<PAGE> 1
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 JANUARY 31, 1999
----------------
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 62-1270573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 March 1, 1999 was
12,834,899.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DeVlieg-Bullard, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS (unaudited)
- ------
Current assets:
Cash and cash equivalents $ 395 $ 365
Accounts receivable, net 18,262 24,895
Inventories, net 48,580 45,459
Other current assets 1,748 1,418
--------- ---------
Total current assets 68,985 72,137
Property, plant and equipment, net 8,374 8,781
Assets held for sale 861 1,692
Engineering drawings 15,796 16,393
Goodwill 10,884 11,025
Other assets 16,716 13,887
--------- ---------
Total assets $ 121,616 $ 123,915
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 19,599 $ 17,625
Accrued expenses and other current liabilities 11,453 10,007
Revolving credit agreement 27,021 25,670
Current portion of long-term debt 5,437 5,201
--------- ---------
Total current liabilities 63,510 58,503
Long-term debt (related party $4,375) 12,928 13,528
Postretirement benefit obligation 22,341 21,357
Other noncurrent liabilities 9,815 11,121
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Total liabilities 108,594 104,509
Stockholders' equity:
Common stock, $0.01 par value; authorized
30,000 shares; issued and outstanding
12,522,400 and 12,334,900 shares 125 123
Additional paid-in capital 34,230 34,230
Excess purchase price over net assets acquired from
related parties (16,242) (16,242)
Retained earnings/(deficit) (4,931) 1,438
Cumulative translation adjustment (160) (143)
--------- ---------
Total stockholders' equity 13,022 19,406
--------- ---------
Total liabilities and stockholders' equity $ 121,616 $ 123,915
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DeVlieg-Bullard, Inc.
Statement of Operations
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 24,429 $ 28,008 $ 51,029 $ 54,491
Cost of sales 20,915 23,605 41,253 42,100
-------- -------- -------- --------
Gross profit 3,514 4,403 9,776 12,391
Operating expenses:
Engineering 813 509 1,422 1,005
Selling 3,306 2,927 6,291 5,671
General and administrative 5,248 3,607 8,657 6,575
-------- -------- -------- --------
Total E S G & A expenses 9,367 7,043 16,370 13,251
Anticipated loss on disposal -- 250 -- 250
Other expense/(income), net 36 (7) (205) (18)
-------- -------- -------- --------
Total operating expenses 9,403 7,286 16,165 13,483
-------- -------- -------- --------
Operating loss (5,889) (2,883) (6,389) (1,092)
Interest expense (including related party interest
of $181, $185, $363 and $370) 1,597 1,317 2,982 2,637
-------- -------- -------- --------
Loss before income taxes (7,486) (4,200) (9,371) (3,729)
Benefit for income taxes (2,303) (1,764) (3,002) (1,565)
-------- -------- -------- --------
Net loss $ (5,183) $ (2,436) $ (6,369) $ (2,164)
======== ======== ======== ========
Loss per common share:
Basic $ (0.37) $ (0.17) $ (0.45) $ (0.15)
======== ======== ======== ========
Diluted $ (0.37) $ (0.17) $ (0.45) ($ 0.15)
======== ======== ======== ========
Average number of shares outstanding:
Basic 14,153 14,065 14,130 14,062
======== ======== ======== ========
Diluted 14,153 14,065 14,130 14,062
======== ======== ======== ========
</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>
Six Months Ended
January 31,
Cash flows from operating activities: 1999 1998
---- ----
<S> <C> <C>
Net loss $ (6,369) $ (2,164)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,493 2,595
Provision for losses on accounts receivable 201 134
(Gain)/loss on disposal of assets held for sale (241) 250
Deferred income taxes (3,128) --
Changes in assets and liabilities, net of effects from acquisitions
Accounts receivable 6,432 938
Inventories (3,121) (508)
Other current assets (330) (305)
Accounts payable 1,974 2,627
Accrued expenses and other current liabilities 808 (5,242)
Other, net (323) (450)
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Net cash used in operating activities (1,604) (2,125)
Cash flows from investing activities:
Capital expenditures (278) (810)
Proceeds from sale of assets 1,724 --
-------- --------
Net cash provided by/used for investing activities 1,446 (810)
Cash flows from financing activities:
Borrowings under revolving credit agreement 57,515 60,307
Repayments under revolving credit agreement (56,164) (55,415)
Proceeds from issuance of long-term debt 2,500 --
Payments of long-term debt (3,648) (2,152)
Proceeds from exercise of stock options
or stock purchase warrants 2 55
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Net cash provided by financing activities 205 2,795
Effect of exchange rate changes on cash (17) (26)
-------- --------
Net increase in cash and cash equivalents 30 (166)
Cash and cash equivalents at beginning of period 365 637
-------- --------
Cash and cash equivalents at end of period $ 395 $ 471
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,543 $ 2,305
Income taxes, net of refunds 85 254
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Supplemental disclosure of cash flow information (continued):
During the six months ended January 31, 1999 and 1998, the Company entered into
capital leases for computer equipment totaling $435 and $475, respectively,
which were financed by capital lease obligations.
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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 the
management of DeVlieg-Bullard, Inc. (the "Company"), reflect all adjustments,
consisting of only normal recurring adjustments, necessary to fairly present the
financial position of the Company as of January 31, 1999 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.
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
<TABLE>
<CAPTION>
January 31, July 31,
Inventories consisted of: 1999 1998
---- ----
(unaudited)
<S> <C> <C>
Raw materials $ 1,018 $ 1,620
Work-in-process 14,565 14,671
Finished goods 32,997 29,168
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$48,580 $45,459
======= =======
</TABLE>
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$9,169 and $10,556 at January 31, 1999 and July 31, 1998, respectively.
Inventories valued using LIFO were $20,281 and $19,298 at January 31, 1999 and
July 31, 1998, respectively. There was no LIFO reserve against those
inventories, as the carrying value approximates current cost. The financial
accounting basis for the inventories of acquired companies exceeds the tax basis
by $12,224 at January 31, 1999 and July 31, 1998.
