SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number 0-18198
DeVlieg-Bullard, Inc.
(Exact name of registrant as specified in its charter)
Delaware 62-1270573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gorham Island, Westport, CT 06880
(Address of principal executive offices) (Zip Code)
203-221-8201
(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 December 1, 1998 was
12,334,900.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DeVlieg-Bullard, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, July 31,
1998 1998
--------- ---------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 767 $ 365
Accounts receivable, net 22,518 24,895
Inventories, net 49,088 45,459
Other current assets 1,501 1,418
--------- ---------
Total current assets 73,874 72,137
Property, plant and equipment, net 8,469 8,781
Assets held for sale 1,692 1,692
Engineering drawings, net 16,200 16,393
Goodwill, net 10,900 11,025
Other assets, net 14,440 13,887
--------- ---------
Total assets $ 125,575 $ 123,915
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,577 $ 17,625
Accrued expenses and other current liabilities 7,203 10,007
Revolving credit agreement 29,153 25,670
Current portion of long-term debt 4,874 5,201
--------- ---------
Total current liabilities 61,807 58,503
Long-term debt (related party $4,375) 13,142 13,528
Postretirement benefit obligation 21,562 21,357
Other noncurrent liabilities 10,816 11,121
--------- ---------
Total liabilities 107,327 104,509
Stockholders' equity:
Common stock, $0.01 par value; authorized
30,000 shares; issued and outstanding
12,334,900 shares 123 123
Additional paid-in capital 34,230 34,230
Excess purchase price over net assets acquired from
related parties (16,242) (16,242)
Retained earnings 252 1,438
Cumulative translation adjustment (115) (143)
--------- ---------
Total stockholders' equity 18,248 19,406
--------- ---------
Total liabilities and stockholders' equity $ 125,575 $ 123,915
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
DeVlieg-Bullard, Inc.
Statement of Operations
(unaudited - in thousands, except per share data)
Three Months Ended
October 31,
1998 1997
-------- --------
Net sales $ 26,600 $ 26,483
Cost of sales 20,338 18,495
-------- --------
Gross profit 6,262 7,988
E S G & A expenses:
Engineering 609 496
Selling 2,985 2,744
General and administrative 3,409 2,968
-------- --------
Total E S G & A expenses 7,003 6,208
Other income, net 241 11
-------- --------
Operating (loss)/income (500) 1,791
Interest expense (including related party interest
of $176 and $171) 1,385 1,320
-------- --------
(Loss)/income before income taxes (1,885) 471
Income tax (benefit)/provision (699) 199
-------- --------
Net (loss)/income $ (1,186) $ 272
======== ========
(Loss)/income per common share:
Basic $ (0.08) $ 0.02
======== ========
Diluted $ (0.08) $ 0.02
======== ========
Average common shares and equivalents outstanding
Basic 14,107 14,060
======== ========
Diluted 14,107 15,465
======== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
DeVlieg-Bullard, Inc.
Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
Cash flows from operating activities: 1998 1997
-------- --------
<S> <C> <C>
Net (loss)/income $ (1,186) $ 272
Adjustments to reconcile net (loss)/income to net cash provided by
operating activities:
Depreciation and amortization 1,265 1,221
Deferred income taxes (762) --
Provision for losses on accounts receivable 151 47
Net gain on sale of assets (241) --
Changes in assets and liabilities, net of effects from acquisitions
Accounts receivable 2,226 3,103
Inventories (3,629) (1,578)
Other current assets (83) (74)
Accounts payable 2,952 882
Accrued expenses and other current liabilities (2,804) (2,690)
Other, net (103) (497)
-------- --------
Net cash (used for)/provided by operating activities (2,214) 686
Cash flows from investing activities:
Capital expenditures (149) (534)
Proceeds from sale of assets 241
-------- --------
Net cash provided by/(used for) investing activities 92 (534)
Cash flows from financing activities:
Borrowings under revolving credit agreement 30,378 30,302
Repayments under revolving credit agreement (26,895) (29,245)
Payments of long-term debt (987) (768)
-------- --------
Net cash provided by financing activities 2,496 289
Effect of exchange rate changes on cash 28 (59)
-------- --------
Net increase in cash and cash equivalents 402 382
Cash and cash equivalents at beginning of period 365 637
-------- --------
Cash and cash equivalents at end of period $ 767 $ 1,019
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,175 $ 1,166
Income taxes, net of refunds 27 13
</TABLE>
During the three months ended October 31, 1998 and 1997, the Company entered
into capital leases for computer equipment totaling $102 and $448, respectively,
which were financed by capital lease obligations.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
DeVlieg-Bullard, Inc.
Notes to Unaudited 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 the
management of DeVlieg-Bullard, Inc. (the "Company"), reflect all adjustments,
consisting of only normal recurring adjustments, necessary to fairly present the
financial position as of October 31, 1998 and the results of operations and cash
flows for the interim periods of the fiscal year ending July 31, 1999 ("fiscal
1999") and the fiscal year ended July 31, 1998 ("fiscal 1998") 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, 1998. Certain amounts in the fiscal 1998
financial statements have been reclassified to conform to the fiscal 1999
presentation.
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Amounts in these
notes, except per share data, are expressed in thousands.
NOTE 2: Inventories
October 31, July 31,
Inventories consisted of: 1998 1998
------- -------
(unaudited)
Raw materials $ 1,453 $ 1,620
Work-in-process 14,609 14,671
Finished goods 33,026 29,168
------- -------
$49,088 $45,459
======= =======
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$9,205 and $10,556 at October 31, 1998 and July 31, 1998, respectively.
Inventories valued using LIFO were $20,747 and $19,298 at October 31, 1998 and
July 31, 1998, respectively. There was no LIFO reserve against those
inventories. The financial accounting basis for the inventories of acquired
companies exceeds the tax basis of $12,224 at October 31, 1998 and July 31,
1998.
5
<PAGE>
NOTE 3: Segment Reporting
Financial information for each of the Company's segments is summarized below:
<TABLE>
<CAPTION>
Machine Tooling
Services Tool Systems Industrial
Group Group Group Group Corporate Total(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Three months ended October 31, 1998
Sales $ 9,691 $ 6,659 $ 4,424 $ 5,890 $ -- $ 26,664
Intersegment sales -- -- (64) -- -- (64)
Net sales 9,691 6,659 4,360 5,890 -- 26,600
Operating income (a) 1,209 (1,001) 220 (41) (887) (500)
Identifiable assets 52,089 31,668 18,063 8,495 15,260 125,575
Three months ended October 31, 1997
Net sales $ 9,509 $ 5,584 $ 5,322 $ 6,068 $ -- $ 26,483
Operating income 2,954 (1,540) 813 400 (836) 1,791
Identifiable assets 44,440 35,525 18,820 7,970 13,420 120,175
</TABLE>
(a) Interest expense and income taxes are primarily allocated as Corporate
expenses.
