<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998
REGISTRATION NO. 333-61191
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE DERBY CYCLE CORPORATION
LYON INVESTMENTS B.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 31-1038896
THE NETHERLANDS 3751 NONE
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
THE DERBY CYCLE CORPORATION CT CORPORATION
LYON INVESTMENTS B.V. 1633 BROADWAY
22710 72ND AVENUE SOUTH NEW YORK, NY
KENT, WASHINGTON 98032 TELEPHONE: (212) 664-1666
TELEPHONE: (253) 395-1100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
TELEPHONE NUMBER, INCLUDING INCLUDING AREA CODE, OF AGENT FOR
AREA CODE, OF REGISTRANTS' PRINCIPAL SERVICE)
EXECUTIVE OFFICES)
---------------
COPY TO:
JACK M. FEDER
KIRKLAND & ELLIS
655 FIFTEENTH STREET, N.W.
WASHINGTON, DC 20005-5793
TELEPHONE: (202) 879-5040
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective. If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10% Senior Notes due
2008.................. $100,000,000 $1,000 $100,000,000 $29,500
- ------------------------------------------------------------------------------------------
9 3/8% Senior Notes due
2008.................. DM110,000,000 DM1,000 DM110,000,000 $18,172
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) Calculated using the rate of DM1.00 = $0.56, the noon buying rate in New
York City for cable transfers in Deutsche Marks as announced by the
Federal Reserve Bank of New York on August 31, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1.Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page
2.Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front Cover Page; Outside Back Cover
Page
3.Risk Factors, Ratio of Earnings Prospectus Summary; Business; Selected
to Fixed Charges and Other Historical Financial Data; Unaudited Pro
Information................... Forma Condensed Combined Financial
Statements; Exhibit 12.1
4.Terms of the Transaction........ Outside Front Cover Page; Prospectus
Summary; Description of Exchange Notes;
The Exchange Offer; Certain U.S. Income
Tax Consequences; Certain Netherlands
Income Tax Consequences
5.Pro Forma Financial Unaudited Pro Forma Condensed Combined
Information................... Financial Statements
6.Material Contracts with the
Company Being Acquired........ Inapplicable
7.Additional Information
Required...................... Inapplicable
8.Interests of Named Experts and
Counsel....................... Legal Matters
9.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Inapplicable
10.Information with Respect to S-3
Registrants................... Inapplicable
11.Incorporation of Certain
Information by Reference...... Inapplicable
12.Information with Respect to S-2
or S-3 Registrants............ Inapplicable
13.Incorporation of Certain
Information by Reference...... Inapplicable
14.Information with Respect to
Registrants other than S-3 or Outside Front Cover Page; Prospectus
S-2 Registrants............... Summary; Risk Factors; Use of Proceeds;
Capitalization; The Recapitalization;
Unaudited Pro Forma Condensed Combined
Financial Statements; Selected Historical
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Security Ownership of Certain
Beneficial Owners and Management;
Description of Revolving Credit Agreement
15.Information with Respect to S-3
Companies..................... Inapplicable
16.Information with Respect to S-2
or S-3 Companies.............. Inapplicable
</TABLE>
<PAGE>
<TABLE>
<S> <C>
17.Information with Respect to
Companies Other than S-3 or S-2
Companies...................... Inapplicable
18.Information if Proxies, Consents
or Authorizations are to be
Solicited...................... Inapplicable
19.Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange Management; Security Ownership of Certain
Offer.......................... Beneficial Owners and Management
</TABLE>
<PAGE>
PROSPECTUS
NOVEMBER 25, 1998
THE DERBY CYCLE CORPORATION
LYON INVESTMENTS B.V.
OFFER TO EXCHANGE THEIR $100,000,000 10% SENIOR NOTES DUE 2008 AND THEIR
DM110,000,000 9 3/8% SENIOR NOTES DUE 2008, EACH OF WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF THEIR
OUTSTANDING $100,000,000 10% SENIOR NOTES DUE 2008 AND THEIR OUTSTANDING
DM 110,000,000 9 3/8% SENIOR NOTES DUE 2008, RESPECTIVELY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER
31, 1998, UNLESS EXTENDED.
The Derby Cycle Corporation, a Delaware corporation ("DCC"), and Lyon
Investments B.V., a company organized under the laws of The Netherlands and a
wholly-owned subsidiary of DCC which was formerly known as Lyon Cycle B.V.
("Lyon," and, together with DCC, the "Issuers"), hereby offer (the "Exchange
Offer"), upon the terms and conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of each of their
$100,000,000 10% Senior Notes due 2008 (the "Exchange Dollar Notes") and their
DM110,000,000 9 3/8% Senior Notes due 2008 (the "Exchange DM Notes" and,
together with the Exchange Dollar Notes, the "Exchange Notes"), each of which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of their outstanding
$100,000,000 10% Senior Notes due 2008 (the "Old Dollar Notes") and their
outstanding DM110,000,000 9 3/8% Senior Notes due 2008 (the "Old DM Notes" and,
together with the Old Dollar Notes, the "Old Notes"), respectively. The Issuers
are jointly and severally liable for all payments due under the Dollar Notes
(as defined) and the DM Notes (as defined). The Initial Offering occurred
concurrently with the Recapitalization (each, as defined) of DCC and its direct
and indirect subsidiaries, including Lyon (the "Company" or "Derby"). The
Dollar Notes and the DM Notes each form a separate series (each, a "Series").
The Old Notes of each Series may be exchanged for an issue of Exchange Notes of
a like Series, substantially identical in all material respects to such Old
Notes except that (i) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (ii) the holders of Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights Agreement (as defined). The
Old Notes and the Exchange Notes are sometimes referred to herein collectively
as the "Notes". The Old Dollar Notes and the Exchange Dollar Notes are
sometimes referred to herein collectively as the "Dollar Notes". The Old DM
Notes and the Exchange DM Notes are sometimes referred to herein collectively
as the "DM Notes". The Exchange Notes will evidence the same debt as the Old
Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indentures (as defined). See "The Exchange Offer" and
"Description of Exchange Notes".
The Company will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time on December 31, 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer".
The Old Dollar Notes were sold by the Issuers on May 14, 1998, to Chase
Securities Inc. ("CSI") and the Old DM Notes were sold on the same date to
Chase Manhattan Bank AG, Chase Manhattan International Limited and CSI
(collectively, the "Initial Purchasers") in a transaction not registered under
the Securities Act in reliance upon an exemption under the Securities Act (the
"Initial Offering"). The Initial Purchasers subsequently placed the Old Notes
with (i) qualified institutional buyers in reliance upon Rule 144A under the
Securities Act and (ii) qualified buyers outside the United States in reliance
upon Regulation S under the Securities Act. Accordingly, the Old Notes may not
be reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Issuers to the Initial Purchasers under the Exchange and Registration Rights
Agreement entered into by the Issuers in connection with the Initial Offering
(the "Exchange and Registration Rights Agreement"). See "The Exchange Offer".
The Dollar Notes will bear interest at the rate of 10% per annum, and the DM
Notes will bear interest at the rate of 9 3/8% per annum. Interest on the Notes
will accrue from their date of original issuance and will be payable semi-
annually in arrears on May 15 and November 15 of each year, commencing November
15, 1998. The Notes will mature on May 15, 2008. Except as described below, the
Issuers may not redeem the Notes prior to May 15, 2003. Thereafter, the Issuers
may redeem the Notes, in whole or in part, at the redemption prices set forth
herein, together with accrued and unpaid interest and Additional Amounts (as
defined), if any, to the date of redemption. In addition, at any time prior to
May 15, 2001, the Issuers may, subject to certain requirements, redeem up to 33
1/3% of the original aggregate principal amount of each series of the Notes
with the net cash proceeds of one or more Public Equity Offerings (as
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
defined), in the case of the Dollar Notes, at a redemption price equal to 110%
of the principal amount to be redeemed and, in the case of the DM Notes, at a
redemption price equal to 109.375% of the principal amount to be redeemed,
together with accrued and unpaid interest and Additional Amounts, if any,
provided that at least 66 2/3% of the original aggregate principal amount of
each Series remains outstanding immediately after each such redemption. The
Notes may also be redeemed at the option of the Issuers, in whole but not in
part, at any time at 100% of the principal amount thereof, together with
accrued and unpaid interest and Additional Amounts, if any, to the date of
redemption, in the event of certain changes affecting withholding taxes of the
United States or The Netherlands. The Notes will not be subject to any sinking
fund requirement. Upon the occurrence of a Change of Control (as defined),
each holder of Notes will have the right to require the Issuers to repurchase
such holder's Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest and Additional Amounts, if any, to
the date of repurchase. See "Description of Exchange Notes".
The Notes will be unsecured and will rank pari passu in right of payment with
all existing and future Senior Indebtedness (as defined) of the Issuers. The
Notes will rank senior in right of payment to all existing and future
Subordinated Obligations (as defined) of the Issuers. The Notes will be
effectively subordinated to any secured indebtedness of the Issuers to the
extent of the value of the assets securing such indebtedness and to all
liabilities of the subsidiaries of DCC other than Lyon. As of September 27,
1998, (a) the outstanding Senior Indebtedness of the Issuers was $196.8
million (including all indebtedness and guarantees of indebtedness under the
Revolving Credit Agreement (as defined), but excluding unused commitments
thereunder), of which $32.9 million was Secured Indebtedness (as defined), and
the Issuers had no outstanding Subordinated Obligations, (b) the outstanding
indebtedness of the subsidiaries of DCC other than Lyon was $35.1 million
(consisting of indebtedness under the Revolving Credit Agreement and
indebtedness under the South African Credit Facility (as defined) but
excluding, in each case, unused commitments thereunder), all of which was
Secured Indebtedness, and at such date (c) the total liabilities of the
subsidiaries of DCC (excluding Lyon) were approximately $114.1 million,
including trade payables. The indenture governing the Dollar Notes (the
"Dollar Notes Indenture") and the indenture governing the DM Notes (the "DM
Notes Indenture," and, together with the Dollar Notes Indenture, the
"Indentures") permit DCC and its Restricted Subsidiaries (as defined) to incur
additional indebtedness, including Senior Indebtedness, subject to certain
limitations. See "Description of Exchange Notes" and "Description of Revolving
Credit Agreement".
The Dollar Notes have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Application
will be made to list the Notes on the Luxembourg Stock Exchange concurrently
with the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
EXCHANGE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Based upon an interpretation by the staff of the United States Securities and
Exchange Commission (the "Commission") set forth in certain no-action letters
issued to third parties, the Issuers believe that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Issuers within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Resale of the Exchange Notes". Holders of Old Notes wishing to accept
the Exchange Offer must represent to the Issuers, as required by the Exchange
and Registration Rights Agreement, that such conditions have been met. Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes
for its own account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period of 180 days after the Expiration Date, they will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution".
<PAGE>
The Issuers will not receive any proceeds from the Exchange Offer. The
Issuers have agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indentures and with respect to transfer under the Securities Act. See "The
Exchange Offer".
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Issuers intend to list the Notes on the Luxembourg Stock
Exchange; however, there can be no assurance that the Issuers will meet the
applicable listing requirements of the Luxembourg Stock Exchange or any other
recognized stock exchange, and there can be no assurance that an active market
for the Notes will develop. To the extent that a market for the Notes does
develop, the market value of the Notes will depend on market conditions (such
as yields on alternative investments), general economic conditions, the
Issuers' financial condition and other conditions. Such conditions might cause
the Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "Risk Factors--Absence of a Public
Market Could Adversely Affect the Value of Exchange Notes".
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL FEBRUARY 28, 1999 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
i
<PAGE>
THE INITIAL PURCHASERS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN
OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED HEREBY, INCLUDING
OVERALLOTMENT, STABILIZING TRANSACTIONS, SHORT COVERING TRANSACTIONS AND
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION".
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement", which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Issuers and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Exchange Offer Registration Statement, including the exhibits thereto, and
periodic reports and other information filed by the Issuers with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Copies of
such materials are available in Luxembourg at the offices of the Industrial
Bank of Japan (Luxembourg) S.A., 6 rue Jean Monnet, L-2180 Luxembourg. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
The Issuers will each file with the Commission and provide holders of Notes
and prospective holders of Notes (upon request) within 15 days after the
Issuers file them with the Commission, copies of DCC's consolidated, audited
financial statements included in each Issuer's annual report on Form 10-K and
DCC's consolidated, unaudited financial statements included in each Issuer's
quarterly reports on Form 10-Q and the information, documents and other
reports that are specified in Sections 13 or 15(d) of the Exchange Act. In
addition, following a Public Equity Offering (as defined) DCC will furnish to
the holders of Notes, promptly upon their becoming available, copies of the
annual report to shareholders and any other information provided by the
Issuers to their public shareholders generally.
