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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18198
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DEVLIEG-BULLARD, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-18198 62-1270573
- ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
One Gorham Island, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
203-221-8201
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of May 31, 1996 was
12,275,400.
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DeVlieg-Bullard, Inc.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
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<S> <C> <C>
Item 1. Financial Statements:
Balance Sheets--
April 30, 1997 and July 31, 1996 2
Statements of Operations--
Three and Nine Months Ended April 30, 1997
and April 30, 1996 3
Statements of Cash Flows--
Nine Months Ended April 30, 1997
and April 30, 1996 4
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 14
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Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 15
EXHIBIT 11 Computation of Earnings Per Share 16
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DeVlieg-Bullard, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
April 30, 1997 July 31, 1996
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(unaudited)
<S> <C> <C>
ASSETS
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Current assets:
Cash and cash equivalents $ 1,441 $ 768
Accounts receivable, net 25,318 17,505
Inventories, net 39,313 42,071
Other current assets 1,751 1,165
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Total current assets 67,823 61,509
Property, plant and equipment, net 12,407 13,306
Engineering Drawings 18,935 18,366
Goodwill 11,159 11,472
Other assets 15,138 15,150
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Total assets $ 125,462 $ 119,803
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 10,302 $ 9,854
Accrued expenses and other current liabilities 15,821 16,534
Revolving credit agreement 22,355 19,195
Current portion of long-term debt 4,355 2,932
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Total current liabilities 52,833 48,515
Long-term debt (related party 1997 and 1996 - $4,084) 14,555 15,175
Postretirement benefit obligation 22,438 22,830
Other noncurrent liabilities 11,314 11,699
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Total liabilities 101,140 98,219
Stockholders' equity:
Common stock, $0.01 par value; authorized
30,000 shares; issued and outstanding
12,250 123 123
Additional paid-in capital 34,096 34,049
Excess purchase price over net assets from the
Services Group acquisition (16,358) (16,358)
Retained earnings 6,599 3,946
Cumulative translation adjustment (138) (176)
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Total stockholders' equity 24,322 21,584
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Total liabilities and stockholders' equity $ 125,462 $ 119,803
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DeVlieg-Bullard, Inc.
Statements of Operations
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $33,771 $ 30,262 $ 97,268 $ 84,890
Cost of sales 24,241 21,717 71,495 62,635
------- -------- -------- --------
Gross profit 9,530 8,545 25,773 22,255
------- -------- -------- --------
Operating expenses:
Engineering 491 447 1,277 1,178
Selling 2,799 2,951 8,148 7,944
General and administrative 2,962 2,772 8,048 7,941
------- -------- -------- --------
Total ESG&A Expense 6,252 6,170 17,473 17,063
Litigation expense -- -- -- 4,600
Other (income) expense, net -- (71) (23) (73)
------- -------- -------- --------
Total Operating Expenses 6,252 6,099 17,450 21,590
------- -------- -------- --------
Operating income 3,278 2,446 8,323 665
Interest expense (related party:
three months 1997 - $171;
1996 - $167; nine months
1997 - $512; 1996 - $357) 1,305 1,257 3,796 3,194
------- -------- -------- --------
Income (loss) before income taxes 1,973 1,189 4,527 (2,529)
Provision for income taxes 803 500 1,874 (1,022)
------- -------- -------- --------
Net income (loss) $ 1,170 $ 689 $ 2,653 $ (1,507)
======= ======== ======== ========
Income (loss) per common share $ 0.08 $ 0.05 $ 0.18 $ (0.12)
======= ======== ======== ========
Average common shares and
equivalents outstanding 15,246 14,965 15,126 12,250
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DeVlieg-Bullard, Inc.
Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,653 $ (1,507)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,606 3,339
Provision for losses on accounts receivable 14 169
Change in assets and liabilities, net of effects from
acquisitions
(Increase)/decrease in accounts receivable (6,227) 1,219
Decrease/(increase) in inventories 4,592 (2,461)
Decrease/(increase) in other current assets 1,974 (400)
Increase in accounts payable 448 1,232
(Decrease)/increase in accrued expenses and other
current liabilities (713) 5,060
Other, net (937) (1,375)
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Net cash provided by operating activities 5,410 5,276
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Cash flows from investing activities:
Capital expenditures (1,023) (736)
Purchase of business (912) (10,549)
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Net cash used for investing activities (1,935) (11,285)
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Cash flows from financing activities:
Increase in revolving credit agreement 3,160 4,358
Proceeds from issuance of long-term debt -- 8,000
Payments on long-term debt (5,831) (4,668)
Proceeds from issuance of stock options 47 --
Debt issuance costs (216) (1,061)
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Net cash provided by financing activities (2,840) 6,629
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Effect of exchange rate changes on cash 38 (35)
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Net increase/(decrease) in cash and cash equivalents 673 585
Cash and cash equivalents at beginning of period 768 415
------- --------
Cash and cash equivalents at end of period $ 1,441 $ 1,000
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DeVlieg-Bullard, Inc.
Statements of Cash Flows (continued)
(unaudited - in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $3,073 $2,900
Income taxes, net of refunds 148 (101)
</TABLE>
During the nine months ended April 30, 1997, the Company issued debt consisting
of a $2,600 Seller's note and an increase in term debt of $3,500 in connection
with acquisitions (See Note 2). The Company also entered into a Capital Lease
for equipment for $192.
During the nine months ended April 30, 1996, the Company assumed liabilities in
the amount of $42,658 in connection with the acquisition of The National Acme
Company (See Note 2).
In connection with obtaining the consent of the holders of the $12,000 principal
amount of subordinated debentures to the acquisition of National Acme and to the
refinancing of the Company's senior credit facility and to the refinancing of
$4,000 principal amount of such subordinated debentures, the Company issued
stock purchase warrants valued at $1,750. Such amount was credited to Additional
paid-in capital and charged as a discount to subordinated debentures, reducing
the carrying value of the debentures.
5
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DeVlieg-Bullard, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange Commission
for Form 10-Q, the financial statements, footnote disclosures and other
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed. The financial
statements contained in this report are unaudited but in the opinion of
DeVlieg-Bullard, Inc. (the "Company"), reflect all adjustments, consisting of
only normal recurring adjustments, necessary to fairly present the financial
position as of April 30, 1997 and the results of operations and cash flows for
the interim periods of the fiscal year ending July 31, 1997 ("fiscal 1997") and
the fiscal year ended July 31, 1996 ("fiscal 1996") presented herein. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These financial statements, footnote disclosures and
other information should be read in conjunction with the financial statements
and the notes thereto included in the Company's annual report on Form 10-K for
the year ended July 31, 1996.
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Certain amounts in
the fiscal 1996 financial statements have been reclassified to conform with the
fiscal 1997 presentation. Amounts in these notes, except per share data, are
expressed in thousands.
INCOME (LOSS) PER SHARE
Income per share is computed by dividing net income by the weighted average
number of common shares and equivalents outstanding during the period.
Outstanding stock options, which are common stock equivalents, are included in
the calculation if they are dilutive. Stock purchase warrants, which are common
stock equivalents, are included in the calculation of income per share from the
date of issuance. Loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Stock
options and stock purchase warrants are not considered in this calculation as
they would be anti-dilutive.