NOTE 3: SEGMENT REPORTING
<TABLE>
<CAPTION>
Machine Tooling
Services Tool Systems Industrial
Six Months Ended January 31, 1999 Group Group Group Group Corporate Total
----- ----- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales $18,102 $11,823 $ 8,840 $12,465 $ -- $ 51,230
Intersegment sales (6) -- (195) -- -- (201)
Net sales 18,096 11,823 8,645 12,465 -- 51,029
Operating income/(loss) (a) 1,083 (4,685) 116 18 (2,921) (9,389)
Identifiable assets 50,720 27,223 18,115 8,535 17,023 121,616
Six Months Ended January 31, 1998
Net sales $18,656 $12,680 $10,350 $12,805 $ -- $ 54,491
Operating income/(loss) (a) 3,276 (3,611) 888 668 (2,313) (1,092)
Identifiable assets 43,790 36,484 18,023 8,295 13,125 119,717
</TABLE>
(a) Interest expense and income taxes are primarily allocated as Corporate
expenses.
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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:
<TABLE>
<CAPTION>
Three months ended Six Months ended
January 31, January 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Average common shares outstanding 12,443 12,281 12,389 12,278
Stock purchase warrants (a) 1,710 1,784 1,741 1,784
------ ------ ------ ------
Average common shares outstanding-basic 14,153 14,065 14,130 14,062
Contingently issuable stock purchase warrants (b) (b) (b) (b)
Stock options (b) (b) (b) (b)
------ ------ ------ ------
Average common shares outstanding-diluted 14,153 14,065 14,130 14,062
====== ====== ====== ======
</TABLE>
(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 second quarter and first six months of
fiscal 1999 and fiscal 1998 results reflect a net loss, basic and diluted
earnings per share are calculated based on the same weighted average number
of shares outstanding.
NOTE 5: LONG-TERM DEBT
On November 6, 1998, the Company amended its credit facility with its senior
lender to increase the term loan by $2,500. The new term loan is to be repaid
from the proceeds from the sales of real estate and excess machinery and
equipment. The proceeds from the new term loan were used to repay a portion of
the outstanding revolving credit agreement. As of January 31, 1999, the balance
outstanding on the new term loan is $542.
In connection with the additional term loan, Charles E. Bradley, a junior
subordinated debenture holder and Chairman of the Board, signed a personal
guaranty for up to $500,000 of the additional term loan.
At January 31, 1999, the Company was not in compliance with financial covenants
under the senior and subordinated debt agreements. The Company has received a
verbal commitment to a waiver from the senior lenders and has received waiver
letters from the subordinated debenture holders for waivers of non-compliance
with these financial covenants.
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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,
including its Services, Machine Tool, Tooling Systems and Industrial operating
groups. Amounts, except per share data, are expressed in thousands.
During fiscal 1998, the Company moved to outsource a major portion of machine
and/or aftermarket parts that had previously been produced internally. This
resulted in an inadequate level of inventory, which led to disruptions in
production during fiscal 1998. As a result of decreased sales experienced during
fiscal 1998, the Company suffered from liquidity problems, which delayed
payments to vendors and caused a lack of availability of parts during the first
six months of fiscal 1999. In November, the Company borrowed additional funds
under a term loan, which partially relieved the liquidity problems. However, the
Company's lack of liquidity has impacted its ability to complete and ship
machines in the Machine Tool Group, which has further exacerbated the Company's
liquidity problems. The Company's lack of liquidity has adversely impacted all
of the Company's operations.
In January 1999, the Company replaced senior management and took steps to reduce
costs further, including closing the corporate offices in Westport, Connecticut.
In addition, the Company is instituting plans to sell slow-moving and excess
inventory at reduced prices. A reserve of approximately $4,000 was taken in the
second quarter to provide for severance expenses, costs associated with closing
the corporate office and writing down inventory to expected selling prices. The
Company has also identified several significant cost savings opportunities that
should be fully realized in fiscal year 2000.
The Company believes that these cost reduction efforts, together with
anticipated proceeds from asset dispositions, will provide the Company with
sufficient liquidity to source adequate levels of parts to complete and ship its
backlog of machine orders, resulting in an improved liquidity position in the
fourth quarter of fiscal 1999.
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1998.
Net sales for the second quarter of fiscal 1999 were $24,429 compared to $28,008
for the second quarter of fiscal 1998, a decrease of $3,579, or 12.8%. The
decrease in sales was primarily in the Machine Tool Group, as well as in the
Tooling Systems Group, although all groups showed declines from the prior year's
second quarter.
Gross profit for the second quarter of fiscal 1999 was $3,514 compared to $4,403
for the second quarter of fiscal 1998, a decrease of $889, or 20.2%. The
Services Group showed improvement, principally in the National Acme aftermarket
business, while the other divisions showed declines, particularly at the Machine
Tool Group, where inventory adjustments of approximately $1,800 were recorded to
reflect a reduction to net realizable value as well as associated with the
closing of the Company's Cleveland facility.
E S G & A expenses were $9,367 and $7,043 in the second quarter of fiscal 1999
and fiscal 1998, respectively. During the second quarter of fiscal 1999, the
Company accrued approximately $2,200 for costs associated with management
restructuring and plant closings. Included in the charge was severance
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costs related to several senior management changes, as well as moving and other
costs associated with closing the Company's headquarters in Westport,
Connecticut; a charge for costs associated with the closing of the Company's
Cleveland facility and the write-off of an investment in a mainframe computer
system that will be abandoned.
Interest expense was $1,597 in the second quarter of fiscal 1999 compared to
$1,317 in fiscal 1998's second quarter. The increase in interest expense is a
result of increased debt.
An income tax benefit of $2,303 was recorded for the second quarter of fiscal
1999 compared to a benefit of $1,764 for the same period last year, reflecting
the losses recorded in both years.
SIX MONTHS ENDED JANUARY 31, 1999 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1998.
Net sales for the first six months of fiscal 1999 were $51,029 compared to
$54,491 for the first six months of fiscal 1998, a decrease of $3,462, or 6.4%.
The decrease in net sales was primarily at the Tooling Systems Group, but all
divisions were below prior year levels.