DCC, a corporation organized under the laws of Delaware, and Lyon, a company
formed under the laws of The Netherlands, have their principal executive
offices located at The Derby Cycle Corporation, c/o Raleigh USA Bicycle Co.,
22710 72nd Avenue South, Kent, Washington, USA 98032; its telephone number is
(253) 395-1100.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES ("CHAPTER 421-B") WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
ii
<PAGE>
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED
IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WHICH ARE NOT
HISTORICAL FACTS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS
REGARDING THE COMPANY'S FUTURE FINANCIAL POSITION, YEAR 2000 ISSUES, STRATEGY,
PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS,
ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE TYPICALLY
IDENTIFIED BY THE WORDS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND",
"ESTIMATE" AND SIMILAR EXPRESSIONS. ALTHOUGH THE ISSUERS BELIEVE THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, NO
ASSURANCE CAN BE GIVEN THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE COMPANY'S AND THE ISSUERS' EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING,
WITHOUT LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO
THE COMPANY, THE ISSUERS OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
DCC IS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND LYON IS
ORGANIZED UNDER THE LAWS OF THE NETHERLANDS. ALTHOUGH EACH OF THE ISSUERS WILL
AGREE, IN ACCORDANCE WITH THE TERMS OF THE INDENTURES, TO ACCEPT SERVICE IN
THE UNITED STATES BY ITS AGENT DESIGNATED FOR SUCH PURPOSE, IT MAY BE
DIFFICULT OR IMPOSSIBLE FOR HOLDERS OF NOTES (A) TO EFFECT SERVICE UPON
CERTAIN OF THE DIRECTORS AND OFFICERS OF THE ISSUERS AND (B) TO ENFORCE IN THE
UNITED STATES JUDGMENTS OF COURTS OF THE UNITED STATES PREDICATED UPON THE
CIVIL LIABILITY OF LYON OR CERTAIN OF THE OFFICERS AND DIRECTORS OF THE
ISSUERS UNDER THE U.S. FEDERAL SECURITIES LAWS. THERE IS DOUBT AS TO THE
ENFORCEABILITY OUTSIDE OF THE UNITED STATES AGAINST ANY OF THESE PERSONS, IN
ORIGINAL ACTIONS OR IN ACTIONS FOR ENFORCEMENT OF JUDGMENTS OF U.S. COURTS, OF
LIABILITIES PREDICATED SOLELY ON THE U.S. FEDERAL SECURITIES LAWS.
iii
<PAGE>
CERTAIN TERMS AND CONVENTIONS
As used herein, unless the context otherwise requires, the "Company" or
"Derby" means "DCC" together with its direct or indirect subsidiaries,
including Lyon. References herein to the following direct or indirect
subsidiaries of DCC are defined as follows:
<TABLE>
<CAPTION>
SUBSIDIARY REFERENCE
---------- ---------
Curragh Finance Company "Curragh Finance"
<S> <C>
Derby Cycle Werke GmbH "DCW"
Derby Holding B.V. "DHBV"
Derby Holding
(Deutschland) GmbH "Derby Holding (Deutschland)"
Derby Holding Limited "Derby Holding Limited"
Derby Investment Holdings
(Pty) Limited "Derby Holdings South Africa"
Derby Nederland BV "Derby Nederland"
Derby Trading Co., Inc. "Derby Trading"
Koninklijke Gazelle B.V. "Gazelle"
MS Sport Vertriebs AG "MS Sport AG"
MS Sport Vertriebs GmbH "MS Sport GmbH", together with MS Sport AG,
the "MS Sport Group"
Probike S.A. (Pty) Ltd. "Probike South Africa"
Raleigh BV "Raleigh Holland"
Raleigh BVBA "Raleigh Belgium"
Raleigh Europe B.V. "Raleigh Europe"
Raleigh Fahrrader GmbH "Raleigh Fahrrader"
Raleigh Industries Limited "Raleigh U.K."
Raleigh Industries of Can-
ada Limited "Raleigh Canada"
Raleigh Ireland Limited "Raleigh Ireland"
Raleigh International Lim-
ited "Raleigh International"
Sturmey-Archer B.V. "Sturmey-Archer BV"
Sturmey-Archer Limited "Sturmey-Archer"
Triumph Cycle Co. Ltd. "Triumph"
Univega Beteiligungen GmbH "Univega"
Univega Worldwide License
GmbH "Univega License"
Winora-Staiger GmbH "Winora-Staiger"
</TABLE>
References herein to "DICSA" are to Derby International Corporation S.A., a
corporation organized under the laws of the Grand Duchy of Luxembourg, and
references herein to "DFS" are to Derby Finance S.a.r.l., a corporation
incorporated under the laws of the Grand Duchy of Luxembourg and a wholly-
owned subsidiary of DICSA. Prior to the Restructuring, DICSA controlled,
directly or indirectly, DCC and all of its direct and indirect subsidiaries.
References herein to "U.S. dollars", "US$" or "$" are to the lawful currency
of the United States; references to "pounds Sterling", "GBP" or "(Pounds)" are
to the lawful currency of the United Kingdom; references to "NLG" or "Dutch
Guilders" are to the lawful currency of The Netherlands; references to
"Deutsche Marks" or "DM" are to the lawful currency of Germany; references to
"Canadian dollars" or "CAN$" are to the lawful currency of Canada; references
to "(Yen)" or "Yen" are to the lawful currency of Japan; references to "NT$"
or "New Taiwan dollar" are to the lawful currency of the Republic of China;
references to "Rand" or "R" are to the lawful currency of South Africa; and
references to "IRL", "IRL(Pounds)" or the Irish Punt are to the lawful
currency of Ireland.
As used herein, the symbol "MM" means millions, and the symbol "000s" means
thousands.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise indicated, all historical and pro forma financial
statements included in this Prospectus have been prepared in accordance with
U.S. generally accepted accounting principles ("U.S. GAAP") and are set forth
in U.S. dollars.
TRADEMARKS
Raleigh, Nishiki, Univega, Gazelle, Kalkhoff, Rixe, Musing, Winora, Staiger,
BSA, Phillips and Triumph are trademarks owned or licensed by Derby and
registered in certain jurisdictions. This Prospectus also includes trade names
and trademarks of companies other than Derby.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. References
to fiscal years are to the Company's fiscal year ending on December 31 of each
year. Market data used throughout this Prospectus are management estimates,
based in part on a study commissioned on behalf of the Company and undertaken
by Coba Consulting Limited ("COBA"), and on industry or general publications,
including those produced by the National Sporting Goods Association and the
Bicycle Product Suppliers Association ("BPSA"). The Company has not
independently verified market data provided by third parties or industry or
general publications, but management believes the studies and publications
relied on to be reliable. Similarly, management estimates, while believed by
the Company to be reliable, have not been verified by any independent sources.
The Company believes that management estimates of market share, while
inherently imprecise, are generally indicative of relative market share.
THE COMPANY
OVERVIEW
Derby is a world-leading designer, manufacturer and marketer of bicycles. The
Company holds the leading market share in the United Kingdom, The Netherlands,
Canada and Ireland, holds the leading market share in the adult bicycle market
in Germany and is also a leading bicycle supplier in the United States.
Competing primarily in the medium- to premium-priced market, Derby owns or
licenses many of the most recognized brand names in the bicycle industry,
including leading global brands such as Raleigh, Nishiki and Univega, and
leading regional brands such as Gazelle in The Netherlands and Kalkhoff,
Musing, Winora and Staiger in Germany. Derby designs, manufactures and markets
a wide range of bicycles in all major product categories: (i) all-terrain or
mountain bicycles ("MTBs"), (ii) city bicycles, also called touring or upright
bicycles, (iii) hybrid bicycles, also called comfort or cross bicycles, (iv)
juvenile bicycles, including bicycle motocross ("BMX") bicycles, and (v)
race/road bicycles. The Company distributes branded bicycles through extensive
local market networks of independent bicycle dealers ("IBDs") as well as
through national retailers, and distributes private label bicycles through mass
merchandisers and specialty stores. For the fiscal year ended December 31,
1997, and the nine months ended September 28, 1997 and September 27, 1998, the
Company had net revenues of $465.7 million, $355.0 million, and $358.7 million,
respectively, and EBITDA (as defined herein) of $35.8 million, $27.3 million,
and $27.7 million, respectively.
Through a series of acquisitions and plant expansions, the Company has
created a global bicycle business distinguished by its leading market
positions, low cost production, extensive distribution network and reputation
for high quality. Organized in 1986 for the purpose of acquiring the Raleigh,
Gazelle and Sturmey-Archer bicycle and bicycle component businesses from TI
Group plc, Derby expanded into the United States and Germany in 1988. Since
then, Derby has acquired additional well-known brands and leveraged its
existing manufacturing plants and component sourcing operations to lower unit
costs for its acquired businesses. See "Business--History".
The Company has manufacturing operations in five countries, each led by
experienced local management, and maintains marketing or purchasing operations
in five additional countries. Each local operation manages national
distribution channels, dealer service and working capital and benefits from
shared product design and manufacturing technologies as well as from economies
of scale generated by the Company's aggregate purchasing power. Consequently,
each local operation has the flexibility to respond to shifts in local market
demand and product preference.
1
<PAGE>
The Company's operations are concentrated in the United Kingdom, The
Netherlands, Germany, the United States and Canada, markets which generated
sales of more than an estimated 21 million new bicycles in 1997. An overview of
Derby's 1997 operations is as follows:
<TABLE>
<CAPTION>
BICYCLE % OF TOTAL
UNIT SALES US$ SALES DOLLAR
COMPANY (000S) (IN MM) SALES
------- ---------- --------- ----------
<S> <C> <C> <C>
Raleigh U.K. (United Kingdom).................. 664 $107.3 23%
Gazelle (The Netherlands)...................... 294 107.8 23%
DCW/Winora-Staiger/MS Sport Group (Germany).... 415 103.8 22%
Raleigh USA (United States).................... 236 57.9 13%
Raleigh Canada (Canada)........................ 298 29.5 6%
Sturmey-Archer (United Kingdom)(/1/)........... n/a 29.6 6%
Probike South Africa (South Africa)............ 177 20.6 5%
Raleigh Ireland (Ireland)...................... 38 8.1 2%
Other and inter-company adjustments............ (40) 1.1 --
----- ------ ----
Derby Total.................................. 2,082 $465.7 100%
===== ====== ====
</TABLE>
- --------
(1) Represents third party sales.
Lyon, a company organized under the laws of the Netherlands, is a wholly-
owned subsidiary of DCC. Lyon has no operations of its own. It serves as a
holding company of several Dutch subsidiaries and one German subsidiary.
COMPETITIVE STRENGTHS
Global Industry Leader. Derby is a world-leading designer, manufacturer and
marketer of bicycles. Derby holds the leading market share in the United
Kingdom, The Netherlands, Canada and Ireland, has the leading market share in
the adult bicycle market in Germany and is consistently among the five largest
suppliers to the IBD market in the United States. Derby's leading market shares
in multiple markets position the Company as a global bicycle industry leader
and reduce its vulnerability to local economic cycles and changing consumer
preferences. The table below outlines the Company's market rank and approximate
market share based on unit volumes by country for 1997:
<TABLE>
<CAPTION>
MARKET MARKET RANK MARKET SHARE
------ ----------- ------------
<S> <C> <C>
United Kingdom.................................... #1 26%
The Netherlands(/1/).............................. #1 24%
Germany(/2/)...................................... #1 12%
Canada............................................ #1 26%
Ireland........................................... #1 32%
United States(/3/)................................ #4 8%
</TABLE>
- --------
(1) Represents Gazelle (22%) and Raleigh Europe (2%).
(2) Represents DCW (10%), Gazelle (1%) and Raleigh Europe (1%), and market rank
and market share of the adult bicycle market only.
(3) Represents market rank and market share of IBD market only.
Portfolio of Well-Recognized Brand Names. Derby owns or licenses many of the
most widely-recognized brand names in the bicycle industry. These brands
include leading global brands such as Raleigh, Nishiki and Univega, and leading
regional brands such as Gazelle in The Netherlands and Kalkhoff, Musing, Winora
and Staiger in Germany. The Company has maintained its leading brand names
primarily by providing high quality, reliable and innovative products supported
by strong customer service to its dealers. The Company promotes its brand names
through mass-media advertising and focused promotional efforts such as
sponsoring professional and amateur cycling teams and individuals, extending
cooperative advertising programs to IBDs and participating in major trade
shows. Based on marketing surveys conducted by the Company, the Raleigh brand
has a 97%
2
<PAGE>
prompted recognition in the United Kingdom and is the second most recognized
bicycle brand in the United States with respect to brands sold through IBDs. In
addition, Raleigh and Gazelle are the two most recognized bicycle brands in The
Netherlands.
Significant Purchasing Power. As one of the world's largest purchasers of
bicycle components, management believes that the Company's aggregate buying
power and supplier relationships provide the Company with an important
competitive advantage. Typically, bicycle components and raw materials account
for approximately 75% of a bicycle's total manufacturing cost. Derby's ability
to obtain favorable pricing and trade terms on a global basis results in lower
per unit bicycle costs and higher gross margins. The Company's purchasing
subsidiary, Derby Trading, assists the operating companies in negotiating with
Taiwanese and Chinese bicycle component manufacturers. Management believes that
the Company is one of the largest customers of Shimano, Inc. ("Shimano"), the
world's largest bicycle component manufacturer and supplier. Derby's long term
relationships with key suppliers help the Company to obtain high quality
components in a timely, cost-efficient manner.
Extensive Dealer Distribution Networks. Management believes the Company has
the most extensive dealer distribution network of any bicycle company in its
three largest markets, the United Kingdom, The Netherlands and Germany, as well
as in Canada and Ireland. For example, Raleigh U.K. has approximately 225
exclusive retail outlets, while its nearest competitor has none. In The
Netherlands, Gazelle distributes through approximately 1,500 dealers,
representing more than 60% of the IBDs in the country, and in Germany, DCW is
one of the largest suppliers to the Zweirad-Einkaufs-Genossenschaft ("ZEG"), a
major retail cooperative that supplies approximately 50% of the German IBD
market. The Company actively works with its dealers to develop brand loyalty
and to respond quickly to changes in retailing formats and customer buying
habits, in part by tailoring sales and marketing programs to each market and
distribution channel. The Company believes its strong relationships with its
dealers are a key to its success.
Flexible and Cost-Efficient Design and Manufacturing. Derby operates modern
manufacturing facilities in the United Kingdom, The Netherlands, Germany,
Canada and the United States, each of which has local in-house design and
engineering staff who develop new models and styles. Local market manufacturing
flexibility and integrated product development allow the Company to respond
quickly to changes in customer demand, maintain consistent, high quality
products, manage working capital needs and reduce the risk of inventory
obsolescence for both the Company and its dealers. Furthermore, the development
department at each manufacturing operation participates in the Company's make-
or-buy decision process to help ensure that in-house manufacturing is the most
cost-effective method of production. Between 1991 and 1997, Derby invested
approximately $25 million to build a modern manufacturing facility located in
Rostock, in the former German Democratic Republic, approximately $20 million to
reorganize and upgrade its Nottingham, England, manufacturing facility, and
approximately $38 million to increase quality and capacity and reduce total
product and distribution costs in other existing facilities. The Company
reduced its labor hours per manufactured unit by approximately 19% over that
period.
Diversified Revenues and Cash Flows. Derby operates in ten countries around
the world and offers a comprehensive product line in each of its markets.