NOTE 4: Earnings per Share
The table below sets forth the computation of the weighted average number of
shares used for basic and diluted earnings per share:
Three months ended October 31,
1998 1997(c)
------ -------
Average common shares outstanding 12,335 12,275
Stock purchase warrants (a) 1,772 1,785
------ ------
Average common shares outstanding - basic 14,107 14,060
Effect of dilutive securities:
Contingently issuable stock purchase warrants (b) 748
Stock options -- (b) 657
------ ------
Average common shares outstanding - diluted 14,107 15,465
====== ======
(a) Class A and Class B Stock Purchase Warrants are included in the computation
of basic earnings per share.
(b) When a net loss is recorded, additional shares for stock options and
contingent stock purchase warrants are not included because their inclusion
would be antidilutive. Because the first quarter fiscal 1999 results
reflect a net loss, basic and diluted earnings per share are calculated
based on the same weighted average number of shares outstanding.
(c) Fiscal 1998 has been restated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share."
6
<PAGE>
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,
including its Services, Machine Tool, Tooling Systems and Industrial operating
groups. Amounts, except per share data, are expressed in thousands.
Three months ended October 31, 1998 compared to three months ended October 31,
1997.
Net sales for the first quarter of fiscal 1999 were $26,600, basically the same
as the $26,483 reported in the first quarter of fiscal 1998. First quarter
fiscal 1999 sales as compared to the first quarter of fiscal 1998 increased
19.3% for the Machine Tool Group and 1.9% for the Services Group, while the
Industrial Group declined 2.9% and the Tooling Systems Group declined 18.1%.
Gross profit for the first quarter of fiscal 1999 was $6,262 compared to $7,988
for the first quarter of fiscal 1998, a decrease of $1,726, or 21.6%.
Improvements at the Machine Tool Group were offset by declines at the other
operating groups.
E S G & A expenses were $7,003, or 26.3% of net sales in the first quarter of
fiscal 1999, and $6,208, or 23.4% of net sales, in the first quarter of fiscal
1998. The increase in operating expenses was primarily at the Services and
Machine Tool Groups for increased engineering expenses related to the
outsourcing efforts and at Powermatic for increased computer related costs.
Interest expense was $1,385 in the first quarter of fiscal 1999 compared to
$1,320 in the first quarter of fiscal 1998.
An income tax benefit of $699 was recorded for the first three months of fiscal
1999 reflecting the loss recorded for the period, compared to expense of $199
for the first three months of fiscal 1998 reflecting the income reported in the
prior year period.
Operating Results by Business Segment
Services Group sales were $9,691 for the first quarter of fiscal 1999 compared
to $9,509 for the same period in the prior year. The improvement was primarily
in the aftermarket parts business of National Acme, offset by declines in the
other aftermarket product lines and field services. Operating profit for the
first quarter of fiscal 1999 was $1,209, a decline of $1,745 from the $2,954
reported during the first quarter of the prior year. Operating expenses
increased as a result of engineering costs related to the outsourcing project
and gross profit was adversely effected by unfavorable purchase price variances
related to small quantity rush orders to fill immediate needs.
Machine Tool Group sales were $6,659 for the first three months of fiscal 1999,
an increase of $1,075, or 19.3%, over the $5,584 reported in the first three
months of the prior fiscal year. The Machine Tool Group reported an operating
loss of $1,001 for the first quarter of fiscal 1999, compared to a loss of
$1,540 in the same period a year ago. Although gross profit increased,
reflecting the additional sales volume and increased productivity, engineering
costs related to the outsourcing project were higher during the quarter compared
to the prior year.
Tooling Systems Group sales were $4,360 in the first quarter of fiscal 1999,
compared to $5,322 in the first quarter of the prior year, a decrease of $962,
or 18.1%, as a result of the GM strike during the summer and deteriorating world
business conditions. Operating income for the first quarter of fiscal 1999 was
$220, compared with $813 in the first quarter of the prior year. The decline in
operating income is the result of the decreased volume.
Industrial Group sales were $5,890 in the first quarter of fiscal 1999, compared
to $6,068 in the first quarter of the prior year, a decrease of $178, or 2.9%.
Operating income was a loss of $41 for the first quarter of
7
<PAGE>
fiscal 1999, compared to income of $400 in the same period a year ago. The
decline in operating income is due to additional depreciation related to a
computer upgrade and repairs and maintenance expense.
Liquidity and Capital Resources
Cash Flows
Historically, the Company's continuing operations have been financed by
internally generated funds. Acquisitions have been funded with increases in
indebtedness, while funds from divestitures have generally been used to reduce
indebtedness. As the operating difficulties the Company reported in fiscal 1998
continued into the first quarter of fiscal 1999, operating activities were
financed by increasing indebtedness.
The Company experienced a lack of availability of parts from venders during the
first quarter of fiscal 1999 due in part to a lack of availability under the
senior credit facility. The Company's liquidity position improved following the
end of the first quarter as a result of increases in term loans and in the
amount available under the revolving credit agreement. Liquidity further
improved from the shipment of certain large machine orders from the Machine Tool
Group following the end of the first quarter. Total accounts payable have been
reduced from $20.6 million at October 31, 1998 to $16.8 million at November 30,
1998, a 19% reduction. Normal seasonal issues with sales and orders and a low,
but improving, vendor on-time delivery performance continue to hold down overall
performance.
Net cash used by operations was $2,214 for the three months ended October 31,
1998 as compared to net cash provided by operating activities of $686 for the
three months ended October 31, 1997.
Cash used for capital expenditures was $149 and $534 for the first quarter of
fiscal 1999 and 1998, respectively. The first quarter of fiscal 1999 includes
$241 of proceeds from the sale of excess machinery and equipment.
Financing and Investing
The balance outstanding under the Company's revolving credit agreement was
$29,153 at October 31, 1998, compared to $25,670 at July 31, 1998. Long-term
debt, including current maturities, at October 31, 1998, was $18,016, compared
to $18,729 at July 31, 1998, a decrease of $713. The Company's total
indebtedness was $47,169 and $44,399 at October 31, 1998 and July 31, 1998,
respectively, an increase of $2,770. The increase in debt was used to finance
working capital needs. Cash and equivalents at October 31, 1998 were $767, an
increase of $402 compared to July 31, 1998. Net cash provided by financing
activities was $2,496 in the first quarter of fiscal 1999 compared to a use of
$289 in the first quarter of the prior year.
