, reimburse the Lender for all
reasonable legal costs of outside counsel, determined on an hourly
basis at normal hourly billing rates, and expenses incurred related to
the negotiation, documentation and closing of the transactions
contemplated by this Amendment Agreement.
7. Amendments and Waivers. This Amendment Agreement may not be
changed or amended orally, and no waiver hereunder may be oral, but any
change or amendment hereto or any waiver hereunder must be in writing
and signed by the party or parties against whom such change, amendment
or waiver is sought to be enforced.
8. Headings. The headings in this Amendment Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Amendment Agreement.
9. Affirmation; Definitions. Each party hereto affirms and
acknowledges that (a) the Loan Agreement as amended by this Amendment
Agreement remains in full force and effect in accordance with its terms,
and (b) all references to the "Loan Agreement" or any similar term
contained in any other document delivered in connection with the Loan
Agreement shall be deemed to be references to the Loan Agreement as
amended hereby.
COMPUDYNE CORPORATION
By___________________
Its__________________
WILLIAM BLAIR MEZZANINE CAPITAL
FUND II, L.P.
By: William Blair Mezzanine Capital
Partners II, LLC, its general
partner
By___________________
Its__________________