Gross profit for the first six months of fiscal 1999 was $9,776 compared to
$12,391 for the first six months of fiscal 1998, a decrease of $2,615 or 21.1%,
reflecting the reduced volume, as well as the impact of certain reserves
recorded in the second quarter related to inventory at the Machine Tool Group.
E S G & A expenses were $16,370 and $13,251 in the first six months of fiscal
1999 and fiscal 1998, respectively. The increase in operating expenses is
primarily due to severance and other costs related to the recent management
changes and closing of the corporate office, as well as a write-off of obsolete
computer equipment. These charges were recorded in the second quarter.
Interest expense was $2,982 in the first six months of fiscal 1999 compared to
$2,637 in the same period in fiscal 1998. The increase in interest expense is a
result of increased debt.
An income tax benefit of $3,002 was recorded for the first six months of fiscal
1999 compared to $1,565 for the same period last year, reflecting the net losses
in both years.
OPERATING RESULTS BY BUSINESS SEGMENT
SERVICES GROUP sales for the second quarter of fiscal 1999 were $8,411, compared
to $9,147 in the second quarter of fiscal 1998. Sales for the first six months
of fiscal 1999 were $18,102 compared with $18,656 in the same period in the
prior year. The decline in sales is the result of the Company's lack of
liquidity, which resulted in difficulties obtaining credit from vendors and
maintaining sufficient inventory levels. The Services Group recorded a net
operating loss of $126 for the second quarter of fiscal 1999, compared with net
operating income of $322 during the second quarter of fiscal 1998. For the first
six months of fiscal 1999, operating income was $1,083 compared to $3,276 in the
same period of fiscal 1998. During the second quarter of fiscal 1999, the
Services Group recorded a reserve of approximately $700 for severance and
related costs for management changes, as well as a write-off of the investment
in a computer system which has been abandoned.
MACHINE TOOL GROUP sales for the second quarter of fiscal 1999 were $5,164,
compared to $7,096 in the second quarter of fiscal 1998. Sales for the first six
months of fiscal 1999 were $11,823 compared with $12,680 in the same period in
the prior year. The decline in sales is the result of the Company's lack of
liquidity, which resulted in difficulties obtaining credit from vendors and
maintaining sufficient inventory levels to complete machines. The Machine Tool
Group recorded a net operating loss of $3,684 for the
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second quarter of fiscal 1999, compared with a net operating loss of $3,611 in
the same period of fiscal 1998. For the first six months of fiscal 1999, the
Machine Tool Group's operating loss was $4,685, as compared with an operating
loss of $3,611 in the first half of fiscal 1998. During the second quarter of
fiscal 1999, the Machine Tool Group recorded reserves of approximately $2,300
for additional severance and related costs for closing the Cleveland plant, as
well as costs incurred in moving the Mideastern operation to a new, larger,
facility in Pennsylvania and reserves for inventory values.
TOOLING SYSTEMS GROUP sales for the second quarter of fiscal 1999 were $4,480,
compared to $5,028 in the second quarter of fiscal 1998. Sales for the first six
months of fiscal 1999 were $8,840 compared with $10,350 in the same period in
the prior year. The Tooling Systems Group recorded a net operating loss of $104
in the second quarter of fiscal 1999 compared to operating income of $75 in the
same period a year ago. For the first six months of fiscal 1999, operating
income was $116 as compared to $888 recorded in the first six months of fiscal
1998. The declines in operating income are related to the volume declines.
INDUSTRIAL GROUP sales were $6,575 in the second quarter of fiscal 1999, as
compared to $6,737 in the second quarter of fiscal 1998. For the first six
months of fiscal 1999, sales were $12,465 as compared to $12,805 in the first
six months of the prior year. Sales have been adversely impacted by the
Company's lack of liquidity, as shipments from vendors are delayed. Operating
income was $59 for the second quarter of fiscal 1999 as compared to $268 in the
second quarter of the prior year. Operating income was $18 for the first six
months of fiscal 1999, compared to $668 in the same period a year ago. The
decline in operating income is related to the volume decline and increased
computer-related costs due to the installation of a new computer system.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash used by operating activities was $1,604 for the six months ended
January 31, 1999, compared to $2,125 for the first six months of fiscal 1998.
Cash used for capital expenditures was $278 and $810 for the first six months of
fiscal 1999 and 1998, respectively. The Company currently has no material
commitments for specific capital expenditures, however, the Company anticipates
approximately $1,900 of capital expenditures for year 2000 compliance upgrades
to computer systems. Proceeds from the sale of assets were $1,724. The remaining
$234 of payments against the additional term loan was from the collection of
receivables on asset sales made prior to July 31, 1998.
FINANCING AND INVESTING
The balance outstanding under the Company's revolving credit agreement was
$27,021 at January 31, 1999, compared to $25,670 at July 31, 1998. Long-term
debt, including current maturities, at January 31, 1999, was $18,365, compared
to $18,729 at July 31, 1998, a decrease of $364. The Company's total
indebtedness was $45,386 and $44,399 at January 31, 1999 and July 31, 1998,
respectively, an increase of $987. The increase in debt was used to finance
working capital needs, particularly those of the Services and Machine Tool
Groups as the Company works through the current difficulties discussed above.
Cash and equivalents at January 31, 1999 were $395, an increase of $30 compared
to July 31, 1998. Net cash provided by financing activities was $205 in the
first half of fiscal 1999 compared to $2,795 in the first six months of the
prior year.
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The senior credit facility aggregating $40,000 is comprised of $5,952 in term
loans and a revolving credit agreement, which provides for borrowings up to
$31,500. Interest on the outstanding borrowings under the revolving credit
agreement is payable monthly in arrears at 1.25% above the prime rate or, at the
Company's option, at alternative rates based on LIBOR. The effective rate based
on LIBOR was 8.19% at January 31, 1999. 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. On November 6, 1998, the Company increased the existing term loans by
$2,500. The proceeds from the new term loan were used to repay a portion of the
outstanding revolving credit agreement. Payments on the new term loan will be
made with proceeds from the sale of real estate, and excess machinery and
equipment. As of January 31, 1999, $1,958 of the additional term loan had been
repaid. Payments on the existing term debt remained at $200 per month. Unused
borrowings available at January 31, 1999 were $833.