The senior credit facility aggregating $40,000 is comprised of $6,000 in term
loans and a revolving credit agreement, which provides for borrowings up to
$30,000. Interest on the 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 8.41% at October 31, 1998. 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. The Company has no unused borrowings available under its revolving
credit
8
<PAGE>
agreement at October 31, 1998. However, with changes negotiated to the agreement
subsequent to the quarter (see below), availability is estimated at
approximately $1,000 on December 11, 1998.
The term loans require monthly principal payments of $200. 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 8.66%
at October 31, 1998.
On November 6, 1998, the Company and its lenders agreed to certain amendments to
the senior credit agreement to provide, among other changes, for an increase in
the total available under the revolving credit facility from $30,000 to $31,500;
a change in the financial statement covenants effective from August 1, 1998; and
an increase in the pricing on the revolving credit agreement from 1% above prime
to 1.25% above prime.
The lenders on the senior credit agreement also agreed to provide the Company
with a new term loan of $2,500. In connection with this new term loan, principal
repayments on all term loans were kept at $200 per month, however, the effective
interest rate was increased effective November 1, 1998 to 1.5% above prime. As a
result of the increase in the principal amount, but keeping the amortization the
same, the Company has a balloon payment of $1,600 on the term loans at the final
maturity in fiscal 2001. The terms of the amended credit agreement provide that
proceeds from the sale or disposition of fixed assets are to be applied to the
term loans in reverse order of maturity. Since the Company is planning to
dispose of certain fixed assets during fiscal year 1999, it is likely that the
proceeds from these dispositions will substantially reduce the balloon payment
on these term loans. The fixed assets being disposed of are principally the
excess facilities associated with the special charge recorded by the Company in
fiscal 1998.
Pursuant to the subordinated debt facility, the Company has Subordinated
Debentures in the principal amount of $8,000 and Junior Subordinated Debentures
in the principal amount of $4,000 plus accrued interest of $375. Interest
payments on the Subordinated Debentures of 11.5% per annum are payable quarterly
in arrears commencing July 1, 1994. 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 on the Junior Subordinated Debentures accrues at 14.5%,
and the cash interest of 11% per annum is payable quarterly in arrears
commencing January 1, 1996. The Junior Subordinated Debentures provide for the
repayment of principal of $4,000 and unpaid interest in June 2001 or thirty days
after the payment of the Subordinated Debentures.
The Subordinated Debenture Holders have agreed to the amendment of certain
provisions in the senior credit agreement, and in connection with these changes,
certain other changes have been negotiated in the subordinated debt facility,
including a change in the financial statement covenants effective August 1, 1998
and a deferral in the payment date for the $2,000 principal payment due in May
1999.
The Company continues to make progress in implementing its outsourcing program.
Normal seasonal issues affecting sales and orders in November and December and a
still low, although improving, vendor on-time delivery performance, however,
continue to strain the Company's liquidity position. The Company is discussing
with both external and internal sources obtaining up to $1.0 million of
additional financing. The Company believes such financing, together with cash
flows from operations and amounts available under the revolving credit facility,
will be sufficient to fund the Company's operations during the remainder of
fiscal 1999. The Company's failure to obtain such financing on acceptable terms,
however, would likely adversely affect the Company's results of operations.
9
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries to represent years. These systems and products
will need to be able to accept four digit entries to distinguish years beginning
with 2000 from prior years. As a result, systems and products that do not accept
four digit year entries will need to be upgraded or replaced to comply with such
"Year 2000" requirements.
The Company believes that its internal systems are Year 2000 compliant or will
be replaced in connection with previously planned upgrades to information
systems prior to the need to comply with Year 2000 requirements. The Company
believes that, with modifications to existing software and conversions to new
systems, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or not completed timely, the Year 2000 issue could have a material impact
on the operations of the Company. In order to assure that this does not occur,
the Company plans to devote all resources required to resolve any significant
year 2000 issues in a timely manner. A number of the Company's customers and
suppliers may also be affected by the Year 2000 issue that require that they
expend significant resources to modify or replace their existing systems; their
failure to properly address the Year 2000 issue could have significant impact on
the Company's operations.
The Services and Machine Tool Groups (which operate off one computer system)
will be upgrading to a new system that will provide substantially greater
functionality, particularly in the area of materials requirement planning. The
Tooling Systems Group is installing the same system, while the Industrial Group
has completed their installation of the same software. The total expected costs
for these upgrades is approximately $2,800, of which approximately $500 has
already been spent. A significant amount of fiscal 1999 capital expenditures
will be devoted to upgrading current hardware and software to add capabilities
and comply with Year 2000 issues.
The Company expects to complete the system upgrades by the summer of 1999.
However, if there is a delay in new system installation, management believes the
existing systems can be upgraded to Year 2000 compliance in a relatively short
period of time.
Cautionary Factors
The discussions in this document may include certain forward-looking statements.
Actual results could differ materially from those reflected by the
forward-looking statements contained in this document and a number of factors
may affect future results, liquidity and capital resources. These factors
include: the ability of the Company to obtain sufficient parts from its vendors;
the ability of the Company to obtain trade credit from those vendors on
favorable terms; the fact that the Company derives a substantial portion of its
sales from cyclical industries, including the automotive, aerospace and housing
industries; the ability to introduce new products in a timely fashion; the pace
of technological changes affecting the products manufactured and services
provided by the Company; the Company's substantial debt service requirements,
much of which are based on variable rates; the dependence of the Company's
growth on acquisitions and the Company's ability to finance such acquisitions
and to profitably integrate the acquired operations; the level of margins
achievable in the markets served by the Company; and the ability to continue to
minimize operating expenses. Although the Company believes it has the business
strategy and resources needed for improved operations, future sales and margin
trends cannot be reliably predicted.
10
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fifth Amendment to Amended and Restated Financing and Security Agreement
dated November 10, 1998 among DeVlieg-Bullard, Inc., the CIT Group/Business
Credit, Inc. and BNY Financial Corporation.
10.2 Agreement dated November 5, 1998 among BancOne Capital Partners
Corporation, PNC Capital Corporation and DeVlieg-Bullard, Inc. concerning
amendments to the Investment Agreement.
27 Financial Data Schedules (SEC use only)
(b) Reports on Form 8-K
During the quarter ended October 31, 1998, the Company did not file any reports
on Form 8-K.