NOTE 2: ACQUISITION
On January 17, 1997, the Company acquired substantially all of the assets of
Mattison Technologies, Inc., a Rockford, Illinois-based Machine Tool Company
("Mattison"), including intellectual property, parts inventory, accounts
receivable and customer lists. The purchase price was $6,810, plus legal and
closing costs, and was financed with additional term debt of $3,500 and a $2,600
Seller's note, $1,600 of which is secured by Mattison's accounts receivable, as
well as with funds from the revolving credit facility. As the Mattison accounts
receivable are collected, the Company is required to pay down the principal on
the note; the balance on the note is $1,460 at April 30, 1997. The remaining
balance on the note is due January 7, 1998. The Mattison operations will be
consolidated with the Machine Tool Group.
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NOTE 3: INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1997 1996
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(unaudited)
<S> <C> <C>
Raw materials $ 1,404 $ 1,451
Work-in-process 11,604 13,650
Finished goods 26,305 26,970
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$39,313 $42,071
======= =======
</TABLE>
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$10,870 and $10,922 at April 30, 1997, and July 31, 1996, respectively.
Inventories valued using LIFO were $13,074 and $15,970 at April 30, 1997, and
July 31, 1996, respectively. There was no LIFO reserve against those
inventories. The financial accounting basis for the inventories of acquired
companies exceeds the tax basis by $12,224 at April 30, 1997 and July 31, 1996.
NOTE 4: REFINANCING OF DEBT
In connection with the acquisition of Mattison (see Note 2), the Company amended
its senior credit facility to increase it to $40,000 from the current $32,000.
This facility now consists of a $30,000 revolving credit agreement and $10,000
in term loans. Borrowings from the increase in term debt were used to finance
the acquisition. The funding occurred on January 17, 1997, contemporaneously
with the Company's completion of the acquisition of Mattison's assets.
The senior credit facility is secured by all of the Company's assets. Under the
terms of the facility, the Company is required to comply with various
operational and financial covenants, as defined, including (i) minimum net
worth, (ii) interest coverage ratio, (iii) liabilities to net worth ratio, (iv)
current ratio, (v) fixed charge coverage ratio and (vi) minimum earnings levels,
as defined. In addition, the facility places limitations on the Company's
ability to make capital expenditures and to pay dividends. The Company is in
compliance with these debt covenants at April 30, 1997.
The maturity date for the senior credit facility has been extended to October
31, 2000. Amounts available under the revolving credit agreement are based upon
a formula related to the Company's eligible accounts receivable and inventories.
Interest on outstanding balances is payable monthly in arrears. Interest rates
are based on the prime rate or alternative rates based on LIBOR.
In connection with the acquisition, two new term loans were provided to finance
the acquisition and the maturity on the existing loans was extended. The $5,000
term loan is now payable in 58 equal installments of $86 with the balance due
August 31, 2000. The $3,000 term loan is now payable in 36 equal installments of
$83 through May 31, 1999. The third term loan of $2,000 is due and payable with
the proceeds from the sale of Mattison equipment (this equipment was sold during
February 1997). The fourth term loan of $1,500 is payable in 45 equal
installments of $33 commencing January 31, 1997 through October 31, 2000.
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NOTE 5: LITIGATION SETTLEMENT
During the first quarter of fiscal 1996, the Company accrued $2,200 related to a
jury verdict rendered against the Company, including interest expense and legal
costs. The Company had appealed the verdict on the basis that it was against the
weight of evidence. During the second quarter of fiscal 1997, the Company
settled this case for $1,500.
The Company does not believe the outcome of this legal proceeding will have any
future material adverse impact on the results of operations, liquidity or
financial condition of the Company.
8
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DEVLIEG-BULLARD, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summarized below is a discussion of the results of operations of the Company.
Amounts, except per share data, are expressed in thousands.
ACQUISITION
On January 17, 1997, the Company acquired substantially all of the assets of
Mattison Technologies, Inc. for $6,810, financed in part by a $2,600 Seller's
note and $3,500 increase in term debt. The results of Mattison are included with
the Company since acquisition (see Note 2 of Notes to Financial Statements).
Mattison will be reported with the Machine Tool Group and added $1,663 in sales
and $852 in operating income to the nine month results discussed below.
RESTRUCTURING
On March 18, 1997, the Company announced a restructuring plan which will result
in the reorganization of the Company's existing National Acme and Services
Groups into the Machine Tool Group, which will include the design, manufacture
and marketing of new, remanufactured and used machines and aftermarket parts
and service. As part of the reorganization, the Company plans to close two
facilities, integrating their operations with other Company operations and
eliminating 38 jobs. The Company expects to spend approximately $1,000 to
implement the plan, but does not expect to take any charges associated with the
restructuring; the plan will be funded through utilization of certain reserves
recorded by the Company for integrating the operations of National Acme with
those of the Company at the time of acquisition. The plan is expected to yield
approximately $2,000 in annual savings beginning in fiscal 1998. The Business
Segment discussion below reflects the new organizational structure and prior
year's results have been restated.
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30, 1996.
CONSOLIDATED RESULTS:
Net sales for the third quarter of fiscal 1997 were $33,771 compared to $30,262
for the third quarter of fiscal 1996, an increase of $3,509, or 11.6%; $1,304 of
this increase was contributed by the Mattison acquisition. Gross profit for
the third quarter of fiscal 1997 was $9,530 compared to $8,545 for the third
quarter of fiscal 1996, an increase of $985, or 11.5%, reflecting the increased
sales volume. Gross profit as a percentage of net sales was 28.2% in the third
quarter of fiscal 1997 and fiscal 1996.
ESG&A expenses were $6,252, or 18.5% of net sales in the third quarter of fiscal
1997, compared to $6,170, or 20.4% of net sales in the third quarter of fiscal
1996. The decrease in operating expenses as a percentage of net sales is
attributable to cost reduction programs implemented by the Company and leverage
from the higher sales volume.
Interest expense was $1,305 in the third quarter of fiscal 1997 compared to
$1,257 in the third quarter of fiscal 1996, an increase of $48.
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Income tax expense of $803 was recorded for the third quarter of fiscal 1997,
compared to $500 for the same period last year.
OPERATING RESULTS BY BUSINESS SEGMENTS:
The Machine Tool Group sales for the third quarter of fiscal 1997 were $22,239
compared with $18,575 in the third quarter of the prior year, an increase of
19.7%. Operating income was $3,317, compared to $2,438 in the third quarter a
year ago. This is an increase of 36.1% over the prior year, reflecting the
leverage from the higher sales on fixed costs, as well as the acquisition of
Mattison. Fiscal 1997 results include $1,304 in sales and $596 in operating
income contributed by acquisitions.
The Tooling Systems Group's sales for the third quarter of fiscal 1997 were
$5,207 compared with $5,279 in the prior year's third quarter. Operating income
was $368 in fiscal 1997 compared with $189 in the prior year, a 94.7% increase,
reflecting productivity improvements as well as the cost reduction plan put into
place late in fiscal 1996.