Management believes the Company's geographical diversification and broad
product line: (i) reduce the effects of cyclical downturns in individual
markets and (ii) help to mitigate the impact of sales volatility due to
changing consumer preferences associated with individual markets and products.
Experienced Management Team. Derby has a strong and experienced management
team at both the corporate and operating levels. The Company's ten executive
managers average more than ten years of experience in the bicycle industry. To
capitalize on the strengths of each of its local
3
<PAGE>
operations, management teams from the Company's local operations meet
periodically to share ideas regarding product innovation, manufacturing
processes and component purchasing. Since the Company's formation in 1986,
management has successfully integrated ten acquisitions and expanded the range
of Derby brands and product lines. The Company recently hired a new chief
executive officer to replace Mr. Alan Finden-Crofts who planned to resign
within one year following the Recapitalization. See "Management" and
"Business--History".
BUSINESS STRATEGY
The Company intends to enhance and leverage its competitive strengths through
the following business strategies:
Capitalize on Strength of Derby Brand Names. Derby owns or licenses many of
the most recognized brand names in the bicycle industry. The Company intends to
continue to leverage its leading market positions and strong brand equity to:
(i) further penetrate attractive market niches such as the hybrid and BMX
segments, (ii) develop and enhance relationships with existing and new IBDs,
(iii) augment the Company's position in the growing multi-sport retail channel,
principally in the United Kingdom and in the United States, and (iv) pursue
attractive ancillary businesses, such as cycling accessories and branded
clothing.
Enhance and Leverage Dealer Relationships. Due to the long-standing market
presence of many of Derby's local operations and brands (e.g., more than 100
years each for Raleigh U.K. and Gazelle), management believes its relationships
with local bicycle dealers are strong as well as extensive. The Company intends
to enhance loyalty among IBDs, further penetrate its existing markets and
expand into new markets by maintaining multiple product categories and superior
customer service.
Increase Market Share in Growing Hybrid Bicycle Sector. In several markets,
management expects the hybrid bicycle segment to grow at a rate significantly
higher than that of the overall bicycle industry. For example, in the United
Kingdom and the United States, management estimates that the hybrid segment
will grow at an average annual rate in excess of 10% over the next several
years. Management believes the Company is well-positioned to capitalize on this
growth. For example, Raleigh U.K. held approximately 30% of the hybrid market
in 1996 and maintains strong relationships with IBDs, the principal channel of
distribution for hybrid bicycles. In the United States, Raleigh USA is
strategically positioned in the hybrid segment with Raleigh, Nishiki and
Univega all offering models in this category.
Pursue Strategic Acquisitions. Management believes that the fragmented nature
of the bicycle industry provides opportunities for growth through strategic
acquisitions. The Company intends to pursue acquisitions that will allow it to
leverage its existing distribution network and its modern manufacturing
facilities. The Company also intends to focus its efforts on acquiring leading
brands with particular emphasis on consolidation opportunities in the United
States and Germany and in markets where the Company is not currently
represented. In the ordinary course of business, the Company routinely
considers potential acquisition candidates. On July 18, 1998, the Company
entered into a nonbinding letter of intent to acquire a bicycle design and
distribution company for a purchase price of approximately $20 million in cash,
the assumption of certain indebtedness and a contingent payment based on
purchases. The letter of intent has since expired. The Company is still in the
process of negotiating the terms of purchase of the target. The Company intends
to also explore acquisitions which provide opportunities to expand into
ancillary products such as cycling accessories.
4
<PAGE>
GLOBAL BICYCLE INDUSTRY OVERVIEW
The global bicycle industry, including bicycles, parts and accessories, is
estimated to have had total retail sales of $25 billion in 1997. The bicycle
manufacturing segment of the industry, with annual production of approximately
100 million units, is competitive, highly fragmented and locally driven.
Bicycles are produced throughout the world in approximately 65 countries with
product demand, design and distribution driven by varying local market dynamics
and consumer preferences. Across local markets, bicycle products can be
classified into five major categories: (i) all-terrain or mountain bicycles,
referred to as MTBs, which feature wide tires, high strength frames, components
with multiple gears and powerful brakes, (ii) city bicycles, also called
touring or upright bicycles, which feature more comfortable seats, up to seven
gears within the wheel hub, chain and splash guards, luggage racks and lights,
(iii) hybrid bicycles, also called comfort or cross bicycles, which combine the
technology of MTBs with the comfort and practicality of city bicycles, (iv)
juvenile bicycles with smaller wheels and frame size, including BMX bicycles,
and (v) race/road bicycles, which feature narrow, high pressure tires,
lightweight frames and components with multiple gears. In general, these
bicycle products are marketed and sold through two primary distribution
channels: IBDs and mass merchandisers. IBDs typically carry a broad range of
relatively high priced, high quality bicycles, while mass merchandisers tend to
offer relatively lower-priced bicycles focused primarily on the juvenile
market. The Company manufactures and markets bicycles across all five major
product categories and distributes through both the IBD channel and the mass
merchandiser channel. Management believes that the Company is an industry
leader because it offers its customers high quality, comprehensive product
lines in each of its local markets. See "Business--Global Bicycle Industry
Overview".
THE RECAPITALIZATION
On May 14, 1998, DCC consummated a recapitalization of the Company. Pursuant
to a Recapitalization Agreement dated March 11, 1998 (as amended, the
"Recapitalization Agreement"), (i) the Company was restructured (the
"Restructuring") such that DCC now owns all the capital stock of approximately
70 existing subsidiaries, a controlling interest in Raleigh Canada, Univega,
Univega License, the MS Sport Group, Derby Holdings South Africa and certain
other subsidiaries, and a minority interest in certain other entities; (ii)
each of DFS (a wholly owned subsidiary of DICSA, the former parent company of
the Company), Thayer Equity Investors III, L.P. ("Thayer") and Perseus Capital,
L.L.C. ("Perseus") purchased (through their respective wholly owned
subsidiaries) equity interests in DCC in the amounts of $3.0 million, $50.0
million and $10.0 million, respectively, for cash (collectively, the "Equity
Contributions"); (iii) DICSA (directly and through DFS) retained an equity
interest in DCC and Raleigh Canada having a value of $45.0 million (the
"Retained Equity"), based on the amounts invested in DCC's equity by DFS,
Thayer and Perseus. The Retained Equity includes preferred stock of Raleigh
Canada issued to DICSA in connection with the Recapitalization (the "Raleigh
Canada Preferred Stock"), which may be exchanged for shares of Class A Common
Stock (as defined) and Class B Common Stock (as defined) of DCC having a value
of $23.3 million, based on the amounts invested in DCC's equity by DFS, Thayer
and Perseus, or redeemed subsequent to the vesting of the Company's right to
exchange such stock for shares of its Common Stock (as defined), at the option
of DICSA under certain circumstances, for a cash payment of $23.3 million, plus
all accrued and unpaid dividends thereon, pursuant to an exchange agreement
among DICSA, DCC and Raleigh Canada (the "Raleigh Canada Exchange Agreement").
In addition, (i) DCC made a cash payment of approximately $146.2 million to DFS
(the "DFS Payment") and DCC is obligated to make a further payment to DFS of up
to $10.0 million depending upon the performance of DCC and certain of its
subsidiaries in the 1998 fiscal year (the "Additional Payment"); (ii) equity
held by the minority shareholders of Derby Holdings South Africa was redeemed
for a cash payment of approximately $1.9 million (the "Redemption Payment");
(iii) the Company repaid its net existing indebtedness (the
5
<PAGE>
"Existing Indebtedness") (other than indebtedness of the Company's South
African subsidiaries incurred under a credit facility providing for maximum
borrowings in an amount approximately equivalent to $6 million (the "South
African Credit Facility")), in an amount of approximately $148.1 million; (iv)
DCC and certain of its subsidiaries borrowed approximately $84.9 million under
a new senior secured revolving credit agreement (the "Revolving Credit
Agreement"); and (v) the Issuers issued the Old Notes (collectively with
borrowings under the Revolving Credit Agreement, the "Debt Financing"), as of
May 14, 1998. The Restructuring, the Equity Contributions, the DFS Payment, the
repayment of Existing Indebtedness (other than indebtedness incurred under the
South African Credit Facility) and the Debt Financing are collectively referred
to as the "Recapitalization". See "The Recapitalization".
SOURCES AND USES OF FUNDS
The sources and uses of the funds necessary to consummate the
Recapitalization and to pay the related fees and expenses on May 14, 1998, were
as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Cash and cash equivalents............................ $ 3.4
Revolving Credit Agreement(/1/)(/2/)................. 84.9
Notes(/2/)........................................... 161.9
Equity Contributions (cash)(/3/)..................... 63.0
Retained Equity(/4/)................................. 45.0
------
Total Sources...................................... $358.2
======
USES OF FUNDS:
DFS Payment and value of Retained Equity............. $191.2
Repayment of certain Existing Indebtedness........... 148.1
Redemption Payment(/5/).............................. 1.9
Payment of fees and expenses......................... 17.0
------
Total Uses......................................... $358.2
======
</TABLE>
- --------
(/1/The)Revolving Credit Agreement provides for loans of up to DM214 million
($128 million). See "Description of Revolving Credit Agreement".
(/2/For)the purposes of this presentation, the Revolving Credit Agreement and
the DM Notes have been converted into U.S. dollars at the rate of 1.78
Deutsche Marks to 1.00 U.S. dollar.
(/3/Includes)cash paid in the amount of $40.5 million as consideration for
shares of Series A Preferred Stock (as defined) and Series B Preferred
Stock (as defined), which have redemption rights, and cash paid in the
amount of $22.5 million as consideration for shares of Class A Common
Stock.
(/4/Includes)Class A Common Stock having a value of $8.3 million and Class B
Common Stock having a value of $15.0 million issuable to DICSA upon
exchange of the Raleigh Canada Preferred Stock. The Raleigh Canada
Preferred Stock may be redeemed subsequent to the vesting of the Company's
right to exchange such stock for shares of its Common Stock, at the option
of DICSA under certain circumstances, for a cash payment of $23.3 million,
plus all accrued and unpaid dividends thereon.
(/5/The)Redemption Payment was paid within 30 days following the consummation
of the Recapitalization.
6
<PAGE>
COMPANY ORGANIZATION
The Company's principal holding companies and principal operating
subsidiaries are organized as follows:
INVESTOR GROUP
Subsequent to the Recapitalization, the Company's principal shareholders are
(i) a wholly-owned subsidiary of Thayer, which controls approximately 60% of
the total voting power of DCC's capital stock, (ii) a wholly-owned subsidiary
of Perseus, which controls approximately 12% of the total voting power of DCC's
capital stock, and (iii) DFS, which controls approximately 26% of the total
voting power of DCC's capital stock. Prior to the recapitalization, the Company
was wholly-owned by DICSA through its subsidiary, DFS.
Thayer is a private equity fund managed by TC Equity Partners ("Thayer
Capital"), a private equity investment firm based in Washington, D.C. Thayer
Capital's partners are Frederic V. Malek, Carl J. Rickertsen and Paul G. Stern.
Thayer Capital invests primarily in private equity investments in management
buyouts and recapitalizations. In June 1996, Thayer Capital closed Thayer, its
current corporate private equity fund, with $364 million in commitments.
Perseus is a merchant banking venture managed by Perseus Management L.L.C.
("Perseus Management") and based in Washington, D.C. Perseus invests primarily
in leveraged acquisitions of operating businesses. Frank H. Pearl is the
Chairman and President of Perseus and is one of the founding directors and
shareholders of DICSA.
DFS is a wholly-owned subsidiary of DICSA. A. Edward Gottesman, the chairman
of DICSA, and a charitable trust of which he is the settlor, control a majority
of the capital stock of DICSA indirectly through an industrial holding company,
Centenary Corporation ("Centenary"). Alan J. Finden-Crofts, the former Group
Chief Executive of DICSA and a director of the Company, and Mr. Pearl, a
director of DICSA, own minority interests in DICSA.
See "Risk Factors--Controlling Shareholders" and "Security Ownership of
Certain Beneficial Owners and Management".
7
<PAGE>
THE INITIAL OFFERING
Old Notes................... The Old Dollar Notes were sold by the Issuers
on May 14, 1998 to Chase Securities Inc.
("CSI"), and the Old DM Notes were sold to
Chase Manhattan Bank AG, Chase Manhattan
International Limited and CSI (collectively,
the "Initial Purchasers") pursuant to a
Purchase Agreement dated May 7, 1998 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to (i)
qualified institutional buyers pursuant to
Rule 144A under the Securities Act and (ii)
qualified buyers outside the United States in
reliance upon Regulation S under the
Securities Act.
Exchange and Registration Pursuant to the Purchase Agreement, the
Rights Agreement............ Issuers and the Initial Purchasers entered
into an Exchange and Registration Rights
Agreement dated as of May 7, 1998 (the
"Exchange and Registration Rights
Agreement"), which grants the holders of the
Old Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... $100,000,000 aggregate principal amount of
10% Senior Notes due 2008 (the "Exchange
Dollar Notes") and DM110,000,000 aggregate
principal amount of 9 3/8% Senior Notes due
2008 (the "Exchange DM Notes").
Exchange Dollar Notes....... $1,000 principal amount of Exchange Dollar
Notes in exchange for each $1,000 principal
amount of Old Dollar Notes. As of the date
hereof, $100,000,000 aggregate principal
amount of Old Dollar Notes are outstanding.
The Issuers will issue the Exchange Dollar
Notes to holders on or promptly after the
Expiration Date.
Exchange DM Notes........... DM1,000 principal amount of Exchange DM Notes
in exchange for each DM1,000 principal amount
of Old DM Notes. As of the date hereof,
DM110,000,000 aggregate principal amount of
Old DM Notes are outstanding. The Issuers
will issue the Exchange DM Notes to holders
on or promptly after the Expiration Date.
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties (specifically, Exxon
Capital Holdings Corporation (available April
13, 1989), Morgan Stanley & Co., Inc.
(available June 5, 1991) and Shearman &
Sterling (available July 2, 1993)), the
Issuers believe that Exchange Notes issued
pursuant to the Exchange
8
<PAGE>
Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of
the Issuers within the meaning of Rule 405
under the Securities Act) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes.
