<PAGE>
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 EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-28822
ROCKSHOX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0396555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Charcot Avenue, San Jose, California 95131
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (408) 435-7469
NO CHANGE
(Former name, former address and former fiscal year if changed
since last report)
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 / /
As of February 8, 1999 there were 13,761,147 shares of the registrant's common
stock outstanding.
This quarterly report on Form 10-Q contains 14 pages, of which this is page 1.
1
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ROCKSHOX, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1998 3
Condensed Consolidated Statements of Operations for the three- and nine-month
period ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the nine-month period
ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risks 12
Part II: Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Securities Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
2
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,783 $ 10,554
Trade accounts receivable, net of allowance for
doubtful accounts of $1,084 and $1,037,
respectively....................................... 9,708 9,230
Inventories........................................... 13,375 11,581
Prepaid expenses and other current assets............. 216 962
Income tax receivable................................. 927 ---
Deferred income taxes................................. 4,539 4,539
------------- -------------
Total current assets............................... 31,548 36,866
Property, plant and equipment, net....................... 16,452 15,224
Other assets, net........................................ 203 169
------------- -------------
Total assets...................................... $ 48,203 $ 52,259
============= =============
Current liabilities:
Accounts payable...................................... $ 3,968 $ 5,869
Other accrued liabilities............................. 8,723 8,625
------------- -------------
Total current liabilities.......................... 12,691 14,494
Stockholders' equity
Common stock.......................................... 138 138
Additional paid-in capital............................ 65,929 65,910
Distributions in excess of net book value............. (45,422) (45,422)
Retained earnings..................................... 14,867 17,139
------------- -------------
Total stockholders' equity........................ 35,512 37,765
------------- -------------
Total liabilities and stockholders' equity...... $ 48,203 $ 52,259
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales........................... $ 24,525 $ 26,575 $ 63,230 $ 80,159
Cost of sales....................... 19,768 19,108 52,860 54,244
---------- ---------- ---------- ----------
Gross profit...................... 4,757 7,467 10,370 25,915
Selling, general and
administrative expense............ 2,662 3,186 10,444 9,449
Research, development and
engineering expense............... 1,104 1,196 3,605 3,738
Restructuring charges .............. (294) 402 (294) 402
---------- ---------- ---------- ----------
Operating expenses............... 3,472 4,784 13,755 13,589
---------- ---------- ---------- ----------
Income (loss) from
operations ................... 1,285 2,683 (3,385) 12,326
Interest income..................... 29 103 232 451
---------- ---------- ---------- ----------
Income (loss) before taxes....... 1,314 2,786 (3,153) 12,777
Income tax (expense) benefit ....... (368) (975) 883 (4,595)
---------- ---------- ---------- ----------
Net income (loss)............. $ 946 $ 1,811 $ (2,270) $ 8,182
========== ========== ========== ==========
Net income (loss) per share--
basic............................. $ 0.07 $ 0.13 $ (0.16) $ 0.60
========== ========== ========== ==========
Shares used in per share
calculations-- basic.............. 13,761 13,757 13,761 13,703
========== ========== ========== ==========
Net income (loss) per share--
diluted........................... $ 0.07 $ 0.13 $ (0.16) $ 0.58
========== ========== ========== ==========
Shares used in per share
calculations-- diluted............ 13,778 13,998 13,761 14,054
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................ $ (2,270) $ 8,182
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization......................... 4,381 3,415
(Gain) loss on disposal of assets..................... (16) 308
Provisions for doubtful accounts...................... 16 --
Provisions for excess and obsolete inventory.......... 584 137
Deferred income taxes................................. -- 1,012
Changes in operating assets and liabilities:
Trade accounts receivable............................. (495) (8,242)
Inventories........................................... (2,378) (2,243)
Prepaid expenses and other current assets............. (181) 448
Accounts payable and accrued liabilities.............. (1,803) (703)
------------- -------------
Net cash (used in) provided by operating
activities.......................................... (2,162) 2,314
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment...................... (5,594) (10,231)
Other.................................................... (34) (178)
------------- -------------
Net cash used in investing activities.................. (5,628) (10,409)
------------- -------------
Cash flows from financing activities:
Proceeds from exercise of stock options ................. 19 606
Short term borrowings on note payable.................... 2,000 --
Repayments on short term borrowings...................... (2,000) --
Tax benefits from disqualifying dispositions of
common stock........................................... -- 478
------------- -------------
Net cash provided by financing
activities........................................... 19 1,084
------------- -------------
Net (decrease) in cash and cash
equivalents.......................................... (7,771) (7,011)
Cash and cash equivalents, beginning of period........... 10,554 14,747
------------- -------------
Cash and cash equivalents, end of period................. $ 2,783 $ 7,736
============= =============
Supplemental disclosure of non-cash transactions:
Income taxes paid........................................ $ -- $ 2,333
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
5
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Part 1: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements of
ROCKSHOX, INC. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The year-end
consolidated balance sheet data was derived from the audited financial
statements and does not include all disclosures required by GAAP. Operating
results for the three- and nine-month periods ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1999. The unaudited condensed, consolidated interim financial
statements contained herein should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended March 31,
1998 included in the Company's Annual Report on Form 10-K.
2. INVENTORY:
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
Dec. 31, 1998 March 31, 1998
------------- --------------
<S> <C> <C>
Raw materials $ 9,624 $ 7,023
Finished goods 3,751 4,558
------------- --------------
$ 13,375 $ 11,581
------------- --------------
</TABLE>
3. NOTE PAYABLE:
On September 28, 1998, the Company entered into a bridge loan note
agreement providing for borrowing up to $4.0 million. On October 1, 1998, $2.0
million was borrowed against the note of which $1.0 million was repaid on
October 30, 1998, and the remaining $1.0 million was repaid by December 11,
1998. On that date, the Company entered into a new credit agreement providing
for borrowing up to $5.0 million. Any outstanding amounts under the facility are
collateralized by the Company's accounts receivables, inventory, equipment and
intangibles. There were no outstanding borrowings against the new credit
facility as of December 31, 1998.
4. EARNINGS PER SHARE AMOUNTS:
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective December 31, 1997.
SFAS 128 requires the presentation of basic and diluted earnings per share
("EPS"). Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
that period. Diluted EPS is computed giving effect to all dilutive potential
common shares that were outstanding during the period. Dilutive potential common
shares consist of incremental common shares issuable upon exercise of stock
options and warrants for all periods. All prior period net income (loss) amounts
have been restated to comply
6
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with SFAS 128.
Part I: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. EARNINGS PER SHARE AMOUNTS (continued):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- ------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Reconciliation of net income (loss)
used in basic and diluted per share
calculations:
Net income (loss).......................... $ 946 $ 1,811 ($2,270) $ 8,182
======= ======= ======== =======
Reconciliation of shares used in basic and
diluted per share calculations:
Basic net income (loss) per share:
Weighted average shares of common
stock outstanding........................ 13,761 13,757 13,761 13,703
------- -------- -------- -------
Shares used in basic net income (loss) per
share calculation.......................... 13,761 13,757 13,761 13,703
======= ======== ======== =======
Diluted net income (loss) per share:
Weighted average shares of common
stock outstanding........................ 13,761 13,757 13,761 13,703
Dilutive effect of stock options........... 17 241 -- 351
------- -------- -------- -------
Shares used in diluted net income (loss) per
share calculation.......................... 13,778 13,998 13,761 14,054
======= ======== ======== =======
Net Income (loss) per - basic.............. $ 0.07 $ 0.13 $ (0.16) $0.60
======== ========= ========= ========
Net Income (loss) per - diluted............ $ 0.07 $ 0.13 $ (0.16) $0.58
======== ========= ========= ========
</TABLE>
Stock options to purchase 1,225,979 shares of common stock at prices ranging
from $1.88 to $15.14 per share were outstanding at December 31, 1998, but
1,208,656 and 1,225,979 shares, respectively, were not included in the
computation of diluted income per share for the three-month and nine-month
periods ended December 31, 1998, respectively, because they were
anti-dilutive.
5. OPTION REPRICING
During the quarter ended June 30, 1998, the Board of Directors of the
Company approved the cancellation of the majority of outstanding stock options
held by mid - and lower -level employees with an exercise price ranging from
$13.06 to $15.14 per share and the re-grant of options to purchase an equivalent
number of shares at $4.75 per share. A total of 252,975 options were canceled
and re-granted.
6. CONTINGENCIES
The Company is involved in certain legal matters in the ordinary course
of business including, from time to time, the alleged infringement of
competitors' patents. No provision for any liability that may result upon the
resolution of these matters has been made in the accompanying financial
statements nor is the amount or
7
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range of possible loss, if any, reasonably estimable.
Part I: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. RESTRUCTURING CHARGE ACCRUAL
During the quarter ended March 31, 1998, the Company announced a
restructuring plan, which included a workforce reduction of approximately 40
employees and the consolidation of the Company's facilities. The Company expects
to complete the restructuring during the fiscal year ending March 31, 1999.
During the quarter ended December 31, 1998, the Company reduced its
restructuring accrual of $1.7 million by $294,000, primarily due to lower
than expected severance costs. For the nine-month period ended December 31,
1998, the Company has charged $265,000 against this restructuring program and
has terminated 12 employees.
8. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financed Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") which specifies the computation, presentation, and
disclosure requirements for comprehensive income. The Company implemented SFAS
130 during the first quarter of fiscal 1999. There was no impact on the
Company's financial position, results of operations or cash flows. Comprehensive
income and net income are the same.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 changes current
practice under SFAS 14, "Financial Reporting for Segments of an Enterprise," by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach). It is effective for fiscal years beginning after
December 15, 1997, and requires interim reporting in the second year of
application.
The Company does not expect any material impact on the financial statements
from this pronouncement.
9. SUBSEQUENT EVENT
As part of the vendor improvement program, the Company entered into a
supply agreement with a Taiwanese manufacturer, which the Company believes
will lower costs and reduce lead times.
8
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Part I: Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Net sales. Net sales for the quarter ended December 31, 1998 decreased
by 7.7% to $24.5 million from $26.6 million for the corresponding period of
the prior year. Net sales for the nine months ended December 31, 1998
decreased by 21.1% to $63.2 million compared to $80.2 million for the
corresponding period of the prior year. OEM sales for the quarter ended
December 31, 1998 decreased by 1.9% to $20.6 million compared to $21.0
million for the corresponding period of the prior year. For the nine months
ended December 31, 1998, OEM sales decreased by 10.1% to $54.1 million
compared to $60.2 million for the corresponding period of the prior year.
Aftermarket sales were $3.9 million for the quarter ended December 31, 1998
compared to $5.6 million for the corresponding period of the prior year. For
the nine months ended December 31, 1998, sales to the aftermarket decreased
by 54.5% to $9.1million from $20.0 million for the corresponding period of
the prior year. This decrease reflects continued softness in the overall
domestic and international mountain biking market.
Gross margin. Gross margin (gross profit as a percentage of net sales)
for the quarter ended December 31, 1998 decreased to 19.4% compared to 28.1%
for the corresponding period of the prior year. The decrease is primarily the
result of write-offs of excess and obsolete inventory. For the first nine
months of this year, gross margin decreased to 16.4% compared to 32.3% for
the corresponding period of the prior year. The year-to-date decreases in
gross margin were primarily due to fixed overhead costs not being fully
absorbed due to lower sales, manufacturing inefficiencies encountered during
the first three quarters of fiscal 1999, and write-offs of excess and
obsolete inventory.
Selling, general and administrative expense. Selling, general and
administrative ("SG&A") expense for the quarter ended December 31, 1998
decreased by 16.4% to $2.7 million (or approximately 10.9% of net sales)
compared to $3.2 million (or approximately 12.0% of net sales) in the
corresponding period of the prior year. The decrease is the result of lower
marketing expenditures and the reversal of certain accruals. SG&A expense for
the nine months ended December 31, 1998 increased by 10.5% to $10.4 million
(or approximately 16.5% of net sales) compared to $9.4 million (or
approximately 11.8% of net sales) for the corresponding period of the prior
year. The year-to-date increase over the same period last year is primarily a
result of the new software implementation and the recruiting and relocation
of some members of senior management.
Research, development and engineering expense. Research, development and
engineering ("R&D") expense for the quarter ended December 31, 1998 decreased
to $1.1 million (or approximately 4.5% of net sales) compared to $1.2 million
(or approximately 4.5% of net sales) during the corresponding period of the
prior year. R&D expense for the nine months ended December 31, 1998 declined
to $3.6 million (or approximately 5.7% of net sales) compared to $3.7 million
(or approximately 4.7% of net sales) during the corresponding period of the
prior year.
Interest income. For the three- and nine-month periods ended December
31, 1998, the Company had net interest income of $29,000 and $232,000
respectively, from its cash and cash equivalent balances. During the three-
and nine-month periods ended December 31, 1997, the Company had net interest
income of $103,000 and $451,000, respectively. The decreases were due to
lower cash balances.
9
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Part I: Item 2
Income tax (expense) benefit. The Company's effective tax rate for the
nine months ended December 31, 1998 was a benefit of 28.0% compared to an
expense of 36.0% for the corresponding period of the prior year. The decrease
was principally due to a reduction in tax benefit expected to be received for
state tax credits and net operating losses.
Liquidity and Capital Resources:
For the nine months ended December 31, 1998, net cash used by operating
activities was $2.2 million. This is comprised of a net loss of $2.3 million,
an add-back of $4.4 million for non-cash charges of depreciation and
amortization, and an adjustment in reserves for inventory of $584,000, offset
by decreases of $495,000 in trade accounts receivable, a decrease of $1.8
million in accounts payable and accrued liabilities, increases in other
current assets of $181,000, and increases of $2.4 million in inventories.
For the nine months ended December 31, 1998, net cash used in investing
activities was $5.6 million, which principally consisted of purchases of
property and equipment. Net cash provided by financing activities was
$19,000, which consisted of proceeds and tax benefits from the exercise of
employee stock options.
On September 28, 1998, the Company entered into a bridge loan note
agreement providing for borrowing up to $4.0 million. On October 1, 1998,
$2.0 million was borrowed against the note, of which $1.0 million was repaid
on October 30, 1998, and the remaining $1.0 million was repaid by December
11, 1998. On that date, the Company entered into a new credit agreement
providing for borrowing up to $5.0 million. Any outstanding amounts under the
facility are collateralized by the Company's accounts receivables, inventory,
equipment and intangibles. There were no outstanding borrowings against the
new credit facility as of December 31, 1998.
At December 31, 1998, the Company had cash and cash equivalents of $2.8
million and working capital of $18.9 million. The Company believes that its
current cash balances and/or credit facilities available will be sufficient
to provide operating liquidity for at least the next twelve months.
Forward Looking Statements:
Certain statements made in this document constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other facts that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors are discussed in
detail in the Company's Annual Report on Form 10-K. Given these
uncertainties, prospective and current investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained in the
Annual Report on Form 10-K or this document.
Impact of the Year 2000:
As many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, they may be unable to
process accurately certain data before, during or after the year 2000 (the
"Year 2000"). As a result, business entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the Year 2000 issue. The Year 2000
issue can arise at any point in the Company's supply, manufacturing,
processing, distribution, and financial chains.
10
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The Company has identified its Year 2000 risk in three categories: internal
enterprise resource planning software; other internal software and imbedded
chip technology; and external noncompliance by customers and suppliers,
service providers and contractors.
Part I: Item 2
INTERNAL ENTERPRISE RESOURCE PLANNING SOFTWARE. During the current fiscal
year, the Company has chosen to replace its legacy information system with an
Enterprise Resource Planning system which the Company's software vendor
(Oracle) has indicated is Year 2000 compliant. The system is being
implemented using both internal resources and outside consultants. The
Company has substantially completed the implementation phase and is expected
to fully complete the process within the quarter ending March 31, 1999. Based
on this schedule, the Company expects to be in full Year 2000 compliance with
its internal financial systems before the Year 2000. The estimated cost of
the system conversion is approximately $2.1 million, of which $1.5 million
will be capitalized. However, if due to unforeseen circumstances, the
implementation is not completed on a timely basis, the Year 2000 could have a
material impact on the operations of the Company. Failure to complete the
implementation may result in loss of revenues, or an interruption in, or a
failure of, certain normal business activities or operations, as more fully
described below.
OTHER INTERNAL SOFTWARE AND IMBEDDED CHIP TECHNOLOGY. Over the last three
years, the Company's information technology group has ensured that all system
upgrades, software purchases and replacements have been Year 2000 compliant.
The costs associated with these upgrades, software purchases and replacements
are part of the normal course of business. The Company has identified most of
the Year 2000 compliance issues with regard to other internal software and
imbedded chip technology, such as manufacturing equipment, all desktop
systems and security equipment. For those issues identified, contingency
plans have been developed and implementation is in process by the Information
Technologies Department. Implementation includes the replacement of software
and hardware with upgraded Year 2000 compliant versions and is expected to be
completed by June 30, 1999. If the Company is unable to achieve Year 2000
compliance for other internal software, the Year 2000 could have a material
impact on the operations of the Company. Failure to complete the
implementation may result in loss of revenues, or an interruption in, or a
failure of, certain normal business activities or operations, as more fully
described below.
EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS, SERVICE PROVIDERS AND
CONTRACTORS. The Company (specifically procurement) is in the process of
identifying and contacting its critical suppliers to determine the extent of
their plans and progress in addressing the Year 2000 problem. Responses to
date have indicated that the majority of vendors are Year 2000 compliant. To
the extent that responses to Year 2000 readiness are unsatisfactory, the
Company intends to change suppliers, service providers and contractors to
those that have demonstrated readiness; however, the Company cannot be
assured that it will be successful in finding such alternative suppliers,
service providers and contractors. The Company has initiated formal
communications with all of its significant customers during fiscal 1999 to
determine the extent to which the Company is vulnerable to those third
parties failure to remediate their own "Year 2000" issues. The Company
expects to receive responses from customers no later than June 30, 1999,
which will provide written assurances that they expect to address all their
significant Year 2000 issues on a timely basis. If any of the Company's
significant customers or suppliers do not successfully and timely achieve
Year 2000 compliance, and the Company is unable to replace them with new
customers or alternative suppliers who have demonstrated Year 2000 readiness,
the Company's business or operations could be adversely affected. These
effects could result in, among other things, loss of revenues, loss of
suppliers and customers, or failure to deliver products.
WORST CASE SCENARIOS. Worst-case scenarios of failure by the Company to solve
the Year 2000 compliance issues could include: substantial purchasing costs
to develop alternative methods of managing its business and replacing
noncompliant equipment, temporary slowdowns or cessations of certain
manufacturing operations, delays in delivery or distribution of products,
delays in the receipt of supplies, invoice and collection errors, and
inventory and supply obsolescence.