The Industrial Group had sales of $6,325 during the third quarter of fiscal 1997
compared to $6,408 in the third quarter of the prior year. Operating income was
$453, compared with $446 in the prior year.
NINE MONTHS ENDED APRIL 30, 1997 COMPARED TO NINE MONTHS ENDED APRIL 30, 1996.
CONSOLIDATED RESULTS:
Net sales for the first nine months of fiscal 1997 were $97,268 compared to
$84,890 for the first nine months of fiscal 1996, an increase of $12,378, or
14.6%. National Acme acquisition in fiscal 1996 and Mattison acquisition in
fiscal 1997 account for $11,194 and $1,663 of the increase, respectively. Gross
profit for the nine months ended April 30, 1997 was $25,773 compared to the
$22,225 for the same period in the prior year, an increase of $3,518, or 15.8%.
Gross profit as a percent of net sales was 26.5% for the first nine months of
fiscal 1997 compared to 26.2% for the first nine months of fiscal 1996.
ESG&A expenses were $17,473, or 18.0% of net sales, and $17,063, or 20.1% of net
sales, for the first nine months of fiscal 1997 and 1996, respectively.
There were no litigation expenses during the first nine months of fiscal 1997.
The Company is not aware of any outstanding legal proceedings the outcome of
which, in management's opinion, would have a material adverse effect on the
Company's results of operations or financial condition. Litigation expenses of
$4,600 were recorded during the first nine months of fiscal 1996. Of these
expenses, $2,200 ($1,320 after taxes) related to an adverse judgement rendered
in a breach of contract suit (allocated to the Machine Tool Group). Although the
Company accrued for the full jury verdict, plus interest and legal costs, it
filed a Notice of Appeal against the verdict on the grounds that the jury's
verdict was against the weight of the evidence. The Suit was settled for $1,500
during the second quarter of fiscal 1997. The balance of $2,400 ($1,440 after
taxes) was for settlement and legal costs incurred in connection with the class
action suit filed in 1992. This suit was settled in the second quarter of fiscal
1996 and such settlement was approved by the Court in July 1996.
Interest expense was $3,796 for the nine months ended April 30, 1997 compared to
$3,194 for the
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same period in the prior year. The $602 increase in interest expense is
attributable to higher outstanding debt balance, primarily due to the
acquisitions, cost of litigation settlements, and higher effective interest
rates.
Income tax expense of $1,874 was recorded for the first nine months of fiscal
1997 compared to an income tax benefit of $1,022 for the same period last year,
reflecting net income in fiscal 1997 compared to a net loss in fiscal 1996.
OPERATING RESULTS BY BUSINESS SEGMENTS:
Sales for the Machine Tool Group for the first nine months of fiscal 1997 were
$63,416, compared with $50,342 in the same period a year ago, an increase of
$13,074. National Acme, acquired in October 1995, contributed $11,194 of this
increase, while Mattison, acquired in January 1997, contributed $1,663.
Operating income for the period was $8,669 compared with $3,001 in the prior
year period. The fiscal 1996 results include nonrecurring litigation costs of
$2,200 related to a breach of contract lawsuit (see "Item 1 - Legal
Proceedings"). Without this nonrecurring charge, the Machine Tool Group would
have had operating income of $5,201 in fiscal 1996, which would yield a fiscal
1997 increase of 66.7% over the prior year. This improvement reflects the
leverage from the higher sales on fixed costs, as well as the acquisition of
Mattison in January 1997 (which contributed $852) and National Acme in October
1995 (which contributed $1,535).
Tooling Systems sales for the first nine months of fiscal 1997 were $15,504 as
compared with $16,285 during the same period in the prior year. Operating income
was $762 compared to $996 for the same periods. The decline in sales and
operating income can be attributed to lower than anticipated sales for the
Cushman product line.
Sales for the first nine months of fiscal 1997 for the Industrial Group were
$18,348 compared to $18,263 in the year-ago period. Operating income was $900
compared with $897 for the same periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $5,410 for the nine months ended April 30,
1997 compared to $5,276 for the nine months ended April 30, 1996.
Capital expenditures were $1,023 in the first nine months of fiscal 1997
compared to $736 for the same period in the prior year. As of April 30, 1997,
the Company had no material commitments for specific capital expenditures.
Cash of $912 was used for the acquisition Mattison Technologies in fiscal 1997,
compared to $10,549 used for the acquisition of The National Acme Company in
fiscal 1996. These cash acquisition costs were financed by borrowings from the
revolving credit agreement.
The balance outstanding under the Company's revolving credit agreement was
$22,355 at April 30, 1997 compared to $19,195 at July 31, 1996. Long-term debt,
including current maturities, was $18,910 and $18,107 at April 30, 1997 and July
31, 1996, respectively. The Company's total indebtedness was $41,265 and $37,302
at April 30, 1997 and July 31, 1996, respectively, an increase
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of $3,963. As outlined in Note 4 of Notes to Financial Statements, the Company
amended its senior debt facility in January 1997 to increase the amount
available for borrowings thereunder to $40,000 from $32,000. New term loans in
the amount of $3,500, as well as a $2,600 Seller's note, were obtained to
finance the Mattison acquisition (see Notes 2 and 4 of Notes to Financial
Statements).
The new senior debt facility aggregating approximately $40,000 at April 30,
1997, is comprised of up to $10,000 in term loans and a revolving credit
agreement which provides for borrowings up to $30,000. The existing term loan
requires monthly principal payments of $86 beginning November 30, 1995, and the
second term loan requires monthly principal payments of $83 beginning June 30,
1996. A third term loan of $2,000 is repayable with proceeds from the sale of
Mattison's excess machinery and equipment (this was completed in February 1997
and the loan was repaid in March 1997), while the fourth $1,500 term loan
requires monthly payments of $33 beginning January 31, 1997. Interest on the
term loans is payable monthly at 1.25% above prime rate or, at the Company's
option, at alternative rates based on LIBOR. The effective rate based on LIBOR
was 8.84% at April 30, 1997. The maturity date of the Company's revolving
credit agreement was extended to October 31, 2000, subject to renewal, and to
collateral maintenance requirements. Interest on outstanding borrowings under
the revolving credit agreement is payable monthly in arrears at 1% above the
prime rate or, at the Company's option, at alternative rates based on LIBOR.
The effective rate based on LIBOR was 8.59% at April 30, 1997. The amount the
Company may borrow under the revolving credit agreement is based upon a formula
related to the Company's eligible accounts receivable and inventories, reduced
by outstanding letters of credit. Unused borrowings available at April 30, 1997
were $5,163.