Expiration Date............. 5:00 p.m., New York City time, on December
10, 1998, unless the Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which
the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the Old Each Exchange Note will bear interest from
Notes....................... its issuance date. Holders of Old Notes that
are accepted for exchange will receive, in
cash, accrued interest thereon to, but not
including, the issuance date of the Exchange
Notes. Such interest will be paid with the
first interest payment on the Exchange Notes.
Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance
of the Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... customary conditions, which may be waived by
the Issuers. See "The Exchange Offer--
Conditions".
Procedures for Tendering Each holder of Old Notes wishing to accept
Old Notes................... the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes and any other
required documentation to the Exchange Agent
(as defined) at the address set forth herein.
Persons holding book-entry interests in Old
Notes through the Depository Trust Company
("DTC") and wishing to accept the Exchange
Offer must do so pursuant to the DTC's
Automated Tender Offer Program, by which each
tendering Participant will agree to be bound
by the Letter of Transmittal. Persons holding
book-entry interests in Old Notes through
Euroclear and Cedel and wishing to accept the
Exchange Offer must do so pursuant to their
procedures by which each tendering
Participant will agree to be bound by the
Letter of Transmittal. By executing the
Letter of Transmittal, each holder will
represent to the Issuers that, among other
things, the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in
the ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
9
<PAGE>
holder nor any such other person has any
arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities
Act, of the Issuers. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer" and "--Procedures for Tendering".
Untendered Old Notes........ Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange
rights and such Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
Consequences of Failure to The Old Notes that are not exchanged pursuant
Exchange.................... to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may
be resold only (i) to the Issuers, (ii)
pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other
exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904
under the Securities Act, or (iv) pursuant to
an effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange".
Shelf Registration In the event that applicable interpretations
Statement................... of the staff of the Commission do not permit
the Issuers to effect the Exchange Offer and,
under certain other circumstances, the
Issuers have agreed to register the Old Notes
on a shelf registration statement (the "Shelf
Registration Statement") and use their
reasonable best efforts to cause it to be
declared effective by the Commission as
promptly as practical after the filing
thereof. The Issuers have agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the
Old Notes held by any such holders.
Special Procedures for Any beneficial owner whose Old Notes are
Beneficial Owners........... registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of
10
<PAGE>
registered ownership may take considerable
time. The Issuers will keep the Exchange
Offer open for not less than 30 days in order
to provide for the transfer of registered
ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their
Procedures.................. Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures".
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes.......................
The Issuers will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer".
Use of Proceeds............. There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange
Offer.
Exchange Agent.............. IBJ Schroder Bank & Trust Company is serving
as the Exchange Agent in connection with the
Exchange Offer.
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are
the same as the form and terms of the Old
Notes (which they replace) except that (i)
the Exchange Notes have been registered under
the Securities Act and, therefore, will not
bear legends restricting their transfer, and
(ii) the holders of Exchange Notes will not
be entitled to certain rights under the
Exchange and Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Old
Notes in certain circumstances relating to
the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer
is consummated. See "The Exchange Offer--
Purpose and Effect". The Exchange Notes will
evidence the same debt as the Old Notes and
will be entitled to the benefits of the
Indenture. See "Description of Exchange
Notes". The Old Notes and the Exchange Notes
are referred to herein collectively as the
"Notes".
11
<PAGE>
Securities Offered
Exchange Dollar Notes...... $100,000,000 aggregate principal amount of
10% Senior Notes due 2008.
Exchange DM Notes.......... DM110,000,000 aggregate principal amount of 9
3/8% Senior Notes due 2008.
Exchange Dollar Notes
Interest................. 10% per annum.
Interest Payment Dates... May 15 and November 15 of each year,
commencing May 15, 1999.
Maturity................. May 15, 2008.
Exchange DM Notes
Interest................. 9 3/8% per annum.
Interest Payment Dates... May 15 and November 15 of each year,
commencing May 15, 1999.
Maturity................. May 15, 2008.
Additional Terms of the
Exchange Notes
Optional Redemption...... Except as described below, the Notes will not
be redeemable at the option of the Issuers
prior to May 15, 2003. Thereafter, the Notes
will be redeemable at the option of the
Issuers, in whole or in part, upon not less
than 30 nor more than 60 days' prior notice,
at the redemption prices set forth herein,
together with accrued and unpaid interest and
Additional Amounts, if any, to the date of
redemption. In addition, at any time prior to
May 15, 2001, the Issuers may, subject to
certain requirements, redeem up to 33 1/3% of
the original aggregate principal amount of
each series of the Notes with the net cash
proceeds of one or more Public Equity
Offerings, in the case of the Dollar Notes,
at a redemption price equal to 110.000% of
the principal amount to be redeemed and, in
the case of the DM Notes, at a redemption
price equal to 109.375% of the principal
amount to be redeemed, together with accrued
and unpaid interest and Additional Amounts,
if any, provided that at least 66 2/3% of the
original aggregate principal amount of each
series of the Notes remains outstanding
immediately after each such redemption. The
Issuers may also redeem the Notes, in whole
but not in part, at any time at 100% of the
principal amount thereof, together with
accrued and unpaid interest, and Additional
Amounts, if any, to the date of redemption,
in the event of certain changes affecting
withholding taxes of the United States or The
Netherlands. See "Description of Exchange
Notes--Optional Redemption", "--Redemption
for Taxation Reasons" and "--Withholding
Taxes".
12
<PAGE>
Change of Control......... Upon the occurrence of a Change of Control,
each holder of Exchange Notes will have the
right to require the Issuers to repurchase
such holder's Exchange Notes at a price equal
to 101% of the principal amount thereof,
together with accrued and unpaid interest and
Additional Amounts, if any, to the date of
repurchase. See "Description of Exchange
Notes--Change of Control".
Ranking...................
The Exchange Notes will be unsecured and will
rank pari passu in right of payment with all
existing and future Senior Indebtedness of
the Issuers. The Exchange Notes will rank
senior in right of payment to all existing
and future Subordinated Obligations of the
Issuers. The Exchange Notes will be
effectively subordinated to any secured
indebtedness of the Issuers to the extent of
the value of the assets securing such
indebtedness and to all liabilities of the
subsidiaries of DCC other than Lyon. As of
September 27, 1998, (i) the outstanding
Senior Indebtedness of the Issuers was $196.8
million (including all indebtedness and
guarantees of indebtedness under the
Revolving Credit Agreement, but excluding
unused commitments thereunder), of which
$32.9 million was Secured Indebtedness, and
the Issuers would have had no outstanding
Subordinated Obligations, and (ii) the
outstanding indebtedness of the subsidiaries
of DCC other than Lyon was $35.1 million
(consisting of indebtedness under the
Revolving Credit Agreement and indebtedness
under the South African Credit Facility, but
excluding, in each case, unused commitments
thereunder), all of which was Secured
Indebtedness, and at such date (iii) the
total liabilities of the subsidiaries of DCC
(excluding Lyon) were approximately $114.1
million, including trade payables. See
"Description of Exchange Notes--Ranking".
Restrictive Covenants....
The Indentures contain certain covenants
that, among other things, limit (i) the
incurrence of additional indebtedness by DCC
and its Restricted Subsidiaries, (ii) the
payment of dividends on, and redemption of,
capital stock of DCC and its Restricted
Subsidiaries and the redemption of certain
subordinated obligations of DCC and its
Restricted Subsidiaries, (iii) investments,
(iv) sales of assets and subsidiary stock,
(v) certain transactions with affiliates,
(vi) the sale or issuance of capital stock of
DCC's Restricted Subsidiaries, (vii) the
existence of liens, (viii) the lines of
business in which DCC and its Restricted
Subsidiaries may operate, (ix) certain sale
and leaseback transactions and (x)
consolidations, mergers and transfers of all
or substantially all the assets of DCC and
its Restricted Subsidiaries. The Indentures
also limit the ability of DCC to create or
permit to exist any restriction on the
ability of any Restricted Subsidiary to pay
dividends or make certain other
distributions. All of these limitations,
however, are subject to a number of
13
<PAGE>
important qualifications and exceptions. See
"Description of Exchange Notes--Certain
Covenants" and "--Merger and Consolidation".
Listing................... Application has been made to list the Notes
on the Luxembourg Stock Exchange.
Use of Proceeds........... The Issuers will not receive any cash
proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer. The net
proceeds from the Initial Offering, together
with the funds borrowed under the Revolving
Credit Agreement, the Equity Contributions
and the Company's excess cash, were used to
finance the Recapitalization and to pay fees
and expenses related to the Recapitalization.
See "Use of Proceeds" and "The
Recapitalization".
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
14
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are summary historical and pro forma financial data of the
Company as of the dates and for the periods presented. The summary historical
financial data as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997 were derived from the audited combined
financial statements of the Company. The summary unaudited historical financial
data of the Company as of December 31, 1995 and September 27, 1998 and for each
of the nine months in the period ended September 28, 1997 and September 27,
1998 were prepared by management in a manner consistent with the audited
combined financial statements. The summary unaudited pro forma financial data
for the year ended December 31, 1997 and the nine months ended September 27,
1998 reflect the effect of the Recapitalization (as described under "Unaudited
Pro Forma Condensed Combined Financial Statements") on the historical results
of operations of the Company. The summary unaudited pro forma financial data
are not necessarily indicative of the Company's results of operations had the
Recapitalization actually been consummated on the dates assumed and are not
necessarily indicative of the results of operations for any future period. The
information contained in this table should be read in conjunction with
"Selected Historical Financial Data", "Unaudited Pro Forma Condensed Combined
Financial Statements", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements and
accompanying notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED PRO FORMAS
------------------------- --------------------------- --------------------------
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 28, SEPTEMBER 27, DECEMBER 31, SEPTEMBER 27,
1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ------------- ------------- ------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............ $ 473.8 $ 452.6 $ 465.7 $355.0 $358.7 $465.7 $358.7
Cost of sales........... 366.2 339.1 345.9 264.3 270.0 345.9 270.0
------- ------- ------- ------ ------ ------ ------
Gross profit............ 107.6 113.5 119.8 90.7 88.7 119.8 88.7
Selling, general, and
administrative
expenses............... 81.3 80.1 90.1 68.4 66.0 90.1 66.0
Operating income........ 22.0 33.4 29.7 22.3 17.0 29.7 22.7
Interest expense........ 9.4 8.0 7.5 5.9 11.5 19.6 16.5
Net income.............. 13.2 14.6 12.6 9.5 0.4 5.5 0.9
OTHER FINANCIAL DATA:
Depreciation and
amortization........... 8.7 8.2 8.6 6.9 6.9 8.6 6.9
Amortization of pension
transition asset....... (2.7) (2.7) (2.5) (1.9) (1.9) (2.5) (1.9)
Capital expenditures.... 11.1 10.8 7.4 4.2 4.9 7.4 4.9
Cash provided by operat-
ing
activities............. 8.1 11.9 11.0 8.9 10.2
Cash used in investing
activities............. (7.4) (6.8) (15.8) (13.8) (6.3)
Cash (used in) provided
by
financing activities... (8.3) (15.7) 8.5 0.5 (4.4)
EBITDA(a)............... 27.9 39.0 35.8 27.3 27.7 35.8 27.7
Ratio of EBITDA to in-
terest
expense................. 3.0x 4.9x 4.8x 4.6x 2.4x 1.8x 1.7x
Ratio of earnings to
fixed charges(b) ....... 3.0x 3.3x 3.4x 3.1x 1.4x 1.5x 1.3x
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash equiva-
lents................... 12.7 8.8 15.4 13.1
Working capital......... 85.3 80.0 63.3 113.5
Total assets............ 263.3 260.6 288.5 297.2
Total debt, including
current portion......... 92.0 78.6 102.2 199.0
Preferred stock with re-
demption rights......... -- -- -- 43.4
Stock rights(c)......... -- -- -- 23.3
Shareholder's equity
(deficit)............... 66.1 83.1 81.9 (62.7)
</TABLE>
15
<PAGE>
- --------
(a) EBITDA is calculated herein as operating income plus depreciation and
amortization (net of negative amortization) less amortization into income
of the pension transition asset (recognized upon adoption of SFAS No. 87)
(see Note 14 in "Notes to Combined Financial Statements"). EBITDA has not
been adjusted for what management believes to be one-time expenses of $2.9
million recognized in 1997. These one-time expenses include: (i) employee
severance and a terminated management compensation program of $0.9
million, (ii) warehouse closing costs of $0.6 million, (iii) transaction
costs of $0.3 million and (iv) certain other one-time expenses of $1.1
million. EBITDA excludes $5.7 million of one-time reorganization costs
incurred in the nine months ended September 27, 1998, for the
Recapitalization. The Company includes information concerning EBITDA
because it is commonly used by certain investors as a measure of a
company's ability to generate cash flows and service debt. EBITDA should
not be considered in isolation or as a substitute for net income or cash
flow from operating activities presented in accordance with U.S. GAAP as
items excluded from EBITDA, such as depreciation and amortization, are
significant components in understanding and assessing the Company's
financial performance.
(b) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before taxes and fixed charges. Fixed charges
consist of (i) interest, whether expensed or capitalized, (ii)
amortization of deferred financing costs and (iii) the portion of rental
expense considered to represent interest (assumed to be one-third).
(c) Reflects Class A Common Stock having a value of $8.3 million and Class B
Common Stock having a value of $15.0 million issuable to DICSA upon
exchange of the Raleigh Canada Preferred Stock. The Raleigh Canada
Preferred Stock may be redeemed subsequent to the vesting of the Company's
right to exchange such stock for shares of its Common Stock, at the option
of DICSA under certain circumstances, for a cash payment of $23.3 million,
plus all accrued and unpaid dividends thereon.
16
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, the following
factors should be considered carefully before tendering Old Notes for Exchange
Notes. The risk factors are generally applicable to the Old Notes as well as
the Exchange Notes.
