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Exhibit 10.4
FIRST AMENDMENT TO INVESTMENT AGREEMENT
THIS FIRST AMENDMENT TO INVESTMENT AGREEMENT (this "Amendment"), dated
as of October 23, 1995, is made by and among (i) DeVLIEG-BULLARD, INC., a
Delaware corporation (the "Company"), (ii) ALLIED INVESTMENT CORPORATION
("AIC"), ALLIED INVESTMENT CORPORATION II ("AIC II"), ALLIED CAPITAL
CORPORATION II ("ACC II"), all Maryland corporations (collectively "Allied"),
BANC ONE CAPITAL PARTNERS CORPORATION, a Texas corporation ("Banc-One"), and
PNC CAPITAL CORP, a Delaware corporation ("PNC") (Allied, Banc-One and PNC are
sometimes collectively referred to as the "Original Holders" or individually as
an "Original Holder") (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 Connecticut ("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").
WITNESSETH:
WHEREAS, the Original Holders and the Company entered into an
Investment Agreement dated as of May 25, 1994 ("Agreement") pursuant to which
the Original Holders agreed to purchase $12 million of subordinated debentures
(the "Senior Debentures") in accordance with, and as provided in, the
Agreement;
WHEREAS, the Company has requested the Senior Holders to and the
Senior Holders have agreed to consent to the Company's purchase of the stock of
The National Acme Company (the "Acquisition", as further defined below) and to
amend certain financial maintenance and other covenants set forth in the
Agreement, to approve borrowings in excess of amounts currently permitted under
the Agreement, and other matters and the Company and the Original Holders have
agreed therefore to amend certain provisions of the Agreement as set forth
below;
WHEREAS, the Company also has requested the Original Holders to
release their existing lien on any and all assets of the Company, and Bradley
and Poole, as principal shareholders of the Company, have agreed to provide the
Holders with substitute collateral for such assets, all on terms and conditions
as set forth below;
WHEREAS, Bradley and Poole have agreed to invest an additional $4
million in the Company by purchasing $4 million of debentures which will be
junior to the Senior Debentures, the proceeds of which will be used to pay off
and satisfy the Senior Debentures held by Allied;
WHEREAS, in connection with the payoff of the Debentures held by
Allied, Allied
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has agreed to relinquish Class A Warrants representing the right to purchase an
aggregate of 83,333 shares of the Company's common stock;
WHEREAS, the Agreement provides that such Agreement may be amended
from time to time by an instrument signed by the parties thereto.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained therein and herein, intending to be legally bound hereby,
the parties agree as follows:
Section 1. Interpretation and Definitions.
All terms used in this Amendment and not otherwise defined
shall have the meanings ascribed to them in the Agreement. The Agreement and
this Amendment are to be treated as one Agreement and are together referred to
hereafter as the "Agreement". This Agreement, the Pledge Agreement, the
Registration Agreement, the CPS Registration Agreement, the Senior Debentures,
the Junior Debentures, the Class A, B, and C Warrants (all as hereinafter
defined) and all documents to be delivered in connection herewith are defined
as the "Loan Documents."
Section 2. Amendment of Section 1. Loan.
Section 1 of the Agreement is hereby amended in the following
respects:
(a) Paragraph 1.01 of the Agreement is hereby amended by
adding to the end thereof the following new paragraph:
On or about October 23, 1995, the Company will borrow
Two Million Five Hundred Thousand Dollars
($2,500,000) from Bradley and One Million Five
Hundred Thousand Dollars ($1,500,000) from Poole,
such indebtedness to be evidenced by, and to be
repaid according to the terms of, the debentures
attached hereto as Exhibit 1.01(i) hereof (the
"Junior Debentures", and together with the Senior
Debentures, the "Debentures").
(b) Paragraph 1.02 of the Agreement is deleted in its
entirety and replaced with the following new paragraph:
1.02 Collateral. The Debentures and the Holders'
rights herein shall be secured by a pledge of and
security interest in 600,000 shares of the common
stock of Consumer Portfolio Services, Inc. ("CPS")
(the "Collateral") which is held by CPS Holdings,
Inc. ("Holdings"), a corporation in which Messrs.
Bradley and Poole are principal shareholders.
Holdings is a principal shareholder of CPS.
Certificates evidencing the Collateral with properly
executed stock powers and all additional shares or
documents as shall be necessary or required by the
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Pledge Agreement (as defined below) shall be
delivered to PNC as Agent for the Holders. Bradley
and Poole will cause Holdings to grant to the (i)
Senior Holders a continuing first priority security
interest in all such Collateral, and (ii) Junior
Holders a continuing second priority security
interest in all of such Collateral, subject to an
Intercreditor Agreement between the Senior Holders
and the Junior Holders in the form attached hereto as
Exhibit 1.02(i) (the "Holders' Intercreditor
Agreement"). Holdings shall execute and deliver to
the Holders a Pledge Agreement in the form attached
hereto as Exhibit 1.02(ii) (the "Pledge Agreement").
In addition, Bradley and Poole will cause CPS to
execute and deliver to Holders a CPS Registration
Agreement in the form attached hereto as Exhibit
1.02(iii) (the "CPS Registration Agreement").
(c) Paragraph 1.03 of the Agreement is amended by
deleting the reference in the third line to "Twenty Million Dollars
($20,000,000)" and substituting therefor "Thirty Two Million Dollars
($32,000,000)".
(d) Paragraph 1.04 is deleted in its entirety.
(e) Paragraph 1.05 of the Agreement is amended by
deleting "Allied Capital Corporation" in the first sentence and substituting
"PNC Capital Corp".
Section 3. Amendment of Section 2. Equity.
Section 2 of the Agreement is hereby amended in the following
respects:
(a) Paragraph 2.01 of the Agreement is amended by
denoting the existing paragraph as sub-paragraph A. and adding the following
sub-paragraphs B and C. as follows:
B. On or about October 23, 1995, the
Company will issue and sell to the Junior Holders
certain Stock Purchase Class A Warrants (the "Junior
Holders Class A Warrants"), copies of which are
attached hereto as Exhibit 2.01A(i), to acquire in
the aggregate eighty-three thousand three hundred
thirty three (83,333) shares (subject to the
anti-dilution provisions of Section 2.03 below) of
the Company's authorized but unissued common stock.
