Exhibit 10.1
FORBEARANCE AND AMENDMENT
AGREEMENT
This FORBEARANCE AND AMENDMENT
AGREEMENT (this “ Agreement ”), dated as of
March 30, 2007 (the “Effective Time” ) is
entered into between Devcon International Corp. (the “
Company ”) and HBK Main Street Investments L.P. (the
“ Investor ”).
RECITALS
WHEREAS , in connection with the Securities Purchase
Agreement by and among the parties hereto dated as of
February 10, 2006 (the “ Securities Purchase
Agreement ”), the Company had agreed, upon the terms and
subject to the conditions set forth in the Securities Purchase
Agreement, to issue and sell to the Investor and each other buyer
set forth therein (collectively, the “ Buyers ”)
(i) at the Initial Closing (as defined in the Securities
Purchase Agreement) warrants (the “ Warrants ”)
which were to be exercisable to purchase shares of Common Stock at
an exercise price equal to $11.925 per share (as exercised
collectively, the “ Warrant Shares ”) and
(ii) at the Additional Closing (as defined in the Securities
Purchase Agreement), subject to the satisfaction of certain terms
and conditions, preferred shares of the Company designated as
Series A Convertible Preferred Stock, the terms of which were set
forth in that certain Certificate of Designations for such series
of preferred shares (the “ Certificate of Designations
”), dated as of October 16, 2006 (the “
Preferred Shares ”) which, among other things, were
contemplated to be convertible into shares of the Company’s
common stock, par value $0.10 per share (the “ Common
Stock ”) (as converted, the “ Conversion
Shares ”), in accordance with the terms of the
Certificate of Designations;
WHEREAS , the Preferred Shares may be entitled to
dividends (the “ Dividends ”), which the
Company, subject to certain conditions, may pay in shares of Common
Stock (the “ Dividend Shares ”);
WHEREAS , to induce the Buyers to execute and deliver
the Securities Purchase Agreement, the Company provided certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor
statute (collectively, the “ 1933 Act ”), and
applicable state securities laws by entering into that certain
Registration Rights Agreement, dated as of February 10, 2006
(the “ Registration Rights Agreement ”), by and
among the Company and the Buyers;
WHEREAS , under the terms of the Registration Rights
Agreement, the Company agreed to use its best efforts to cause a
Registration Statement (the “ Registration Statement
”) registering the resale of the shares (the “
Registrable Shares ”) of the Company’s common
stock, par value $.10 (the “ Common Stock ”),
issuable upon conversion of the Preferred Shares, exercise of
the
FORBEARANCE AGREEMENT
Warrants and in payment of certain dividend
obligations under the Certificate of Designations to be declared
effective by the Securities and Exchange Commission (the “
SEC ”) no later than January 25, 2007 (the
“ Effectiveness Deadline ”);
WHEREAS, the Company has filed a Registration Statement
to register the resale of the Registrable Shares, but has not
caused such Registration Statement to be declared effective by the
SEC (the “ Effectiveness Failure ”) due to
comments from the SEC the Company has received with respect
thereto, which comments the Company believes make compliance with
the current terms of the Registration Rights Agreement
impossible;
WHEREAS , the Securities Purchase Agreement, the
Registration Rights Agreement and the Certificate of Designations
each provide that provisions of the respective agreements and
instruments may be amended and the observance thereof may be
waived, with the written consent of the Company and Buyers holding
at least a majority of the Registrable Securities (the “
Required Holders ”);
WHEREAS , the Certificate of Designations allows that,
with the consent of the Required Holders, the Company may, whether
or not prohibited by the terms of the Preferred Shares, waive a
right of the Preferred Shares;
WHEREAS , the Registration Rights Agreement further
provides that all consents and other determinations required to be
made by the Buyers pursuant to the Registration Rights Agreement
shall be made by the Required Holders;
WHEREAS , concurrently herewith, the Company has also
requested that the Buyers (other than the Investor) enter into
agreements in the form of this Agreement (the “ Other
Agreements ”, and together with this Agreement, the
“ Forbearance Agreements ”);
WHEREAS , as a result of the Effectiveness Failure, the
Company and the Buyers are in discussions regarding certain
potential amendments to and waivers of (the “
Amendments ”) certain terms of the Securities Purchase
Agreement, the Registration Rights Agreement and the Certificate of
Designations; and
WHEREAS , the Investor and each other Buyer is
negotiating the terms of the Amendments independently and,
accordingly, such negotiations are anticipated to take an
indeterminable amount of time to complete;
WHEREAS , notwithstanding the Company’s belief
that it has not currently breached any of the terms of the
Transaction Documents, the Company desires to ensure that, during
the pendency of such negotiations, no Buyer will seek to exercise
certain remedies or other rights they may have under the
Transaction Documents resulting solely from the effects of the
circumstances causing the Effectiveness Failure;
FORBEARANCE
AGREEMENT
WHEREAS , capitalized terms used but not defined herein
shall have the meaning ascribed thereto in the Securities Purchase
Agreement.