11
<PAGE>
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: December 15, 1998 By: /s/ W. O. Thomas
-------------------------------------
President and Chief Executive Officer
(Acting Chief Accounting Officer
12
Exhibit 10.1 EXECUTION COPY
FIFTH AMENDMENT TO AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
FIFTH AMENDMENT TO AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
("Fifth Amendment") dated as of November 6, 1998 among DEVLIEG-BULLARD, INC.
(the "Borrower"), THE CIT GROUP/BUSINESS CREDIT, INC. ("CITBC"), BNY FINANCIAL
CORPORATION ("BNYFC") (each of CITBC and BNYFC referred to as a "Lender" and
collectively, the "Lenders") and THE CIT GROUP/BUSINESS CREDIT, INC., as agent
for the Lenders (in such capacity, together with its successors in such
capacity, the "Lenders Agent").
PRELIMINARY STATEMENT. Reference is made to the Amended and Restated
Financing and Security Agreement dated as of January 17, 1997 among the
Borrower, CITBC, each other lender which may thereafter execute and deliver an
instrument of assignment under the Financing Agreement pursuant to Section 9(18)
and the Lenders Agent, as amended by a First Amendment to Amended and Restated
Financing and Security Agreement dated as of April 1, 1997, as amended by a
Second Amendment to Amended and Restated Financing and Security Agreement dated
as of September 17, 1997, as amended by a Third Amendment to Amended and
Restated Financing and Security Agreement dated as of December 29, 1997 and as
amended by the Fourth Amendment to Amended and Restated Financing and Security
Agreement dated as of March 11, 1998 (the "Fourth Amendment") (as it may be
further amended, supplemented or modified from time to time, the "Financing
Agreement"). Any term used in this Fifth Amendment and not otherwise defined in
this Fifth Amendment shall have the meaning assigned to such term in the
Financing Agreement.
The parties hereto have agreed to amend certain terms and provisions of the
Financing Agreement as hereinafter set forth.
SECTION 1. Amendments to Financing Agreement. The Financing Agreement is,
subject to the satisfaction of the conditions precedent set forth in Section 3
hereof, hereby amended as follows:
(a) The following exhibit is to be added in its proper sequential
order to the list of Exhibits:
Exhibit A2 - Form of Additional Term Loan Promissory Note
(b) The following definitions shall be added in their proper
alphabetical order:
"'Additional Term Loan' shall have the meaning specified in Section
4(4)."
"'Additional Term Loan Guaranty Agreement' shall mean the guaranty
agreement dated as of November 6, 1998 by Mr. Charles E. Bradley, Sr.
in favor of the Lenders."
<PAGE>
"'Additional Term Loan Promissory Note' shall mean the note, in the
form of Exhibit A2 attached hereto, delivered by the Borrower to each
Lender to evidence each such Lender's respective portion of the
Additional Term Loan pursuant to, and repayable in accordance with,
the provisions of Section 4 of this Financing Agreement."
"'Fifth Amendment Fee' shall mean a fee equal to Seventy-Five Thousand
Dollars ($75,000)."
"'Fourth Closing Date' shall mean November 6,1998."
"'Term Loan Final Payment Date' shall mean the date upon which the
Borrower repays all outstanding principal and interest on the Term
Loan."
"'Term Loans' shall have the meaning specified in Section 4(4)."
(c) The definition of "Consolidated Fixed Charge Coverage Ratio" is
amended by adding "s" to the end of "Term Loan" in the sixth line.
(d) The definition of "Default Rate of Interest" is amended by
deleting "four percent (4%)" in the second and third lines and by replacing
it with "four and one-quarter percent (4.25%)".
(e) The definition of "Early Termination Fee" is amended by deleting
"Third" before "Closing Date" in the fifth, sixth, eighth, ninth and
eleventh lines and replacing it with "Fourth".
(f) The definition of "Final Maturity Date" is amended in full to read
as follows:
"'Final Maturity Date' means October 1, 2001."
(g) The definition of "Loan Documents" is amended by adding "the
Additional Term Loan Promissory Note, the Additional Term Loan Guaranty
Agreement," after "Promissory Note," in the fifth line.
(h) The definition of "Mandatory Prepayment" is amended by adding "s"
to the end of "Term Loan" in the fifth line.
(i) The definition of "Monthly Date" is amended by deleting "last"
before "business day" in the first line and replacing it with "first".
(j) The definition of "Revolving Line of Credit" is amended in full to
read as follows:
"'Revolving Line of Credit' shall mean the commitment of the Lenders
to make loans and advances, pursuant to Section 3 of this Financing
Agreement, to the Borrower in a maximum outstanding principal amount
2
<PAGE>
of (i) for all periods prior to November 2, 1998, $30,000,000 and (ii)
from November 2, 1998 and thereafter, $31,500,000."
(k) The following definition of "the Term Loan" shall be deleted from
the Fourth Amendment:
In each of the Loan Documents each of "any Term Loan", "any of
the Term Loans", "such Term Loan", "the Term Loans" and "Term Loans"
is changed to "the Term Loan".
(l) The definition of the "Term Loan Notes" is amended in its entirety
as follows:
"'Term Loan Notes' shall mean the Term Loan Promissory Note and the
Additional Term Loan Promissory Note."
(m) Section 3, Revolving Loans, is amended by adding "(i) for all
periods prior to November 2, 1998," after "(a)" in the twelfth line and by
adding "and (ii) from November 2, 1998 and thereafter $31,500,000," after
"$30,000,000" in the twelfth line.
(n) Sections 4(4) through 4(7), Term Loans, are amended in full to
read as follows:
"4. The Lenders and the Borrower acknowledge that in excess of
Two Million Five Hundred Thousand Dollars ($2,500,000) of the
Revolving Loans made pursuant to and as defined in this Financing
Agreement remains outstanding and the Lenders agree on the terms and
conditions set forth in the Fifth Amendment, to make a term loan (the
"Additional Term Loan") to the Borrower on the Fourth Closing Date in
the principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000). Amounts prepaid on the Additional Term Loan cannot be
reborrowed. The Term Loan and the Additional Term Loan are
collectively referred to as the "Term Loans".
5. The Borrower hereby agrees to execute and deliver to each
Lender the Additional Term Loan Promissory Note, in the form of
Exhibit A2 attached hereto, to evidence the Additional Term Loan made
by such Lender on the Fourth Closing Date.
6. The principal amount of the Additional Term Loan shall be
repaid to the Lenders by the Borrower in monthly installments with the
first installment due on the Term Loan Final Payment Date and equal to
$200,000 minus the payment made on the Term Loan Final Payment Date
with respect to the Term Loan, and subsequent installments, each in
the amount of $200,000, to be due on each Monthly Date thereafter to
and including September 1, 2001 and with one (1) final installment of
the remaining principal amount outstanding, plus all other amounts
having
3
<PAGE>
accrued and outstanding, payable on October 1, 2001."