11
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Item 3. Quantitative and Qualitative Disclosures about Market Risks
None.
Part II: Other Information
Item 1. Legal Proceedings
The Company is involved in certain legal matters in the ordinary course
of business including from time to time the alleged infringement of
competitors' patents. No provision for any liability that may result upon the
resolution of these matters has been made in the accompanying financial
statements nor is the amount or range of possible loss, if any, reasonably
estimable.
Part II: Item 2
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
The Securities and Exchange Commission recently amended certain rules
under the Securities Exchange Act of 1934 regarding the use of a company's
discretionary proxy voting authority with respect to stockholder proposals
submitted to the Company for consideration at the Company's next annual
meeting.
Stockholder proposals submitted to the Company outside the process of Rule
14a-8 (i.e., the procedures for placing a stockholder's proposal in the
Company's proxy materials) with respect to the Company's 1999 annual meeting
of stockholders will be considered untimely if received by the Company after
May 28, 1999. Accordingly, the proxy with respect to the Company's 1999
annual meeting of stockholders will confer discretionary authority to vote on
any stockholder proposals received by the Company after May 28, 1999.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits:
3.1 Form of Amended and Restated Certificate of Incorporation of
ROCKSHOX, INC. *
3.2 Form of Amended and Restated Bylaws of ROCKSHOX, INC. *
</TABLE>
12
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<TABLE>
<S> <C>
10.7 Credit Agreement, dated December 11, 1998, between ROCKSHOX, INC.
and the First National Bank of Chicago.
27 Financial Data Schedule.
</TABLE>
- -------------------------------------------------------------------------------
* Previously filed with the Registration Statement on Form S-1 of RockShox
Inc. (Registration No. 333-8069).
Part II: Item 6
(b) Reports on Form 8-K:
None
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKSHOX, INC.
Dated: February 12, 1998 /s/ Gary Patten
---------------
Gary Patten
Chief Financial Officer and
Duly Authorized Officer
14
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CREDIT AGREEMENT
This Credit Agreement (as it may be amended or modified and in effect from
time to time, the "Agreement"), dated as of December 11, 1998, is between
ROCKSHOX, INC., a Delaware corporation (together with its successors and
assigns, the "Borrower"), and THE FIRST NATIONAL BANK OF CHICAGO (together with
its successors and assigns, the "Lender"). The parties hereto agree as follows:
ARTICLE I -- DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Subsidiaries (i) acquires any going business or all or substantially all
of the assets of any firm, corporation or limited liability company, or division
thereof, whether through purchase of assets, merger or otherwise or (ii)
directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding ownership interests of a partnership or limited
liability company.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the corporate base rate of interest announced by the
Lender from time to time, changing when and as said corporate base rate changes
and (ii) the sum of the federal funds effective rate (as published by the
Federal Reserve Bank of New York) for such day plus 1/2%.
"Alternate Base Rate Loan" means a Loan that bears interest at the
Alternate Base Rate.
"Borrowing Date" means a date on which a Loan is made hereunder.
"Borrowing Notice" is defined in Section 2.5.
"Bridge Facility" means that certain Bridge Loan Note dated as of
September 28, 1998 made by the Borrower in favor of the Lender, as amended,
and all documents and agreements executed in connection therewith.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Loans, a day (other than a Saturday or Sunday) on which
banks generally are open in Chicago and New
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York for the conduct of substantially all of their commercial lending
activities and on which dealings in United States dollars are carried on in
the London interbank market and (ii) for all other purposes, a day (other
than a Saturday or Sunday) on which banks generally are open in Chicago for
the conduct of substantially all of their commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which would be classified as a
fixed or capital asset on a consolidated balance sheet of the Borrower and
its Subsidiaries prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means the obligation of the Lender to make Loans not
exceeding the amount set forth opposite its signature below or as set forth
in any notice of assignment relating to any assignment that has become
effective pursuant to Section 11.3, as such amount may be modified from time
to time pursuant to the terms hereof.
"Compliance Certificate" means a compliance certificate, substantially
in the form of EXHIBIT A, signed by the chief financial officer of the
Borrower.
"Consolidated Net Worth" means, at any date of calculation, the
consolidated stockholders' equity of the Borrower and its Subsidiaries
calculated on a consolidated basis as of such date.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes
or is contingently liable upon, the obligation or liability of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person, or otherwise assures any creditor of
such other Person against loss, including, without limitation, any comfort
letter, operating agreement, take-or-pay contract or the obligations of any
such Person as general partner of a partnership with respect to the
liabilities of the partnership.
"Controlled Group" means all members of a controlled group of
corporations or other business entities and all trades or businesses (whether
or not incorporated) under common control which, together with the Borrower
or any of its Subsidiaries, are treated as a single employer under Section
414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.6.
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"Current Ratio" means, at any date, the ratio of current assets to
current liabilities of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with Agreement Accounting Principles.
"Default" means an event described in Article VII.
"EBITDA" means, for any period and with respect to any Person and all
such Person's Subsidiaries on a consolidated basis, (i) the net earnings (or
loss) after taxes for such period taken as a single accounting period, plus
(ii) depreciation, depletion and amortization expense for such period, plus
(iii) federal, state and local income (or equivalent) taxes paid or accrued
for such period, plus (iv) total interest expense for such period (including
amortization of capitalized Indebtedness issuance costs), whether paid or
accrued (including the interest component of Capitalized Leases), including
all commissions, discounts and other fees and charges owed or incurred with
respect to letters of credit and other Indebtedness, including Indebtedness
under this Agreement, plus (v) all management fees accrued during such period
and plus (vi) restructuring charges equal to $3,326,000 incurred in the
fourth quarter of the Borrower's 1998 fiscal year, in each case determined in
accordance with Agreement Accounting Principles and, in the case of clauses
(ii) through (v), to the extent included in the determination of net earnings
(or loss) for such period.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to (i) the protection of the environment, (ii) the effect of the environment
on human health, (iii) emissions, discharges or releases of pollutants,
contaminants, hazardous substances or wastes into surface water, ground water
or land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants,
hazardous substances or wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Base Rate" means, with respect to a Eurodollar Loan for the
relevant Interest Period, the rate at which the Lender offers to place
deposits in U.S. dollars with first-class banks in the London interbank
market at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period, in the approximate amount of the
Lender's portion of the relevant Eurodollar Loan and having a maturity
approximately equal to such Interest Period.
"Eurodollar Loan" means a Loan that bears interest at a Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Loan for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar
Base Rate applicable to such Interest Period, divided by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to such Interest
Period, if any, plus (ii) 2.5% per annum. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/16 of 1% if the rate is not such a
multiple.
"Fee Letter" means that certain fee letter agreement dated as of
December 11, 1998 among the Borrower and the Lender.
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"Fixed Charge Coverage Ratio" means, for any period of calculation, and
with respect to any Person and all such Person's Subsidiaries on a
consolidated basis, the ratio of (a) EBITDA plus rental expense for such
period, to (b) the sum of (i) interest expense for such period, and (ii)
rental expense for such period, calculated for the four full immediately
preceding fiscal quarters then most recently ended.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary
course of such Person's business payable on terms customary in the trade),
(iii) obligations, whether or not assumed, secured by Liens or payable out of
the proceeds or production from Property now or hereafter owned or acquired
by such Person, (iv) obligations that are evidenced by notes, acceptances, or
other instruments, (v) obligations of such Person to purchase securities or
other Property arising out of or in connection with the sale of the same or
substantially similar securities or Property, (vi) Capitalized Lease
Obligations, (vii) net liabilities under interest rate swap, exchange or cap
agreements, (viii) Contingent Obligations and (ix) any other obligation for
borrowed money or other financial accommodation which in accordance with
generally accepted accounting principles would be shown as a liability on the
consolidated balance sheet of such Person.
"Insurance Certificate" means a certificate signed by the president or
chief financial officer of the Borrower, that attests to the existence and
adequacy of, and summarizes, the property and casualty insurance program
carried by the Borrower with respect to itself and its Subsidiaries. This
summary includes the insurer's or insurers' name(s), policy number(s),
expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s),
and deductibles. This summary also includes similar information, and
describes any reserves, relating to any self-insurance program that is in
effect.
"Interest Period" means, with respect to a Eurodollar Loan, a period of
one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the
day that corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second,
third or sixth succeeding month. If an Interest Period would otherwise end
on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable
arising in the ordinary course of business on terms customary in the trade)
or contribution of capital by such Person; stocks, bonds, mutual funds,
partnership interests, notes, debentures or other securities owned by such
Person; any deposit accounts and certificates of deposit owned by such
Person; and structured notes, derivative financial instruments and other
similar instruments or contracts owned by such Person.
"Lending Installation" means any office, branch, subsidiary or affiliate
of the Lender.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, the interest of a vendor
or lessor under any conditional sale, capitalized lease or other title
retention agreement).
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"Loan" means a borrowing hereunder (or a conversion or continuation
thereof).