Pursuant to the subordinated debt facility, the Company issued subordinated
debentures in May 1994 in the principal amount of $12,000. Of this amount,
$4,000 was replaced by junior subordinated debt in October 1995. The
subordinated debentures provide for the repayment of principal of $2,000 in
fiscal 1999 and fiscal 2000 and $4,000 in fiscal 2001. Interest payments on the
subordinated debentures of 11.5% per annum are payable quarterly in arrears
commencing July 1, 1994. The junior subordinated debt provides for the repayment
of principal of $4,000 in June 2001 or thirty days after the payment of the
subordinated debentures. Interest accrues at 14.5% on the junior subordinated
debt, and the cash interest of 11% per annum is payable quarterly in arrears
commencing January 1, 1996. In connection with the issuance of the subordinated
debentures in May 1994, the Company issued the holders warrants to purchase one
million shares of the Company's common stock at $0.01 per share and an estimated
289 warrants for additional shares at $0.01 per share, which became available in
May 1997 based upon the settlement of certain legal proceedings. In addition, in
connection with the issuance of the junior subordinated debt and refinancing of
the senior credit facility, the Company issued 500 additional Class A and 750
Class C stock purchase warrants.
The Company expects to continue to provide liquidity and finance its ongoing
operational needs primarily through internally generated funds. The Company
actively seeks to expand by acquisition, as well as through the internal growth
of its present businesses. A significant acquisition would require additional
borrowings. The Company does not anticipate any difficulty in obtaining
additional borrowings, however, there can be no assurance that the Company
would be able to obtain such financing on acceptable terms.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128") was issued. Management will adopt SFAS 128 for the second
quarter ended January 31, 1998 and expects that the diluted earnings per share
calculation under SFAS will not be
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materially different from the earnings per share results the Company currently
reports.
OUTLOOK: ISSUES AND UNCERTAINTIES
A number of factors may affect future results, liquidity and capital resources;
actual results may differ materially from those reflected by forward-looking
statements made by the Company. These factors are discussed in the Company's
Annual Report on Form 10-K for the year ended July 31, 1996.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 3, 1995, a jury rendered a verdict against the Company in the net
amount of approximately $1.3 million, plus interest, relating to a civil suit
filed against the Company in the Supreme Court for the State of New York, County
of Erie, styled Watson Bowman Acme Corp. v. DeVlieg-Bullard, Inc. The plaintiff
had alleged losses resulting from a breach of contract by the Company, as
successor to DeVlieg-Lyons Integrated Systems, Inc., in connection with the
delivery to the plaintiff of a CNC Milling Machine. The suit was originally
filed on November 21, 1991. The Company had countersued for the remaining
balance due under the contract of approximately $280 thousand.
The Company made an accrual in the first quarter of fiscal 1996 in the amount
$2.2 million for the jury's verdict, plus interest and other costs. This suit
was settled for $1.5 million during the second quarter of fiscal 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Registration Rights Agreement dated February 27, 1997, among
DeVlieg-Bullard, Inc., Charles E. Bradley, Stanwich Oil and
Gas, Inc. and Corestates Bank.
10.2 Third Amendment to Investment Agreement dated January 17,
1997, among DeVlieg-Bullard, Inc., Banc One Capital Partners
Corporation, PNC Capital Corp., Charles E. Bradley and John G.
Poole.
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the quarter ended April 30, 1997, the Company filed a Form 8-K
dated February 3, 1997 (Item 5) to report the acquisition of Mattison
Technologies, Inc., the increase in debt related to the acquisition and
the settlement of the breach of contract law suit.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DeVlieg-Bullard, Inc.
(Registrant)
Date: June 16, 1997 By: /s/ Lawrence M. Murray
------------- ------------------------------------
Vice President and Chief
Financial Officer
15
<PAGE> 1
Exhibit 10.1
DEVLIEG-BULLARD, INC.
One Gorham Island
Westport, CT 06880
REGISTRATION RIGHTS AGREEMENT
Dated as of: February 27, 1997
To: CoreStates Bank, N.A.
Centre Square West, 11th Floor
1500 Market Street
Philadelphia, Pennsylvania 19101
Ladies and Gentlemen:
This Registration Rights Agreement ("this Agreement"), dated as of February
27, 1997, is among (a) DeVlieg-Bullard, Inc. a Delaware corporation (together
with its successors and assigns, the "Company"), (b) Charles E. Bradley, an
individual residing in the State of Connecticut ("Bradley"), (c) Stanwich Oil &
Gas, Inc., a Delaware corporation ("Pledgor") and (d) CoreStates Bank, N.A., a
national banking association (the "Bank").
Reference is made to promissory notes dated September 20, 1996 (the
"Notes") in the principal amounts of $4,000,000, $3,000,000 and $500,000 made by
Bradley in favor of the Bank. To secure Bradley's obligations under the Notes,
Pledgor has pledged to the Bank 2,000,000 shares (those shares and any other
shares of the Company's common stock hereafter pledged to the Bank by Bradley
being referred to as the "Pledged Shares") of the common stock of the Company
(the "DBI Common Stock") pursuant to a Collateral Pledge and Assignment
Agreement dated September 20, 1996 (the "Pledge Agreement").
To induce the Bank to make the loan evidenced by the Notes, Bradley and
Pledgor agreed to (i) cause the Company to provide to the Bank the registration
rights contemplated hereby, and (ii) enter into this Agreement for purposes of
ss.6 and ss.7 hereof, and to perform their obligations thereunder.
In order to provide for an orderly sale of the Pledged Shares upon the
occurrence of any Registration Event, the Company is willing to enter into this
Agreement and to provide to the Bank the registration rights contemplated
hereby, all on the terms and subject to the conditions set forth herein.
In consideration of these premises and of the mutual covenants, agreements
and obligations herein set forth, and
<PAGE> 2
intending to be legally bound hereby, the parties agree as follows:
ss.1. Definitions. As used in this Agreement, the following terms have the
following respective meanings:
"Agreement" means this letter of agreement.
"Commission" means the Securities and Exchange Commission.
"DBI Common Stock" has the meaning specified for such term in the
introductory paragraphs hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any federal statute or code which is a successor thereto.
"Holder" means the Bank and any Holder of Registrable Securities to whom
the registration rights conferred by this Agreement have been transferred in
compliance with ss.17 hereof.
"Person" means any individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Pledge Agreement" has the meaning specified for such term in the
introductory paragraphs hereto.
"Pledged Shares" has the meaning specified for such term in the
introductory paragraph hereto.
"register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
"Registrable Securities" means, collectively, (a) the Pledged Shares, (b)
all shares of capital stock or other securities into which or for which any such
shares of DBI Common Stock shall have been converted or exchanged pursuant to
any Reorganization involving the Company or its stockholders, and (c) all shares
of capital stock issued with respect to the foregoing pursuant to any stock
split or stock dividend. The term "Registrable Securities" shall not include any
shares of DBI Common Stock or other securities released from pledge by the Bank
to Pledgor (or his designee).
"Registration Event" means any Event of Default under the Notes.
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<PAGE> 3
"Registration Request" has the meaning specified for such term in ss.3
hereof.
"Registration Statement" has the meaning specified for such term in ss.3
hereof.
"Reorganization" means, with respect to any person, any merger, share
exchange, recapitalization or other corporate reorganization involving such
person or its stockholders, as such.
"Rule 144" means Rule 144 issued by the Commission under the Securities
Act, or any successor rule.
"Securities Act" means the Securities Act of 1933, as amended, or any
federal statute or code which is a successor thereto.
"Senior Registration Agreement" has the meaning specified for such term in
ss.2 hereof.