7. Mandatory Prepayments shall be made with respect to the Term
Loans within 90 days after the end of each fiscal year of the
Borrower, commencing with the fiscal year ended July 31, 1998, in an
amount equal to fifty percent (50%) of Excess Cash Flow of the
Borrower for such fiscal year. The proceeds of all of these
prepayments shall be applied first to the Term Loan's scheduled
installments of principal in the inverse order of maturity and then to
the Additional Term Loan's scheduled installments of principal in the
inverse order of maturity."
(o) The following paragraphs are to be added after paragraph 7 in
Section 4:
"8. The Borrower may prepay any or all of the Term Loans in whole
or in part at any time, at its option; provided, however, that on each
such prepayment, the Borrower shall pay accrued interest on the
principal so prepaid to the date of such prepayment. Each optional
prepayment made pursuant to this paragraph 8 shall be applied first to
the last installment under the Additional Term Loan, second to the
last maturing installment(s) of principal on the Term Loan and then to
the remaining maturing installment(s) of principal on the Additional
Term Loan.
9. In the event this Financing Agreement and the Revolving Line
of Credit are terminated by either the Lenders or the Borrower for any
reason whatsoever, the Term Loans shall become due and payable on the
effective date of such termination, notwithstanding any provision to
the contrary in the Term Loan Notes.
10. The Borrower hereby authorizes Lenders Agent to charge its
Revolving Loan account with the amount of all amounts due under this
Section 4 as such amounts become due. The Borrower confirms that any
charges which Lenders Agent may so make to its account as herein
provided will be made as an accommodation to the Borrower and solely
at Lenders Agent's discretion."
(p) Section 7(16), Application of Proceeds, is amended by adding "The
proceeds of the Additional Term Loan made on the Fourth Closing Date will
be used to repay the outstanding Revolving Loans." before "The other
proceeds" in the nineteenth line.
(q) Section 8(5)(b)(I), Insurance, is amended by adding "s" to the end
of "Term Loan" in the third and fourth lines.
(r) Section 8(10), Minimum Consolidated Net Worth, is amended in full
to read as follows:
"10. Minimum Consolidated Net Worth. The Borrower and its
Consolidated Subsidiaries shall have as of each date specified below a
Consolidated Net Worth of not less than the amount specified below for
4
<PAGE>
such date:
Date Amount
---- ------
October 31, 1998 $16,000,000
January 31, 1999 $16,000,000
April 30, 1999 $19,000,000
July 31, 1999 $19,000,000
October 31, 1999 $19,000,000
January 31, 2000 $20,000,000
April 30, 2000 $21,000,000
July 31, 2000 and each Quarterly $22,000,000
Date thereafter"
(s) Section 8(11), Consolidated Interest Coverage Ratio, is amended in
full to read as follows:
"11. Consolidated Interest Coverage Ratio. The Borrower and its
Consolidated Subsidiaries will have for each period specified below a
Consolidated Interest Coverage Ratio of not less than the ratio
specified below for such period:
Period Ratio
------ -----
For the one quarter ended October 0.45 to 1.00
31, 1998
For the two quarters (taken 1.10 to 1.00
together as a whole) ended
January 31, 1999
For the three quarters (taken 2.00 to 1.00
together as a whole) ended April
30, 1999
For the four quarters (taken 2.20 to 1.00
together as a whole) ended July
31, 1999
For the four quarters (taken 2.40 to 1.00
together as a whole) ended
October 31, 1999
For the four quarters (taken 2.60 to 1.00
together as a whole) ended
January 31, 2000
For the four quarters (taken 2.80 to 1.00
together as a whole) ended April
30, 2000
For the four quarters (taken 3.20 to 1.00
together as a whole) ended on
each of July 31, 2000 and each
Quarterly Date thereafter"
5
<PAGE>
(t) Section 8(12), Consolidated Total Liabilities to Consolidated Net
Worth, is amended in full to read as follows:
"12. Consolidated Total Liabilities to Consolidated Net Worth.
The Borrower and its Consolidated Subsidiaries will not as of any date
specified below have a ratio of Consolidated Total Liabilities to
Consolidated Net Worth of greater than the ratio specified below for
such date:
Date Ratio
---- -----
October 31, 1998 6.00 to 1.00
January 31, 1999 6.00 to 1.00
April 30, 1999 5.00 to 1.00
July 31, 1999 5.00 to 1.00
October 31, 1999 5.00 to 1.00
January 31, 2000 5.00 to 1.00
April 30, 2000 5.00 to 1.00
July 31, 2000 and each Quarterly 4.00 to 1.00
Date thereafter"
(u) Section 8(13), Consolidated Current Ratio, is amended in full to
read as follows:
"13. Consolidated Current Ratio. The Borrower and its
Consolidated Subsidiaries will have on each date specified below a
ratio of Consolidated Current Assets to Consolidated Current
Liabilities of not less than the ratio specified below for such date:
Date Ratio
---- -----
October 31, 1998 1.20 to 1.00
January 31, 1999 1.20 to 1.00
April 30, 1999 1.20 to 1.00
July 31, 1999 1.30 to 1.00
October 31, 1999 1.30 to 1.00
January 31, 2000 1.30 to 1.00
April 30, 2000 1.30 to 1.00
July 31, 2000 and each Quarterly 1.00 to 1.00
Date thereafter"
(v) Section 8(14), Consolidated Fixed Charge Coverage Ratio, is
amended in full to read as follows:
"14. Consolidated Fixed Charge Coverage Ratio. The Borrower and
its Consolidated Subsidiaries shall maintain at the end of each period
a Consolidated Fixed Charge Coverage Ratio of not less than the
following:
Period Ratio
------ -----
For the one quarter ended October .45 to 1.00
31, 1998
For the two quarters (taken .65 to 1.00
together as a whole) ended
January 31, 1999
For the three quarters (taken .85 to 1.00
together as a whole) ended April
30, 1999
For the four quarters (taken .90 to 1.00
together as a whole) ended July
31, 1999
For the four quarters (taken 1.00 to 1.00
together as a whole) ended
October 31, 1999
For the four quarters (taken 1.00 to 1.00
together as a whole) ended
January 31, 2000
For the four quarters (taken 1.00 to 1.00
together as a whole) ended April
30, 2000
For the four quarters (taken 1.10 to 1.00
together as a whole) ended on
each of July 31, 2000 and each
Quarterly Date thereafter"
6
<PAGE>
(w) Section 8(15), Consolidated EBITDA, is amended in full to read as
follows:
"15. Consolidated EBITDA. The Borrower and its Consolidated
Subsidiaries shall have for each period specified below an amount of
Consolidated EBITDA of not less than the amount specified below for
such period:
Period Amount
------ ------
For the one quarter ended October $450,000
31, 1998
For the two quarters (taken $2,000,000
together as a whole) ended
January 31, 1999
For the three quarters (taken $6,500,000
together as a whole) ended April
30, 1999
For the four quarters (taken $7,000,000
together as a whole) ended July
31, 1999
For the four quarters (taken $8,000,000
together as a whole) ended
October 31, 1999
For the four quarters (taken $9,500,000
together as a whole) ended
January 31, 2000
For the four quarters (taken $11,000,000
together as a whole) ended April
30, 2000
For the four quarters (taken $12,000,000
together as a whole) ended on
each of July 31, 2000 and each
Quarterly Date thereafter"
(x) Section 9(1), Interest on Revolving Loans, is amended by adding
"and one-quarter" after "one" in the fourth, sixth and twentieth lines, by
deleting "(1.0%)" in the fourth line and replacing it with "(1.25%)", by
deleting "(3.0%)" in the sixth line and replacing it with "(3.25%)" and by
deleting "(1.00%)" in the twentieth line and replacing it with "(1.25%)".