"Loan Documents" means this Agreement, the Note, the Security Agreement,
the Trademark Security Agreement and the other documents and agreements
contemplated hereby and executed by the Borrower in favor of the Lender.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, financial condition, or results of operations of the
Borrower and its Subsidiaries taken as a whole, (ii) the ability of the
Borrower to perform its obligations under the Loan Documents, or (iii) the
validity or enforceability of any of the Loan Documents or the rights or
remedies of the Lender thereunder.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Note" is defined in Section 2.10.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lender or any indemnified party arising under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Investments" means any of the following:
(a) Marketable securities (i) issued or directly and unconditionally
guaranteed as to interest and principal by the United States Government or (ii)
issued by any agency of the United States the obligations of which are backed by
the full faith and credit of the United States, in each case maturing within one
year after the date of acquisition thereof.
(b) Marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after the date of
acquisition thereof and having, at the time of the acquisition thereof, a rating
of A or better from either S&P or Moody's.
(c) Commercial paper maturing no more than one year from the date of
creation thereof and having, at the time of the acquisition thereof, a rating of
at least A-1 from S&P or at least P-1 from Moody's.
(d) Certificates of deposit or bankers' acceptances maturing within one
year after the date of acquisition thereof and issued or accepted by any Lender
or by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia that (i) is at least
"adequately capitalized" (as defined in the regulations of its primary federal
banking regulator) and (ii) has Tier 1 capital (as defined in such regulations)
of not less than $100,000,000.
(e) Shares of any money market mutual fund that (i) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (a), (b), (c) and (d) above, (ii) has net assets of not less than
$500,000,000, and (iii) has a rating of AAA or better from either S&P or
Moody's.
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"Person" means any natural person, corporation, firm, joint venture,
partnership, association, limited liability company, enterprise, trust or
other entity or organization, or any government or political subdivision or
any agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of
the Code as to which the Borrower or any member of the Controlled Group may
have any liability.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a
Plan, excluding, however, such events as to which the PBGC has by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified within
30 days of the occurrence of such event, provided, however, that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section
302 of ERISA shall be a Reportable Event regardless of the issuance of any
such waiver of the notice requirement in accordance with either Section
4043(a) of ERISA or Section 412(d) of the Code.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed against Lender under Regulation
D of the Board of Governors of the Federal Reserve System on Eurocurrency
liabilities.
"Security Agreement" means a security agreement in the form attached
hereto as EXHIBIT B.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Subordinated Indebtedness" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Obligations to
the written satisfaction of the Lender, which satisfaction shall not be
unreasonably withheld.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, limited liability company,
association, joint venture or similar business organization more than 50% of
the ownership interests having ordinary voting power of which shall at the
time be so owned or controlled. Unless otherwise expressly provided, all
references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Termination Date" means December 10, 1999.
"Trademark Security Agreement" means a security agreement in the form
attached hereto as EXHIBIT C.
"Type" means, with respect to any Loan, its nature as an Alternate Base
Rate Loan or a Eurodollar Loan.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or
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one or more Wholly-Owned Subsidiaries of such Person, or by such Person and
one or more Wholly-Owned Subsidiaries of such Person, or (ii) any
partnership, limited liability company, association, joint venture or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Year 2000 Issues" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Borrower and
its Subsidiaries and of the Borrower's and its Subsidiaries' material
customers, suppliers and vendors.
"Year 2000 Program" is defined in Section 5.14.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II -- THE CREDITS
2.1. COMMITMENT; REDUCTION OF COMMITMENT. From and including the date
of this Agreement and prior to the Termination Date, the Lender agrees, on
the terms and conditions set forth in this Agreement, to make Loans to the
Borrower from time to time in amounts not to exceed in the aggregate at any
one time outstanding the amount of the Commitment. The Borrower may
permanently reduce the Commitment, in integral multiples of $500,000.00,
upon at least three Business Days' written notice to the Lender; PROVIDED,
HOWEVER, that the amount of the Commitment may not be reduced below the
aggregate principal amount of the outstanding Loans.
2.2. TYPES OF LOANS; MINIMUM AMOUNT; LENDING INSTALLATIONS. Subject to
the terms of this Agreement, the Borrower may borrow, repay and reborrow at
any time prior to the Termination Date. The Loans may be Alternate Base Rate
Loans or Eurodollar Loans, or a combination thereof, selected by the Borrower
in accordance with Sections 2.5 and 2.6. Each Eurodollar Loan shall be in
the minimum amount of $1,000,000.00 and whole multiples of $500,000.00 in
excess thereof. The Lender may book the Loans at any Lending Installation, as
selected by the Lender. All terms of the Loan Documents shall apply to and
may be enforced by or on behalf of any such Lending Installation.
2.3. PRINCIPAL PAYMENTS. The Borrower may from time to time pay,
without penalty or premium, any portion of the outstanding Alternate Base
Rate Loans upon two Business Days' prior notice to the Lender. The Borrower
may on the last day of any Interest Period pay, without penalty or premium,
all outstanding Eurodollar Loans, or all or any portion of the outstanding
Eurodollar Loans upon three Business Days' prior notice to the Lender;
PROVIDED, HOWEVER, that if any such payment occurs on a date other than the
last day of an Interest Period, whether because of acceleration, prepayment
or otherwise, or a Eurodollar Loan is not made on the date specified by the
Borrower for any reason other than default by
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the Lender, the Borrower will indemnify the Lender for any loss or cost
incurred by it resulting therefrom, including, without limitation, any loss
or cost in liquidating or employing deposits acquired to fund or maintain the
Eurodollar Loan. Any outstanding Loans and all other unpaid Obligations
shall be paid in full by the Borrower, and the Commitment to lend hereunder
shall expire, on the Termination Date.
2.4. FEES. The Borrower agrees to pay to the Lender a commitment fee of
.5% per annum on the daily unborrowed portion of the Commitment from the date
hereof to and including the Termination Date, payable in arrears on the last
day of each calendar quarter hereafter. All accrued fees shall be payable on
the effective date of any termination of the obligations of the Lender to
make Loans hereunder.
2.5. METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW LOANS. The
Borrower shall select the Type of Loan and the Interest Period, if any,
applicable to each Loan from time to time. The Borrower shall give the
Lender irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m.
(Chicago time) at least one Business Day before the Borrowing Date of each
Alternate Base Rate Loan and two Business Days before the Borrowing Date for
each Eurodollar Loan, specifying for each Loan: (i) the Borrowing Date,
which shall be a Business Day, (ii) the aggregate amount, (iii) the Type, and
(iv) the Interest Period, if any, applicable thereto. The Lender will make
the funds available to the Borrower at the Lender's address specified
pursuant to Article XII.
2.6. CONVERSION AND CONTINUATION OF OUTSTANDING LOANS. Alternate Base
Rate Loans shall continue as such unless and until converted into Eurodollar
Loans or are repaid. Each Eurodollar Loan shall continue until, and may not
be converted prior to, the end of the then applicable Interest Period
therefor, at which time such Eurodollar Loan shall be automatically converted
into an Alternate Base Rate Loan unless such Eurodollar Loan was repaid or
the Borrower shall have given the Lender irrevocable notice (a
"Conversion/Continuation Notice") requesting that, at the end of such
Interest Period, such Eurodollar Loan continue as such for the same or
another Interest Period. The Borrower shall give the Lender a
Conversion/Continuation Notice prior to the date of the requested conversion
or continuation, but not later than the times identified in Section 2.5 for
Borrowing Notices, specifying for each Loan being converted or continued:
(i) the requested date which shall be a Business Day; (ii) the aggregate
amount and Type; and (iii) the amount and Type(s) of Loan(s) into which such
Loan is to be converted or continued and the duration of the Interest Period,
if any, applicable thereto.
2.7. CHANGES IN INTEREST RATE. Each Alternate Base Rate Loan shall bear
interest at the Alternate Base Rate on the outstanding principal amount
thereof for each day from and including the date such Loan is made or is
automatically converted from a Eurodollar Loan pursuant to Section 2.6 to but
excluding the date it is paid or is converted into a Eurodollar Loan pursuant
to Section 2.6. Changes in the Alternate Base Rate will take effect
simultaneously with each change in the Alternate Base Rate. Each Eurodollar
Loan shall bear interest on the outstanding principal amount thereof for each
day during the Interest Period applicable thereto from and including the
first day of such Interest Period to (but not including) the last day of such
Interest Period at the Eurodollar Rate applicable thereto. No Interest
Period may end after the Termination Date.
2.8. RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to the
contrary contained in Section 2.5 or 2.6, during the continuance of a Default
or Unmatured Default the Lender may, at its option, by notice to the
Borrower, declare that no Loan may be made as, converted into or continued as
a Eurodollar Loan following the end of the then current Interest Period.
During the continuance of a Default, the Lender may, at its option, by notice
to the Borrower, declare that each Eurodollar Loan and
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each Alternate Base Rate Loan shall bear interest at a rate per annum equal
to the Alternate Base Rate in effect from time to time plus 2% per annum,
PROVIDED that, during the continuance of a Default under Section 7.2, 7.6 or
7.7, the interest rate set forth above shall be applicable to all Loans
without any election or action on the part of the Lender.
2.9. METHOD OF PAYMENT. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to the Lender at the Lender's address, by noon (Chicago time) on the
date when due.