"underwritten registration" or "underwritten offering" refers to any
registration in which securities are sold or are to be sold pursuant to a firm
commitment underwriting.
ss.2. Subordination. The obligations of the Company under this Agreement
and the rights of any Holder under this Agreement are subordinate and subject to
the exercise of any rights granted to the parties to that certain Registration
Agreement (such Registration Agreement as amended from time to time the "Senior
Registration Agreement") made as of May 25, 1994 among the Company, Allied
Investment Corporation, Allied Investment Corporation II and Allied Capital
Corporation II, all Maryland corporations (collectively, "Allied"), Banc One
Capital Partners Corporation, a Texas corporation ("Banc One") and PNC Capital
Corp., a Delaware corporation ("PNC"), as amended by the First Amendment to
Registration Agreement dated as of October 23, 1995 among the Company, Allied,
Banc One, PNC, Bradley and John G. Poole.
ss.3. Registration. As promptly as practicable upon receipt of a written
request (a "Registration Request") from Holders of a majority of Registrable
Securities following the occurrence and during the continuance of any
Registration Event, the Company shall file and use its best efforts to cause to
be declared effective a "shelf" registration statement pursuant to Rule 415 (or
any successor rule) under the Securities Act, on any appropriate registration
form adopted under the Securities Act, for the sale of all the Registrable
Securities in accordance with the intended method or methods of distribution set
forth therein ("Registration Statement"), provided that the Holders may make
only one Registration Request during the term of the Senior
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<PAGE> 4
Registration Agreement. Except as otherwise set forth below, the Company will
use its best efforts to cause the Registration Statement to be continuously
effective for a period of six (6) months from the effective date of the
Registration Statement or such shorter period terminating upon (a) the sale of
all Registrable Securities pursuant to the Registration Statement, or (b) in the
case of an underwritten public offering, the distribution by the underwriter of
all the Registrable Securities (such period being referred to herein as the
"Effective Period").
The Holders of a majority of Registrable Securities who have requested
registration shall determine (in the notice requesting registration contemplated
by this ss.3) the method of distribution of the Registrable Securities pursuant
to the Registration Statement. If the offering pursuant to the Registration
Statement shall be underwritten, such Holders shall select the investment
banker(s) and managing underwriter(s) to administer the offering, subject to the
consent of the Company which shall not be unreasonably withheld.
Notwithstanding any provisions herein to the contrary, the Company shall
not be required to file a Registration Statement if the Holders may sell all of
their Registrable Securities in any three (3) month period in accordance with
Rule 144.
ss.4. Restrictions on Sales of Registrable Securities.
(a) Blackout Period. The Company shall be entitled to (i) postpone
the filing or effectiveness of the Registration Statement, or (ii) if effective,
elect that the Registration Statement not be usable and require the Holders to
suspend sales pursuant to the prospectus contained therein, for a reasonable
period of time (a "Blackout Period") if the Company determines in good faith
that the registration and distribution of Registrable Securities (or the use of
the Registration Statement or related prospectus) would interfere with any
pending material acquisition, material corporate reorganization or any other
material corporate development involving the Company or any of its subsidiaries
or would require premature disclosure thereof. The Company shall promptly give
the Holders written notice of such determination, containing a general statement
of the reasons for such postponement or restriction on use and the length of the
anticipated delay. No single Blackout Period may exceed six (6) months.
(b) Holdback Agreements.
(i) Each Holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of DBI Common
Stock or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period
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<PAGE> 5
beginning on the effective date of any underwritten registration in which
Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(ii) The Company agrees (A) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
registration (except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree, and (B) to use its best
efforts to cause each holder of at least 5% (on a fully-diluted basis) of its
equity securities, or any securities convertible into or exchangeable or
exercisable for equity securities, purchased from the Company at any time after
the date of this Agreement (other than in a registered public offering) to agree
not to effect any public sale or distribution (including sales pursuant to Rule
144) of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
ss.5. Registration Procedures. The Company, when required by ss.3 above but
subject to the provisions of ss.2, will use its best efforts in good faith to
effect promptly the registration of all Registrable Securities under the
Securities Act pursuant to the Registration Statement, and to permit the public
offering and sale of such Registrable Securities in accordance with the intended
method of disposition thereof, and, in connection therewith, the Company, as
expeditiously as shall be reasonably possible, will:
(a) prepare and file with the Commission the Registration Statement,
and use its best efforts in good faith to cause the Registration Statement to
become and remain effective as provided herein;
(b) prepare and file with the Commission such amendments to the
Registration Statement and supplements to the prospectus included in such
Registration Statement as may be necessary or advisable to comply in all
material respects with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
or as may be necessary to keep the Registration Statement effective and current
during the Effective Period;
(c) furnish to each Holder of Registrable Securities such number of
copies of the Registration Statement, each
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<PAGE> 6
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in such Registration Statement (including each
preliminary prospectus), and such other documents as any such Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities held by such Holder;
(d) enter into such customary agreements (including, if applicable,
underwriting agreements) and take all such other action in connection therewith
as the Holders of a majority of Registrable Securities reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities;
(e) use its best efforts in good faith to register and qualify the
Registrable Securities covered by the Registration Statement under such
securities or Blue Sky laws of such jurisdictions as any Holder or underwriter
shall reasonably require and do any and all such other acts and things as may be
reasonably necessary or advisable to enable such Holder or underwriter to
consummate the disposition in such jurisdictions of the Registrable Securities
held by such Holder or underwriter; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not then so subject;
(f) furnish to each Holder and to the underwriters for such Holder,
if such Holder so requests in connection with an underwritten offering, signed
counterparts, addressed to the Holder and to such underwriters, of (i) an
opinion of counsel for the Company, dated the effective date of the Registration
Statement, and (ii) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
the Registration Statement, covering substantially the same matters with respect
to the Registration Statement (and the prospectus included therein) and (in the
case of the "comfort" letter) with respect to events subsequent to the date of
the financial statements, as are customarily covered (at the time of such
registration) in opinions of issuer's counsel and in "comfort" letters delivered
to the underwriters in underwritten public offerings of securities; and
(g) afford access, upon reasonable notice and during normal business
hours, to any Holder, any underwriter participating in any disposition pursuant
to the Registration Statement, and any attorney, accountant or other agent
retained by any such Holder or underwriter, to all historical financial and
other records and other pertinent information and corporate documents and
properties of any of the Company and its subsidiaries and affiliates, as shall
be reasonably necessary to
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<PAGE> 7
enable them to exercise their due diligence responsibility with respect to the
Registration Statement.
ss.6. Cooperation by Holders, etc.
(a) Each Holder will furnish to the Company in writing such
information as the Company may reasonably require from such Holder in connection
with the Company's preparation of the Registration Statement.
(b) The failure of any Holder to furnish any information or documents
in accordance with any provision contained in this Agreement shall not affect
the obligations of the Company under this Agreement to any Holders who furnish
such information and documents unless, in the reasonable opinion of counsel to
the Company or the underwriters, such failure impairs or may impair the
viability of the offering or the legality of the Registration Statement or the
underlying offering.