Interest on the term loans is payable monthly at 1.5% above prime rate or, at
the Company's option, at alternative rates based on LIBOR. The effective rate
based on LIBOR was 8.44% at January 31, 1999.
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 Debentures. 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. In November 1998, the agreement was amended to
provide for a delay in the scheduled interest payment for May 1999 under certain
circumstances, as defined. The payment would be due in October 1999.
The Company was not in compliance with certain financial covenants under its
senior and subordinated credit facilities at January 31, 1999. While the Company
has received a verbal commitment to a waiver from the senior lenders and has
received waiver letters from the subordinated debenture holders for these
covenant defaults at January 31, 1999, the Company does not expect to be in
compliance with certain financial covenants under its senior and subordinated
credit facilities at April 30, 1999. In addition, the Company is required to
make a principal payment of $2,000 on October 31, 1999. Accordingly, the Company
will be required to renegotiate its financial covenants and obtain sufficient
liquidity to make the required payment pursuant to the Subordinated Debentures.
The Company is actively discussing with its lenders amendments to its credit
facilities as well as other alternatives to improve the Company's liquidity
position, including possible asset sales. There can be no assurance that the
Company will be able to renegotiate its credit facilities or that alternative
sources of liquidity will be available or available on acceptable terms. The
Company's lack of liquidity has adversely affected its ability to source parts
from vendors which has adversely affected the Company's sales in each of its
operating groups. The Company will need additional capital to implement its
business strategy. There can be no assurance such capital will be available or
available on terms acceptable to the Company.
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
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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, Machine Tool and Tooling Systems Groups will upgrade their current
systems to make them year 2000 compliant. The Industrial Group has completed its
installation of a new software package that includes additional functionality in
the area of materials requirement planning. The total expected costs for these
upgrades is approximately $2,800, of which approximately $872 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.
The Company has assessed its non-information technology equipment and has
determined that it is either year 2000 compliant or can be upgraded at little
cost to be year 2000 compliant.
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 financing from its
senior and subordinated lenders; 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 reliability
predicted.
12
<PAGE> 13
PART II - Other Information
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of DeVlieg-Bullard, Inc. was held on January
20, 1999, at which meeting the stockholders elected all directors to hold office
until the next annual meeting and until their successors are duly elected and
qualified.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Sixth Amendment to Investment Agreement and Amendment to Senior
Debentures dated November 6, 1998, among DeVlieg-Bullard, Inc., Banc
One Capital Partners Corporation, PNC Capital Corp., Charles E. Bradley
and John G. Poole.
10.2 Guaranty dated as of November 6, 1998 by Charles E. Bradley, Sr. for the
benefit of The CIT Group/Business Credit, Inc. and BNY Financial
Corporation.
10.3 Credit Support Fee Agreement dated November 5, 1998 by DeVlieg-Bullard,
Inc. in favor of Charles E. Bradley.
27 Financial Data Schedules (SEC use only)
(b) Reports on Form 8-K
During the quarter ended January 31, 1999, the Company did not file any reports
on Form 8-K.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
DeVlieg-Bullard, Inc.
---------------------
(Registrant)
Date: March 22, 1999 By: /s/ Richard W. Sappenfield
-------------------------------------
Richard W. Sappenfield
Chief Executive Officer
(Acting Principal Accounting Officer)
14
<PAGE> 1
Exhibit 10.1
#647532.3
SIXTH AMENDMENT TO INVESTMENT AGREEMENT AND
AMENDMENT TO SENIOR DEBENTURES
THIS SIXTH AMENDMENT TO INVESTMENT AGREEMENT AND AMENDMENT TO SENIOR
DEBENTURES ("Amendment"), dated as of November 6, 1998, 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 Original Agreement)
and the Company entered into 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"), 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"), that certain Third Amendment to Investment Agreement dated as of
January 17, 1997, by and among Senior Holders, Junior Holders and the Company
(the "Third Amendment"), that certain Fourth Amendment to Investment Agreement
dated as of September __, 1997, by and among Senior Holders, Junior Holders and
the Company (the "Fourth Amendment") and that certain Fifth Amendment to
Investment Agreement dated as of March __, 1998, by and among Senior Holders,
Junior Holders and the Company (the "Fifth Amendment"; the Original Agreement,
the First Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment and the Fifth 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
<PAGE> 2
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. Amendment to Senior Debentures. The Senior Debentures are hereby
amended in all respects necessary to reflect that the principal payment of
$1,000,000 due thereunder to each Senior Holder on May 25, 1999, will be made as
follows:
a. $500,000 of such payment will be made to each of the Senior Holders
(for an aggregate payment of $1,000,000) on the earlier of June 15, 1999,
or the date of filing of the Company's Form 10-Q for the quarter ended
April 30, 1999, subject to satisfaction of each of the following four (4)
conditions:
i. the Company has provided to the CIT Group/Business Credit,
Inc. and Bank of New York (collectively the "Senior Lenders") a
certificate to the effect that it is then in compliance with the
affirmative and negative covenants contained in its Amended and
Restated Financing and Security Agreement dated January 17, 1997, with
the Senior Lenders, as amended from time to time (as so amended, the
"Senior Credit Agreement");
ii. after giving effect to the payment, the Company will have
availability under its revolving credit facility from Senior Lenders
(the "Senior Line of Credit Facility") of not less than $2,000,000, as
of May 31, 1999, and through the date preceding the date of such
payment;
iii. as of April 30, 1999, and as of May 30, 1999, no more than
15% of the total value 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
2
<PAGE> 3
indebtedness to the Senior Lenders (the "Senior Term Debt") from the
proceeds of 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
Holders (for an aggregate additional payment of $1,000,000, plus any
amounts deferred under subparagraph 1(a) above) 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 the Senior Credit Agreement;
ii. after giving effect to the payment, the Company will have
availability under the Senior Line of 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 total value 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 the Senior Term Debt from the proceeds of
the sale of assets.