SUBSTANTIAL LEVERAGE
The Company incurred substantial indebtedness in connection with the
Recapitalization and has a highly leveraged capital structure. As of September
27, 1998, the Company had combined total indebtedness of approximately $199.0
million (including all indebtedness and guarantees of indebtedness under the
Revolving Credit Agreement and indebtedness under the South African Credit
Facility, but excluding, in each case, unused commitments thereunder), and
shareholder's deficit was approximately $(62.7) million. The Indentures,
subject to certain limitations, permit additional indebtedness to be incurred,
including Secured Indebtedness. See "Capitalization", "Description of
Revolving Credit Agreement" and "Description of Exchange Notes--Certain
Covenants".
The degree to which the Company is leveraged could have important
consequences for holders of the Exchange Notes, including, without limitation,
the following: (a) the Company's ability to obtain financing in the future for
working capital, capital expenditures, acquisitions or other corporate
purposes may be impaired, (b) a substantial portion of the Company's cash flow
from operations will be required to be dedicated to the payment of interest
on, and principal of, its indebtedness, including the Exchange Notes, thereby
reducing the funds available for other purposes, (c) certain of the Company's
indebtedness, including borrowings under the Revolving Credit Agreement, will
be at variable rates of interest, which could result in higher interest
expense in the event of increases in interest rates, (d) all the indebtedness
outstanding under the Revolving Credit Agreement will be secured and
guaranteed by the obligors thereunder through a first priority fully protected
security interest in all the assets, properties and undertakings of DCC and
each other obligor thereunder where available and cost effective to do so, and
to the extent permissible by local laws, and (e) the Company's ability to
adjust to changing market conditions and to withstand competitive pressures
could be limited, and the Company may be vulnerable in the event of a downturn
in general economic conditions or its business. In addition, the Company's
ability to make acquisitions will depend on the availability of additional
debt financing on acceptable terms and will be subject to compliance with the
covenants contained in the Revolving Credit Agreement and the Indentures. The
long term growth of the Company depends, in part, on its ability to expand by
acquisition, and, therefore, an inability to finance acquisitions through
borrowed funds could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Description of the
Revolving Credit Agreement" and "Description of Exchange Notes".
DEBT SERVICE OBLIGATIONS
The Company's ability to make scheduled payments (and to refinance its
obligations) with respect to its indebtedness, including its ability to pay
the interest on, and to retire the principal of, the Exchange Notes, is
dependent upon its future operating performance, which, in turn, is subject to
general economic and competitive conditions and to financial, business and
other factors, many of which are beyond the Company's control, including
operating difficulties, increases in operating costs, decreases in product
prices, market cyclicality, actions of competitors and regulatory
developments. For the year ended December 31, 1997 and the nine months ended
September 27, 1998, on a pro forma basis after giving effect to the
Recapitalization, the Company's combined total interest expense would have
been $19.6 million and $16.5 million, respectively, and the Company's combined
total ratio of earnings to fixed charges would have been 1.5 to 1.0 and 1.3 to
1.0, respectively. Although the Company believes that, based on current
operations, it will have sufficient cash flow from operations
17
<PAGE>
to service its obligations with respect to its indebtedness, there can be no
assurance that the Company will be able to meet such obligations. In the event
that the Company is unable to generate cash flow from operations that is
sufficient to service its obligations in respect of its indebtedness,
including the Exchange Notes, the Company may be required to take certain
actions, including delaying or reducing capital expenditures, attempting to
restructure or refinance its indebtedness, selling material assets or
operations or seeking additional equity. There can be no assurance that the
Company will be able to generate cash flow from operations that is sufficient
to service its obligations in respect of its indebtedness or that any of such
actions could be effected or would be effective to allow the Company to
service such obligations. The failure to generate sufficient cash flow from
operations or to effect any of such actions could, among other things,
materially adversely affect the Company's ability to pay interest and
Additional Amounts, if any, on, and to repay the principal of, the Exchange
Notes and the market value of the Exchange Notes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
UNSECURED STATUS OF NOTES AND ASSET ENCUMBRANCE
The Indentures permit the Company to incur certain secured indebtedness,
including indebtedness under the Revolving Credit Agreement, which will be
secured and guaranteed by the obligors thereunder through a first priority
fully protected security interest in all the assets, properties and
undertakings of DCC and each other obligor thereunder where available and cost
effective to do so, and to the extent permissible by local laws. The Company
has indebtedness available under the Revolving Credit Agreement of DM214.0
million ($127.9 million). As of September 27, 1998, the Company had
indebtedness outstanding under the Revolving Credit Agreement of approximately
$32.9 million. Borrowings under the South African Credit Facility are secured
by a security interest in certain of the assets of the Company's South African
subsidiaries. The Exchange Notes are unsecured and therefore do not have the
benefit of any such collateral. Accordingly, if an event of default were to
occur under the Revolving Credit Agreement or the South African Credit
Facility, the lenders thereunder would have the right to foreclose upon the
collateral securing such indebtedness to the exclusion of the holders of the
Exchange Notes, notwithstanding the existence of an event of default with
respect to the Exchange Notes. In such event, the assets constituting such
collateral would first be used to repay in full all amounts outstanding under
the Revolving Credit Agreement or the South African Credit Facility, as
applicable, resulting in all or a portion of the assets of the Issuers being
unavailable to satisfy the claims of holders of the Exchange Notes and other
unsecured indebtedness of the Issuers. The Company may also incur other types
of secured indebtedness under the Indentures, including up to $20 million in
indebtedness of any type, indebtedness of an acquired company where the
Company would have been able to incur $1.00 of additional indebtedness under
its Consolidated Coverage Ratio, indebtedness in respect of performance bonds,
bankers' acceptances, letters of credit, and the like, purchase money
indebtedness and capitalized lease obligations in an aggregate amount not
exceeding $10 million, indebtedness incurred by foreign subsidiaries not
exceeding $5 million, and indebtedness incurred by a securitization entity.
RESTRICTIVE LOAN COVENANTS
The Revolving Credit Agreement contains a number of covenants that, among
other things, restrict the ability of DCC and its subsidiaries to dispose of
shares in any subsidiary, dispose of assets, incur additional indebtedness,
engage in mergers and acquisitions, exercise certain options, make
investments, incur guaranty obligations, make loans, make capital
distributions, enter into joint ventures, repay the Exchange Notes, make loans
or pay any dividend or distribution to the Issuers for any reason other than
(among other things) to pay interest (but not principal or Additional Amounts)
owing in respect of the Exchange Notes, incur liens and encumbrances and
permit the amount of receivables and inventory to exceed specified thresholds.
In addition, the Revolving Credit Agreement requires the Company to maintain
specified financial ratios and tests, including a minimum interest coverage
ratio, minimum consolidated net worth, a minimum level of Adjusted EBITDA (as
defined in the Revolving Credit Agreement), a maximum leverage ratio and a
minimum working capital turnover ratio.
18
<PAGE>
Subsequent to the end of the third quarter of 1998, the Company was not in
compliance with its inventory level covenant due primarily to the build-up of
inventory as a result of reduced sales at Raleigh UK and high inventories in
Germany. On November 20, 1998, the lenders granted the Company a waiver of
noncompliance with respect to the inventory covenant, effective October 1,
1998 to December 31, 1998. The Company anticipates that it will not be in
compliance with its Adjusted EBITDA covenant on the next test date, December
31, 1998, and therefore is seeking to renegotiate that covenant along with the
inventory covenant and possibly other financial test covenants as well. There
can be no assurance that the lenders will renegotiate the covenants at levels
acceptable to the Company and the failure of the lenders to do so could result
in a default by the Company under the Revolving Credit Agreement. If the
lenders were to declare the amounts outstanding under the Revolving Credit
Agreement due and payable, then the amounts outstanding under the Notes could
become due and payable pursuant to the cross acceleration provisions under the
Indentures. See "Description of Exchange Notes--Defaults."
The ability of the Company to comply with the covenants (whether
renegotiated or not) and other provisions of the Revolving Credit Agreement
may be affected by changes in general economic and competitive conditions and
by financial, business and other factors that are beyond the Company's
control. The failure to comply with the provisions of the Revolving Credit
Agreement could result in an event of default thereunder, and, depending upon
the actions of the lenders thereunder, all amounts borrowed under the
Revolving Credit Agreement, together with accrued interest, could be declared
due and payable. If the Company were not able to repay all amounts borrowed
under the Revolving Credit Agreement, together with accrued interest, the
lenders thereunder would have the right to proceed against the collateral
granted to them to secure such indebtedness. See "--Unsecured Status of
Exchange Notes and Asset Encumbrance". If the indebtedness outstanding under
the Revolving Credit Agreement were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
such indebtedness, and there can be no assurance that there would be
sufficient assets remaining after such repayments to pay amounts due in
respect of any or all of the Exchange Notes. As of the end of the third
quarter of 1998, the Company is in compliance with its restrictive covenants.
See "Description of Revolving Credit Agreement" and "Description of Exchange
Notes--Ranking".
In addition, the Indentures contain certain covenants that, among other
things, restrict the ability of DCC and its Restricted Subsidiaries to incur
additional indebtedness, pay dividends on and redeem capital stock, redeem
certain subordinated obligations, make investments, undertake sales of assets
and subsidiary stock, engage in certain transactions with affiliates, sell or
issue capital stock,
permit liens to exist, operate in other lines of business, engage in certain
sale and leaseback transactions and engage in mergers, consolidations or sales
of all or substantially all the assets of the Company. A failure to comply
with the restrictions contained in either of the Indentures could result in an
event of default under such Indenture. See "Description of Exchange Notes--
Certain Covenants" and "--Defaults".
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
Although DCC conducts certain operations as described under "Business--
Raleigh USA", DCC conducts a substantial majority of its operations through
direct or indirect subsidiaries. Moreover, Lyon is an intermediate holding
company and conducts all its operations through direct or indirect wholly
owned subsidiaries. As a result, the Issuers must rely upon distributions and
other inter-company payments from operating subsidiaries for the funds
necessary to meet their obligations, including the payment of principal,
premium, interest, Additional Amounts, if any, and any other amounts, owing in
respect of the Exchange Notes. The Indentures contain certain covenants that
limit the ability of DCC to create or permit to exist any restriction on the
ability of the Restricted Subsidiaries to pay dividends or make certain other
distributions. Nonetheless, the ability of the subsidiaries of DCC and Lyon to
make any such payments is subject to, among other things, restrictions imposed
by the Revolving Credit Agreement and by applicable laws and regulations and
by terms of any agreements to which they are or may become parties. In
addition, there can be no assurances that such distributions will be
19
<PAGE>
adequate to fund all the obligations of the Issuers, including their
obligations with respect to the Exchange Notes.
The Exchange Notes will be effectively subordinated to all liabilities of
the subsidiaries of DCC other than Lyon. The liabilities of the subsidiaries
of DCC other than Lyon include (i) borrowings under the Revolving Credit
Agreement, which are secured and guaranteed by the obligors thereunder through
a first priority fully protected security interest in all the assets,
properties and undertakings of DCC and each other obligor thereunder where
available and cost effective to do so, and to the extent permissible by local
laws, (ii) borrowings under the South African Credit Facility, which are
secured by a security interest in certain of the Company's South African
subsidiaries, and (iii) indebtedness to trade creditors and similar
indebtedness incurred in the ordinary course of business. As of September 27,
1998, the outstanding indebtedness of the subsidiaries of DCC other than Lyon
was $35.1 million (consisting of indebtedness under the Revolving Credit
Agreement and indebtedness under the South African Credit Facility, but
excluding, in each case, unused commitments thereunder), all of which were
Secured Indebtedness, and at such date, the total liabilities of the
subsidiaries of DCC (excluding Lyon) were approximately $114.1 million,
including trade payables. The Exchange Notes will be unsecured obligations of
the Issuers and will not have the benefit of a guarantee from any of the
subsidiaries of DCC or of Lyon or any collateral. All borrowings made under
the Revolving Credit Agreement will be made by DCC and certain of its
subsidiaries (other than Lyon). In the event of the insolvency, bankruptcy,
liquidation or reorganization of any of the subsidiaries of DCC other than
Lyon, creditors of DCC and Lyon, including the holders of the Exchange Notes,
would be subject to the prior claims of the creditors of such subsidiary
(including the lenders under the Revolving Credit Agreement and the South
African Credit Facility, if applicable).
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange Notes
will have the right to require the Issuers to repurchase such holder's
Exchange Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest and Additional Amounts, if any, to
the date of repurchase. The occurrence of certain events which would
constitute a Change of Control would also constitute a default under the
Revolving Credit Agreement. In addition, the Revolving Credit Agreement will
effectively prevent the repurchase of the Exchange Notes by the Issuers in the
event of a Change of Control unless all amounts outstanding under the
Revolving Credit Agreement are repaid in full, and the Indentures provide
that, prior to mailing to holders of Exchange Notes the required notice in
respect of any Change of Control, but in any event within 30 days following
any Change of Control, the Issuers must repay in full all Senior Indebtedness
(which would include all amounts outstanding under the Revolving Credit
Agreement) or obtain the requisite consent under the agreements governing the
Senior Indebtedness (which would include the Revolving Credit Agreement) to
permit the repurchase of the Exchange Notes as provided in the Indentures. The
Issuers' failure to repurchase the Exchange Notes would result in an event of
default under the Indentures. The inability to repay all indebtedness
outstanding under the Revolving Credit Agreement, if accelerated, would also
constitute an event of default under the Indentures. Any such event of default
under the Indentures could materially adversely effect the Company and the
holders of the Exchange Notes. In the event of a Change of Control, there can
be no assurance that the Company would have sufficient assets to satisfy all
obligations under the Revolving Credit Agreement and the Indentures. Future
indebtedness of the Company may also contain prohibitions of certain events or
transactions which would constitute a Change of Control. See "Description of
Revolving Credit Agreement" and "Description of Exchange Notes--Change of
Control".