(c) The Holders will not (until further notice) effect sales of
Registrable Securities after receipt of telegraphic or written notice from the
Company to suspend sales to permit the Company to correct or update the
Registration Statement or prospectus. If the Company so notifies the Holders, it
will promptly comply with its obligations under ss.5(b) by amending the
Registration Statement, supplementing the related prospectus, or both. The
Effective Period shall be extended by a period of days equal to the period such
suspension is in effect.
(d) At the end of the Effective Period, the Holders shall discontinue
sales or other distributions of shares pursuant to the Registration Statement
upon receipt of notice from the Company of its intention to remove from
registration the Registrable Securities which remain unsold, and the Holders
shall notify the Company of the number of Registrable Securities which remain
unsold promptly after receipt of such notice from the Company.
ss.7. Registration Expenses. All costs and expenses incurred or sustained
by the Company or any Holder in connection with or arising out of the
registration required by ss.3 hereof, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
Blue Sky laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with the Blue Sky qualification of Registrable
Securities), printing expenses, messenger, telephone and delivery expenses, fees
and disbursements of counsel for the Company and the Holders, fees and
disbursements of all independent certified public accountants (including the
expenses relating to the preparation and delivery of any special audit or
"comfort" letters required by or incident to such registration), and fees,
commissions and disbursements of brokers and
-7-
<PAGE> 8
underwriters (including underwriters' liability insurance if the underwriters so
require), all reasonable fees and expenses of special experts retained by the
Company or any Holder at their own initiative or at the request of the managing
underwriters in connection with such registration, fees and expenses of all (if
any) other persons retained by the Company or any Holder in connection with such
registration, and all other costs and expenses incurred by the Company or any
Holder in connection with such registration (all such costs and expenses being
herein called, collectively, the "Registration Expenses"), will be borne by
Bradley and Pledgor, and will be paid by Bradley and Pledgor promptly upon
receipt by Bradley and Pledgor of invoices therefor. The Company will, in any
case, pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, and the fees and expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange on which similar securities of the Company are then listed.
Bradley's and Pledgor's failure or refusal to pay all or any portion of the
Registration Expenses shall not affect the Company's obligations to the Holders
under this Agreement.
ss.8. Indemnification.
(a) Indemnification by Bradley. Bradley will indemnify each Holder,
the officers, directors, partners and affiliates of such Holder, each person who
controls (within the meaning of the Securities Act) such Holder and each
underwriter of the securities so registered, against any and all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of any material fact
contained in any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and Bradley
will reimburse each such Holder, officer, director, partner, controlling person,
and underwriter for any legal fees and expenses, and any other expenses,
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that Bradley will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company in an instrument duly executed
by such Holder, officer, director, partner,
-8-
<PAGE> 9
affiliate, controlling person, or underwriter and stated to be exclusively and
specifically for use therein.
(b) Indemnification by Each Holder. Each Holder and each underwriter
of the securities so registered, will indemnify each other Holder, the Company
and their respective officers, directors, partners and affiliates, and each
person, if any, who controls any thereof (within the meaning of the Securities
Act) and their respective successors in title and assigns against any and all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of any
material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein any material fact required to be stated therein or
necessary to make the statement therein not misleading, and such Holder will
reimburse the Company and each other person indemnified pursuant to this
paragraph (b) for any legal fees and expenses, and any other expenses,
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that this paragraph
(b) shall apply only if (and only to the extent that) such statement or omission
was made in reliance upon information furnished to the Company in any instrument
duly executed by such Holder or underwriter and stated by such Holder or
underwriter to be specifically for use in such prospectus, offering circular or
other document (or related registration statement, notification or the like) or
any amendment or supplement thereto. The maximum liability under this paragraph
(b) of each Holder shall be limited to the aggregate amount of all sales
proceeds actually received by such Holder upon the sale of such Holder's
Registrable Securities pursuant to the Registration Statement.
(c) Indemnification Proceedings. Each party entitled to
indemnification pursuant to this ss.8 (the "indemnified party") shall give
notice to the party required to provide indemnification pursuant to this ss.8
(the "indemnifying party") promptly after such indemnified party acquires
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom; provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably acceptable to the indemnified party, and the indemnified
party may participate in such defense at such party's expense; and provided
further, that if any indemnified party shall have reasonably concluded that
there may be one or more legal defenses available to such indemnified party
which are different from or additional to and are inconsistent with those
available to the indemnifying party, or that such claim or
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<PAGE> 10
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this ss.8, the indemnifying party shall not have
the right to assume the defense of such action on behalf of such indemnified
party and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which are reasonably
related to the matters covered by the indemnity agreement provided in this ss.8;
and provided, further, that the failure by any indemnified party to give notice
as provided in this paragraph (c) shall not relieve the indemnifying party of
its obligations under this ss.8 except to the extent that the failure results in
a failure of actual notice to the indemnifying party and such indemnifying party
is damaged (or the indemnification liability of such indemnifying party
hereunder would be increased) solely as a result of the failure to give notice.
No indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. The
reimbursement required by this ss.8 shall be made by periodic payments during
the course of the investigation or defense, as and when bills are received or
expenses incurred.
ss.9. Rule 144 Requirements. The Company will make every effort in good
faith to make publicly available and available to the Holders, pursuant to Rule
144, such information as shall be necessary to enable the holders of
Registrable Securities to make sales of Registrable Securities pursuant to that
Rule. The Company will furnish to any Holder, upon request made by such Holder
at any time, a written statement signed by the Company, addressed to such
Holder, describing briefly the action the Company has taken or proposes to take
to comply with the current public information requirements of Rule 144. The
Company will, at the request of any Holder, upon receipt from such Holder of
(a) an opinion of counsel reasonably acceptable to the Company that any
restrictive legend which relates to the registration provisions of the
Securities Act may be removed, (b) a certificate certifying (i) that such
Holder currently intends to transfer such Registrable Securities, (ii) that
such Holder has held such Registrable Securities for a period of not less than
three (3) consecutive years within the meaning of Rule 144(d) or any successor
rule (or such lesser period as may be required by Rule 144 (or successor rule)
upon any amendment to Rule 144 or any adoption of any successor rule), and
(iii) if applicable, that such Holder has not been an affiliate (as defined in
Rule 144) of the Company for more than the ninety (90) preceding days, remove
from the stock certificates representing such Registrable
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<PAGE> 11
Securities that portion of any restrictive legend which relates to the
registration provisions of the Securities Act.
ss.10. No Inconsistent Agreements. With the exception of the Senior
Registration Agreement, the Company will not, at any time after the effective
date of this Agreement, enter into any agreement or contract (whether written or
oral) with respect to any of its securities which is inconsistent in any respect
with the registration rights granted by the Company to the Holders pursuant to
this Agreement.
ss.11. Registrable Securities Held by the Company. Whenever the consent,
approval or notice of Holders is required pursuant to this Agreement,
Registrable Securities held by the Company shall not be counted in determining
whether such consent or approval was duly and properly given by Holders pursuant
to and in compliance with any of the terms of this Agreement.
ss.12. Notices.