2.10. NOTELESS AGREEMENT; EVIDENCE OF INDEBTEDNESS. The Lender shall
maintain in accordance with its usual practice an account or accounts in
which it will record (a) the amount of each Loan made hereunder, the Type
thereof and the Interest Period with respect thereto, (b) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to the Lender hereunder and (c) the amount of any sum received by
the Lender hereunder from the Borrower. The entries maintained in such
accounts shall be PRIMA FACIE evidence of the existence and amounts of the
Obligations therein recorded; PROVIDED, HOWEVER, that the failure of the
Lender to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Obligations in accordance
with their terms. The Lender may request that the Loans be evidenced by a
promissory note (a "Note"). In such event, the Borrower shall prepare,
execute and deliver to the Lender a Note payable to the order of the Lender
in a form supplied by the Lender and reasonably acceptable to the Borrower.
Thereafter, the Loans evidenced by such Note and interest thereon shall at
all times (including after any assignment pursuant to Section 11.3) be
represented by one or more Notes payable to the order of the payee named
therein or any assignee pursuant to Section 11.3, except to the extent that
the Lender or any such assignee subsequently returns any such Note for
cancellation and requests that such Loans once again be evidenced as
described above.
2.11. TELEPHONIC NOTICES. The Borrower hereby authorizes the Lender to
extend, convert or continue Loans, effect selections of Types of Loans and to
transfer funds based on telephonic notices made by any person or persons the
Lender in good faith believes to be acting on behalf of the Borrower. If the
Borrower's records differ in any material respect from the action taken by
the Lender, the records of the Lender shall govern absent manifest error.
2.12. INTEREST PAYMENT DATES; INTEREST AND FEE BASIS. Interest accrued
on each Alternate Base Rate Loan shall be payable on the last day of each
month, commencing with the first such date to occur after the date hereof, on
any date on which the Alternate Base Rate Loan is prepaid due to acceleration
or otherwise, and at maturity. Interest accrued on each Eurodollar Loan
shall be payable on the last day of its applicable Interest Period, on any
date on which the Eurodollar Loan is prepaid, whether by acceleration or
otherwise, and at maturity. Interest accrued on each Eurodollar Loan having
an Interest Period longer than three months shall also be payable on the last
day of each three-month interval during such Interest Period. Interest and
commitment fees shall be calculated for actual days elapsed on the basis of a
360-day year. Interest shall be payable for the day a Loan is made but not
for the day of any payment if payment is received prior to noon (local time)
at the place of payment. If any payment of principal of or interest on a
Loan shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
ARTICLE III -- CHANGE IN CIRCUMSTANCES
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The Borrower agrees to pay to the Lender such amounts as will compensate
the Lender for any increase in the cost to the Lender of making or
maintaining any Loan hereunder or of maintaining the Commitment to make Loans
hereunder, by reason of a change, following the date of execution of this
Agreement, in any reserve (except Reserve Requirements), tax (except for
change in the rate of tax on the overall net income of Lender), capital
guidelines, special deposit, or similar requirement with respect to assets
of, deposits with or for the account of, or credit extended by, or
commitments extended by, the Lender which are imposed on, or deemed
applicable by, the Lender, under any United States law, treaty, rule,
regulation (including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System), any interpretation thereof by any
United States governmental, fiscal, monetary or other authority charged with
the administration thereof or having jurisdiction over such Loan or the
Lender, or any requirement imposed by any such authority, whether or not
having the force of law. Such additional amounts shall be payable on demand.
The Lender may suspend the availability of any Type of Eurodollar Loan if
maintenance of such Loan at a suitable Lending Installation becomes illegal
or if deposits matching such Loan are unavailable to the Lender or if the
Eurodollar Rate fails to reflect the cost to the Lender of making or
maintaining such Loan.
Lender agrees to use reasonable efforts not materially disadvantageous
to it to avoid or minimize the payment by the Borrower of any amounts under
this Article III, including, without limitation, utilizing a different
Lending Installation. Lender shall be entitled to be compensated for amounts
pursuant to this Article III only to the extent Lender makes the same demands
for compensation from all of its other customers facing the same or similar
circumstances.
ARTICLE IV -- CONDITIONS PRECEDENT
4.1. INITIAL LOAN. The Lender shall not be required to make the
initial Loan hereunder unless the Borrower has furnished to the Lender:
(i) A Note payable to the Lender, if so requested by the Lender
pursuant to Section 2.10;
(ii) A duly executed Security Agreement;
(iii) A duly executed Trademark Security Agreement;
(iv) A certificate, signed by the chief financial officer of the
Borrower, stating that on the date of the initial Loan hereunder, no Default
or Unmatured Default has occurred and is continuing;
(v) An Insurance Certificate, signed by the chief financial
officer or the president of the Borrower;
(vi) Evidence satisfactory to the Lender that, upon the date of
the initial Loan made hereunder, all Indebtedness of the Borrower outstanding
under the Bridge Facility shall be paid in full with the proceeds of such
Loan;
(vii) Such fees as shall be payable to the Lender pursuant to the
Fee Letter;
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(viii) A written opinion of counsel to the Borrower, in form and
substance reasonably satisfactory to the Lender;
(ix) A copy of the articles or certificate of incorporation of the
Borrower, together with all amendments thereto, and a certificate of
existence, each certified by the appropriate governmental officer in its
jurisdiction of incorporation;
(x) A copy, certified by the Secretary or an Assistant Secretary
of the Borrower, of its by-laws;
(xi) A copy, certified by the Secretary or an Assistant Secretary
of the Borrower, of Board of Directors' resolutions of the Borrower and of
resolutions or actions of any other body authorizing the execution of the
Loan Documents to which the Borrower is party;
(xii) Incumbency certificates, executed by the Secretary or an
Assistant Secretary of the Borrower, which shall identify by name and title
and bear the signatures of the officers authorized to sign the Loan
Documents, upon which certificate the Lender shall be entitled to rely until
informed of any change in writing by the Borrower;
(xiii) Such UCC-1 financing statements as required to be filed
pursuant to the Security Agreement and the Trademark Security Agreement; and
(xiv) Such other documents as the Lender or its counsel may have
reasonably requested.
4.2. EACH LOAN. The Lender shall not be required to make any Loan
(other than a Loan that, after giving effect thereto and to the application
of the proceeds thereof, does not increase the aggregate amount of
outstanding Loans), unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default;
(ii) The representations and warranties contained in Article V are
true and correct in all material respects as of such Borrowing Date except to
the extent any such representation or warranty is stated to relate solely to
an earlier date, in which case such representation or warranty shall be true
and correct on and as of such earlier date; and
(iii) All legal matters incident to the making of such Loan shall
be satisfactory to the Lender and its counsel.
Each Borrowing Notice with respect to each such Loan shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. The Lender may require a duly
completed Compliance Certificate as a condition to making a Loan.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that:
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5.1. CORPORATE EXISTENCE AND STANDING. Each of the Borrower and its
Subsidiaries is a corporation, partnership (in the case of Subsidiaries only)
or limited liability company duly and properly incorporated or organized, as
the case may be, validly existing and (to the extent such concept applies to
such entity) in good standing under the laws of its jurisdiction of
incorporation or organization and has all requisite authority to conduct its
business in each jurisdiction in which its business is conducted.
5.2. AUTHORIZATION AND VALIDITY. The Borrower has the corporate power
and authority and legal right to execute and deliver the Loan Documents and
to perform its obligations thereunder. The execution and delivery by the
Borrower of the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper corporate proceedings, and the
Loan Documents constitute legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally.
5.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and
delivery by the Borrower of the Loan Documents, nor the consummation of the
transactions therein contemplated, nor compliance with the provisions thereof
will violate (i) any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its
Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or
certificate of incorporation, partnership agreement, certificate of
partnership, articles or certificate of organization, by-laws, or operating
or other management agreement, as the case may be, or (iii) the provisions of
any indenture, instrument or agreement to which the Borrower or any of its
Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or result in, or
require, the creation or imposition of any Lien in, of or on the Property of
the Borrower or a Subsidiary pursuant to the terms of any such indenture,
instrument or agreement, except any such violation, default or Lien that
would not result in a Material Adverse Effect. No order, consent,
adjudication, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, or other action in respect
of any governmental or public body or authority, or any subdivision thereof,
which has not been obtained by the Borrower or any of its Subsidiaries, is
required to be obtained by the Borrower or any of its Subsidiaries in
connection with the execution and delivery of the Loan Documents, the
borrowings under this Agreement, the payment and performance by the Borrower
of the Obligations or the legality, validity, binding effect or
enforceability of any of the Loan Documents, except in connection with the
perfection of Liens contemplated by the Security Agreement and Trademark
Security Agreement.
5.4. FINANCIAL STATEMENTS. The consolidated financial statements of the
Borrower and its Subsidiaries dated as of March 31, 1998 and September 30,
1998 heretofore delivered to the Lender were prepared in accordance with
Agreement Accounting Principles in effect on the date such statements were
prepared and fairly present the consolidated financial condition and
operations of the Borrower and its Subsidiaries at such dates and the
consolidated results of their operations for the periods then ended.
5.5. MATERIAL ADVERSE CHANGE. Since March 31, 1998, there has been no
change in the business, Property, financial condition or results of
operations of the Borrower and its Subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
5.6 TAXES. The Borrower and its Subsidiaries have filed all material
United States federal income tax returns and all other material tax returns
which are required to be filed and have paid all taxes due pursuant to said
returns or pursuant to any assessment received by the Borrower or any of its
Subsidiaries, except such taxes or assessments, if any, as are being
contested in good faith and as to which adequate reserves have been provided
in accordance with Agreement Accounting Principles. No
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tax liens have been filed with respect to any such taxes except as permitted
under Section 6.15.