7
<PAGE>
(y) Section 9(2), Interest on Term Loan, is amended by adding "s" at
the end of "Term Loan" in the heading, by deleting "one-quarter" in the
fourth, sixth and tenth lines and replacing it with "one-half", by deleting
"(1.25%)" in the fourth and tenth lines and replacing it with "(1.50%)" and
by deleting "(3.25%)" in the seventh line and replacing it with "(3.50%)".
(z) Section 9(3)(a), Substituted Interest Rate at Option of Borrower,
is amended by deleting "(3%)" in the ninth line and replacing it with
"(3.25%)", by deleting "(3.25%)" in the tenth line and replacing it with
"(3.50%)", by deleting "(1.0%)" in the eighteenth line and replacing it
with "(1.25%)" and by deleting "(1.25%)" in the nineteenth line and
replacing it with "(1.50%)".
(aa) Section 9(3)(c), Substituted Interest Rate at Option of Borrower,
is amended by adding "and one-quarter" after "the Chase Bank Rate plus one"
in the seventh, eleventh and sixteenth lines, by deleting "(1.0%)" in the
seventh, eleventh and sixteenth lines and replacing it with "(1.25%)", by
deleting "one-quarter" in the seventh, eleventh and sixteenth lines and
replacing it with "one-half" and by deleting "(1.25%)" in the eighth,
twelfth and seventeenth lines and replacing it with "(1.50%)".
(bb) Section 11(1)(j), Events of Default and Remedies, is amended in
full to read as follows:
"(j) without the prior written consent of all the Lenders, the
Borrower shall (x) amend or modify the Subordinated Debt, except
pursuant to the letter agreement dated November 5, 1998 by Borrower to
Banc One Capital Partners Corporation and PNC Capital Corp. or (y)
make any payment on account of the Subordinated Debt except as
permitted herein or pursuant to the letter agreement dated November 5,
1998 by Borrower to Banc One Capital Partners Corporation and PNC
Capital Corp."
(cc) Section 11(1), Events of Default and Remedies, is amended by
adding the following paragraph after the last paragraph:
"(m) if within 25 days of the Fourth Closing Date, the parties to the
Investment Agreement dated May 25, 1994, as amended, among Borrower,
Allied Investment Corporation, Allied Investment Corporation II,
Allied Capital Corporation II, Banc One Capital Partners Corporation
and PNC Capital Corp., Charles E. Bradley, Sr. and John G. Poole, have
not executed documents implementing the terms of the letter agreement
dated November 5, 1998 by Borrower to Banc One Capital Partners
Corporation and PNC Capital Corp. and delivered such documents to the
Lender's Agent."
8
<PAGE>
SECTION 2. Revolving Loans Promissory Notes. The Second Amended and
Restated Revolving Loans Promissory Note dated April 1, 1997 made by CITBC for
the benefit of the Borrower is, effective as of the date hereof and subject to
the satisfaction of the conditions precedent set forth in Section 3 hereof,
hereby amended by deleting "$18,750,000" in the forepart and replacing it with
"$19,687,500" and by deleting "Eighteen Million Seven Hundred Fifty Thousand
Dollars ($18,750,000)" in the ninth line and replacing it with "Nineteen Million
Six Hundred Eighty Seven Thousand Five Hundred Dollars ($19,687,500)". The
Revolving Loans Promissory Note dated April 1, 1997 made by BNYFC for the
benefit of the Borrower is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, hereby
amended by deleting "$11,250,000" in the forepart and replacing it with
"$11,812,500" and by deleting "Eleven Million Two Hundred Fifty Thousand Dollars
($11,250,000)" in the ninth line and replacing it with "Eleven Million Eight
Hundred Twelve Thousand Five Hundred Dollars ($11,812,500)".
The Borrower hereby authorizes each Lender to annotate their respective
Revolving Loans Promissory Note to reflect the above stated change in the
principal amount.
SECTION 3. Conditions of Effectiveness. This Fifth Amendment shall become
effective as of the date on which each of the following conditions has been
fulfilled:
(a) Fifth Amendment. The Borrower, CITBC, BNYFC, and the Lenders Agent
shall each have executed and delivered this Fifth Amendment;
(b) The Additional Term Loan Promissory Notes. Each of CITBC and BNYFC
shall have received their respective Additional Term Loan Promissory Note
payable to it and each duly executed and delivered by the Borrower with all
blanks appropriately filled in.
(c) Fifth Amendment Fee. Payment in full by the Borrower of the Fifth
Amendment Fee.
(d) Board Resolution. Lenders Agent shall have received a copy of the
resolutions of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of (i) this Fifth Amendment and (ii)
any related agreements, in each case certified by the Secretary or
Assistant Secretary of such Person as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of such Person as to
the incumbency and signature of the officers of such Person executing this
Fifth Amendment and any certificate or other documents to be delivered by
it pursuant hereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
(e) Opinions. The Borrower shall have delivered to Lenders Agent a
favorable opinion of Bass Berry & Sims satisfactory to Lenders and their
special counsel dated the Fourth Closing Date.
(f) Fees and Expenses. On the Fourth Closing Date, subject to the
credit presently available to the Borrower, the Borrower shall have
reimbursed Lenders and Lenders Agent for all Out-of-Pocket Expenses for
which a request for payment shall have been made at or prior to the Fourth
Closing Date.