Upon exercise of the Junior Holders Class A Warrants,
the common stock issuable thereunder shall have all
of the rights and privileges accorded the Company's
other holders thereof pursuant to the Delaware
General Corporation Law (except as to the special
registration and other rights which are governed by
the Registration Agreement attached hereto). The
aggregate purchase price for the Junior Holders Class
A Warrants is Ten Dollars ($10), payable ratably by
the holders at the time of issuance thereof and the
per share value thereof, for purposes of Section 1273
of the Internal Revenue code of 1986, as amended, is
that amount which is equal to eighty
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percent (80%) of the fair market value of a share of
the Company's common stock on the date hereof,
determined as the closing sales price of common stock
on the NASDAQ National Market on such date. The per
share exercise price for the Junior Holders Class A
Warrants shall be One Cent ($0.01). The Junior
Holders Class A Warrants may not be exercised prior
to May 25, 1996, unless the Company proposes to
effect a registered public offering of its shares
other than a registration relating solely to employee
benefit plans or a Rule 145 transaction (at which
time this restriction will not be applicable), and
will expire upon the later of (i) three (3) years
from the date of the final payment of the Junior
Debentures or (ii) May 25, 2004.
C. Simultaneous with the closing of the
Acquisition, the Company will issue and sell to the
Holders (other than Allied) certain additional Stock
Purchase Class A Warrants (the "New Class A
Warrants"), copies of which are attached hereto as
Exhibit 2.01B, to acquire in the aggregate five
hundred thousand (500,000) shares (subject to the
anti-dilution provisions of Section 2.03 below) of
the Company's authorized but unissued common stock.
Upon exercise of the New Class A Warrants, the common
stock issuable thereunder shall have all of the
rights and privileges accorded the Company's other
holders thereof pursuant to the Delaware General
Corporation Law (except as to the special
registration and other rights which are governed by
the Registration Agreement attached hereto as Exhibit
3). The aggregate purchase price for the New Class A
Warrants is Ten Dollars ($10), payable ratably by the
Holders, (other than Allied) upon the execution of
this Amendment and the per share value thereof, for
purposes of Section 1273 of the Internal Revenue Code
of 1986, as amended, is that amount which is equal to
eighty percent (80%) of the fair market value of a
share of the Company's common stock on the date
hereof, determined as the closing sales price of
common stock on the NASDAQ National Market on such
date. The per share exercise price for the New Class
A Warrants shall be One Cent ($0.01). The New Class
A Warrants may not be exercised during the first two
(2) years following the date of this Amendment,
unless the Company proposes to effect a registered
public offering of its shares other than a
registration relating solely to employee benefit
plans or Rule 145 transaction (at which time this
restriction will not be applicable), and will expire
upon the later of (i) three (3) years from the date
of the final payment on the Senior Debentures or (ii)
May 25, 2004.
(b) Section 2.02(B) of the Agreement is modified by (i)
deleting the words "on a" from line 3, (ii) inserting "based on the aggregate
number of shares of the Company's common stock issuable upon the exercise of
the New Class A Warrants, the Junior Holders Class A Warrants and the Class A
Warrants held by such Holder" after the word "pro rata" in line 3, (iii)
deleting the word "basis" in line 3, and (iv) replacing the word "product" with
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"quotient" in line 4.
(c) Section 2.03(B)(i) of the Agreement is modified by
(i) inserting "(i)" after the word "excluding" in line 4, (ii) replacing the
words "or a" in line 4 with "(ii) issuance of the Junior Holders Class A
Warrants, New Class A Warrants and Class C Warrants and shares issued pursuant
to the exercise thereof, and (iii) options and shares issued pursuant to
exercises of options issued pursuant to", (iii) replacing the word "Closing" in
line 7 with "the date of the Amendment", and (iv) replacing "four hundred
seventy-two" with "five-hundred ninety-seven" in lines 7 and 8, (v) replacing
"(1,472,222)" with "(1,597,222)" in line 8.
(d) Paragraph 2.04 of the Agreement is added as follows:
2.04 Class C Warrants.
A. Generally. Simultaneous with the
closing of the Acquisition, the Company will issue
and sell to the Holders (other than Allied) certain
Stock Purchase Class C warrants (the "Class C
Warrants"), (copies of which are attached hereto as
Exhibit 2.04) to acquire in the aggregate seven
hundred fifty thousand (750,000) shares (subject to
the anti-dilution provisions of Section 2.03 above)
of the Company's authorized but unissued common
stock. Upon exercise of the Class C Warrants, the
common stock issuable thereunder (the "C Warrant
Shares") shall have all of the rights and privileges
accorded the Company's other holders thereof pursuant
to the Delaware General Corporation Law (except as to
the special registration and other rights which are
governed by the Registration Agreement attached
hereto as Exhibit 3). The aggregate purchase price
for the Class C Warrants is Ten Dollars ($10),
payable ratably by the Holders (other than Allied) at
the time of execution of this Amendment and the per
share value thereof, for purposes of Section 1273 of
the Internal Revenue Code of 1986, as amended, is
that amount which is equal to eighty percent (80%) of
the fair market value of a share of the Company's
common stock on the date hereof, determined as the
closing sales price of common stock on the NASDAQ
National Market on such date. The per share exercise
price for the Class C Warrants shall be One Cent
($0.01). The Class C Warrants may not be exercised
by the Holders prior to October 31, 1998, unless (x)
the Company proposes to effect a registered public
offering of its shares other than a registration
relating solely to employee benefit plans or a Rule
145 transaction (at which time this restriction will
not be applicable), and/or (y) a Valuation Event
shall have occurred, and will expire upon the later
of (i) three (3) years from the date of the final
payment on the Debentures or (ii) May 25, 2004. The
Class A Warrants, the New Class A Warrants, the
Junior Holders Class A Warrants, the Class B Warrants
and the Class C Warrants are sometimes together
called the "Warrants" in this
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Agreement.