5.7. LITIGATION AND CONTINGENT OBLIGATIONS. There is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any of its Subsidiaries which could reasonably be expected to
have a Material Adverse Effect. Other than any liability incident to any
litigation, arbitration or proceeding which could not reasonably be expected
to have a Material Adverse Effect, the Borrower has no material Contingent
Obligations not provided for or disclosed in the financial statements
referred to in Section 5.4.
5.8. SUBSIDIARIES. SCHEDULE I contains an accurate list of all
Subsidiaries of the Borrower as of the date of this Agreement, setting forth
their respective jurisdictions of organization and the percentage of their
respective capital stock or other ownership interests owned by the Borrower
or other Subsidiaries and identifying which Subsidiaries are Significant
Subsidiaries. All of the issued and outstanding shares of capital stock or
other ownership interests of such Subsidiaries have been (to the extent such
concepts are relevant with respect to such ownership interests) duly
authorized and issued and are fully paid and non-assessable.
5.9. ERISA. There are no Unfunded Liabilities under any Single Employer
Plans. Neither the Borrower nor any other member of the Controlled Group has
incurred, or is reasonably expected to incur, any withdrawal liability or more
to Multiemployer Plans. Each Plan complies in all material respects with all
applicable requirements of law and regulations, and no Reportable Event has
occurred with respect to any Plan. Neither the Borrower nor any other member of
the Controlled Group has withdrawn from any Multiemployer Plan or has initiated
steps to do so, and neither the Borrower nor any other member of the Controlled
Group has withdrawn from any Single Employer Plan under circumstances in which
the withdrawal resulted in any funding liability that has not been fully paid.
No steps have been taken to reorganize or terminate any Plan.
5.10. COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have
complied in all material respects with all applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct
of their respective businesses or the ownership of their respective Property.
Neither the Borrower nor any Subsidiary has received any notice to the effect
that its operations are not in material compliance with any of the
requirements of applicable federal, state and local environmental, health and
safety statutes and regulations or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to
a release of any toxic or hazardous waste or substance into the environment,
which non-compliance or remedial action could reasonably be expected to have
a Material Adverse Effect.
5.11. REGULATIONS. Margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) constitutes less than 25%
of the value of those assets of the Borrower and its Subsidiaries that are
subject to any limitation on sale, pledge, or other restriction hereunder.
Neither the Borrower nor any Subsidiary is (i) an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended or (ii) a "holding company" or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
5.12. OWNERSHIP OF PROPERTIES. Except as set forth on SCHEDULE II, on the
date of this Agreement, the Borrower and its Subsidiaries will have good title,
free of all Liens other than those permitted by Section 6.15, to all of the
Property and assets reflected in the Borrower's most recent consolidated
financial statements provided to the Lender as owned by the Borrower and its
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Subsidiaries.
5.13. ACCURACY OF INFORMATION. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Lender in
compliance with the Loan Documents contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statements contained therein not misleading in any material respect.
5.14. YEAR 2000. The Borrower is in the process of making an assessment
of the Year 2000 Issues and has a realistic and achievable program for
remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program").
Based on such assessment and on the Year 2000 Program, the Borrower does not
reasonably anticipate that Year 2000 Issues will have a Material Adverse
Effect.
ARTICLE VI -- COVENANTS
During the term of this Agreement, unless the Lender shall otherwise
consent in writing:
6.1. FINANCIAL REPORTING. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, and furnish to the Lenders:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified audit report certified by Price Waterhouse Coopers, LLP, or
other independent certified public accountants reasonably acceptable to the
Lenders, prepared in accordance with Agreement Accounting Principles on a
consolidated basis for itself and its Subsidiaries, including balance
sheets as of the end of such period, related profit and loss and
reconciliation of surplus statements, and a statement of cash flows,
accompanied by (a) any management letter prepared by said accountants, and
(b) a certificate of said accountants that, in the course of their
examination necessary for their certification of the foregoing, they have
obtained no knowledge of any Default or Unmatured Default, or if, in the
opinion of such accountants, any Default or Unmatured Default shall exist,
stating the nature and status thereof.
(ii) Within 60 days after the close of the first three quarterly
periods of each of its fiscal years, for itself and its Subsidiaries,
consolidated unaudited balance sheets as at the close of each such period
and consolidated profit and loss and reconciliation of surplus statements
and a statement of cash flows for the period from the beginning of such
fiscal year to the end of such quarter, all certified by its chief
financial officer.
(iii) Together with the financial statements required under
Sections 6.l(i) and (ii), a Compliance Certificate signed by its chief
financial officer showing the calculations necessary to determine
compliance with this Agreement and stating that no Default or Unmatured
Default exists, or if any Default or Unmatured Default exists, stating the
nature and status thereof.
(iv) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event has occurred with respect to any
Plan, a statement, signed by the chief financial officer of the Borrower,
describing said Reportable Event and the action which the Borrower proposes
to take with respect thereto.
(v) As soon as possible and in any event within 10 days after receipt
by the Borrower, a copy of (a) any notice or claim to the effect that the
Borrower or any of its
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Subsidiaries is or may be liable to any Person as a result of the
release by the Borrower, any of its Subsidiaries, or any other Person of
any toxic or hazardous waste or substance into the environment, and (b)
any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower or any
of its Subsidiaries, which, in either case, could reasonably be expected
to have a Material Adverse Effect.
(vi) Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy statements
so furnished.
(vii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which
the Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission.
(viii) Such other information (including non-financial information)
as the Lender may from time to time reasonably request.
6.2. USE OF PROCEEDS. The Borrower will use the proceeds of the initial
Loan hereunder to repay all Indebtedness of the Borrower under the Bridge
Facility. The Borrower will, and will cause each Subsidiary to, use the
proceeds of each subsequent Loan for general corporate purposes. The
Borrower will not, nor will it permit any Subsidiary to, use any of the
proceeds of the Loans to purchase or carry any "margin stock" (as defined in
Regulation U).
6.3. NOTICE OF DEFAULT. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to the Lender of the occurrence
of any Default or Unmatured Default and of any other development, financial
or otherwise (including, without limitation, developments with respect to
Year 2000 Issues), which could reasonably be expected to have a Material
Adverse Effect.
6.4. CONDUCT OF BUSINESS. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted, or expansions thereof, and do all things necessary to remain duly
incorporated or organized, validly existing and (to the extent such concept
applies to such entity) in good standing as a domestic corporation,
partnership or limited liability company in its jurisdiction of incorporation
or organization, as the case may be, and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted,
except where failure to do so will not result in a Material Adverse Effect.
6.5. TAXES. The Borrower will, and will cause each Subsidiary to,
timely file complete and correct material United States federal and
applicable material foreign, state and local income tax returns required by
law and pay, discharge, or otherwise satsify when due all material taxes,
assessments and governmental charges and levies upon it or its income,
profits or Property, except those which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside in accordance with Agreement Accounting Principles.
6.6. INSURANCE. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance
on all their Property in such amounts and covering such risks as is
consistent with sound business practice, and the Borrower will furnish to any
Lender upon request full information as to the insurance carried.
6.7. COMPLIANCE WITH LAWS. The Borrower will, and will cause each
Subsidiary to, comply
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with all laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it may be subject including, without limitation,
all Environmental Laws, failure to comply with which could reasonably be
expected to have a Material Adverse Effect.
6.8. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and
keep its Property in good repair, working order and condition, reasonable
wear and tear excepted, and make all necessary and proper repairs, renewals
and replacements so that its business carried on in connection therewith may
be properly conducted at all times to the extent in any such case failure so
to do could reasonably be expected to have a Material Adverse Effect.
6.9. INSPECTION. The Borrower will, and will cause each Subsidiary to,
permit the Lender, by its representatives and agents, to, upon reasonable
advance notice and during normal business hours, inspect any of the Property,
books and financial records of the Borrower and each Subsidiary, to examine
and make copies of the books of accounts and other financial records of the
Borrower and each Subsidiary, and to discuss the affairs, finances and
accounts of the Borrower and each Subsidiary with, and to be advised as to
the same by, its officers at such reasonable times and intervals as the
Lender may designate.
6.10. DIVIDENDS. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends or make any distributions on its
capital stock (other than dividends payable in its own capital stock) or
redeem, repurchase or otherwise acquire or retire any of its capital stock at
any time outstanding, except that any Subsidiary may declare and pay
dividends or make distributions to the Borrower or to a Wholly-Owned
Subsidiary and, so long as there exists no Default or Unmatured Default, the
Borrower may make distributions to its shareholders in an aggregate amount
not greater than the amount necessary for such shareholders to pay their
actual United States federal and state income tax liabilities in respect of
income earned by the Borrower.
6.11. MERGER. The Borrower will not, nor will it permit any Subsidiary
to, merge or consolidate with or into any other Person.
6.12. SALE OF ASSETS. The Borrower will not lease, sell or otherwise
dispose of its Property to any other Person, except sales of inventory in the
ordinary course of business and dispositions of personal property in the
nature of furniture, furnishings, equipment and supplies which are worn or
obsolete or otherwise not needed in the running of the business.
6.13. INVESTMENTS AND ACQUISITIONS. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to
become or remain a partner in any partnership or joint venture, or to make
any Acquisition of any Person, except:
(i) existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described in SCHEDULE III;
(ii) Permitted Investments;
(iii) accounts receivable;
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(iv) investments received in settlement of arms length disputes; and
(v) any endorsement of a check or other medium of payment for deposit
or collection, or any similar transaction in the ordinary course of business.
