OURTH AMENDMENT TO NOTE PURCHASE AGREEMENTS

Exhibit 10.13**

 

** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

 

F OURTH A MENDMENT TO N OTE P URCHASE A GREEMENTS

 

This F OURTH A MENDMENT , dated as of July 28, 2004, to the separate Note Purchase Agreements, each dated as of April 30, 2001, is by and among Flow International Corporation, a Washington corporation (the “Company” ), John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Signature 5 L.P. (collectively, the “Noteholders ”). Capitalized terms used herein without definition shall have the meanings set forth in the Note Purchase Agreements referred to below (including as amended hereby).

 

R E C I T A L S :

 

A. The Company and the Noteholders have heretofore entered into the separate Note Purchase Agreements, each dated as of April 30, 2001, as amended by the First Amendment to Note Purchase Agreements dated as of December 14, 2001, the Second Amendment to Note Purchase Agreements (the “Second Amendment” ) dated as of September 16, 2002 and the Third Amendment to Note Purchase Agreements (the “Third Amendment” ) dated as of July 28, 2003 (as amended, the “Note Purchase Agreements” ), under and pursuant to which there are outstanding (a) the Company’s 13% Senior Subordinated Notes, due April 30, 2008, in the original aggregate principal amount of $35,000,000 (the “Notes” ) and (b) certain Warrants to purchase common stock of the Company (the “Warrants” ).

 

B. Pursuant to the terms of the Second Amendment, the Notes currently bear interest at the rate of 15% per annum, and the Default Rate applicable to overdue payments in respect of the Notes is 17% per annum.

 

C. In connection with the capitalization of interest due on the Notes pursuant to the terms of the Third Amendment, the Notes are currently outstanding in the aggregate principal amount of 42,324,765.63.

 

D. The Company has advised the Noteholders that the lenders under the Senior Credit Agreement have agreed to extend the term of the credit facilities available thereunder to August 1, 2005 and, in connection therewith, the Company seeks to amend the Note Purchase Agreements and the Notes on the terms hereinafter set forth.

 

E. The Noteholders are willing to amend the Note Purchase Agreements and the Notes in the respects, but only in the respects, hereinafter set forth.

 

N OW , THEREFORE , the Company and the Noteholders, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, do hereby agree as follows:

 

S ECTION 1. A MENDMENTS .

 

Section 1.1. Reporting. Section 7.1 of the Note Purchase Agreements shall be amended by deleting the period at the end of clause (k) thereof and inserting a semicolon and the word “and” and adding a new clause (l) to read as follows:

 

“(l) Application of Asset Sale Proceeds – prior to the consummation of any sale of assets, a reasonably detailed description of the amount of proceeds to be received in connection with such asset sale and the application thereof to be made by the Company, certified by a Senior Officer of the Company.”

 

Section 1.2. Prepayment Provisions. Section 8 of the Note Purchase Agreements shall be amended as follows:

 

(a) The first paragraph of Section 8.1 of the Note Purchase Agreements shall be deleted in its entirety and replaced with the following:

 

“ Section 8.1. Required Prepayments. In addition to paying the entire outstanding principal amount and the interest due on the Notes on the maturity date thereof, the Company agrees that:

 

(a) on April 30, 2007, it will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount equal to the lesser of (i) $17,500,000 or (ii) the principal amount of the Notes then outstanding; and

 

(b) on any date when the Company receives (or becomes entitled immediately to receive) any Asset Sale Net Proceeds, the Company will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount equal to the balance of such Asset Sale Net Proceeds not used to permanently reduce the total commitment of the lenders under the Senior Credit Agreement; and

 

(c) on any date when the Company receives (or becomes entitled immediately to receive) any Stock Sale Net Proceeds, the Company will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount which is not less than 20% of that portion of such Stock Sale Net Proceeds permitted pursuant to the terms of the Senior Credit Agreement to be retained by the Company.

 

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The entire remaining principal amount of the Notes shall become due and payable on April 30, 2008. No prepayment charge shall be payable in connection with any required prepayment made pursuant to this Section 8.1 .”