B. Reduction of Class C Warrants in Certain
Circumstances. The Holders agree that,
notwithstanding the issuance of the Class C Warrants
to them pursuant to the terms hereof, the number of C
Warrant Shares which they have the right to acquire
upon the exercise thereof (the "Exercise Number") may
be reduced in accordance with the following:
(a) As used in this Section the following
terms shall have the following meanings:
"Cumulative EBITDA" shall mean EBITDA
from August 1, 1995 through the Valuation Date.
"Cumulative Lower EBITDA Target" shall
mean, in respect of any Valuation Date, the amount
set forth opposite such Valuation Date below.
"Cumulative Upper EBITDA Target" shall
mean, in respect of any Valuation Date, the amount
set forth opposite such Valuation Date below.
Cumulative Cumulative
Lower EBITDA Upper EBITDA
Target(1) Target(1)
--------- ---------
8/1/95 though 7/31/96 $10,798,000 $12,528,000
8/1/95 though 7/31/97 22,593,000 29,532,000
8/1/95 though 7/31/98 35,437,000 50,139,000
8/1/95 though 7/31/99 49,386,000 72,515,000
8/1/95 though 7/31/00 63,893,000 96,155,000
"Valuation Date" shall mean the last
day of the fiscal year immediately prior to the date
of the first Valuation Event to occur in the event of
a Valuation Event described in subpart (iii) of the
definition of "Valuation Event" below, and the last
day of the fiscal quarter immediately prior to the
date of the first Valuation Event to occur in the
event of a Valuation Event described in subparts (i)
or (ii) below.
In the event the Valuation Date is to
be measured upon the last day of a fiscal quarter,
the Cumulative Lower EBITDA Target shall be equal to
the sum of: (a) the product of (i) the difference
between the Cumulative Lower EBITDA Target for the
last day of the fiscal year immediately preceding
such Valuation Date and the
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Cumulative Lower EBITDA Target for the last day of
the fiscal year immediately following such Valuation
Date and (ii) the percentage (the "Completed Fiscal
Quarter Factor") of fiscal quarters actually
completed during the fiscal year of such Valuation
Date; and (b) the Cumulative Lower EBITDA Target for
the last day of the fiscal year immediately preceding
the Valuation Date. The Cumulative Upper EBITDA
Target shall be calculated on the same basis.
For example: If substantially all of
the assets of the Company are sold on November 15,
1998, then:
1. The Cumulative EBITDA would be
equal to EBITDA from August 1, 1995 through the
fiscal quarter immediately preceding such Valuation
Event, i.e., October 31, 1995.
2. The Cumulative Lower EBITDA
Target and Cumulative Upper EBITDA Target would be
adjusted as follows:
Cumulative Cumulative
Lower EBITDA Upper EBITDA
Target Target
------------ ------------
8/1/95 through 7/31/98 $35,437,000 $50,139,000
8/1/95 through 7/31/99 $49,386,000 $72,515,000
----------- -----------
Difference $13,949,000 $22,376,000
Completed Fiscal Quarter Factor 25% 25%
----------- -----------
$ 3,487,250 $ 5,594,000
Prior Fiscal Year End Target $35,437,000 $50,139,000
----------- -----------
Adjusted Cumulative
EBITDA Target $38,924,250 $55,733,000
In the event of the occurrence of a Valuation
Event described in (i) or (ii) below, at the option
of either the Senior Holders or the Company, an audit
of the Company's financial statements will be
performed at the Company's expense.
"Valuation Event" shall mean the
earlier of (i) a sale of all or substantially all of
the Company's assets, (ii) a merger or consolidation
of the Company with or into any other corporation
(other than a merger to reincorporate the Company in
a different jurisdiction, or a consolidation or
merger in which the outstanding voting stock
immediately prior to such consolidation or merger
constitutes a majority of the voting stock of the
surviving entity), or (iii) the election by any
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Holder to sell any C Warrant Shares, which
election(s) may not be made prior to October 31,
1998. If no Valuation Event shall have occurred on
or prior to October 31, 2000, then a Valuation Event
shall be deemed to have occurred on such date.
(b) If, on the Valuation Date,
Cumulative EBITDA shall equal or exceed the Upper
EBITDA Target, then the Holder(s) shall surrender and
transfer to the Company all of the Class C Warrants.
(c) If, on the Valuation Date,
Cumulative EBITDA shall be less than or equal to the
Lower EBITDA Target, then no Class C Warrants will be
transferred to the Company.
(d) If, on the Valuation Date,
Cumulative EBITDA shall be greater than the Lower
EBITDA Target but less than the Upper EBITDA Target,
then the Exercise Number (expressed as a percentage
of the C Warrant Shares Deemed Outstanding on the
Valuation Date) shall be reduced pursuant to the
following formula:
(actual Cumulative EBITDA-Lower EBITDA Target) x C Warrant
(--------------------------------------------) Shares
(Upper EBITDA Target - Lower EBITDA Target )
For Example: If the Valuation Date is October 31,
1998 and Cumulative EBITDA as of 7/31/98 is
$42,788,000, then the Exercise Number (expressed as a
percentage of the C Warrant Shares) would be reduced
by 375,000 in accordance with the following
calculation:
($42.788 mil. - $35.437 mil.) x (750,000) = 375,000
(---------------------------)
($50.139 mil. - $35.437 mil.)
(e) Cumulative EBITDA shall be
determined using the financial statements to be
delivered to the Holders under Section 6.03 hereof.
If such most recent financial statements have not
been prepared and delivered to the Holders as of the
date when a Valuation Event occurs, then Cumulative
EBITDA shall not be calculated until such delivery
occurs. The Company shall make such calculation and
shall deliver the same to the Holders together with
such additional information regarding how such
calculation was made as the Holders may reasonably
require. The Holders shall have 20 days after their
receipt of such calculation and information to review
the same. If the Holders shall dispute such
calculation, they shall give notice to the Company
within such 20-day period, whereupon the Company and
the Holders shall proceed to negotiate in good faith
regarding the resolution of such dispute. If such
dispute is not resolved within 20 days after the
Holder's notice, then the dispute shall be submitted
to an independent
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certified public accountant of recognized national
standing mutually agreed upon by the Holders and the
Company whose determination shall be binding on the
parties absent manifest error. Failure of the
Holders to respond within such 20-day period shall
mean that the Holders have accepted such calculation.