RISKS ASSOCIATED WITH GROWTH STRATEGY
A significant component of the Company's business strategy is the growth of
the Company's product and customer base through the acquisition of companies
in similar lines of business. Although the Company believes that there
currently exist a number of opportunities for such acquisitions, there can be
no assurance that the Company will be able to successfully exploit any such
opportunities or that additional opportunities will be available in the
future. To capitalize on acquisition opportunities,
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the Company may need to obtain additional capital. To raise such capital, the
Company may elect to undertake additional debt financings, which would result
in additional leverage. The incurrence of additional indebtedness will be
limited by the covenants contained in the Revolving Credit Agreement and the
Indentures. See "Description of Revolving Credit Agreement" and "Description
of Exchange Notes--Certain Covenants".
Growth through the acquisition of companies in similar lines of business, as
well as internal expansion, will place demands on the Company's management,
employees, operations and physical and financial resources. To manage its
growth, the Company must continue to implement and improve its operational and
financial systems and to expand, train and manage its employee base. Any
inability of the Company to attract and retain the executive and managerial
personnel required to expand its business could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, if the Company's systems, procedures or controls are not adequate to
support the Company's operations, management may not be able to achieve the
expansion necessary to exploit potential market opportunities for the
Company's products.
RISK OF FOREIGN EXCHANGE RATE FLUCTUATIONS; INTRODUCTION OF THE EURO
The Company's business is conducted by operating subsidiaries in many
countries, and, accordingly, the Company's results of operations are subject
to currency translation risk and currency transaction risk. With respect to
currency translation risk, the results of operations of each of these
operating subsidiaries is reported in the relevant local currency and then
translated into U.S. dollars at the applicable currency exchange rate for
inclusion in the Company's financial statements. The appreciation of the U.S.
dollar against the local currencies of the operating subsidiaries will have a
negative impact on the Company's sales and operating margin. Conversely, the
depreciation of the U.S. dollar against such currencies will have a positive
impact. Fluctuations in the exchange rate between the U.S. dollar and the
other currencies in which the Company conducts its operations may also affect
the book value of the Company's assets and the amount of the Company's
shareholders' equity. In addition, to the extent indebtedness of the Company
is denominated in different currencies, changes in the values of such
currencies relative to other currencies in which the Company conducts its
operations may have a negative impact on the Company's ability to meet
principal and interest obligations in respect of such indebtedness.
In addition to currency translation risk, the Company incurs currency
transaction risk to the extent that the Company's operations involve
transactions in differing currencies. Fluctuations in currency exchange rates
will impact the Company's results of operations to the extent that the costs
incurred by the operating subsidiaries are denominated in currencies that
differ from the currencies in which the related sale proceeds are denominated.
To mitigate such risk, the Company enters into forward purchase contracts
primarily relating to the pound Sterling, the U.S. dollar, the Dutch Guilder,
the Deutsche Mark, the New Taiwan dollar and the Yen. The Company does not
enter into forward purchase agreements for speculative purposes. Given the
volatility of currency exchange rates, there can be no assurance that the
Company will be able effectively to manage its currency transaction risks or
that any volatility in currency exchange rates will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
Under the treaty on the European Economic and Monetary Union (the "Treaty"),
to which the Federal Republic of Germany is a signatory, on January 1, 1999,
and subject to the fulfillment of certain conditions, a European single
currency (the "Euro") may replace all or some of the currencies of the member
states of the European Union (the "E.U."), including the Deutsche Mark. If,
pursuant to the Treaty, the Deutsche Mark is replaced by the Euro, the payment
of principal of, or interest and Additional Amounts, if any, on, the DM
Exchange Notes and the Revolving Credit Agreement will be effected in Euro in
conformity with legally applicable measures taken pursuant to, or by virtue
of, the Treaty. The circumstances and consequences described in this paragraph
do not entitle the Company or any holder of the Exchange Notes or participant
in the Revolving Credit Agreement to early redemption, rescission, notice,
repudiation, adjustment or renegotiation of the terms and conditions of
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the Exchange Notes, the Indentures or the Revolving Credit Agreement or to
raise other defenses or to request any compensation claim, nor will they
affect any of the obligations of the Company under the Exchange Notes, the
Indentures or the Revolving Credit Agreement. Additionally, the Dutch Guilder,
the Irish Punt and certain other currencies in which Derby's revenues are
earned will also be replaced by the Euro.
Following introduction of the Euro, the existing sovereign currencies (the
"legacy currencies") of the eleven participating member countries of the EU
(the "participating countries") who have agreed to adopt the Euro as their
common legal currency on January 1, 1999 are scheduled to remain legal tender
in the participating countries as denominations of the Euro between January 1,
1999 and January 1, 2002 (the "transition period"). The Euro conversion may
impact the Company's competitive position as the Company may incur increased
costs to conduct business in an additional currency during the transition
period. Additionally, the participating countries' pursuit of a single
monetary policy through the European Central Bank may affect the economies of
significant markets of the Company. The Company will also need to prepare for
the transition period by modifying information systems software to (1) convert
legacy currency amounts to Euro; (2) convert one legacy currency to another;
(3) perform prescribed rounding calculations to effect currency conversions;
and (4) permit transactions to take place in both legacy currencies and the
Euro during the transition period. Since the Company conducts extensive
business operations in, and exports its products to, several of the
participating countries, there can be no assurance that the conversion to the
Euro will not have a material adverse effect on the Company's business,
financial condition or results of operations. Similarly, in the event that the
Company materially underestimates the costs, timeliness and adequacy of
modifications to its information systems software, there could be a material
adverse effect on the Company's business, financial condition and results of
operations.
CONTROLLING SHAREHOLDERS
As a result of the Recapitalization, DFS, Thayer and Perseus, directly or
indirectly, own a substantial majority of the outstanding capital stock of
DCC, and control the affairs and policies of DCC. Circumstances may occur in
which the interests of such investors, as shareholders of DCC, may conflict
with the interests of the holders of the Exchange Notes. For example, these
investors may have an interest in pursuing acquisitions, divestitures or other
transactions that, in their judgment, could enhance their equity investment,
even though such transactions might involve risks to the holders of the
Exchange Notes. See "Security Ownership of Certain Beneficial Owners and
Management".
CHANGES IN ECONOMIC CONDITIONS
The Company's business is subject to changes in general economic conditions
insofar as discretionary spending, such as purchases of bicycles, tends to
decline in periods of economic uncertainty. Accordingly, any significant
decline in general economic conditions, including uncertainty regarding future
economic prospects, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's
business is also subject to changes in consumer preferences. Although the
Company has benefitted from increased interest in fitness activities,
including bicycling, in recent years, there can be no assurance that this
interest will continue to grow, or that the Company will be able to sustain
current levels of production and sales, or to increase such levels. Any
significant decline in the size of the bicycle market or any segment of the
bicycle market in which the Company competes, whether as a result of a
downturn in general economic conditions or a decrease in the popularity of
bicycling or otherwise, could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE UPON NEW PRODUCT INTRODUCTIONS
The bicycle industry, in recent years, has been characterized by frequent
new product introductions. The Company believes that the frequent introduction
of new, innovative bicycles as well as parts and accessories that respond
timely to changing consumer demands will be critical to its
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future success. Although the Company has generally been successful in the
introduction of its bicycles, parts and accessories, no assurance can be given
that the Company will be able to continue to design and manufacture products
that will achieve commercial success. In addition, successful designs for
various bicycle models may be rendered obsolete within a relatively short
period of time as new products are introduced into the market. In the event
the Company is unable to successfully design and manufacture products in
response to consumer demands, the Company's business, financial condition and
results of operations would be materially adversely affected.
WEATHER CONDITIONS AND SEASONALITY
Demand for bicycles in the Company's principal markets is influenced by
weather conditions. For example, warm weather tends to increase sales of
bicycles, and cold, wet weather tends to reduce sales of bicycles. Moreover,
demand for bicycles in the Company's principal markets is seasonal,
characterized in most cases by a majority of consumer sales in the spring and
summer months, with a strong bias towards consumer sales in the last four
months of the calendar year in the United Kingdom, South Africa and Ireland.
Seasonality in the United Kingdom, South Africa and Ireland is influenced by
increased sales of juvenile bicycles in the month preceding Christmas.
Accordingly, dealers' peak purchasing months are October and November when
they build inventory in anticipation of Christmas sales of juvenile bicycles.
The Company seeks to mitigate the impact of the seasonality of the demand for
bicycles by varying the amount of labor employed throughout the year.
Additional labor is employed in the months before and during the periods of
greater consumer sales through the operation of longer shifts and the hiring
of temporary workers. In addition, certain of the Company's local operations,
such as those in Canada, are closed during periods of low production. There
can be no assurance, however, that the Company will be able to successfully
respond to changes in demand for bicycles due to variations in weather
conditions or to manage its working capital needs. Any failure to so respond
may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Employees".
HIGHLY COMPETITIVE INDUSTRY
The market for bicycles, parts and accessories is highly competitive.
Competition in the bicycle industry is based upon price, quality, brand name
and service. In all its product categories, the Company competes with other
manufacturers and distributors, some of which have well-recognized brand names
and substantial financial, technological, distribution, advertising and
marketing resources. In addition, several bicycle manufacturers and component
suppliers that have substantial resources do not currently compete directly
with the Company, but could pose a significant competitive threat to the
Company in the future. Moreover, additional competitors could enter the
Company's markets, as management believes the barriers to entering the bicycle
designing and manufacturing businesses are low. Management also believes,
however, that it would be difficult for a new competitor to build a
distribution network as effective as the Company's distribution network.
Like other bicycle manufacturers, the Company also faces competition from
bicycles imported from the Far East. In recent years, the impact of this
competition has diminished due to the imposition of anti-dumping duties by the
E.U. The purpose of anti-dumping duties is to promote fair competition between
domestic and foreign suppliers of bicycles by increasing the cost of foreign-
supplied bicycles to domestic fair market value. Such anti-dumping duties work
by imposing a payment due to be made by the importer at the time of clearing
customs. The impact of such anti-dumping duties is to increase the retail
price of imported bicycles, thus enabling domestic manufacturers to compete
more fairly with imported bicycles. Specifically, imports from the Far East
have been constrained by E.U. initiatives such as the 30.6% anti-dumping duty
on Chinese bicycles introduced in 1993, which continued in effect until
September 1998. The E.U. has also imposed anti-dumping duties and tarriffs,
ranging up to 39.4%, on bicycles imported from most manufacturers in Thailand,
Malaysia and Indonesia. In addition, in January 1997, the E.U. strengthened
its existing regulations to prevent circumvention through the importation of
kits and partially assembled bicycles. In November 1997, the E.U. opened an
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anti-dumping inquiry into imports from Taiwan. Subsequently, anti-dumping
duties were imposed by the E.U. on Taiwan on August 24, 1998 at various rates
for different manufacturers. With respect to the imposition of anti-dumping
duties on Taiwanese bicycles completely assembled at the time of import,
management believes the level of the anti-dumping duties imposed on Taiwanese
bicycle manufacturers is not sufficient to offset the impact of the current
currency devaluation in Taiwan. While management cannot predict how long the
value of the NT$ may remain depressed relative to the value of the U.S dollar,
management believes the Company is able to realize significant offsetting
gains in their purchases of Taiwanese components which allow the Company, to a
certain extent, to offer lower prices on bicycles produced by the Company
which utilize such Taiwanese components.
There can be no assurance that the Company will be able to compete
successfully in the future with other bicycle manufacturers located in its
principal markets or in the Far East or that the expiration or repeal of
existing anti-dumping duties or competition in the bicycle industry will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON CERTAIN SUPPLIERS
The Company's operations are highly dependent upon products manufactured by
non-U.S. suppliers located primarily in Taiwan and Japan and, to a lesser
extent, in China. As is common in the bicycle industry, a substantial majority
of the Company's multi-speed bicycles contain components supplied by Shimano,
the world's largest bicycle component manufacturer and supplier, and a brand
with a strong reputation among bicycle consumers. Although Shimano has not
indicated any intention to limit or reduce sales of components to the Company,
if it were to do so, the Company's business, financial condition and results
of operations could be adversely affected. Although the Company has
established relationships with its principal suppliers, the Company's future
success will depend on its ability to maintain such relationships and to
develop relationships with new suppliers. In the event of a delay or
disruption in the supply of components, the Company believes that suitable
alternative suppliers could be located, although the transition to other
suppliers could result in significant production delays. Any significant delay
or disruption in the supply of components could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Group Operations--Suppliers".
INTERNATIONAL OPERATIONS
Most of the Company's operations are conducted outside the United States and
are subject to the risks that are inherent in operating abroad, including,
without limitation, the risks associated with governmental regulation, taxes,
import duties and trade restrictions. Although the Company believes it is
substantially in compliance with government regulations, changes in such
regulations or the actions of regulators, including changes in administration
and enforcement policies and practices, may from time to time require
operational modifications, the payment of fines, or both. The Company is also
subject to numerous foreign taxes and import duties. Certain historical
intercompany transactions as well as a series of such transactions involved in
the Restructuring have been designed to minimize applicable foreign taxes.
There can be no assurance that the relevant tax authorities will not challenge
the tax position taken by the Company. Any challenge by a tax authority of a
position taken by the Company could materially adversely affect the Company's
business, financial condition and results of operations.
The Company's business is subject to the risks associated with the enactment
of additional legislation and regulations, or modification of existing
legislation and regulations, or changes in administration and enforcement
policies and practices, related to exports or imports of bicycles, parts and
accessories, including duties and quotas and other charges and limitations, by
the governments in each of the countries in which it has operations or markets
bicycles. The Company's business is also subject to the risks associated with
similar enactments or modifications by the E.U. Changes in the existing
legislation, regulations, administration and enforcement policies and
practices related to the exports or imports of bicycles, parts and accessories
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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INVENTORY RISKS
The Company must maintain significant inventories of bicycles and bicycle
components to accommodate the short lead times of its customers, particularly
mass merchandisers in Germany and Canada. Because the market for bicycles,
parts and accessories is subject to changing consumer preferences, the Company
is subject to the risks that demand for existing products will dissipate and
that new products will not achieve widespread acceptance. In either event, the
Company may be required to accept significant price markdowns or to retain
unsold inventory, which may have a material adverse effect on the Company's
business, financial condition and results of operations.