6.14. INDEBTEDNESS. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) the Obligations;
(ii) Indebtedness existing on the date hereof and described in
SCHEDULE IV hereto and, unless otherwise noted on said SCHEDULE IV, all
refundings and refinancings thereof; PROVIDED, HOWEVER, that in no event
shall any refunding or refinancing increase the dollar amount of such
Indebtedness or the interest rate, if any, applicable thereto;
(iii) Subordinated Indebtedness;
(iv) Indebtedness secured by Liens permitted under Section 6.15 below;
(v) Indebtedness of any Subsidiary to the Borrower;
(vi) Capitalized Lease Obligations in an aggregate amount not to
exceed $1,200,000.00 at any time outstanding; and
(vii) Indebtedness in respect of performance bonds, bankers
acceptances, letters of credit and surety or appeal bonds entered into by
the Borrower and its Subsidiaries in the ordinary course of business.
6.15. LIENS. The Borrower will not, nor will it permit any Subsidiary
to, create, incur, or suffer to exist any Lien in, of or on the Property of
the Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or thereafter
can be paid without penalty, or are being contested in good faith and by
appropriate proceedings and for which adequate reserves in accordance with
Agreement Accounting Principles shall have been set aside on its books;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due
or which are being contested in good faith by appropriate proceedings and
for which adequate reserves shall have been set aside on its books;
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) judgment liens, writs, warrants, levies, distraints, attachments
and other similar process which do not constitute a Default;
(v) Liens securing reimbursement obligations with respect to letters
of credit and bankers acceptances which encumber only documents and other
property relating to such letters
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of credit and bankers acceptances;
(vi) Liens in favor of landlords;
(vii) Liens securing Capitalized Leases permitted pursuant to
Section 6.14(vi);
(viii) the Liens granted to the Lender under the Loan Documents;
(ix) the replacement, extension or renewal of any Lien permitted
hereunder so long as the Indebtedness secured by such Lien is not increased
by such replacement, extension or renewal;
(x) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the marketability of the same or interfere with
the use thereof in the business of the Borrower or its Subsidiaries;
(xi) Liens in respect of equipment or real property acquired by the
Borrower or any Subsidiary, which are created within 180 days after the
acquisition of such property to secure Indebtedness incurred to finance all
or a part of the purchase price of such property, provided that (a) no such
Lien shall extend to or cover any other property of the Borrower or such
Subsidiary, as the case may be, and (b) the aggregate principal amount of
the Indebtedness secured by all such Liens shall not exceed $1,200,000.00;
and
(xii) Liens existing on the date hereof and described in SCHEDULE V.
6.16. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction (including, without
limitation, the purchase or sale of any Property or service) with, or make
any payment or transfer to, any Affiliate except in the ordinary course of
business and pursuant to the reasonable requirements of the Borrower's or
such Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than the Borrower or such
Subsidiary would obtain in a comparable arms-length transaction.
6.17. PURCHASE OR RETIREMENT OF STOCK. The Borrower will not, nor will
it permit any Subsidiary to, acquire, purchase, redeem or retire any shares
of its capital stock now or hereafter outstanding.
6.18. INVESTMENTS; ADVANCES. The Borrower will not permit any of its
Subsidiaries to make or commit to make any advance, loan or extension of
credit or capital contribution to, or purchase any stocks, bonds, notes,
debentures or other securities of, or make any other investment in, any
Person; provided, however, that the Company and its Subsidiaries may make or
maintain Permitted Investments.
6.19. CAPITAL EXPENDITURES. The Borrower will not, nor will it permit any
Subsidiary to, expend, or be committed to expend, in excess of $8,000,000.00 for
Capital Expenditures during any one fiscal year on a non-cumulative basis in the
aggregate for the Borrower and its Subsidiaries.
6.20. SALE AND LEASEBACK TRANSACTIONS AND OTHER OFF-BALANCE SHEET
LIABILITIES. The Borrower will not, nor will it permit any Subsidiary to,
enter into or suffer to exist any sale and leaseback transaction involving
assets in excess of $2,000,000.00 in the aggregate; PROVIDED, HOWEVER,
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that the proceeds of any such sale and leaseback transaction shall be used to
repay Indebtedness incurred by the Company pursuant to this Agreement.
6.21. CONTINGENT OBLIGATIONS. The Borrower will not, nor will it permit
any Subsidiary to, make or suffer to exist any Contingent Obligation
(including, without limitation, any Contingent Obligation with respect to the
obligations of a Subsidiary), except by endorsement of instruments for
deposit or collection in the ordinary course of business.
6.22. FINANCIAL COVENANTS.
6.22.1. MINIMUM CONSOLIDATED NET WORTH. The Borrower will
maintain, as at the last day of each calendar quarter, a minimum Consolidated
Net Worth equal to or greater than $32,000,000.00.
6.22.2. MINIMUM NET INCOME. The Borrower will not permit its net
earnings as of the end of any fiscal quarter for such quarter and the
immediately preceding fiscal quarter to be less than one dollar ($1.00),
commencing with the fiscal quarter ending December 31, 1998.
6.22.3. FIXED CHARGE COVERAGE RATIO. The Borrower will maintain a
Fixed Charge Coverage Ratio equal to at least (i), as of December 31, 1998,
1.50:1.00, (ii) as of March 31, 1999, 2.50:1.00; and (iii) as of the last day
of each calendar quarter thereafter, 3.50:1.00.
6.22.4. CURRENT RATIO. The Borrower will maintain, as of the last
day of each calendar quarter, a Current Ratio equal to or greater than
2.00:1.00.
6.23. YEAR 2000. The Borrower will take and will cause each of its
Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000
Issues will not have a Material Adverse Effect. At the reasonable request of
the Lender the Borrower will provide a description of the Year 2000 Program
together with any updates or progress reports with respect thereto.
6.24. SUBSIDIARIES. Following the date upon which each of the parties
hereto has executed this Agreement, the Borrower will not form or acquire any
new Subsidiary.
ARTICLE VII -- DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries to the Lender under or in
connection with this Agreement, any Loan, or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall
be materially false on the date as of which made.
7.2. Nonpayment of principal of any Loan when due, or nonpayment of
interest upon any Loan or of any commitment fee or other obligations under
any of the Loan Documents within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Sections 6.2 or 6.3.
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7.4. The breach by the Borrower (other than a breach which constitutes
a Default under another Section of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within thirty days after
written notice from the Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay
Indebtedness having a principal amount in the aggregate in excess of
$250,000.00 when due; or a default shall occur under any agreements governing
Indebtedness having a principal amount in the aggregate in excess of
$250,000.00 of the Borrower or any Subsidiary or any other event shall occur
or condition shall exist, the effect of which default, event or condition is
to cause, or to permit the holder or holders of such Indebtedness to cause,
such Indebtedness to become due prior to its stated maturity; or Indebtedness
having a principal amount in the aggregate in excess of $250,000.00 of the
Borrower or any of its Subsidiaries shall be declared to be due and payable
prior to the stated maturity thereof; or the Borrower or any of its
Subsidiaries shall not pay, or admit in writing its inability to pay, its
debts generally as they become due.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order
for relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any substantial portion of its Property, (iv)
institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief
of debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate
or partnership action to authorize or effect any of the foregoing actions set
forth in this Section 7.6 or (vi) fail to contest in good faith any
appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or
any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or
any substantial portion of its Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries
and such appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of 30 consecutive days.
7.8. Any reportable event (as defined in Section 4043 of ERISA) shall
occur in connection with any Plan.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days
to pay, bond or otherwise discharge one or more (i) judgments or orders for
the payment of money in excess of $250,000.00 in the aggregate, or (ii)
nonmonetary judgments or orders which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect, which
judgment(s), in any such case, is/are not stayed on appeal or otherwise being
appropriately contested in good faith or are not covered by insurance.
7.10. The acquisition by any Person, or two or more Persons acting in
concert, of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934)
of 50% or more of the outstanding shares of voting stock of the Borrower.
20
<PAGE>
7.11. The Borrower shall fail to comply with the terms of the Security
Agreement or the Trademark Security Agreement and such failure is not cured
within thirty days following notice thereof by Lender.
ARTICLE VIII -- ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. ACCELERATION. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower, the obligation of the Lender to make
Loans hereunder shall automatically terminate and the Obligations shall
immediately become due and payable without any election or action on the part
of the Lender. If any other Default occurs, the Lender may terminate or
suspend the obligations to make Loans hereunder, or declare the Obligations
to be due and payable, or both, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice
of any kind, all of which the Borrower hereby expressly waives.
8.2. AMENDMENTS. Subject to the provisions of this Article VIII, the
Lender and the Borrower may enter into agreements supplemental hereto for the
purpose of amending the Loan Documents in any manner or waiving any Default
hereunder.
8.3. PRESERVATION OF RIGHTS. No delay or omission of the Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability
of the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of
the terms, conditions or provisions of the Loan Documents whatsoever shall be
valid unless in writing signed by the Lender, and then only to the extent in
such writing specifically set forth. All remedies contained in the Loan
Documents or by law afforded shall be cumulative and all shall be available
to the Lender until the Obligations have been paid in full.