(f) Promptly after any reduction in the
Exercise Number pursuant to this Section, the Holders
shall surrender the Class C Warrants to the Company
and the Company shall issue to the Holders new
Warrants reflecting such reduced Exercise Number. If
the Warrant has already been exercised, then the
Holders shall surrender to the Company the
appropriate number of Warrant Shares upon the refund
to it of the Exercise Price for such shares.
(g) For the purposes of this Section,
"EBITDA" shall mean, as for any fiscal period, the
Company's (i) Net Income (as defined below) for such
period, plus (ii) all income taxes included as an
expense of the Company in determining Net Income for
such period, plus (iii) interest deducted as an
expense of the Company in the determination of Net
Income for such period, plus (iv) depreciation,
amortization and other non-cash expenses deducted in
determining Net Income for such period, plus (v) any
amounts paid (excluding fees, expenses and other
costs) in settlement of or as a result of a final
judgment in the Kochenash litigation referenced in
Section 2.02C(ii) of the Agreement, up to a maximum
of $1,500,000.
(h) For the purposes of this Section,
"Net Income" shall mean the Company's consolidated
net income (or loss) after income and franchise
taxes and shall have the meaning given such term by
GAAP, provided that there shall be specifically
excluded therefrom tax-adjusted (a) gains or losses
from the sale of capital assets, (b) net income of
any person in which the Company has an ownership
interest unless received by the Company in a cash
distribution and (c) any gains arising from
extraordinary items, as determined in accordance
with GAAP.
Section 4. Registration Rights.
Section 3 of the Agreement is hereby amended by adding the
following at the end of such Section:
Notwithstanding anything contained in the Agreement
or the Registration Agreement (as defined in the
Agreement) to the contrary, only the Senior Holders
shall have the right to request a Demand Registration
(as defined in Section 1 of the Registration
Agreement), but Allied and the Junior Holders may, on
a pro-rata basis and subject to the terms and
conditions of the Registration Agreement, include any
of
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its or their Warrant Shares (the "Additional Warrant
Shares") in any Demand Registration that may be
requested so long as the inclusion of any such
Additional Warrant Shares does not interfere with or
restrict the number of Warrant Shares desired to be
included by any Senior Holder in connection with such
Demand Registration. In the event any of the
Additional Warrant Shares held by Allied are included
in such Demand Registration, the Additional Warrant
Shares held by the Junior Holders may be included in
such Demand Registration only to the extent that the
inclusion of such Additional Warrant Shares would not
interfere with or restrict the number of Warrant
Shares desired to be included by Allied.
Section 5. Affirmative Covenants.
Section 6 of the Agreement is hereby amended by
deleting Paragraphs 6.01, 6.02, 6.03, 6.04, 6.07,
6.08, 6.10, 6.11, 6.12, 6.17 and 6.18 and inserting
the following at the end of such Section:
6.20 Taxes. The Company will pay, prior to
delinquency, all taxes, assessments, claims and other
charges (herein "taxes") lawfully levied or assessed
upon the Company and if such taxes remain unpaid
after the date fixed for the payment thereof, unless
such taxes are being diligently contested in good
faith by the Company by appropriate proceedings..
6.21 Compliance with Laws. The Company: (a) will
comply with all acts, rules, regulations and orders
of any legislative, administrative or judicial body
or official, which the failure to comply with would
have a material and adverse impact on the operation
of the Company's business; provided, however, that
the Company may contest any acts, rules, regulations,
orders and directions of such bodies or officials in
any reasonable manner which will not, in Holders'
reasonable opinion, materially and adversely affect
the operation of the Company's business; (b) will
comply with all environmental statutes, acts, rules,
regulations or orders as presently existing or as
adopted or amended in the future, applicable to the
ownership and/or use of its real property and
operation of its business, which the failure to
comply with would have a material and adverse impact
on the operation of the business of the Company.
6.22 Financial Statements. Until termination of
the Agreement and payment and satisfaction of all
obligations due hereunder, the Company agrees that,
unless Holders shall have otherwise consented in
writing, the Company will furnish to Holders, within
ninety (90) days after the end of each fiscal year of
the Company, an audited Consolidated Balance Sheet as
at the close of such year, and statements of
consolidated earnings, cash flow and reconciliation
of surplus of the
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Company and its Consolidated Subsidiaries, audited by
Price Waterhouse, LLP, or such other independent
public accountants of national standing selected by
the Company, within forty-five (45) days after the
end of each fiscal quarter a Balance Sheet as at the
end of such period and statements of earnings, cash
flow and surplus of the Company, certified by an
authorized financial or accounting officer of the
Company; and within thirty (30) days after the end of
each month monthly interim financial statements,
certified by an authorized financial or accounting
officer of the Company; and from time to time, such
further information regarding the business affairs
and financial condition of the Company as Holders may
reasonably request. The Company shall deliver to
Holders no later than (60) days from the start of
each fiscal year end of the Company, annual cash flow
projections for such fiscal year, including a
projected consolidated balance sheet and consolidated
statements of earnings, cash flow and surplus (and
such consolidating statements as Holders may
request). All such financial statements shall be
prepared in accordance with generally accepted
accounting principles consistently applied, subject
to year end adjustments. Each financial statement
which the Company is required to submit hereunder
must be accompanied by an officer's certificate
certifying that: (i) the financial statement(s)
fairly and accurately represent(s) the Company's and
Consolidated Subsidiaries' financial condition at the
end of the particular accounting period, as well as
the Company's and Consolidated Subsidiaries'
operating results during such accounting period,
subject to year-end audit adjustments; (ii) during
the particular accounting period there has been no
default or condition which, with the passage of time
or notice, or both, would constitute a default or
event of default under this Agreement or the
Agreements executed in connection with the Senior
Debt; provided, however, that if any executive
officer of the Company has knowledge that any such
default or event of default has occurred during such
period, the existence of and a detailed description
of same shall be set forth in the officer's
certificate; and (iii) the exhibits attached to such
financial statement(s) constitute detailed
calculations showing compliance with all financial
covenants contained in this Agreement.