 

(b) Section 8.2 of the Note Purchase Agreements shall be amended by deleting therefrom all references to the requirement that a prepayment charge be paid in connection with an optional prepayment of the Notes made pursuant to Section 8.2.

 

(c) Section 8.3 of the Note Purchase Agreements shall be amended by deleting therefrom all references to the requirement that a prepayment charge be paid in connection with a prepayment of the Notes made upon the occurrence of a Change of Control pursuant to Section 8.3.

 

Section 1.3. Financial Covenants. Sections 9.6 and 9.7 of the Note Purchase Agreements shall be deleted in their entirety and replaced with the following:

 

“ Section 9.6. EBITDA . For each fiscal quarter ending as of the date indicated below (each, an “EBITDA Measurement Period” ), the Company shall maintain an EBITDA of not less than the corresponding amount set forth below (each a “Minimum EBITDA Amount” ):

 

(a) Consolidated LTM EBITDA.

 

 

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(b) Consolidated Quarterly EBITDA.

 

 

(c) Domestic LTM EBITDA.

 

 

(d) Domestic Quarterly EBITDA.

 

 

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Section 9.7. Minimum Collateral Requirements. As of each Collateral Measurement Date indicated below, the Company shall maintain domestic (U.S.) accounts receivable and inventory (excluding any accounts receivables and inventory of Flow Autoclave Systems, Inc.) whose net book value equals the amount set opposite such date:

 

 

Section 1.4. Affirmative Covenants. Section 9.13 to the Note Purchase Agreements is hereby deleted in its entirety and replaced with the following:

 

“Section 9.13. Additional Guaranties and Collateral. (a) On or before the Fourth Amendment Effective Date, the Company shall deliver to the Noteholders a detailed written description of all guaranties, liens and security interests which have been granted to the lenders under the Senior Credit Agreement which have not been granted on a subordinated basis to the Noteholders, including copies of each security agreement, pledge agreement and other collateral agreement, together with each financing statement, public filing and other recorded instrument executed in connection therewith (all in fully executed form), and certified as true, correct and complete by a Senior Officer of the Company.

 

(b) Within 60 days after receipt by the Company of the proposed security agreements, pledge agreements, other collateral agreements, financing statements, public filings and other recorded instruments which are required by the Noteholders (the “Required Documentation” ) in order to give effect to the agreement of the Company set forth in Section 9.11(c) hereof that the Noteholders shall be secured on a subordinated basis by the same collateral as that securing the lenders under the Senior Credit Agreement, the Company shall, and shall cause each of its Subsidiaries to, execute and deliver and submit for recordation to counsel or an agent for the Noteholders all such security agreements, pledge agreements, other collateral agreements, financing statements, public filings and other instruments for recording in all public offices necessary to give effect to said Section 9.11(c) . The Noteholders or their counsel shall notify the Company in writing when all Required Documentation has been delivered to the Company and the 60-day period has begun. If the Company has not executed and delivered the Required Documentation and submitted the Required Documentation for

 

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recordation to counsel or an agent for the Noteholders on or before the 60th day after receipt of the same (the “Required Delivery Date” ), then on the Required Delivery Date, the Company shall pay to the Noteholders a fee of $150,000. On the last day of each calendar month ending after the month in which the Required Delivery Date occurs, and continuing until the Company has delivered all Required Documentation, the Company shall pay to the Noteholders an additional fee of $25,000. Such fees (w) shall be allocated among the Noteholders pro rata based on the respective outstanding unpaid principal amount of Notes held by each Noteholder, (x) shall be capitalized on the date such fees become payable, (y) shall earn interest at the same rate of interest applicable to the Notes from time to time and (z) shall be payable in full on the maturity date of the Notes. At the request of the Noteholders, the Company shall execute and deliver additional allonges to each outstanding Note reflecting the capitalization of the foregoing fees.

 

(c) The Company shall deliver to the Noteholders such other evidence as they may deem necessary or appropriate evidencing that all documents executed and/or delivered and all actions taken pursuant to clauses (a) and (b) above have been duly authorized and are legally effective, binding and enforceable including, without limitation, legal opinions.”