9
<PAGE>
(g) Officer's Certificate. The following statements shall be true and
the Lenders Agent shall have received a certificate signed by a duly
authorized officer of the Borrower dated the date hereof stating that,
after giving effect to this Fifth Amendment and the transactions
contemplated hereby:
(i) The representations and warranties contained in each of the
Loan Documents are true and correct on and as of the date hereof as
though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing;
(h) Legal Bills. Dewey Ballantine LLP has been paid in full for all
past due legal fees, costs and expenses and for all fees, costs and
expenses in connection with this Fifth Amendment.
(i) Additional Term Loan Guaranty Agreement. The Borrower shall have
delivered to Lenders Agent the Additional Term Loan Guaranty Agreement,
duly executed by Mr. Charles Bradley.
(j) Other Documents. The Bank shall have received such other
approvals, opinions or documents as the Bank may reasonably request.
SECTION 4. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof each reference in the Financing Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference
in the other Loan Documents to the Financing Agreement, shall mean and be a
reference to the Financing Agreement as amended hereby.
(b) The execution, delivery and effectiveness of this Fifth Amendment
shall not operate as a waiver of any right, power or remedy of the Bank
under any of the Loan Documents, nor constitute a waiver of any provision
of any of the Loan Documents, and, except as specifically provided herein,
the Financing Agreement and each other Loan Document shall remain in full
force and effect and are hereby ratified and confirmed.
10
<PAGE>
SECTION 5. Governing Law. This Fifth Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. Headings. Section headings in this Fifth Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Fifth Amendment for any other purpose.
SECTION 7. Counterparts. This Fifth Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Fifth Amendment by signing any
such counterpart.
[INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to
be duly executed as of the day and year first above written.
DEVLIEG-BULLARD, INC.,
as Borrower
By /s/ Thomas V. Gilboy
-----------------------------------
Name: Thomas V. Gilboy
Title: Chief Financial Officer
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Lender
By /s/ Renee M. Singer
-----------------------------------
Name: Renee M. Singer
Title: V.P.
BNY FINANCIAL CORPORATION,
as Lender
By /s/ Anthony P. Vassallo
-----------------------------------
Name: Anthony Vassallo
Title: VP
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Lenders Agent
By /s/ Renee M. Singer
-----------------------------------
Name: Renee M. Singer
Title: V.P.
12
<PAGE>
Exhibit A2
ADDITIONAL TERM LOAN PROMISSORY NOTE
$______________ New York, New York
___________ __, 1998
FOR VALUE RECEIVED, the undersigned, DeVlieg-Bullard, Inc., a Delaware
corporation (herein the "Borrower"), promises to pay to the order of The CIT
Group/Business Credit, Inc. ("CITBC"), at CITBC offices located at 1211 Avenue
of the Americas, New York, New York 10036, in lawful money of the United States
of America and in immediately available funds, the principal amount of
_____________ Million Dollars ($_____________) in monthly installments with the
first installment due on the Term Loan Final Payment Date and equal to $200,000
minus the payment made on the Term Loan Final Payment Date with respect to the
Term Loan, and subsequent installments, each in the amount of $200,000, to be
due on each Monthly Date thereafter to and including September 1, 2001, and with
one (1) final installment of the remaining principal amount outstanding, plus
all other amounts having accrued and outstanding, payable on October 1, 2001.
The Borrower further agrees to pay interest at said office, in like money,
on the unpaid principal amount owing hereunder from time to time from the date
hereof on the date and at the rate specified in the Financing Agreement referred
to below. Any amount of principal hereof which is not paid when due, whether at
stated maturity, by acceleration, or otherwise, shall bear interest from the
date when due until said principal amount is paid in full, payable on demand at
a rate per annum equal at all times to the Default Rate of Interest.
If any payment on this Additional Term Loan Promissory Note (the "Note")
becomes due and payable on a day other than a business day, the maturity shall
be extended to the next succeeding business day, and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
This Note is one of the Term Loan Promissory Notes referred to in the
Amended and Restated Financing Security Agreement, dated as of January 17, 1997,
between the Borrower and CITBC as amended by a First Amendment to Amended and
Restated Financing and Security Agreement dated as of April 1, 1997, as amended
by a Third Amendment to Amended and Restated Financing and Security Agreement
dated as of September 17, 1997, as amended by a Fourth Amendment to Amended and
Restated Financing and Security Agreement dated as of March 11, 1998 and amended
by a Fifth Amendment to Amended and Restated Financing and Security Agreement
dated as of November __, 1998 (as it may be amended, modified or supplemented
from time to time, the "Financing Agreement") and is subject to, the entitled
to, all provisions and benefits and is subject to optional and mandatory
prepayment, in whole or in part, as provided therein. Terms defined in the
Financing Agreement are used herein with their defined meanings unless otherwise
defined herein.
<PAGE>
Upon the occurrence of any one or more of the Events of Default specified
in the Financing Agreement or upon termination of the Financing Agreement, all
amounts then remaining unpaid on this Note may become, or be declared to be
immediately due and payable, all as provided in the Financing Agreement.
This Note is secured by certain Loan Documents, including the Financing
Agreement, and is guaranteed as provided in the Financing Agreement, reference
to which is hereby made for a description of the Collateral and guarantees
provided for under such Loan Documents and the rights of CITBC with respect to
such Collateral and guarantees.
The Borrower hereby waives presentment, notice of dishonor, protest and any
other notice or formality with respect to this Additional Term Loan Promissory
Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
DEVLIEG-BULLARD, INC.
By ______________________________
Name:
Title:
2
Exhibit 10.2
[COMPANY LOGO]
DeVlieg-Bullard, Inc.
One Gorham Island
WESTPORT, CONNECTICUT 06880
TEL (203) 221-8201 * FAX (203) 221-0780
November 5, 1998
Banc One Capital Partners Corporation
10 W. Broad St., Suite 400
Columbus, Ohio 43215
Attn.: James H. Wolfe
PNC Capital Corporation
Fifth Avenue and Wood Street
19th Floor
Pittsburgh, Pennsylvania 15222
Attn.: David J. Blair
Gentlemen:
As a result of our meeting on Wednesday, the following is intended to summarize
the proposed amendments to the Investment Agreement dated May 25, 1994, as
amended (the "Investment Agreement"), among DeVlieg-Bullard, Inc. (the
"Company"), Allied Investment Corporation, Allied Investment Corporation II,
Allied Capital Corporation II, Banc One Capital Partners Corporation ("Bank
One") and PNC Capital Corp. ("PNC") (Banc One and PNC are sometimes collectively
referred to herein as the "Senior Subordinated Holders"), Charles E. Bradley,
Sr. and John G. Poole.