The Company shall furnish to Holders promptly upon
receipt thereof, copies of any reports submitted to
the Company by independent certified accountants in
connection with the examination of the financial
statements and financial, accounting and auditing
controls (including, without limitation, management
letters) of the Company and its Consolidated
Subsidiaries made by such accountants.
Section 6. Negative Covenants.
(a) Section 7 of the Agreement is hereby amended by
deleting sections
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7.01, 7.02, 7.03, 7.04, 7.05, 7.07, 7.08 and 7.09 and modifying section 7.06 as
follows:
The third line of paragraph 7.06 is restated to read:
"the Company to exceed or violate the Permitted
Indebtedness definition set forth below, enter any
material ..."
(b) The following paragraphs are added at the end of
Section 7:
7.10 Certain Restrictions. Until termination of
the Agreement and payment and satisfaction of the
Debentures, the Company will not, without the prior
written consent of Holders, except as otherwise
herein provided:
A. Incur or create any Indebtedness other than
the Permitted Indebtedness;
B. Merge, consolidate or otherwise alter or
modify its name, principal place of business,
structure, existence, or enter into or engage in any
or activity materially different from that being
conducted by the Company;
C. Assume, guarantee, endorse, or otherwise
become liable upon the obligations of any person,
firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary
course of business;
D. Declare or pay any dividend of any kind on,
or purchase, acquire, redeem or retire, any of the
capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding;
E. Make any advance or loan to, or any
investment in, any firm, entity, person or
corporation; or
F. Change its fiscal year.
7.11 Minimum Consolidated Net Worth. The Company
and its Consolidated Subsidiaries shall maintain at
the end of each Rolling Period a Consolidated Net
Worth of not less than the following:
Rolling Period Amount
-------------- ------
January 31, 1996 $17,000,000
April 30, 1996 $17,000,000
July 31, 1996 $17,000,000
July 31, 1997 $22,000,000
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July 31, 1998 $27,000,000
July 31, 1999 $33,500,000
July 31, 2000 $40,500,000
and thereafter
7.12 Consolidated Interest Coverage Ratio. The
Company and its Consolidated Subsidiaries shall
maintain at the end of each Rolling Period, a
Consolidated Interest Coverage Ratio of not less than
the following-
Rolling Period Ratio
-------------- -----
January 30, 1996 1.65 to 1.00
April 30, 1996 2.19 to 1.00
July 31, 1996 2.41 to 1.00
July 31, 1997 2.93 to 1.00
July 31, 1998 3.50 to 1.00
July 31, 1999 3.60 to 1.00
July 31, 2000 3.60 to 1.00
and thereafter
7.13 Consolidated Total Liabilities to
Consolidated Net Worth. The Company and its
Consolidated Subsidiaries will not at the end of each
Rolling Period, permit the ratio of Consolidated
Current Liabilities to Consolidated Net Worth to be
greater than the following:
Rolling Period Ratio
-------------- -----
January 31, 1996 5.75 to 1.00
April 30, 1996 5.64 to 1.00
July 31, 1996 5.29 to 1.00
July 31, 1997 4.18 to 1.00
July 31, 1998 3.30 to 1.00
July 31, 1999 3.25 to 1.00
July 31, 2000 3.25 to 1.00
and thereafter
7.14 Consolidated Current Ratio. The Company and
its Consolidated Subsidiaries shall have at the end
of each Rolling Period a ratio of Consolidated
Current Assets to Consolidated Current Liabilities of
not less than the following:
Rolling Period Ratio
-------------- -----
January 31, 1996 0.88 to 1.00
April 30, 1996 0.89 to 1.00
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July 31, 1996 0.94 to 1.00
July 31, 1997 1.08 to 1.00
July 31, 1998 1.25 to 1.00
July 31, 1999 1.35 to 1.00
July 31, 2000 1.35 to 1.00
and thereafter
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:
Rolling Period Ratio
-------------- -----
January 31, 1996 0.51 to 1.00
April 30, 1996 0.73 to 1.00
July 31, 1996 0.90 to 1.00
July 31, 1997 1.38 to 1.00
July 31, 1998 1.45 to 1.00
July 31, 1999 1.50 to 1.00
July 31, 2000 1.50 to 1.00
and hereafter
7.16 Consolidated EBITDA. The Company and its
Consolidated Subsidiaries shall have as of the end of
each Rolling Period an amount of Consolidated EBITDA
of not less than the following:
Rolling Period Amount
-------------- ------
January 31, 1996 $ 1,641,000
April 30, 1996 $ 4,309,000
July 31, 1996 $ 6,500,000
July 31, 1997 $12,000,000
July 31, 1998 $14,500,000
July 31, 1999 $16,000,000
July 31, 2000 $17,000,000
and thereafter
7.17 Certain Adjustments. Notwithstanding the
foregoing financial covenants set forth in paragraphs
7.11 though 7.16 of this Section 7, to the extent
that the Company is obligated to pay any amounts in
settlement of the litigation entitled Kochenash v.
Stanwich Oil & Gas, Inc. et al, and such obligation
or payment results in noncompliance by the Company
and its Consolidated Subsidiaries for any period with
any or all of such financial covenants, then for the
relevant period and for the purpose of determining
such compliance, Consolidated EBITDA (in
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the case of the financial covenants in paragraph
7.12, 7.15 and 7.16) will be increased, and
Consolidated Current Liabilities (in the case of the
financial covenants in paragraphs 7.11, 7.13, and
7.14) will be decreased, by the lesser of (i)
$2,000,000, or (ii) such amount as may be necessary
to effect the minimum level of compliance with the
relevant financial covenant.
7.18 Capital Expenditures. The aggregate amount
of all Capital Expenditures of Company and its
Subsidiaries will not exceed $1,500,000 for the
period from October 23, 1995 through July 31, 1996 or
$1,500,000 in any fiscal year thereafter. In any
fiscal year the Company and its Subsidiaries shall be
entitled to add to the $1,500,000 ceiling for such
fiscal year, Capital Expenditures equal to one-half
of the amount, if any, by which $1,500,000 exceeds
the amount of Capital Expenditures which were made in
the preceding fiscal year, provided that for the
fiscal year commencing August 1, 1996 the applicable
addition shall be one-half of the excess of
$1,500,000 over the amount of Capital Expenditures
made in the period from October 23, 1995 through
July 31, 1996.