 

Section 1.5. Certain Payments. Section 9.14(b) to the Note Purchase Agreements is hereby amended by deleting the reference to the date “August 2, 2004” and replacing the same with the date “August 2, 2005.”

 

Section 1.6. Additional Financial Covenants. Section 9.15 to the Note Purchase Agreements is hereby amended by deleting each reference to the date “August 2, 2004” and replacing the same with the date “August 1, 2005.”

 

Section 1.7. Certain Indebtedness. Section 10.4 to the Note Purchase Agreements is hereby amended by deleting the period at the end of clause (a)(vii) thereof and inserting a semicolon and the word “and” and adding a new clause (a)(viii) to read as follows:

 

“(viii) Indebtedness in respect of the following:

 

(1) ATAB has obtained extensions of credit from Handelsbanken (the “Handelsbanken Loans” ) which may be secured by liens on and security interest in certain property in Sweden (the “Swedish Collateral” ). The Noteholders acknowledge that the liens and security interests granted Handelsbanken in the Swedish Collateral as security for the Handelsbanken Loans (together with any permitted amendments, extensions or renewals thereof and any refinancings there of with Handelsbanken or other

 

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lenders) may be prior to any liens and security interests in the Swedish Collateral granted in favor of the Senior Lenders and the Noteholders.

 

The Noteholders further acknowledge that the Swedish Collateral may also secures certain pension obligations of ATAB and such security may be prior to any liens and security interest in the Swedish Collateral granted in favor of the Senior Lenders and the Noteholders.

 

(2) The Noteholders also acknowledge that FAC has obtained secured and unsecured extensions of credit from Chiao Tung Bank (the “Chiao Tung Loans” ) and the secured Chiao Tung Loans may be secured by real property interests and other property of FAC located in Taiwan (the “Taiwan Collateral” ). The Noteholders further acknowledge that any liens and security interests granted in the Taiwan Collateral as security for the Chiao Tung Loans, (together with any permitted amendments, extensions or renewals thereof, and any refinancings thereof with Chiao Tung Bank or other lenders) may be senior to any liens and security interests in the Taiwan Collateral granted in favor of the Senior Lenders and the Noteholders.

 

(3) The Noteholders also acknowledge and agree that FAC has obtained unsecured extensions of credit from First Commercial Bank (the “First Commercial Loans” ) (together with any permitted amendments, extensions or renewals thereof, and any refinancings thereof with First Commercial Bank or other lenders).

 

(4) The loans, extensions of credit and refinancings described in and permitted by the previous paragraphs (1) - (3) refer only to those loans, extensions of credit and refinancings that do not exceed the maximum committed amount as in effect on the Fourth Amendment Effective Date ( plus any accrued but unpaid interest), as reduced from time to time in connection with permanent reductions thereof, of the Handelsbanken Loans, the Chiao Tung Loans or the First Commercial Loans, respectively. On the Fourth Amendment Effective Date, the maximum committed amount of the Handelsbanken Loans is 50,000,000 Swedish Crowns the aggregate outstanding and committed amounts of the Chiao Tung Loans is 80,00,000 New Taiwan Dollars and the maximum committed amount of the First Commercial Loans is 80,00,000 New Taiwan Dollars.”

 

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Section 1.8. Certain Guaranties. Section 10.5 to the Note Purchase Agreements is hereby amended and restated in its entirety to read as follows:

 

“Section 10.5. Guaranties. Except for (a) the guaranties set forth on Schedule 10.5 hereto and (b) guaranties given in favor of the Noteholders pursuant to this Agreement and the Other Agreements, (c) guaranties given in favor of the Senior Lenders pursuant to the Senior Credit Agreement, and (d) unsecured guaranties by the Company or any Guarantor of the Handelsbanken Loans, the Chiao Tung Loans and the First Commercial Loans referred to in Section 10.4(a)(viii)(1) – (3), not to exceed the maximum committed amount on the Fourth Amendment Effective Date, neither the Company nor any Subsidiary shall assume, guaranty, endorse or otherwise become directly or contingently liable for, or obligated to purchase, pay or provide funds for payment of, any obligation or Indebtedness of any other person, other than by endorsement of negotiable instruments for deposit or collection or by similar transactions in the ordinary course of business.”