1. Each of the Senior Subordinated Holders will agree to amend the terms of
their respective debenture to provide that the principal payment of $1,000,000
thereunder due on May 25, 1999 will be made as follows:
(a) $500,000 of such payment will be made to each of the Senior
Subordinated Holders (for an aggregate payment of $1,000,000) on the earlier of
June 15, 1999 or the date of the filing of the Company's Form 10-Q for the
quarter ended April 30, 1999 subject to satisfaction of each of the following
four conditions:
(i) the Company has provided to the CIT Group/Business Credit, Inc.
and Bank of New York (the "Senior Lenders") a certificate to the effect
that it is then in compliance with the affirmative and negative covenants
contained in its revolving and term loan agreement with the Senior Lenders;
(ii) after giving effect to the payment, the Company will have
availability under its revolving credit facility of not less than
$2,000,000, as of May 31, 1999, and through the date preceding the date of
such payment;
<PAGE>
Banc One Capital Partners Corporation
PNC Capital Corporation
November 5, 1998
page 2
(iii) as of April 30, 1999, and as of May 30, 1999, no more than 15%
of the Company's trade payables remain unpaid more than 60 days from date
of invoice; and
(iv) on or before May 31, 1999 the Company shall have prepaid not less
than $2,500,000 of its term debt with the Senior Lenders from the proceeds
from the sale of assets.
(b) An additional $500,000 of such payment (together with any amounts
deferred under subparagraph 1(a) above) will be made to each of the Senior
Subordinated Holders (for an aggregate additional payment of $1,000,000) on
October 31, 1999, subject to satisfaction of each of the following four
conditions:
(i) the Company has provided to the Senior Lenders a certificate to
the effect that it is then in compliance with the affirmative and negative
covenants contained in its revolving and term loan agreement with the
Senior Lenders;
(ii) after giving effect to the payment, the Company will have
availability under its revolving credit facility of not less than
$3,000,000, as of October 15, 1999, and through the date preceding the date
of such payment;
(iii) as of August 31, 1999, and as of September 30, 1999, no more
than 15% of the Company's trade payables remain unpaid more than 60 days
from date of invoice; and
(iv) on or before October 30, 1999 the Company shall have prepaid not
less than $2,500,000 of its term debt with the Senior Lenders from the
proceeds from the sale of assets.
2. Notwithstanding paragraph 1 above, if at any time after June 15, 1999
the term loans with the Senior Lenders shall have an aggregate principal amount
outstanding of $500,000 or less and the Company's availability under its
revolving credit facility is at least $3,000,000 (after giving effect to the
payment), then the Company will be obligated to pay the full amount of the
principal payment currently provided under the debentures for May 25, 1999.
3. If, on or before October 31, 1999, the Company has not made the payment
<PAGE>
Banc One Capital Partners Corporation
PNC Capital Corp.
November 5, 1998
page 3
of principal contemplated by the debentures to be paid on May 25, 1999, the
Senior Subordinated Holders may declare the debentures in default and give
notice of such default to the Senior Lenders in accordance with the
Intercreditor Agreement, thereby commencing the 180 day standstill period.
4. The Senior Subordinated Holders agree to waive financial covenant
defaults (and related cross-defaults with the Senior Lenders caused by financial
covenants defaults under the senior loan documents) under the Investment
Agreement as of and for the period ended July 31, 1998 and the quarter ended
October 31, 1998. In addition, the Senior Subordinated Holders agree that the
financial covenants in the Investment Agreement will be amended effective August
1, 1998 to be set forth as Exhibit A attached hereto. Within 45 days of the end
of fiscal year 1999, the Senior Subordinated Holders and the Company agree in
good faith to negotiate financial covenants for fiscal year 2000.
5. The Senior Subordinated Debentures will be amended so that paragraph C
will provide a penalty rate of 250 basis points over the note rate in the event
of any payment default. The amended penalty rate will be applied to the entire
principal amount and any past due payments (principal and interest) should any
amount remain past due prior to acceleration or maturity, and shall remain in
effect until such past due payments are paid in full as long as such payments
are made prior to acceleration or maturity. In the event of acceleration or
maturity, the existing provision will apply. As a point of clarification, the
penalty rate will be effective as of May 25, 1999 and will continue until the
deferred payments outlined in this letter or any other deferred or past due
payments are paid. If there are any past due amounts outstanding when there is
an acceleration or at the point of maturity, the penalty rate would shift from
250 basis points over the note rate to the 700 basis points increase over the
note rate originally set forth in Paragraph C of the debenture.
6. In connection with the restructure described herein, the senior debt
facility is being restructured to include a new term loan of $2,500,000, a
$1,500,00 increase of the revolver, revised financial covenants, and a final
maturity of October 1, 2001.
7. In all other respects, the current terms and conditions of the
Investment Agreement shall remain in full force and effect.
8. The parties agree to move expeditiously to amend the Investment
Agreement and the debentures on the terms set forth above.
<PAGE>
Banc One Capital Partners Corporation
PNC Capital Corp.
November 5, 1998
page 4
Please acknowledge your agreement to the foregoing by executing the
enclosed copy of this letter where indicated below and returning it by facsimile
to Thomas V. Gilboy at (203) 221-0780.
Sincerely,
/s/ Thomas V. Gilboy
Thomas V. Gilboy
Vice President and Chief Financial Officer
TVG/kr
Attachment
Acknowledged and agreed to this
_____ day of November, 1998:
Banc One Capital Partners Corporation PNC Capital Corp.
By: /s/ James H. Wolfe By: /s/ David J. Blair
------------------------------ -----------------------------
Title: Managing Director Title: Senior Vice President and
Principal
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 767
<SECURITIES> 0
<RECEIVABLES> 23,016
<ALLOWANCES> 498
<INVENTORY> 49,088
<CURRENT-ASSETS> 73,874
<PP&E> 24,919
<DEPRECIATION> 16,450
<TOTAL-ASSETS> 125,575
<CURRENT-LIABILITIES> 61,807
<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 18,125
<TOTAL-LIABILITY-AND-EQUITY> 125,575
<SALES> 26,600
<TOTAL-REVENUES> 26,600
<CGS> 20,338
<TOTAL-COSTS> 20,338
<OTHER-EXPENSES> (241)
<LOSS-PROVISION> 151
<INTEREST-EXPENSE> 1,385
<INCOME-PRETAX> (1,885)
<INCOME-TAX> (699)
<INCOME-CONTINUING> (1,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,186)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