7.19 Environmental Compliance. The Company will
advise Holders in writing of: a) all expenditures
(actual or anticipated) in excess of $150,000 for x)
environmental clean-up, y) environmental compliance
or z) environmental testing and the impact of said
expenses on the Company's working capital; and b) any
notices the Company-receives from any local, state or
federal authority advising the Company of any
environmental liability (real or potential) stemming
from the Company's operations, its premises, its
waste disposal practices, or waste disposal sites
used by the Company and to provide Holders with
copies of all such notices if so required.
7.20 Transactions with Affiliates. Without the
prior written consent of Holders, the Company will
not enter into any transaction, including, without
limitation, any purchase, sale, lease, loan or
exchange of property with any Subsidiary or affiliate
of the Company unless such transaction shall be on an
arm's length basis on terms no less favorable to the
Company than a transaction with a third party.
7.21 ERISA Notices. The Company will deliver to
Holders, if and when (but in no case less than ten
(10) days from the date of such event) (i) the
Company or any ERISA Affiliate gives or is required
to give notice to the PBGC of any Reportable Event
with respect to any Pension Plan, a copy of the
notice of such Reportable Event; (ii) the Company or
any ERISA Affiliate becomes obligated to contribute
to a Multiemployer Plan to which such entity was not
obligated to contribute on the Closing Date, a letter
of a financial officer describing such event
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and estimating the future contingent withdrawal
liability with respect thereto; (iii) the Company or
any ERISA Affiliate receives notice of complete or
partial withdrawal liability with respect to a
Multiemployer Plan or receives notice that a
Multiemployer Plan may be or has been terminated, in
Reorganization or Insolvency, or receives notice from
the administrator of a Multiemployer Plan that
indicates the existence of potential withdrawal
liability under a Multiemployer Plan, a copy of such
notice; (iv) the Company or any ERISA Affiliate
receives notice from the PBGC of an intent to
terminate or appoint a trustee to administer any
Pension Plan or Multiemployer Plan, a copy of such
notice; (v) the Company or any ERISA Affiliate fails
to make a timely contribution to a Pension Plan which
may give rise or has given rise to an accumulated
funding deficiency or a lien, a letter of a financial
officer describing such event; (vi) the Company or
any ERISA Affiliate adopts or proposes to adopt an
amendment which may require or requires the granting
of a security interest, a letter of a financial
officer describing such event; (vii) the Company or
any ERISA Affiliate fails to make a contribution
required under the terms of an Employee Benefit Plan
or Pension Plan or as required by law, which failure
has a material adverse effect on such Employee
Benefit Plan or Pension Plan, a letter of a financial
officer describing such event; (ix) if any Pension
Plan intending to qualify under section 401(a) or
401(k) of the Code fails to so qualify, a letter of a
financial officer describing such event; (x) a
transaction prohibited under section 4975 of the Code
or section 406 of ERISA occurs resulting in liability
to the Company or any entity which the Company has an
obligation to indemnify, a letter of a financial
officer describing such event. Upon the request of
Holders made from time to time, the Company will
deliver a copy of the most recent actuarial report
and annual report completed with respect to any
Employee Benefit Plan or any other financial
information the Company or any ERISA Affiliate has
with respect to any Employee Benefit Plan.
7.22 ERISA Covenant. The Company will, and will
cause each of its ERISA Affiliates to, maintain all
Employee Benefit Plans and Pension Plans in material
compliance with all applicable law, including any
reporting requirements, and make all contributions
due under the terms of each Pension Plan and Employee
Benefit Plan or as required by law.
(b) As used in this Agreement the following terms shall
have the following meanings:
"Capital Expenditures" shall mean, for any
period, the aggregate of all expenditures of the Company and
its Subsidiaries during such period that in conformity with
GAAP are required to be included in or reflected by the
property, plant or equipment or similar fixed asset account
reflected in the balance sheet of the Company and its
Consolidated Subsidiaries.
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"Capital Lease" shall mean any lease of
property whether real, personal or mixed) which, in conformity
with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the balance sheet of the Company.
"Code" shall mean the Internal Revenue Code
of 1986, as amended.
"Consolidated Current Assets" shall mean
those assets of the Company and its Consolidated Subsidiaries
on a consolidated basis, which in accordance with GAAP, are
classified as "current".
"Consolidated Current Liabilities" shall mean
those liabilities of the Company and its Consolidated
Subsidiaries, on a consolidated basis, which in accordance
with GAAP, are classified as "current"; provided, however,
that notwithstanding GAAP, the Revolving Loans under the
Senior Debt and the current portion of Permitted Indebtedness
shall be considered "current liabilities".
"Consolidated EBITDA" shall mean, in any
period, all earnings of the Company and its Consolidated
Subsidiaries, on a consolidated basis, before all interest tax
obligations, depreciation and amortization of intangibles of
the Company and its Consolidated Subsidiaries, on a
consolidated basis, for said period determined in accordance
with GAAP.
"Consolidated Fixed Charge Coverage Ratio"
shall mean for any period, a ratio determined as of the
relevant calculation date by dividing (a) Consolidated EBITDA
by (b) the sum for such period of (i) Consolidated Interest
Expense, plus (ii) payments made on the term portion of the
Senior Debt, plus (iii) Capital Expenditures, plus (iv) income
taxes of the Company and its Consolidated Subsidiaries
determined in accordance with GAAP.
"Consolidated Interest Expense" shall mean
total consolidated interest obligations of the Company and its
Consolidated Subsidiaries determined in accordance with GAAP
and in a manner consistent with the latest audited statements
of the Company, but exclusive of amortization of debt discount.
"Consolidated Interest Coverage Ratio" shall
mean a ratio determined as of the relevant calculation date by
dividing Consolidated EBITDA by Consolidated Interest Expense
for the relevant period.