PRODUCT LIABILITY
Due to the nature of the Company's business, the Company is a defendant in a
number of product liability lawsuits. The plaintiffs in these lawsuits
generally seek damages, in amounts that may be material, for personal injuries
allegedly sustained as a result of alleged defects in the Company's products.
Although the Company maintains product liability insurance, due to the
uncertainty as to the nature and extent of manufacturers' and distributors'
liability for personal injuries, there can be no assurance that the product
liability insurance maintained by the Company is or will be adequate to cover
product liability claims or that the applicable insurer will be solvent at the
time of any covered loss. In addition, due to deductibles, self-retention
levels and aggregate coverage amounts applicable under the Company's insurance
policies, the Company will bear responsibility for a significant portion, if
not all, of the defense costs (which include attorneys' fees and expenses
incurred in the defense of any claim) and the related payments to satisfy any
judgments associated with any claim asserted against the Company in excess of
any applicable coverage. The settlement of a significant number of insured
claims, the settlement of a claim exceeding the Company's insurance coverage
or the successful assertion or settlement of an uninsured claim could have a
material adverse effect on the Company's business, financial condition or
results of operations. There can be no assurance that insurance will remain
available, or, if available, will not be prohibitively expensive. The
deductible under Derby's insurance policies is currently $250,000 per claim;
however, prior to 1993, the deductible was $1.0 million per claim. Not all
claims arising during the period in which the Company's deductible was $1.0
million have been resolved and it is possible that additional claims may be
filed. The aggregate amount of liability under existing and potential claims
could exceed the reserves established by the Company for product liability
claims. See "Business--Legal Proceedings".
PRODUCT RECALLS
Although the Company has not recently experienced a significant product
recall, the Company has, in the past, recalled certain bicycle models. If the
Company were required to make a significant product recall, such a recall
could have a material adverse effect on the Company's business, financial
condition or results of operations. In common with the rest of the bicycle
industry, components fitted to its bicycles may be subject to a recall program
of the component supplier.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team, which includes Mr. Finden-Crofts (who is resigning as Chief Executive
Officer in January 1999), Mr. Matthews (the Chief Executive Officer
designate), and Messrs. Austin, Goddard, Dantuma, Holzer, Miller, Roether,
Slotar, Spon-Smith, Todd, Vaiya and Wittering. Although the Company believes
that it will be able to retain these key employees, and the Company believes
that it would be able to replace these key employees should the need arise,
the loss of these key employees and the failure to find adequate replacements
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Management--Directors and Executive
Officers of the Company".
FRAUDULENT CONVEYANCE
The incurrence by the Issuers of indebtedness represented by the Old Notes
(and subsequently the Exchange Notes) to finance the Recapitalization may be
subject to review under U.S. federal
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bankruptcy law or relevant state fraudulent transfer laws if a bankruptcy or
reorganization case or lawsuit is commenced by or on behalf of creditors of
the Issuers. Under these laws, if a court were to find that, after giving
effect to the sale of the Old Notes and the application of the net proceeds
therefrom, (i) either Issuer incurred such indebtedness with the intent of
hindering, delaying or defrauding present or future creditors or (ii) either
Issuer received less than the reasonably equivalent value in consideration for
incurring such indebtedness and, at the time of the incurrence of such
indebtedness, such Issuer (a) was insolvent or was rendered insolvent by
reason of such transactions, (b) was engaged or was about to engage in a
business or transaction for which the remaining unencumbered assets of such
Issuer constituted unreasonably small capital or (c) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured
or became due, such court might subordinate such indebtedness to presently
existing or future indebtedness of such Issuer, void the issuance of such
indebtedness and direct the repayment of any amounts paid thereunder to the
creditors of such Issuer or take other action detrimental to the holders of
the Exchange Notes.
Under U.S. federal law and relevant state fraudulent transfer laws, the
measure of insolvency varies depending upon the law of the particular
jurisdiction being applied. Generally, however, a debtor would be considered
insolvent, with respect to a particular date, if on such date, the sum of all
its liabilities, including contingent liabilities, was greater than the value
of all its assets at fair valuation, or if the present fair saleable value of
the debtor's assets was less than the amount required to repay its probable
liabilities on its debts, including contingent liabilities, as they become
absolute and matured.
Because proceeds of the Old Notes were used to refinance indebtedness
incurred in connection with the Recapitalization, a court might find that the
Issuers did not receive fair consideration or reasonably equivalent value for
the incurrence of the indebtedness represented by the Old Notes (and
subsequently the Exchange Notes). In addition, if a court were to find that
any component of the Recapitalization constituted a fraudulent transfer, to
the extent proceeds from the Exchange Notes were used to finance or refinance
such component, a court might find that the Issuers did not receive fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by the Exchange Notes.
The Issuers believe that they received equivalent value at the time the
indebtedness under the Old Notes was incurred. In addition, after giving
effect to the issuance of the Exchange Notes, each of the Issuers (i) believes
that it is not insolvent or rendered insolvent, (ii) believes that it is not
engaged in a business or transaction for which its remaining unencumbered
assets constitute unreasonably small capital and (iii) does not intend to
incur, or believe that it will incur, debts beyond its ability to pay as they
mature. These beliefs are based upon the analyses of internal cash flow
projections and estimated values of assets and liabilities of the Issuers at
the time of the Initial Offering. There can be no assurance, however, that a
court passing on these issues would make the same determination.
Although the Indentures are governed by New York law, such law (or U.S. law
or the laws of any other state of the United States for that matter) may not
apply to a fraudulent conveyance claim or other claims of competing creditors;
the Issuers cannot predict which law would be applied or what the outcome
would be. In rendering its opinion as to the validity of the Exchange Notes,
U.S. counsel for the Issuers or the Initial Purchasers expressed no opinion as
to any laws relating to fraudulent transfers.
Fraudulent conveyance legislation also is in force in The Netherlands.
Portions of this legislation provide generally that certain transactions with
a creditor entered into by the debtor are subject to rescission; provided that
both parties to the transaction knew or should have known that the transaction
would prejudice other creditors or that the debtor had made an application for
bankruptcy. Knowledge that the transaction would prejudice other creditors is
presumed by law for all transactions performed within one year of the
adjudication before bankruptcy or within one year before the date the claim of
fraudulent conveyance is made, if it is also established that one of the
conditions mentioned in Article 43 of the Bankruptcy Act or Article 3:46 of
the Dutch Civil Code is fulfilled. These conditions
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include, but are not limited to, situations in which (i) the value of the
obligation of the debtor materially exceeds the value of the obligation of the
creditor or (ii) the debtor pays or grants security for debts which are not
yet due. This presumption of knowledge may be rebutted.
LIABILITY FOR ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of governmental requirements
related to environmental protection including, among other things, the
management of hazardous substances and wastes. Although the Company has made
and will continue to make significant expenditures related to its
environmental compliance obligations, there can be no assurance that the
Company will at all times be in compliance with all such requirements.
Moreover, the Company's existing and historical operations, including the
operations of its predecessors, expose the Company to the risk of clean-up
liabilities or environmental or personal injury claims related to releases and
emissions of hazardous substances and wastes. Such liabilities and claims
could require the Company to incur material costs related to such releases or
to the investigation or remediation of contaminated property. Also, changes in
existing environmental requirements or the imposition of additional
environmental liabilities related to existing or historical operations could
result in substantial cost to the Company.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Issuers believe are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The holders of Old Notes (other than any such holder who is an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Issuers are required to file a Shelf
Registration Statement with respect to such Old Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Initial Purchasers have advised the Issuers that they currently intend to make
a market in the Exchange Notes, but they are not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Notes or as to
the liquidity of the trading market for the Exchange Notes. If a trading
market does not develop or is not maintained, holders of the Exchange Notes
may experience difficulty in reselling the Exchange Notes or may be unable to
sell them at all. If a market for the Exchange Notes develops, any such market
may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Issuers' results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Issuers, the Exchange Notes may trade at a discount from
their principal amount. The Issuers have been advised that the Old Notes are
currently trading in the PORTAL market at a discount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely tender of Old Notes by
tendering holders pursuant to the instructions set forth in this Prospectus
and the accompanying Letter of Transmittal. Therefore, holders of the Old
Notes desiring to tender such Old Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely tender. The Issuers are under no duty
to give notification of defects or irregularities with respect to the tenders
of Old Notes for exchange. Old Notes that are not tendered or are tendered but
not accepted will, following the consummation of the Exchange Offer, continue
to be subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration
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rights under the Exchange and Registration Rights Agreement will terminate. In
addition, any holder of Old Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities, and if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution". To the extent that Old Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer".
INFORMATION TECHNOLOGY--YEAR 2000
The Company is in the process of implementing a plan designed to ensure that
all application software used in connection with the Company's management
information systems, including internally developed systems, software
purchased from outside vendors and embedded chips at the Company's
manufacturing facilities, will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality
and without inaccurate results related to such dates. Due to the fact that
existing software often defines each year with two digits rather than four
digits, the Company's computers that have date-sensitive software may
recognize a date using "00" as occurring in the year 1900 rather than the year
2000, which would result in such abnormalities and inaccuracies and lead to
disruptions of the Company's operations, including a temporary inability to
process customer orders, send invoices or engage in other normal business
activities. Many of the Company's existing computer systems will need to be
retired, replaced or remediated prior to the year 2000. Retirement,
replacement and remediation may require that, over the next few years, a
substantial portion of the Company's management information systems spending
be allocated to such activities. The Company is currently in the process of
replacing and upgrading the computer systems of its United States and Canadian
operations. The Company expects to spend a total of approximately $1.8 million
in 1998 and $0.1 million in 1999 to achieve "Year 2000 compliance" for all of
its operations. The Company plans to complete all Year 2000 compliance efforts
by early 1999. The costs and timing of such efforts, however, are based upon
management's best estimates, which are derived using assumptions relating to,
among other things, the availability of certain resources, the timing of
actions taken by third parties and other factors. Additional expenditures
beyond the Company's projections may be necessary. In the event that the
Company materially underestimates the amount of funds or the time necessary to
resolve identified problems or that any information systems relied upon by the
Company for critical functions are not substantially Year 2000 compliant in a
timely manner, there could be a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's plan for the Year 2000 calls for communication with
significant suppliers and customers to determine the readiness of third
parties' remediation of their own Year 2000 issues. As part of its assessment,
the Company is evaluating the level of validation it will require of third
parties to ensure their Year 2000 readiness. The Company believes that the
purchasing patterns of customers and potential customers may be affected by
Year 2000 issues as companies expend significant resources to correct or patch
their current software systems for Year 2000 compliance. These expenditures
may result in reduced funds available to purchase the Company's products,
which could result in a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
any Year 2000 compliance problems of the Company's customers or suppliers will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
To date, the Company has not encountered any material Year 2000 issues
concerning its computer systems. Accordingly, the Company has not at this time
developed a contingency plan if it fails to achieve Year 2000 compliance and
does not plan to develop such a plan until it learns of material impediments
in timely implementing its plan for the Year 2000.
28
<PAGE>
EXCHANGE RATE INFORMATION
The revenues and expenses of the Company's operations are denominated in
numerous foreign currencies. Except as noted, amounts herein are denominated
in U.S. dollars. Conversions of foreign currencies to U.S. dollars in the
financial information included herein and in the historical financial
statements included elsewhere herein have been calculated, for income
statement purposes, on the basis of average exchange rates over the related
periods and, for balance sheet purposes, on the date thereof.
The following tables sets forth, for the periods indicated, certain
information concerning the Noon Buying Rate in U.S. dollars for certain
principal currencies in which the Company does business. The term "Noon Buying
Rate" means the noon buying rate in New York City for cable transfers into
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York. Such rates are provided solely for the convenience of the
reader and should not be construed as a representation that foreign currency
amounts actually represent such U.S. dollar amounts or that such foreign
currency amounts could have been, or could be, converted into U.S. dollars at
that rate or at any other rate. Such rates may differ from the actual rates
used in the preparation of the financial statements and other financial
information of the Company appearing herein. See "Risk Factors--Risk of
Foreign Exchange Rate Fluctuations; Introduction of the Euro". Rates for the
Yen and the New Taiwan dollar are included because the Company purchases a
substantial amount of bicycle components in those currencies.
Pounds Sterling
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Average Rate(/1/) High Low Period End
- ------------------------------ ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1993.................... (Pounds)0.67 (Pounds)0.70 (Pounds)0.63 (Pounds)0.68
1994.................... 0.65 0.68 0.61 0.64
1995.................... 0.63 0.65 0.61 0.65
1996.................... 0.64 0.67 0.58 0.58
1997.................... 0.61 0.63 0.58 0.60
<CAPTION>
NIne Months Ended
- -----------------
<S> <C> <C> <C> <C>
September 28, 1997...... 0.61 0.63 0.59 0.62
September 27, 1998...... 0.60 0.62 0.59 0.59
- --------
(/1/The)average of the Noon Buying Rates on the last day of each month during
the relevant period. On October 30, 1998, the Noon Buying Rate was
(Pounds).59 to $1.00.
Dutch Guilders
<CAPTION>
Fiscal Year Ended December 31, Average Rate(/1/) High Low Period End
- ------------------------------ ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1993.................... NLG1.87 NLG1.96 NLG1.78 NLG1.95
1994.................... 1.81 1.95 1.69 1.74
1995.................... 1.60 1.71 1.54 1.60
1996.................... 1.69 1.73 1.65 1.73
1997.................... 1.96 2.07 1.84 2.03
<CAPTION>
Nine Months Ended
- -----------------
<S> <C> <C> <C> <C>
September 28, 1997...... 1.95 2.12 1.73 1.98
September 27, 1998...... 2.01 2.09 1.89 1.89
</TABLE>
- --------
(/1/The)average of the Noon Buying Rates on the last day of each month during
the relevant period. On October 30, 1998, the Noon Buying Rate was NLG1.87
to $1.00.