NOW, THEREFORE
, in consideration of the foregoing,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Forbearance Effective as
of the Effective Time (as defined below), the Investor hereby
agrees to forbear (the “ Forbearance ”) from
(a) taking any remedial action with respect to the
Effectiveness Failure, (b) declaring the occurrence of any
Triggering Event with respect to the Effectiveness Failure having
occurred and from delivering any Notice of Redemption at Option of
Holder with respect to thereto or (c) demanding any amounts
due and payable with respect to the Effectiveness Failure,
including without limitation, any Registration Delay Payments
payable with respect to the Preferred Shares, until the earlier of
(the “ Forbearance Expiration Date ” and the
period commencing on the Effective Time and ending on the
Forbearance Expiration Date, the “ Forbearance Period
”):
(i) 5:00 p.m. prevailing New York
city time on January 2, 2008.
(ii) the occurrence of an event of
default described in either of Sections 3(a)(viii) or 3(a)(ix) of
the Certificate of Designations;
(iii) such date the Investor
reasonably determines that the Company either (u) is not
negotiating the Amendments in good faith, (v) is not using its
best efforts to promptly negotiate and enter into the Amendments
with the Buyers, (w) has failed to execute such Amendments as
soon as practicable, (x) has breached any covenant or other
agreement set forth in any Forbearance Agreement, or
(y) failed to obtain the Shareholder Approval by the
Shareholder Meeting Deadline, provided that in the case of the
Investor making any of the determinations described in
(u) – (y) above, the Company shall have first
failed to use its best efforts to remedy the same within two
(2) Business Days after receiving written notice thereof from
the Investor; and
(iv) the Amendments Closing Date (as
defined in Section 2(B)(iii) below).
Notwithstanding anything set forth
herein to the contrary, the Forbearance is conditioned upon the
Company’s agreement not to, and not to cause any of its
Subsidiaries to, issue, in one or a series of transactions, any
debt or equity securities that are senior to the Preferred Shares,
or any debt or equity securities that are junior to the Preferred
Shares, in the latter case, in an amount resulting in net proceeds
to the Company in excess of $5 million, except Excluded Securities
(as defined in the Certificate of Designations), without the prior
written consent of the Required Holders prior to the Forbearance
Expiration Date.
FORBEARANCE
AGREEMENT
2. Additional Covenants and
Waiver . The following covenants, agreements and waivers shall
each become effective as of the Effective Time and shall terminate
on the Forbearance Expiration Date:
(a) Withdrawal of Registration
Statement . The Company shall, as soon as practicable, take all
steps necessary to effect a withdrawal under SEC Rule 477 of the
Registration Statement.
(b) Amended and Restated
Certificate of Designation .
(i) In furtherance of effecting the
Amendments as soon as practicable, but no later than ten
(10) Business Days of the date hereof (such date, the “
COD Date ”), the Company and the Required Holders
shall agree to attach as Exhibit A to each of the
Forbearance Agreements a form of Amended and Restated Certificate
of Designations (the “ Amended Certificate of
Designations ”) setting forth certain revised terms of
the Preferred Shares, including, without limitation, a reduction in
the conversion price of the Preferred Shares set forth in the
Certificate of Designations to $6.75, allowance for the accrual of
dividends on the Preferred Shares at a rate equal to 10% per
annum, which dividends may be payable in kind; and a revision of
the definition of the Leverage Ratio (as such term is defined in
the Certificate of Designations), which revised definition shall
provide for the Leverage Ratio to be calculated as a multiple of
recurring monthly revenue (“ RMR ”) as opposed
to EBITDA and a revision of the Maximum Leverage Ratio covenant set
forth in the Certificate of Designations to require such Maximum
Leverage Rat