c. Notwithstanding subparagraphs 1(a) and 1(b) above, if at any time
after June 15, 1999, the Senior Term Debt shall have an aggregate principal
amount outstanding of $500,000 or less and the Company's availability under
the Senior Line of 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 due and payable under the Senior
Debentures on May 25, 1999.
d. If, on or before October 31, 1999, the Company has not made the
payment of principal contemplated by the Senior Debentures to be paid on
May 25, 1999, the Senior Holders may declare the Senior Debentures in
default and give written notice of such default to the Senior Lenders in
accordance with the provisions of that certain Intercreditor
3
<PAGE> 4
Agreement dated October 23, 1995, by and among Holders and Senior Lenders,
as amended from time to time, thereby commencing the one hundred eighty
(180) day standstill period provided for therein.
e. Paragraph C on page 1 of the Senior Debentures is hereby amended to
provide for a penalty rate of 250 basis points (2.50%) per annum in excess
of the eleven and one-half percent (11.5%) per annum note rate (the "Note
Rate") in the event of any payment default (the "Amended Penalty Rate").
The Amended Penalty Rate will be applied to the entire outstanding
principal balance, including any past due payments (principal and interest)
should any amounts remain past due prior to acceleration or maturity, and
shall remain in effect until such past due payments are paid in full, so
long as such payments are made prior to acceleration or maturity of the
Senior Debentures. Upon acceleration or maturity of the Senior Debentures,
the existing penalty rate set forth in said paragraph C will apply.
Accordingly, the Amended Penalty Rate will be effective as of May 25, 1999,
and will continue until the deferred payments outlined in this Amendment or
any other deferred or past due payments are paid in full. Upon an
acceleration or maturity of the Senior Debentures, the penalty rate shall
adjust from the Amended Penalty Rate to the 700 basis points (7.00%) per
annum increase over the Note Rate originally set forth in said paragraph C.
2. Senior Debt. In accordance with the provisions of Paragraph 1.03 (Senior
Debt) of the Agreement, Holders hereby acknowledge the restructure of the Senior
Debt of the Company to include a new term loan of $2,500,000, and a $1,500,000
increase of the Senior Line of Credit Facility, with a final maturity date of
October 1, 2001.
3. Waiver of Financial Covenants. Holders hereby waive compliance with
Sections 7.11 (Minimum Consolidated Net Worth), 7.12 (Consolidated Interest
Coverage Ratio), 7.13 (Consolidated Total Liabilities to Consolidated Net
Worth), 7.14 (Consolidated Current Ratio), 7.15 (Consolidated Fixed Charge
Coverage Ratio), and 7.16 (Consolidated EBITDA) of the Agreement for the fiscal
year ended July 31, 1998, and the fiscal quarter ended October 31, 1998 (and any
related defaults caused by financial covenant defaults under the Senior Credit
Agreement for such periods).
4. Amendment to Financial Covenants. Sections 7.11 (Minimum Consolidated
Net Worth), 7.12 (Consolidated Interest Coverage Ratio), 7.13 (Consolidated
Total Liabilities to Consolidated Net Worth), 7.14 (Consolidated Current Ratio),
7.15
4
<PAGE> 5
(Consolidated Fixed Charge Coverage Ratio), and 7.16 (Consolidated EBITDA)
of the Agreement are hereby deleted and the following are substituted in lieu
thereof (and, as used therein, "Quarterly Date" shall mean each January 31,
April 30, July 31 and October 31):
7.11 Minimum Consolidated Net Worth. The Company and its Consolidated
Subsidiaries shall maintain as of each date specified below a Consolidated
Net Worth of not less than the following:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
October 31, 1998 $16,000,000
January 31, 1999 $16,000,000
April 30, 1999 $19,000,000
July 31, 1999 $19,000,000
</TABLE>
7.12 Consolidated Interest Coverage Ratio. The Company and its
Consolidated Subsidiaries shall maintain for each period specified below a
Consolidated Interest Coverage Ratio of not less than the following:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For the one quarter ended
October 31, 1998 0.45 to 1.00
For the two quarters (taken
together as a whole) ended
January 31, 1999 1.10 to 1.00
For the three quarters (taken
together as a whole) ended
April 30, 1999 2.00 to 1.00
For the four quarters (taken
together as a whole) ended
July 31, 1999 2.20 to 1.00
</TABLE>
7.13 Consolidated Total Liabilities to Consolidated Net Worth. The
Company and its Consolidated Subsidiaries will not as of any
5
<PAGE> 6
date specified below permit the ratio of Consolidated Current Liabilities
to Consolidated Net Worth to be greater than the following:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
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
</TABLE>
7.14 Consolidated Current Ratio. The Company and its Consolidated
Subsidiaries shall have as of any date specified below a ratio of
Consolidated Current Assets to Consolidated Current Liabilities of not less
than the following:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
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
</TABLE>
7.15 Consolidated Fixed Charge Coverage Ratio. The Company and its
Consolidated Subsidiaries shall maintain at the end of each Rolling Period
a Consolidated Fixed Charge Coverage Ratio of not less than the following:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For the one quarter ended
October 31, 1998 .45 to 1.00
For the two quarters (taken
together as a whole) ended
January 31, 1999 .65 to 1.00
For the three quarters (taken
together as a whole) ended
April 30, 1999 .85 to 1.00
For the four quarters (taken
together as a whole) ended
July 31, 1999 .90 to 1.00
</TABLE>
6
<PAGE> 7
7.16 Consolidated EBITDA. The Company and its Consolidated
Subsidiaries shall have for each period specified below an amount of
Consolidated EBITDA of not less than the following:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
For the one quarter ended
October 31, 1998 $ 450,000
For the two quarters (taken
together as a whole) ended
January 31, 1999 $ 2,000,000
For the three quarters (taken
together as a whole) ended
April 30, 1999 $ 6,500,000
For the four quarters (taken
together as a whole) ended
July 31, 1999 $ 7,000,000
</TABLE>
5. Agreement to Further Amend Financial Covenants. The Company and
Holders agree to negotiate in good faith amended financial covenants (Sections
7.12 through 7.16 of the Agreement) for the Company's fiscal year ending July
31, 2000, within forty-five (45) days after the end of the Company's fiscal year
ending July 31, 1999.