"Consolidated Net Worth" shall mean, with
respect to the Company and its Consolidated Subsidiaries,
assets in excess of liabilities determined in accordance with
GAAP in a manner consistent with the latest audited financial
statements of the Company and its Consolidated Subsidiaries.
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"Consolidated Subsidiaries" shall mean all
subsidiaries of the Company that should be included in the
Company's consolidated financial statements, all as determined
in accordance with GAAP.
"Employee Benefit Plan" shall mean any plan,
agreement, arrangement or commitment which is an employee
benefit plan, as defined in section 3(3) of ERISA, maintained
by the Company or any ERISA Affiliate with respect to which
the Company or any ERISA Affiliate at any relevant time has
any liability or obligation to contribute.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time and
the rules and regulations promulgated thereunder from time to
time.
"ERISA Affiliate" shall mean, with respect to
the Company, any entity required to be aggregated with the
Company under Section 414(b), (c), (m) or (o) of the Code.
"GAAP" shall mean generally accepted
accounting principals in the United States of America as in
effect from time to time and for the period as to which such
accounting principles are to apply.
"Insolvency" shall mean, at any particular
time, a Multiemployer Plan which is insolvent within the
meaning of section 4245 of ERISA.
"Multiemployer Plan" shall mean a plan which
is a multiemployer plan as defined in Section 3(37) of ERISA.
"PBGC" shall mean Pension Benefit Guaranty
Corporation.
"Pension Plan" shall mean any Employee
Benefit Plan which is a "pension plan" within the meaning of
Section 3(2) of ERISA.
"Permitted Indebtedness" shall mean: (i) the
Senior Debt, which may be increased to an amount not in excess
of $32 million (ii) Indebtedness maturing in less than one
year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor;
(iii) Indebtedness secured by the Purchase Money Liens; (iv)
Indebtedness arising under this Agreement; (v) deferred taxes
and other expenses incurred in the ordinary course of
business; and (vi) other Indebtedness existing on October 23,
1995 and listed in the most recent financial statement
delivered to the Holders; and (vii) Capital Leases, provided
the amount thereof shall not exceed $5,000,000 in the
aggregate outstanding at any one time..
"Purchase Money Liens" shall mean liens on
any item of
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equipment acquired after the date of this Agreement; provided,
however, that (i) each such lien shall attach only to the
property to be acquired, and (ii) the debt incurred in
connection with such acquisition shall not exceed in the
aggregate $500,000 in any fiscal year.
"Reorganization" shall mean with respect to
any Multiemployer Plan, the condition that such plan is in
reorganization under section 4241 of ERISA.
"Reportable Event" shall mean an event
described in section 4043 of ERISA or in the regulations
thereunder.
"Rolling Period" shall mean (a) with respect
to any fiscal quarter ending on or prior to October 31, 1996,
the period commencing with the first fiscal quarter commencing
November 1, 1995 and ending on the last day of such fiscal
quarter, and (b) with respect to a fiscal quarter ending after
October 31, 1996, such fiscal quarter and the preceding three
fiscal quarters.-
Section 7. Default.
Section 8 of the Agreement is hereby amended in the following
respects:
(a) Paragraph 8.01 is hereby amended by inserting the
word "or" between "Warrants" and "Debentures" and deleting the words "or
Security Documents."
(b) Paragraph 8.02 of the Agreement is hereby deleted in
its entirety and replaced with the following new paragraph:
8.02 Breach. "The Company shall fail to comply with the covenants
in this Agreement, or CPS shall fail to comply with the covenants in
the CPS Registration Agreement, as such covenants exist on the date
hereof and such failure shall continue for a period of thirty (30)
days after the date of breach."
(c) Paragraph 8.03 of the Agreement is hereby amended by
adding the word "material" before the word "representation" in the first line,
and adding the words "in any material respect" after the word "untrue" in the
second line.
(d) Paragraph 8.04 of the Agreement is deleted in its
entirety and replaced with the following new Paragraph:
8.04 Bankruptcy. The Company shall generally not
pay its debts as they become due or shall admit in
writing its inability to pay its debts, or shall make
a general assignment for the benefit of creditors; or
the Company shall commence any case, proceeding or
other action seeking to have an order for relief
entered on its behalf as debtor or to
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adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency,
reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or
other similar official for it or for all or any
substantial part of its property or shall file an
answer or other pleading in any such case, proceeding
or other action admitting the material allegations of
any petition, complaint or similar pleading filed;
(e) Paragraph 8.05 of the Agreement is deleted in its
entirety and replaced with the following new Paragraph:
8.05 Actions Seeking Reorganization. Any
involuntary case, proceeding or other action against
the Company is commenced seeking to have an order for
relief entered against it as debtor or to adjudicate
it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency,
reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or
other similar official for it or for all or any
substantial part of its property, and such case,
proceeding or other action (i) results in the entry
of any order for relief against it or (ii) shall
remain undismissed for a period of sixty (60) days;
(f) Paragraph 8.06 of the Agreement is deleted in its
entirety.
(g) Paragraph 8.07 of the Agreement is deleted in its
entirety and replaced with the following new Paragraph:
8.07 Other Defaults. A default by the Company
shall have occurred and be continuing under the
Senior Debt and/or the Junior Debentures, and/or in
any payment of principal of or interest on any other
obligation for borrowed money (or any obligation or
obligations under a conditional sale or other title
retention agreement or any obligation or obligations
issued or assumed as full or partial payment for
property whether or not secured by a purchase money
mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit)
beyond any period of grace provided with respect
thereto in each case involving any individual
obligation or one or more obligations in an aggregate
principal amount of $250,000 or more or (ii) a
default by the Company shall have occurred and be
continuing in the performance of any other agreement,
term or condition contained in any agreement under
which any such obligation referred to in clause (i)
is created (or if any other default under any such
agreement shall occur and be continuing) if the
effect of such default is to cause, or permit the
holder or holders of such obligation or obligations
(or a trustee on behalf of
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such holder or holders) to cause, such obligation or
obligations to become due prior to its or their
stated maturity in each case involving any individual
obligation or one or more obligations in an aggregate
principal amount of $250,000 or more.
(h) Paragraph 8.08 of the Agreement is deleted in its
entirety.