(a) All notices and other communications pursuant to this Agreement
shall be in writing, either delivered in person or duly sent by registered mail,
postage prepaid, return receipt requested, or by telecopier, or by overnight air
courier guaranteeing next day delivery, or sent addressed to any party at the
address specified below or at such other address as may hereafter be designated
in writing by the addressee to the addresser:
If to the Company: DeVlieg-Bullard, Inc.
One Gorham Island
Westport, CT 06880
Attention: President
with a copy to: J. Page Davidson, Esq.
Bass, Berry & Sims PLC
2700 First American Center
Nashville, TN 37238
If to Bradley Mr. Charles E. Bradley
or Pledgor: c/o Stanwich Partners, Inc.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 069O2
with a copy to: Scott A. Junkin, P.C.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902
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<PAGE> 12
If to the Bank: CoreStates Bank, N.A.
Centre Square West, 11th Floor
1500 Market Street
Philadelphia, Pennsylvania 19101
Attention: Gerald D. Quill,
Senior Vice President
with a copy to: Michael B. Jordan, Esq.
Drinker Biddle & Reath
PNB Building, 11th Floor
1345 Chestnut Street
Philadelphia, PA 19107-3496
(b) Any notice or other communication shall be deemed given at the
time delivered, if personally delivered or delivered by telecopier; four (4)
business days after being deposited in the mail, postage prepaid, if mailed by
first class mail; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
ss.13. Governing Law. This Agreement shall be construed in accordance with
and governed by the internal substantive laws of Delaware.
ss.14. Amendments and Waivers.
(a) Except as otherwise provided by paragraph (b) of this ss.14,
none of the terms or provisions contained in this Agreement, and none of the
agreements, obligations or covenants of the Company contained in this Agreement,
may be amended, modified, supplemented, waived or terminated unless (i) the
Company and Bradley shall execute an instrument in writing agreeing or
consenting to such amendment, modification, supplement, waiver or termination,
and (ii) the Company shall receive, in writing, the consent, approval, or vote
of the Holders of at least a majority of all Registrable Securities.
(b) Any action taken pursuant to and in compliance with paragraph
(a) of this ss.14 shall be binding upon the Company, Bradley and all Holders of
Registrable Securities, including all of such Holders who shall have failed or
refused to give a written consent or approval for such action.
ss.15. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes any prior understandings or agreements concerning the subject matter
hereof.
ss.16. Termination. This Agreement shall terminate in its entirety and be
of no further force or effect upon the seventh anniversary of the date of this
Agreement, provided that
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<PAGE> 13
Bradley's and Pledgor's obligations under ss.ss.7 and 8 hereof shall survive any
such termination.
ss.17. Successors and Assigns; Transfer of Registration Rights. This
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties, including without limitation and without the
need for express assignment, subsequent Holders of Registrable Securities.
Provided that the Company is given written notice by the Bank (or a transferee
thereof, as the case may be) at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned, the registration rights
under this Agreement may be transferred by the Bank, provided that such transfer
or assignment relates to at least 50,000 shares of DBI Common Stock or
securities and provided further that the transferee or assignee agrees in
writing to be bound by the terms of this Agreement.
ss.18. Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement. In making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by each of the parties hereto.
If you are in agreement with the foregoing, please sign the enclosed
counterpart of this Agreement and return such counterpart to the undersigned.
Very truly yours,
DEVLIEG-BULLARD, INC.
By: /s/ W. O. Thomas
------------------------
Title: President
---------------------
The foregoing is hereby accepted and agreed to by the undersigned Holder on
and as of the date first set forth above.
CORESTATES BANK, N.A.
By: /s/ Gerald D. Quill
----------------------------
Gerald D. Quill,
Senior Vice President
[Signatures continue on next page]
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<PAGE> 14
[Signature page continued]
The undersigned hereby accept and agree to be bound by and to perform all
of the obligations of the undersigned set forth in ss.6 and ss.7 of the
foregoing Agreement in accordance with the terms thereof.
/s/ Charles E. Bradley
-------------------------------
Charles E. Bradley
STANWICH OIL & GAS, INC.
By: /s/ Charles E. Bradley
----------------------------
Title: President
-------------------------
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EXHIBIT 10.2
THIRD AMENDMENT TO INVESTMENT AGREEMENT
THIS THIRD AMENDMENT TO INVESTMENT AGREEMENT ("Amendment"), dated as of
January 17, 1997, is made by and among (i) DEVLIEG-BULLARD, INC., a Delaware
corporation (the "Company"), (ii) BANC ONE CAPITAL PARTNERS CORPORATION, a Texas
corporation ("Banc One"), and PNC CAPITAL CORP, a Delaware corporation ("PNC")
(Banc One and PNC are sometimes collectively referred to as the "Senior Holders
or individually as a "Senior Holder"), (iii) CHARLES E. BRADLEY, SR., an
individual residing in Connecticut ("Bradley") and (iv) JOHN G. POOLE, an
individual residing in New York ("Poole") (Bradley and Poole are sometimes
collectively referred to as the "Junior Holders" or individually as a "Junior
Holder"; the Senior Holders and the Junior Holders are sometimes collectively
referred to as the "Holders").
W I T N E S S E T H:
WHEREAS, the Senior Holders, Allied (as defined in the Agreement) and
the Company entered in to that certain Investment Agreement dated as of May 25,
1994 (the "Original Agreement"), as amended by that certain First Amendment to
Investment Agreement dated as of October 23, 1995, by and among Senior Holders,
Allied, Junior Holders and the Company (the "First Amendment"), and that certain
Second Amendment to Investment Agreement dated as of April 12, 1996, by and
among Senior Holders, Junior Holders and the Company (the "Second Amendment";
the Original Agreement, the First Amendment and the Second Amendment are herein
collectively referred to as the "Agreement"), pursuant to which the Senior
Holders and Allied agreed to purchase $12,000,000 of subordinated debentures and
Junior Holders agreed to purchase $4,000,000 of junior debentures (the proceeds
of said junior debentures having been used to satisfy the senior debentures held
by Allied), all in accordance with, and as provided in, the Agreement; and
WHEREAS, the Company has requested that the Senior Holders and the
Junior Holders further amend the Agreement in certain respects; and
WHEREAS, Allied remains a "Holder" under the Agreement for limited
purposes only and, accordingly, is not required to join in this Amendment;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreement contained herein, intending to be legally bound hereby, the parties
agree as follows:
1. Paragraph 1.03 (Senior Debt) of the Agreement is hereby
deleted and the following is hereby substituted in lieu thereof:
1.03 Senior Debt. The indebtedness under the Debentures and
the Holders' rights herein shall be subordinate, as to lien priority
and right of payment, only to (a) senior bank or institutional
financing(s) in the aggregate amount of no
<PAGE> 2
more than Forty Million Dollars ($40,000,000), which financing(s) must
be on terms reasonably acceptable to Holders, pursuant to an
Intercreditor Agreement and Subordination Agreement in the form of
Exhibit 1.03 hereto, (b) capitalized leases aggregating in face amounts
of no more than Five Million Dollars ($5,000,000), including those set
forth as part of Exhibit 5.08(a) hereto, and (c) the indebtedness
evidenced by the Seller Note (Mattison). Such bank, institutional,
lease and other financings described in the foregoing sentence, as the
same may be renewed or replaced on terms that are no more
disadvantageous to Holders that the renewed or replaced terms, are
sometimes collectively called the "Senior Debt".