6. Miscellaneous. The provisions of the Agreement shall remain in full
force and effect except as modified hereby.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties, by their duly authorized officers,
have executed and delivered this Amendment as of the date first written above.
DEVLIEG-BULLARD, INC.
By:/s/ Richard W. Sappenfield
Title:President & CEO
BANC ONE CAPITAL PARTNERS
CORPORATION
By:/s/ James H. Wolfe
Title:Managing Director
PNC CAPITAL CORP
By:/s/ David J. Blair
Title:SVP & Principal
/s/ Charles E. Bradley
CHARLES E. BRADLEY, SR.
/s/ John G. Poole
JOHN G. POOLE
8
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
GUARANTY
GUARANTY dated as of November 6, 1998 made by Mr. Charles E.
Bradley, Sr., who resides at c/o Stanwich Partners, Inc., One Stamford Landing,
62 Southfield Avenue, Stamford, Connecticut 06902 (the "Guarantor") for the
benefit of The CIT Group/Business Credit, Inc. ("CITBC") and BNY Financial
Corporation ("BNYFC") (each a "Lender" and collectively the "Lenders").
PRELIMINARY STATEMENTS. 1. Reference is made to the Amended
and Restated Financing and Security Agreement dated as of January 17, 1997 among
DeVlieg-Bullard, Inc. (the "Borrower"), the Lenders 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 (as it may be further amended, supplemented or modified from time to time,
the "Financing Agreement"). Any term used in this Guaranty and not otherwise
defined in this Guaranty shall have the meaning assigned to such term in the
Financing Agreement.
2. The Borrower, as of the date hereof, has obtained from the
Lenders a term loan in the principal amount of $2,500,000 which is referred to
as the Additional Term Loan in the Financing Agreement and such Loan is
evidenced by each of the Additional Term Loan Promissory Notes.
3. Reference is made to the Additional Term Loan Promissory
Notes as defined in the Financing Agreement, including but not limited to the
Additional Term Loan Promissory Note dated November 6, 1998 made by Borrower in
favor of CITBC and the Additional Term Loan Promissory Note dated November 6,
1998 made by Borrower in favor of BNYFC (all such Notes together with any notes
evidencing any renewals, extensions or refinancings of the Additional Term Loan,
the "Additional Term Loan Promissory Notes", together with the Financing
Agreement and all other agreements, instruments, and documents delivered to the
Lenders Agent or any Lender pursuant to or in connection with any of the
foregoing, the "Financing Documents").
4. The Guarantor represents that it owns directly or
indirectly a substantial amount of the stock of the Borrower and/or is
financially interested in its
<PAGE> 2
affairs and expects to benefit from and derive advantage from the Additional
Term Loans provided to the Borrower.
NOW, THEREFORE, for valuable consideration, the receipt of
which is hereby acknowledged by the Guarantor, and in order to induce the
Lenders, in accordance with the terms of the Financing Agreement, to extend the
Additional Term Loan, to the Borrower, the Guarantor hereby agrees with the
Lenders as follows:
SECTION 1. Guaranty. The Guarantor hereby irrevocably,
absolutely and unconditionally guarantees to each Lenders and their respective
successors, endorsees, transferees and assigns the prompt and complete payment
by the Borrower, as and when due and payable (whether at stated maturity or by
required prepayment, acceleration, demand or otherwise), of all indebtedness,
obligations and liabilities of the Borrower to the Lenders, now existing or
hereafter incurred under or arising out of or in connection with the Additional
Term Loan, together with any renewals, extensions or refinancings thereof,
whether for principal, interest, fees, expenses or otherwise, owed to such
Lender (all such indebtedness, obligations and liabilities being herein called
the "Obligations"); and agrees to pay any and all expenses (including counsel
fees and expenses) which may be paid or incurred by each such Lender in
collecting any or all of its Additional Term Loan Promissory Note and/or
enforcing any rights under this Guaranty or under its Additional Term Loan
Promissory Note. Notwithstanding the foregoing or the aggregate sums which may
be or become payable by the Borrower to the Lenders under the Additional Term
Loan Promissory Notes, at any time or from time to time, the Guarantor shall be
liable only for up to a maximum aggregate principal amount of $500,000 of such
Additional Term Loan Promissory Notes, plus all interest due on such amount and
a pro rata share of costs and expenses (based upon the amount of the Additional
Term Loan guaranteed hereunder to the total amount of the Additional Term Loan,
both at the time a demand is made on the Guarantor under this Guaranty); but it
is understood that the outstanding principal amount of the Additional Term Loan
Promissory Notes may at any time and from time to time exceed the liability of
the Guarantor hereunder without impairing this Guaranty, and the Guarantor and
the Lenders agree that, regardless of the manner of application of payments made
by the Borrower to the Lenders, all such payments on the Additional Term Loan
Promissory Notes shall be deemed to be applied first to the portion of the
Additional Term Loan Promissory Notes which are not guaranteed hereunder and
last to the portion of such Additional Term Loan Promissory Notes which are
guaranteed hereunder.
SECTION 2. Guarantor's Obligations Unconditional.
(1) The Guarantor hereby guarantees that the Obligations will
be paid strictly in accordance with the terms of the Financing Documents,
regardless of any law, regulation or order now or hereafter in effect in any
2
<PAGE> 3
jurisdiction affecting any of such terms or the rights of the Lenders with
respect thereto. The obligations and liabilities of the Guarantor under this
Guaranty shall be absolute and unconditional irrespective of: (a) any lack of
validity or enforceability of any of the Obligations, the Financing Documents or
any agreement or instrument relating thereto; (b) any change in the time, manner
or place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Financing Documents or any other documents or instruments executed in
connection with or related to the Obligations; (c) any exchange or release of,
or non-perfection of any lien on or security interest in, any Collateral, or any
release or amendment or waiver of, or consent to any departure from any other
guaranty, for all or any of the Obligations; or (d) any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
Borrower or any other guarantor in respect of the Obligations or the Guarantor
in respect of this Guaranty.