Section 8. Security Interest.
Paragraph 12.02 of the Agreement is hereby amended by deleting
such Paragraph in its entirety.
Section 9. Notice.
Section 13 of the Agreement is hereby amended by adding the
following at the end of such section:
To Bradley: c/o Stanwich Partners, Inc.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902
To Poole: c/o Stanwich Partners, Inc.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902
Section 10. Holders.
(a) Except as provided in this Section 10, as of the date
hereof, Allied shall no longer have any rights as a Holder under the Agreement.
Notwithstanding the foregoing, so long as Allied continues to be a holder of
any Warrants, it shall be treated as a Holder for purposes of Paragraphs 2.01,
2.02, 2.03, 6.13, 6.14, 6.15, 9.02 and 12.01, and Sections 3, 5, 10, 13, 14,
15, 17, 18, 19, 20, 21 and 22. Additionally, so long as the Company is
required to comply with the reporting requirements of the Securities Exchange
Act of 1934, as amended, the Company shall provide Allied with the information
reported to the Commission in connection therewith within ten (10) days after
the same is provided to the Commission; provided, however, in the event the
Company is not required to comply, or fails to comply, with the reporting
requirements of the Securities Exchange Act of 1934, as amended, Allied shall
receive the information described in Paragraph 6.22 of this Agreement, as and
when provided to the Holders. Notwithstanding anything to the contrary
contained herein, no failure on the part of the Company to provide any
information to Allied shall constitute an Event of Default under the Agreement;
provided, however, Allied shall have the right to seek injunctive relief to
compel the Company to provide such information.
(b) The parties hereto acknowledge that concurrently with
the execution of
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this Amendment, the Company shall repay to Allied all outstanding sums owed by
the Company under the Debentures held by Allied.
(c) The parties hereto acknowledge that concurrently with
the execution of this Amendment, the Junior Holders are purchasing the Junior
Debentures and that the Junior Holders have the right to sell all or a part of
the Junior Debentures to third parties. The parties hereto agree that no part
of the Junior Debentures may be sold to third parties without the prior written
consent of the Senior Holders, which consent shall not be unreasonably
withheld.
(d) The parties hereto agree that the Agreement is hereby
modified to provide that wherever the consent of a "Holder" or the "Holders" is
required thereunder, such consent shall only be required from the Senior
Holders.
Section 9. Conditions Precedent to the Obligations of the Senior Holders.
The obligation of the Senior Holders and Allied to execute and
deliver this Amendment and consummate the transactions contemplated by this
Amendment is subject to the satisfaction of each of the following conditions
precedent:
(a) the representations and warranties of the Company in
the Agreement shall be true and correct in all material respects as of the date
hereof as if made at such time subject to disclosures made to the Holders in
writing in connection with the execution of this Agreement;
(b) all covenants and agreements of the Company to be
performed or observed at or prior to the date hereof shall have been performed
or observed;
(c) no Material Adverse Change shall have occurred with
respect to the Company;
(d) Holdings shall have delivered a fully executed copy
of the Pledge Agreement;
(e) CPS shall have delivered a fully executed copy of the
CPS Registration Agreement;
(f) the Company and the Junior Holders shall have
delivered a fully executed copy of the Holders' Intercreditor Agreement;
(g) the Company shall have delivered to the Senior
Holders and Allied, the following:
(i) an Officer's Certificate of the Company executed
by its President and certifying that each of the conditions specified in
subsections (a) through (c) above, insofar as they relate to the Company, have
been satisfied;
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(ii) a Secretary's Certificate of the Company
certifying as to its Certificate of Incorporation, By-Laws, resolutions and
incumbency;
(iii) a Good Standing Certificate of the Company
issued by the Secretary of State of Delaware; and
(iv) an opinion of the Company's counsel addressed
to the Senior Holders and in form and substance reasonably acceptable to the
Senior Holders and their counsel;
(h) Holdings shall have delivered to the Senior Holders
and Allied a Secretary's Certificate of Holdings certifying (i) as to its
Certificate of Incorporation, By-Laws, resolutions and incumbency, and (ii)
that all of the documents executed and actions taken by or on behalf of
Holdings in connection with this Amendment and the transactions related thereto
have been duly authorized by the Board of Directors of Holdings;
(i) The Company shall have paid all of the fees, costs
and expenses, including without limitation, attorney's fees, of the Senior
Holders and Allied which are incurred in connection with the negotiation and
execution of this Amendment and the consummation of the transactions
contemplated herein.
(j) The Company shall have delivered all of the other
documents, instruments and agreements to the Senior Holders and Allied which
are required by the terms of this Amendment.
Section 10. Miscellaneous.
(a) The Company agrees to pay and save the Holders
harmless against liability for the payment of all reasonable out-of-pocket
expenses of the Holders arising in connection with this Amendment, including
fees and expenses of counsel for the Holders.
(b) The provisions of the Agreement shall remain in full
force and effect except as modified hereby.
[End of Document]
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IN WITNESS WHEREOF, the parties, by their duly authorized officers,
have executed and delivered this First Amendment to Investment Agreement as of
the date first written above.
DEVLIEG-BULLARD, INC.
ATTEST: By: /s/ W. O. Thomas
--------------------------- -------------------------------
ALLIED INVESTMENT CORPORATION
ATTEST: By: /s/ Richard E. Fearon, Jr.
--------------------------- -------------------------------
ALLIED INVESTMENT CORPORATION II
ATTEST: By: /s/ Richard E. Fearon, Jr.
--------------------------- -------------------------------
ALLIED CAPITAL CORPORATION II
ATTEST: By: /s/ Richard E. Fearon, Jr.
--------------------------- -------------------------------
BANC ONE CAPITAL PARTNERS CORPORATION
ATTEST: By: /s/ James H. Wolfe
--------------------------- -------------------------------
PNC CAPITAL CORP
ATTEST: By: /s/ David J. Blair
--------------------------- -------------------------------
WITNESS: /s/ Charles E. Bradley, Sr.
-------------------------- ----------------------------------
CHARLES E. BRADLEY, SR.
WITNESS: /s/ John G. Poole
-------------------------- ----------------------------------
JOHN G. POOLE
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