2. The definition of "Consolidated Fixed Charge Coverage Ratio"
set forth in the First Amendment is hereby deleted and the following is hereby
substituted in lieu thereof:
"Consolidated Fixed Charge Coverage Ratio" shall mean for any
period, a ratio determined as of the relevant calculation date by
dividing (a) Consolidated EBITDA by (b) the sum for such period of (i)
Consolidated Interest Expense (other than any such expense incurred
under the Seller Note (Mattison)), plus (ii) payments made on the term
portion of the Senior Debt (other than Term Loan III), plus (iii)
Capital Expenditures, plus (iv) income taxes of the Company and its
Consolidated Subsidiaries determined in accordance with GAAP.
3. The definitions of "Cumulative Lower EBITDA Target" and
"Cumulative Upper EBITDA Target" contained in Section 2.04(B) of the Agreement
are hereby amended as set forth on Schedule attached hereto; provided,
however, upon permanent reduction in all or a portion of the $11,000,000
increase in the indebtedness of the Company incurred in connection with the
Mattison Acquisition (consisting of an $8,000,000 increase in the maximum
indebtedness of the Company to CIT from $32,000,000 to $40,000,000, and the
$3,000,000 maximum indebtedness evidenced by the Seller Note (Mattison)), the
adjustments to such definitions as set forth in Schedule I will be reduced on
a pro rata basis (such that if the entire $11,000,000 increase is permanently
reduced to $0, the definitions currently set forth in the Agreement would
apply for all future periods). In accordance with the foregoing, because the
original principal amount of the Seller Note (Mattison) was reduced from
$3,000,000 to $2,600,000 due to certain adjustments made at the closing of the
Mattison Acquisition, the adjustments to such definitions are hereby reduced
on a pro rata basis.
4. As used in this Amendment, the following capitalized terms
shall have the following meanings:
"CIT" shall mean The CIT Group/Business Credit, Inc.
"Mattison Acquisition" shall mean the acquisition by the
Company of certain assets of Mattison Technologies, Inc. pursuant to
the provisions of that certain Asset Purchase Agreement dated December
18, 1996, by and between the Company and Mattison Technologies, Inc.
<PAGE> 3
"Seller Note (Mattison)" shall mean that certain Secured
Promissory Note dated January 16, 1997, executed by the Company and
payable to the order of Mattison Technologies, Inc., in the original
principal amount of $2,600,000.
"Term Loan III" shall mean that certain term loan from CIT to
the Company in the original principal amount of $2,000,000, evidenced
by that certain Term Loan III Promissory Note dated January 17, 1997,
executed by the Company and payable to the order of CIT.
5. The provisions of the Agreement shall remain in full force and
effect except as modified hereby.
IN WITNESS WHEREOF, the parties, by their duly authorized officers,
have executed and delivered this Third Amendment to Investment Agreement as of
the date first written above.
DEVLIEG-BULLARD, INC.
ATTEST: By: /s/ Lawrence M. Murray
----------------------------- ------------------------------------
Title: VP Fin & Secretary
-----------------------------
BANC ONE CAPITAL PARTNERS
CORPORATION
ATTEST: By: /s/ James H. Wolfe
----------------------------- ------------------------------------
Title: Managing Director
-----------------------------
PNC CAPITAL CORP
ATTEST: By: /s/ David J. Blair
----------------------------- ------------------------------------
Title: Sr. Vice President
-----------------------------
WITNESS: /s/ Estelle K. Mouchetis /s/ Charles E. Bradley
--------------------------- ----------------------------------------
CHARLES E. BRADLEY, SR.
WITNESS: /s/ Lisa Marie Randazzo /s/ John G. Poole
--------------------------- ----------------------------------------
JOHN G. POOLE
<PAGE> 4
SCHEDULE I
"Cumulative Lower EBITDA Target" shall mean, in
respect of any Valuation Date, the amount set forth opposite such Valuation Date
below.
"Cumulative Upper EBITDA Target" shall mean, in
respect of any Valuation Date, the amount set forth opposite such Valuation Date
below.
<TABLE>
<CAPTION>
Cumulative Cumulative
Lower EBITDA Upper EBITDA
Target(1) Target(1)
------------ ------------
<S> <C> <C>
8/1/95 through 7/31/96 $11,148,000 $ 12,878,000
8/1/95 through 7/31/97 22,943,000 29,882,000
8/1/95 through 7/31/98 37,127,000 51,829,000
8/1/95 through 7/31/99 52,416,000 75,545,000
8/1/95 through 7/31/00 68,263,000 100,525,000
</TABLE>
<PAGE> 1
EXHIBIT 11
DeVlieg-Bullard, Inc.
Computation of Earnings per Share
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 31, April 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 1,170 $ 689 $ 2,653 $(1,507)
======= ======= ======= =======
Average number of common
shares outstanding 12,260 12,250 12,253 12,250
Dilutive effect of outstanding
options (a) 456 225 345 (b)
Dilutive effect of outstanding
stock purchase warrants (a):
Class A (issued May 1994) 996 996 996 (b)
New Class A (issued October
1995) 498 498 498 (b)
Class B (c) 288 249 287 (b)
Class C (d) 748 747 747 (b)
------- ------- ------- -------
Total shares used in calculation of
earnings per share 15,246 14,965 15,126 12,250
======= ======= ======= =======
Income (loss) per share $ 0.08 $ 0.05 $ 0.18 $ (0.12)
======= ======= ======= =======
</TABLE>
(a) As determined by application of the treasury stock method
(b) Not included in calculation as effect would be antidilutive.
(c) The Class B stock purchase warrants are issuable in May 1997 using a
formula based on the average closing stock price for the 90 days prior
to issuance. The average stock price for that period was used here. The
Class B warrants became issuable on March 18, 1996, and have been
included since that date.
(d) In connection with the refinancing of the senior debt facility in
October 1995, 750,000 Class C stock purchase warrants ( "Class C
Warrants") were issued. The Company has the opportunity to earn back
these shares based on earnings as defined in the agreement. For all
periods presented, the Company did not meet the defined earnings level,
therefore all Class C Warrants are considered outstanding since
issuance.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 1,441
<SECURITIES> 0
<RECEIVABLES> 20,357
<ALLOWANCES> 588
<INVENTORY> 39,313
<CURRENT-ASSETS> 67,823
<PP&E> 27,302
<DEPRECIATION> 14,895
<TOTAL-ASSETS> 125,462
<CURRENT-LIABILITIES> 52,833
<BONDS> 14,555
0
0
<COMMON> 123
<OTHER-SE> 24,199
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 97,268
<TOTAL-REVENUES> 97,268
<CGS> 71,495
<TOTAL-COSTS> 71,495
<OTHER-EXPENSES> (23)
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 3,796
<INCOME-PRETAX> 4,527
<INCOME-TAX> 1,874
<INCOME-CONTINUING> 2,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,653
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
</TABLE>