 

Section 1.9. Certain Liens. Section 10.6 to the Note Purchase Agreements is hereby amended by deleting the period at the end thereof and adding the word “and,” and by adding a new clause (c) at the end thereof to read as follows:

 

“(c) any liens or security interest authorized under Section 10.4(a)(viii) .”

 

Section 1.10. Certain Amendments. (a) For the period from the Fourth Amendment Effective Date through August 1, 2005, Section 10.10 to the Note Purchase Agreements is hereby amended as follows:

 

(i) Clause (a)(1) is hereby amended and restated in its entirety to read as follows:

 

“(1) to advance the date of any required prepayment or repayment of any Senior Indebtedness to a date earlier than those contemplated in the Senior Credit Agreement as in effect on the Fourth Amendment Effective Date,”

 

(ii) Clause (a)(2) is hereby amended and restated in its entirety to read as follows:

 

“(2) (i) to increase by more than 2% per annum the interest rate applicable under the Senior Credit Agreement to any pricing tier, or the default interest rate, as such pricing tiers and interest

 

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rates are set forth on the Fourth Amendment Effective Date, after giving effect to the Third Amendment to the Senior Credit Agreement or (ii) to increase the interest rate payable in connection with any other Senior Indebtedness by an amount greater than 2.0% per annum over the rate payable on the Fourth Amendment Effective Date, or

 

(iii) Clause (b) is hereby amended and restated in its entirety to read as follows:

 

“(b) The Company will not, directly or indirectly, enter into any restriction or limitation on its ability to prepay or repay the Notes, other than (i) as provided in Section 11 hereof and (ii) restrictions contained in the Senior Credit Agreement as in effect on the Fourth Amendment Effective Date.”

 

(b) Section 10.10 of the Note Purchase Agreements is further amended by adding a new clause (d) to read as follows:

 

“(d) The Company will not enter into any oral or written amendment or modification to, or waiver of, the Senior Credit Agreement as in effect on the Fourth Amendment Effective Date in any way relating to the proceeds attributable to the sale of assets or any public or private offering or other sale by the Company of its common or preferred stock or warrants, options, rights or other equity interests, including, without limitation, the application of Asset Sale Net Proceeds or Stock Sale Net Proceeds.”

 

Section 1.11. Capital Expenditures. Section 10.12 to the Note Purchase Agreements is hereby amended and restated in its entirety to read as follows:

 

“Section 10.12. Capital Expenditures . The Company shall not, nor shall it allow any Subsidiary to, make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations), except for capital expenditures in the ordinary course of business not exceeding, in the aggregate for the Company during each time period set forth below, the amount set forth opposite such time period:

 

 

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Section 1.12. New Product Development Expenditures. Section 10.14 to the Note Purchase Agreements is hereby amended and restated in its entirety to read as follows:

 

“Section 10 . 14. New Product Development Expenditures. The Company shall not, nor shall it allow any Subsidiary to, fund or become legally obligated to fund any new product development costs, including without limitation, research, development and engineering costs, as indicated in financial statements provided pursuant to Section 7.1 , not exceeding, in the aggregate for the Company during each time period set forth below, the amount set forth opposite such time period:

 

 

Section 1.13. Events of Default. Section 12 of the Note Purchase Agreements is hereby amended as follows:

 

(a) paragraph (f) of Section 12 shall be amended in its entirety to read as follows:

 

“(f) any Subsidiary Guaranty, any Security Document or any other Note Document shall cease to be in full force and effect for any reason whatsoever, including, without limitation, a determination by a Governmental Authority of competent jurisdiction that any such agreement is invalid, void or unenforceable or the perfected security interests created pursuant to any Security Document is not legal, valid and binding, or the Company or an Subsidiary shall contest or deny in writing the validity or enforceability of any of its obligations under any Security Docu