(2) This Guaranty is a guaranty of payment and not of
collection. This Guaranty is a continuing guaranty and shall remain in full
force and effect until (a) the payment in full of the Obligations and (b) the
payment of the other expenses to be paid by the Guarantor pursuant hereto. This
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, if at any time any payment, or any part thereof, of any of the Obligations
is rescinded or must otherwise be returned by a Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
(3) The obligations and liabilities of the Guarantor under
this Guaranty shall not be conditioned or contingent upon the pursuit by any
Lenders or any other Person at any time of any right or remedy against the
Borrower or any other Person which may be or become liable in respect of all or
any part of the Obligations or against any Collateral or security or guarantee
therefor or right of set-off with respect thereto.
(4) The Guarantor hereby consents that, without the necessity
of any reservation of rights against the Guarantor and without notice to or
further assent by the Guarantor, any demand for payment of any of the
Obligations made by any Lenders may be rescinded by such Lender and any of the
Obligations continued after such rescission.
SECTION 3. Waivers. The Guarantor hereby waives:
(1) promptness and diligence; (2) notice of or proof of reliance by the Lenders
upon this Guaranty or acceptance of this Guaranty; (3) notice of the incurrence
of any Obligation by the Borrower or the renewal, extension or accrual of any
Obligation; (4) notice of any actions taken by the Lenders or the Borrower or
any other party under the Financing Documents, or any other agreement or
instrument relating to the Obligations; (5) all other notices, demands and
protests, and all other formalities
3
<PAGE> 4
of every kind in connection with the enforcement of the Obligations or of the
obligations of the Guarantor hereunder, the omission of or delay in which, but
for the provisions of this Section 3, might constitute grounds for relieving the
Guarantor of its obligations hereunder; and (6) any requirement that a Lender
protect, secure, perfect or insure any security interest or lien on any property
subject thereto or exhaust any right or take any action against the Borrower or
any other Person or entity or any Collateral.
SECTION 4. Subrogation. The Guarantor will not exercise any
rights which it may acquire by way of subrogation under this Guaranty, whether
acquired by any payment made hereunder, by any set-off or application of funds
of the Guarantor by a Lender or otherwise, until (1) the payment in full of the
Obligations, and (2) the payment of all other expenses to be paid by the
Guarantor pursuant hereto. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all of the Obligations and
all such other expenses shall not have been paid in full, such amount shall be
held in trust for the benefit of the Lenders, shall be segregated from the other
funds of the Guarantor and shall forthwith be paid over to the Lenders to be
credited and applied in whole or in part by the Lenders against the Obligations,
whether matured or unmatured, and all such other expenses in accordance with the
terms of this Guaranty.
SECTION 5. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
(1) This Guaranty is a legal, valid and binding obligation of
the Guarantor, enforceable against the Guarantor in accordance with its terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally.
(2) There is no action, suit or proceeding pending or
threatened against or otherwise affecting the Guarantor before any court or
other governmental authority or any arbitrator which may, in any case or in the
aggregate, materially adversely affect the ability of the Guarantor to perform
its obligations under this Guaranty.
SECTION 6. Right of Set-off. If the Borrower defaults in the
payments or performance of any of its Obligations or breaches any of its
obligations or agreements under or pursuant to the Additional Term Loan, each
Lender may, and is hereby authorized, at any time and from time to time, without
notice to the Guarantor (any such notice being expressly waived by the
Guarantor), to set-off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of the Guarantor
against any and all obligations of the Guarantor now or hereafter existing under
this Guaranty, irrespective of whether or not such Lender shall have made any
demand under this Guaranty and although
4
<PAGE> 5
such obligations may be contingent or unmatured. Each Lender agrees promptly to
notify the Guarantor after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 6 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Lender may have.
SECTION 7. Notices, Etc. All notices and other communications
provided for under this Guaranty shall be in writing (including telegraphic
communication) and shall be mailed, telegraphed or delivered, if to the
Guarantor, at its address noted on the signature page hereof; and, if to the
Lenders, at the Lenders Agent's address at 1211 Avenue of the Americas, New
York, New York 10036 or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section 7. All such notices and other
communications shall, when mailed or telegraphed, be effective when deposited in
the mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
SECTION 8. Payments. The Guarantor will make each payment
hereunder in lawful money of the United States of America and in immediately
available funds to the Lenders at the address specified in Section 7 of this
Guaranty.
SECTION 9. Amendments. No amendment of any provision of this
Guaranty shall be effective unless it is in writing and signed by the Guarantor
and each Lender, and no waiver of any provision of this Guaranty, and no consent
to any departure by the Guarantor therefrom, shall be effective unless it is in
writing and signed by each Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 10. Remedies. No failure on the part of any Lenders or
Lenders Agent to exercise, and no delay in exercising, any right, power or
remedy hereunder or under the Financing Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right hereunder or
under the Financing Documents preclude any other or further exercise thereof or
the exercise of any other right. The rights and remedies of each Lenders or
Lenders Agent provided herein and in the Financing Documents are cumulative and
are in addition to, and not exclusive of, any rights or remedies provided by
law. The rights of each Lender or Lenders Agent under Financing Documents
against any party thereto are not conditional or contingent on any attempt by
such Lender or Lenders Agent to exercise any of its rights under the Financing
Documents against such party or against any other person.
SECTION 11. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability
5
<PAGE> 6
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION 12. Successors and Assigns. This Guaranty (a) shall be
binding in accordance with and to the extent of its terms upon the Guarantor and
its heirs and representatives and (b) shall inure, together with all rights and
remedies of each Lender hereunder, to the benefit of such Lender and its
successors, indorsees, transferees and assigns. Without limiting the generality
of clause (b) of the immediately preceding sentence, each Lender may assign or
otherwise transfer its Additional Term Loan Promissory Note to any other person,
and such other person shall thereupon become vested with all of the benefits in
respect thereof granted to such Lender herein or otherwise. None of the rights
or obligations of the Guarantor hereunder may be assigned or otherwise
transferred without the prior written consent of all Lenders.