ARTICLE IX -- GENERAL PROVISIONS
9.1. ENTIRE AGREEMENT; SEVERABILITY OF PROVISIONS. The Loan Documents
embody the entire agreement and understanding between the Borrower and the
Lender and supersede all prior agreements and understandings between the
Borrower and the Lender relating to the subject matter thereof other than the
Fee Letter. Any provision in any Loan Document that is held to be
inoperative, unenforceable, or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable, or invalid without affecting the
remaining provisions in that jurisdiction or the operation, enforceability,
or validity of that provision in any other jurisdiction, and to this end the
provisions of all Loan Documents are declared to be severable.
9.2. BENEFITS OF THIS AGREEMENT. This Agreement shall not be construed
so as to confer any right or benefit upon any Person other than the parties
to this Agreement and their respective successors and assigns.
9.3. EXPENSES; INDEMNIFICATION. The Borrower shall reimburse the
Lender for any reasonable costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of
21
<PAGE>
attorneys for the Lender, which attorneys may be employees of the Lender)
paid or incurred by the Lender in connection with the preparation,
negotiation, execution, delivery, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse
the Lender for any costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Lender,
which attorneys may be employees of the Lender) paid or incurred by the
Lender in connection with the collection and enforcement of the Loan
Documents. The Borrower further agrees to indemnify the Lender, its
directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without
limitation, all reasonable expenses of litigation or preparation therefor
whether or not the Lender is a party thereto) which it may pay or incur
arising out of or relating to this Agreement, the other Loan Documents, the
transactions contemplated hereby or the direct or indirect application or
proposed application of the proceeds of any Loan hereunder except to the
extent that they are determined in a final non-appealable judgment by a court
of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of the party seeking indemnification. The obligations of
the Borrower under this Section shall survive the termination of this
Agreement.
9.4. SURVIVAL OF REPRESENTATIONS; TAXES. All representations and
warranties of the Borrower contained in this Agreement shall survive delivery
of the Note and the making of the Loans herein contemplated. Any taxes
(excluding federal income taxes on the overall net income of the Lender) or
other similar assessments or charges made by any governmental or revenue
authority directly resulting from the execution and delivery of the Loan
Documents shall be paid by the Borrower, together with interest and
penalties, if any.
ARTICLE X -- SETOFF
In addition to, and without limitation of, any rights of the Lender
under applicable law, if the Borrower becomes insolvent, however evidenced,
or any Default occurs and is continuing, any and all deposits (including all
account balances, whether provisional or final and whether or not collected
or available) and any other Indebtedness at any time held or owing by the
Lender or any affiliate of the Lender to or for the credit or account of the
Borrower may be offset and applied toward the payment of the Obligations
owing to the Lender, whether or not the Obligations, or any part hereof,
shall then be due.
ARTICLE XI -- ASSIGNMENTS; PARTICIPATIONS
11.1. SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lender and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under
the Loan Documents and (ii) any assignment by the Lender must be made in
compliance with Section 11.3. Notwithstanding clause (ii) of this Section,
the Lender may at any time, without the consent of the Borrower, assign all
or any portion of its rights under this Agreement and any Note to a Federal
Reserve Bank; PROVIDED, HOWEVER, that no such assignment to a Federal Reserve
Bank shall release the transferor Lender from its obligations hereunder. Any
assignee or transferee of the rights to any Loan or any Note agrees by
acceptance thereof to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time
of making such request or giving such authority or consent is the owner of
the rights to any Loan (whether or not a Note has been issued in
22
<PAGE>
evidence thereof), shall be conclusive and binding on any subsequent holder,
transferee or assignee of the rights to such Loan.
11.2. PARTICIPATIONS. The Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time sell to one or
more banks or other entities ("Participants") participating interests in any
Loan owing to it, any Note held by it, the Commitment or any other interest
of the Lender under the Loan Documents. In the event of any such sale by the
Lender of participating interests to a Participant, the Lender's obligations
under the Loan Documents shall remain unchanged, the Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, the Lender shall remain the owner of its Loans and the holder of
any Note issued to it in evidence thereof for all purposes under the Loan
Documents, all amounts payable by the Borrower under this Agreement shall be
determined as if the Lender had not sold such participating interests, and
the Borrower and the Lender shall continue to deal solely and directly with
each other in connection with the Lender's rights and obligations under the
Loan Documents. The Borrower agrees that each Participant shall be deemed to
have the right of setoff provided in Article X in respect of its
participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to
it as a Lender under the Loan Documents, provided that the Lender shall
retain the right of setoff provided in Article X with respect to the amount
of participating interests sold to each Participant. The Lender agrees to
share with each Participant, and each Participant, by exercising the right of
setoff provided in Article X, agrees to share with the Lender, any amount
received pursuant to the exercise of its right of setoff, such amounts to be
shared in accordance with Article X as if each Participant were a Lender.
11.3. ASSIGNMENTS. The Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("Purchasers") all or any part of its rights and
obligations under the Loan Documents. The Borrower hereby agrees to execute
any amendment and/or any other document that may be necessary to effectuate
such an assignment. Such assignment shall be evidenced by the Lender's
standard form (to be supplied upon request). The consent of the Borrower
shall be required prior to an assignment becoming effective with respect to a
Purchaser that is not a Lender or an affiliate thereof organized under the
laws of the United States or a state thereof; PROVIDED, HOWEVER, that if a
Default has occurred and is continuing, the consent of the Borrower shall not
be required. Such consent shall not be unreasonably withheld. Upon
delivering to the Borrower a notice of assignment, together with any required
consent, such assignment shall become effective on the effective date
specified in such notice of assignment. On and after the effective date of
such assignment, such Purchaser shall for all purposes be a Lender party to
the other Loan Documents and shall have all the rights and obligations of a
Lender under the Loan Documents, to the same extent as if it were an original
party hereto, and no further consent or action by the Borrower shall be
required to release the Lender with respect to the percentage of the
Commitment and Loans assigned to such Purchaser. Upon the consummation of
any such assignment to a Purchaser, the transferor Lender, the Lender and the
Borrower shall, if the Lender or the Purchaser desires, make appropriate
arrangements so that new Notes or, as appropriate, replacement Notes, are
issued to the Lender and Purchaser, in each case in principal amounts
reflecting their respective Commitments, as adjusted pursuant to such
assignment.
11.4. DISSEMINATION OF INFORMATION; TAX TREATMENT. The Borrower
authorizes the Lender to disclose to any Participant or Purchaser or any
other Person acquiring an interest in the Loan Documents by operation of law
(each a "Transferee") and any prospective Transferee any and all information
in the Lender's possession concerning the creditworthiness of the Borrower
and its Subsidiaries. If any interest in any Loan Document is transferred to
any Transferee which is organized under the laws of any
23
<PAGE>
jurisdiction other than the United States or any State thereof, the
transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, to deliver to the Lender such completed forms
with respect to exemption from withholding taxes as the Borrower may
reasonably require.
11.5. CONFIDENTIALITY. Lender agrees to keep confidential all
information provided by Borrower under this Agreement except as required by
applicable law or if such information is otherwise publicly available (other
than as a result of actions by Lender).
ARTICLE XII -- NOTICES
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party: (x) in the case of the
Borrower or the Lender, at its address, facsimile number or telex number set
forth on the signature pages hereof, or (y) in the case of any party, such
other address, facsimile number or telex number as such party may hereafter
specify for the purpose by notice to the other. Each such notice, request or
other communication shall be effective (i) if given by telex, when such telex
is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile transmission,
when transmitted to the facsimile number specified in this Section and
confirmation of receipt is received, (iii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid or (iv) if given by any other means, when
delivered at the address specified in this Section; PROVIDED that notices to
the Lender under Article II shall not be effective until received.
ARTICLE XIII -- COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower and
the Lender.
ARTICLE XIV -- GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER
14.1. CHOICE OF LAW; CONSENT TO JURISDICTION. THE LOAN DOCUMENTS (OTHER
THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
24
<PAGE>
RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST
THE LENDER OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
14.2. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
25
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
ROCKSHOX, INC., a Delaware corporation
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
Address:
---------------------------
-----------------------------
Attn:
------------------------
Phone: ( ) -
--- --- ----
Fax: ( ) -
--- --- ----
Commitment: $5,000,000.00 THE FIRST NATIONAL BANK OF CHICAGO
By:
--------------------------------
Name:
------------------------------
Title:
-------------------------------
Address: One First National Plaza
Chicago, Illinois 60670
Attn: Latanya Driver
Phone: (312) 732-1395
Fax: (312) 732-4840
26
<PAGE>
EXHIBITS AND SCHEDULES
COMPLIANCE CERTIFICATE EXHIBIT A
SECURITY AGREEMENT EXHIBIT B
TRADEMARK SECURITY AGREEMENT EXHIBIT C
Subsidiaries Schedule I
Real Property Schedule II
Existing Investments Schedule III
Existing Indebtedness Schedule IV
Existing Liens Schedule V
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,783
<SECURITIES> 0
<RECEIVABLES> 10,792
<ALLOWANCES> (1,084)
<INVENTORY> 13,375
<CURRENT-ASSETS> 31,548
<PP&E> 28,918
<DEPRECIATION> (12,466)
<TOTAL-ASSETS> 48,203
<CURRENT-LIABILITIES> 12,691
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 35,374
<TOTAL-LIABILITY-AND-EQUITY> 48,203
<SALES> 63,230
<TOTAL-REVENUES> 63,230
<CGS> 52,860
<TOTAL-COSTS> 10,370
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,153)
<INCOME-TAX> (883)
<INCOME-CONTINUING> (2,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,270)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