SECTION 13. Headings. Article and Section headings in this
Guaranty are included in this Guaranty for the convenience of reference only and
shall not constitute a part of the Guaranty for any other purpose.
SECTION 14. Counterparts. This Guaranty may be executed in two
or more counterparts, all of which shall be deemed but one and the same
instrument and each of which shall be deemed an original, and it shall not be
necessary in making proof of this Guaranty to produce or account for more than
one such counterpart.
SECTION 15. Governing Law; Jurisdiction; Waiver of Jury Trial.
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York without regard to conflict of laws. Guarantor hereby
irrevocably submits to the jurisdiction of any State or Federal court sitting in
New York, New York in any action or proceeding arising out of or relating to
this Guaranty, and the Guarantor hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such New
York State or Federal court. The Guarantor irrevocably consents to the service
of any and all process in any such action or proceeding by the mailing of copies
of such process to the Guarantor at its address specified on the signature page
hereof. The Guarantor agrees that a judgment in any such action or proceeding
shall be conclusive and may be enforced in any jurisdictions by suit on the
judgment or in any other manner provided by law. The Guarantor further
irrevocably waives, to the fullest extent it may effectively do so, any
objection to venue in such State on the basis of inconvenient forum. The
Guarantor further agrees that any action or proceeding brought against the
Lenders shall be brought only in State or Federal court sitting in New York, New
York.
Nothing in this Section shall affect the right of any Lender
to serve legal process in any other manner permitted by law or affect the right
of such
6
<PAGE> 7
Lender to bring any action or proceeding against the Guarantor or its property
in the courts of any other jurisdictions.
To the extent that the Guarantor has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, or otherwise) with respect to itself or its property, the Guarantor
hereby irrevocably waives such immunity in respect of its obligations under this
Guaranty.
THE GUARANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL IN ANY
ACTION OR PROCEEDING ARISING OUT OF THIS GUARANTY. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENT TO SERVICE OF PROCESS
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO THE
BORROWER, OR SUCH LENDER, AS THE CASE MAY BE, AT THE ADDRESS PROVIDED HEREIN FOR
NOTICES.
[INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the Guarantor has duly executed this
Guaranty, as of 6 November, 1998.
Address for Notice:
c/o Stanwich Partners, Inc.
62 Southfield Avenue By: /s/ Charles E. Bradley, Sr.
One Stamford Landing -----------------------------
Stamford, CT 06902 Name: Charles E. Bradley, Sr.
8
<PAGE> 1
EXHIBIT 10.3
CREDIT SUPPORT FEE AGREEMENT
This Agreement dated as of November 5, 1998 is by Devlieg-Bullard, Inc.
("DBI") in favor of Charles E. Bradley ("BRADLEY").
DBI expects to receive a so-called "Additional Term Loan" in the amount
of $2,500,000 from the CIT Group/Business Credit, Inc. and BNY financial
Corporation (the "LENDERS") during the month of November, 1998; and
WHEREAS, as a condition to extending the Additional Term Loan, the
Lenders require that Bradley guarantee the payment of $500,000 of the
principal thereof (the "GUARANTY"); and
WHEREAS, DBI has requested that Bradley give the Guaranty; and
WHEREAS, Bradley is willing to do so in reliance upon DBI's agreement
to pay him the fees provided for herein;
NOW THEREFORE, to induce Bradley to give the Guaranty, DBI covenants
and agrees as follows:
1. If Bradley gives the Guaranty, then, in such case, for so long as
the Guaranty is in effect DBI shall pay Bradley a fee (the "FEE")
in consideration thereof at the annual rate of 5% of the principal
amount guaranteed from time to time pursuant to the Guaranty. The
Fee shall be payable in monthly installments in arrears on the
15th day of each calendar month beginning December 15, 1998. If
the Guaranty is in effect for only part of a period, the Fee
allocable to such period shall be prorated.
2. All notices, requests, demands and other communications hereunder
must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by first class, registered or
certified mail, return receipt requested, postage and registry
fees prepaid, and addressed as follows:
a) If to DBI: DeVlieg-Bullard, Inc.
One Gorham Island
Westport, CT 06880
Attention: Chief Financial Officer
b) If to Bradley: c/o Stanwich Partners, Inc.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902
Addressed may be changed by notice in writing signed by the party
changing such party's address and such notice shall be effective only upon
receipt by the other parties.
<PAGE> 2
3. This Agreement (i) may be amended only in writing signed by DBI
and Bradley; (ii) shall inure to the benefit of Bradley and his
assign, personal representative and heirs; (iii) shall be binding
upon DBI and its successors; (iv) shall be governed and construed
in accordance with the laws of the State of Connecticut without
regard to principles of conflicts of laws; and (v) may be executed
in one or more counterparts, each of which shall be deemed to be
an original and all of which taken further shall constitute one
and the same instrument.
IN WITNESS WHEREOF, DBI has executed this agreement as of the day and
year first above written.
DEVLIEG-BULLARD, INC.
By: /s/ William O. Thomas
-------------------------------
Name: William O. Thomas
-----------------------------
Title: President & CEO
----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q OF DEVLIEG BULLARD, INC. FOR THE SIX MONTHS ENDED JANUARY
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 395
<SECURITIES> 0
<RECEIVABLES> 18,952
<ALLOWANCES> 690
<INVENTORY> 48,580
<CURRENT-ASSETS> 68,985
<PP&E> 25,390
<DEPRECIATION> (17,016)
<TOTAL-ASSETS> 121,616
<CURRENT-LIABILITIES> 63,510
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 12,897
<TOTAL-LIABILITY-AND-EQUITY> 121,616
<SALES> 51,029
<TOTAL-REVENUES> 51,029
<CGS> 41,253
<TOTAL-COSTS> 41,253
<OTHER-EXPENSES> 36
<LOSS-PROVISION> 201
<INTEREST-EXPENSE> 2,982
<INCOME-PRETAX> (9,371)
<INCOME-TAX> (3,002)
<INCOME-CONTINUING> (6,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,369)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