29
<PAGE>
Deutsche Marks
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Average Rate(/1/) High Low Period End
- ------------------------------ ----------------- ------ ------ ----------
<S> <C> <C> <C> <C>
1993................................ DM1.66 DM1.74 DM1.59 DM1.74
1994................................ 1.61 1.74 1.50 1.55
1995................................ 1.43 1.52 1.38 1.43
1996................................ 1.51 1.54 1.47 1.54
1997................................ 1.74 1.84 1.64 1.80
<CAPTION>
Nine Months Ended
- -----------------
<S> <C> <C> <C> <C>
September 28, 1997.................. 1.73 1.88 1.54 1.76
September 27, 1998.................. 1.79 1.85 1.67 1.69
</TABLE>
- --------
(/1/The)average of the Noon Buying Rates on the last day of each month during
the relevant period. On October 30, 1998, the Noon Buying Rate was DM1.66
to $1.00.
Canadian dollars
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Average Rate(/1/) High Low Period End
- ------------------------------ ----------------- -------- -------- ----------
<S> <C> <C> <C> <C>
1993............................ CAN$1.29 CAN$1.34 CAN$1.25 CAN$1.33
1994............................ 1.37 1.40 1.33 1.40
1995............................ 1.37 1.41 1.34 1.37
1996............................ 1.36 1.37 1.34 1.37
1997............................ 1.39 1.43 1.35 1.43
<CAPTION>
Nine Months Ended
- -----------------
<S> <C> <C> <C> <C>
September 28, 1997.............. 1.38 1.39 1.34 1.38
September 27, 1998.............. 1.47 1.58 1.41 1.51
</TABLE>
- --------
(/1/The)average of the Noon Buying Rates on the last day of each month during
the relevant period. On October 30, 1998 the Noon Buying Rate was CAN$1.54
to $1.00.
Yen
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Average Rate(/1/) High Low Period End
- ------------------------------ ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993.................... (Yen)110.68 (Yen)124.97 (Yen)104.73 (Yen)111.70
1994.................... 101.27 108.72 96.90 99.60
1995.................... 94.07 103.28 84.04 103.28
1996.................... 109.31 115.77 104.63 115.77
1997.................... 121.85 130.45 114.61 130.45
<CAPTION>
Nine Months Ended
- -----------------
<S> <C> <C> <C> <C>
September 28, 1997...... 120.07 127.03 111.42 120.87
September 27, 1998...... 135.15 135.10 123.30 135.10
- --------
(/1/The)average of the Noon Buying Rates on the last day of each month during
the relevant period. On October 30, 1998, the Noon Buying Rate was
(Yen)116.45 to $1.00.
New Taiwan dollar
<CAPTION>
Fiscal Year Ended December 31, Average Rate(/1/) High Low Period End
- ------------------------------ ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993.................... NT$26.42 NT$26.96 NT$25.41 NT$26.63
1994.................... 26.47 27.09 26.02 26.29
1995.................... 26.50 27.55 25.17 27.29
1996.................... 27.46 28.17 24.69 27.52
1997.................... 28.75 33.25 27.34 28.75
<CAPTION>
Nine Months Ended
- -----------------
<S> <C> <C> <C> <C>
September 28, 1997...... 28.05 32.02 27.34 28.76
September 27, 1998...... 33.85 35.00 32.05 34.62
</TABLE>
- --------
(/1/The)average of the Noon Buying Rates on the last day of each month during
the relevant period. On October 30, 1998, the Noon Buying Rate was
NT$32.48 to $1.00.
30
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Issuers'
obligations under the Purchase Agreement and the Exchange and Registration
Rights Agreement. The Issuers will not receive any cash proceeds from the
issuance of the Exchange Notes offered hereby. In consideration for issuing
the Exchange Notes contemplated in this Prospectus, the Issuers will receive
Old Notes in like principal amount, the form and terms of which are the same
as the form and terms of the Exchange Notes (which replace the Old Notes),
except as otherwise described herein. The Old Notes surrendered in exchange
for Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase or
decrease in the indebtedness of the Issuers. As such, no effect has been given
to the Exchange Offer in the pro forma statements or capitalization tables.
The proceeds from the issuance of the Old Notes (net of $7.3 million in bond
financing costs) were $154.6 million ($149.5 million after deduction of the
commission payable to the Initial Purchasers). These proceeds, together with
the funds borrowed under the Revolving Credit Agreement and proceeds from the
Equity Contributions and the Company's excess cash, were used to finance the
Recapitalization and to pay fees and expenses related thereto. See "The
Recapitalization".
31
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 27, 1998, the cash and cash
equivalents and the capitalization of the Company. The table does not give
effect to the Company's obligation to make the Additional Payment to DFS of up
to $10.0 million depending on the performance of DCC and certain of its
subsidiaries in the 1998 fiscal year. This information was derived from, is
qualified by reference to, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and accompanying notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 27, 1998
---------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents.................................. $ 13.1
=======
Debt (including current portion):
Existing Indebtedness.................................... $ 2.2
Revolving Credit Agreement(/1/).......................... 32.9
Notes.................................................... 163.9
-------
Total debt............................................. 199.0
-------
Preferred stock with redemption rights(/2/)....................... 43.4
Stock rights(/3/).......................................... 23.3
-------
66.7
-------
Shareholders' equity (deficit):
Capital stock and additional paid-in capital(/4/)(/5/)... 22.5
Capital investment....................................... --
Retained deficit......................................... (79.1)
Accumulated other comprehensive income................... (6.1)
-------
Total shareholders' equity (deficit)................... (62.7)
-------
Total capitalization................................... $216.1
=======
</TABLE>
- --------
(1) The Revolving Credit Agreement provides for loans of up to DM214 million
($128 million). See "Description of Revolving Credit Agreement".
(2) Includes Series A Preferred Stock, 25,000 shares authorized; 25,000 shares
issued and outstanding of $250, Series B Preferred Stock, 3,000 shares
authorized; 3,000 shares issued and outstanding of $30 and additional paid
in capital of $40,499,720, and $2,905 of accrued dividends on the
preferred stock.
(3) Includes Class A Common Stock having a value of $8.3 million and Class B
Common Stock having a value of $15.0 million issuable to DICSA upon
exchange of the Raleigh Canada Preferred Stock. The Raleigh Canada
Preferred Stock may be redeemed subsequent to the vesting of the Company's
right to exchange such stock for shares of its Common Stock, at the option
of DICSA under certain circumstances, for a cash payment of $23.3 million,
plus all accrued and unpaid dividends thereon.
(4) Includes Class A Common Stock, 200,000 shares authorized; 44,200 shares
issued and outstanding of $442 and additional paid in capital of
$22,499,558 and Class B Common Stock, 15,000 shares authorized; no shares
issued and outstanding.
(5) Excludes 1,500 shares of Class A Common Stock of $15 and additional paid
in capital of $1,499,985, stock options to purchase 1,625 shares of Class
A Common Stock at an exercise price of $1,000 per share, and performance-
based stock options to purchase 3,250 shares of Class A Common Stock at an
exercise price of $1,000 per share issued to DCC's new Chief Executive
Officer in October 1998.
32
<PAGE>
THE RECAPITALIZATION
On May 14, 1998, DCC consummated the Recapitalization, pursuant to which (i)
the Company effected the Restructuring such that DCC now owns all the capital
stock of approximately 70 existing subsidiaries, a controlling interest in
Raleigh Canada, Univega, Univega License, the MS Sport Group, Derby Holdings
South Africa and certain other subsidiaries, and a minority interest in
certain other entities; (ii) DFS, Thayer and Perseus (through their respective
wholly owned subsidiaries) made the Equity Contributions; and (iii) DICSA
(directly and through DFS) retained the Retained Equity. In addition, (i) DCC
made the DFS Payment and DCC became obligated to make the Additional Payment
depending upon the performance of DCC and certain of its subsidiaries in the
1998 fiscal year; (ii) equity held by the minority shareholders of Derby
Holdings South Africa was redeemed by the Redemption Payment; (iii) the
Company repaid the Existing Indebtedness (other than indebtedness incurred
under the South African Credit Facility); (iv) DCC and certain of its
subsidiaries borrowed approximately $84.9 million under the Revolving Credit
Agreement; and (v) the Issuers issued the Old Notes.
DC Cycle L.L.C. ("DC Cycle"), a wholly owned subsidiary of Thayer, now owns
approximately 27% of the Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), and all of the outstanding shares of the Series A
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock").
Holders of Series A Preferred Stock are entitled to 1.5 votes per share,
voting together with the Class A Common Stock. Perseus Cycle, L.L.C. ("Perseus
Cycle"), a wholly owned subsidiary of Perseus, owns approximately 22% of the
Class A Common Stock. DFS owns approximately 47% of the Class A Common Stock
and all the non-voting Series B Preferred Stock, par value $.01 per share (the
"Series B Preferred Stock"). Under the terms of DCC's Amended and Restated
Certificate of Incorporation and the Shareholders' Agreement (as defined),
(i) Thayer currently controls approximately 60% of the total voting power of
DCC's capital stock; (ii) DFS controls approximately 26% of the total voting
power of DCC's capital stock; and (iii) Perseus controls approximately 12% of
the total voting power of DCC's capital stock. In addition, pursuant to a
recapitalization of Raleigh Canada, DICSA received all of the outstanding
shares of the Raleigh Canada Preferred Stock, a new class of nonvoting senior
preferred stock of Raleigh Canada, in exchange for its shares of common stock
of Raleigh Canada pursuant to the Raleigh Canada Exchange Agreement. The
shares of Raleigh Canada Preferred Stock, which have a liquidation value of
$23.3 million, are exchangeable (at the option of DICSA at any time and by DCC
at any time after January 2, 2001) into 8,300 shares of Class A Common Stock
and 15,000 shares of Class B Common Stock, par value $.01 per share (the
"Class B Common Stock", and, together with the Class A Common Stock, the
"Common Stock") (or the right to receive securities or such other property
into which such classes of stock are converted). The exchange ratio will be
adjusted, if required, as provided in the Articles of Raleigh Canada and the
Raleigh Canada Exchange Agreement. The exchange ratio will be such that the
value of the Raleigh Canada Preferred Stock on the date of the consummation of
the Recapitalization will equal the value of the shares of Raleigh Canada
common stock that are exchanged for the Raleigh Canada Preferred Stock. If the
value of the Raleigh Canada Preferred Stock is later determined to be greater
than, or less than, the value of the shares of Raleigh Canada common stock
exchanged for the Raleigh Canada Preferred Stock, the exchange ratio will be
adjusted through increasing or decreasing the number of shares of Class A
Common Stock to be received upon exercise of the exchange rights. Any
adjustment in the exchange ratio will result in an offsetting adjustment
against the number of shares of Class A Common Stock retained by DFS in the
Recapitalization. DICSA also has the right to redeem its shares of Raleigh
Canada Preferred Stock for a cash payment of $23.3 million, plus all accrued
and unpaid dividends thereon, at any time after April 1, 2001, upon 60 days'
prior notice, provided that such redemption does not result in a breach or
default under any financing document of Raleigh Canada or its affiliates,
including, without limitation, the Revolving Credit Agreement and the
Indentures. Upon liquidation of Raleigh Canada, each holder
33
<PAGE>
of Raleigh Canada Preferred Stock will be entitled to receive an amount based
upon the value that such holder would have received if such holder had
exchanged the Raleigh Canada Preferred Stock pursuant to the Raleigh Canada
Exchange Agreement.
Holders of shares of Class A Common Stock are entitled to one vote per
share, and holders of shares of Series A Preferred Stock are entitled to 1.5
votes per share. Holders of Class A Common Stock and Series A Preferred Stock
will vote together as a single class on all matters submitted to the
shareholders of DCC for a vote. During the first year following the
consummation of the Recapitalization or upon the occurrence of certain events,
each share of Series A Preferred Stock will be convertible, at the option of
the holder thereof, into one-half share of Class A Common Stock, plus a number
of shares of Class A Common Stock equal to the liquidation value, which will
initially be $1,000 (plus accrued and unpaid dividends thereon, if any), of
such share divided by $1,000. At any time after the tenth anniversary of the
consummation of the Recapitalization or upon the occurrence of certain events,
holders of shares of Series A Preferred Stock will have the right to require
DCC to repurchase all or any portion of such shares for cash at a price per
share equal to the sum of the liquidation value (plus accrued and unpaid
dividends thereon, if any) of such share and one-half share of Class A Common
Stock; provided that if (other than in connection with a proposed sale of DCC
that constitutes a Change of Control) DCC is prohibited by law from
repurchasing such shares or if any such repurchase would result in a default
under the Revolving Credit Agreement or the Indentures, DCC may defer such
repurchase until such prohibition no longer exists or such default would no
longer occur. DCC must use commercially reasonable efforts to obtain any
consent necessary to permit such payment.
Holders of shares of Class B Common Stock and Series B Preferred Stock are
not entitled to voting rights, except as otherwise required by applicable law.
Upon the occurrence of certain events, each share of Series B Preferred Stock
will be convertible, at the option of the holder thereof, into the number of
shares of Class A Common Stock having a fair market value equal to the
liquidation value, which will initially be $1,000 (plus accrued and unpaid
dividends thereon, if any), of such share. At any time after the fourth
anniversary of the consummation of the Recapitalization or upon the occurrence
of certain events, holders of shares of Series B Preferred Stock will have the
right to require DCC to repurchase all or any portion of such shares for cash
at a price per share equal to the liquidation value (plus accrued and unpaid
dividends thereon, if any) of such share; provided that if (other than in
connection with a proposed sale of DCC that constitutes a Change of Control)
DCC is prohibited by law from repurchasing such shares or if any such
repurchase would result in a default under the Revolving Credit Agreement or
the Indentures, DCC may defer such repurchase until such prohibition no longer
exists or such default would no longer occur. DCC must use commercially
reasonable efforts to obtain any consent necessary to permit such payment.
Dividends on each share of Series A Preferred Stock will accrue on a daily
basis at the rate of 20% per annum on the sum of the liquidation value
thereof, which will initially be $1,000, plus all accumulated and unpaid
dividends thereon. Dividends on each share of Series B Preferred Stock will
accrue on a daily basis at the rate of 9.75% per annum on the sum of the
liquidation amount thereof, which will initially be $1,000, plus all
accumulated and unpaid dividends thereon. The dividends and capital
distributions on the Series A Preferred Stock and Series B Preferred Stock
rank pari passu. Although a single security, each share of Series A Preferred
Stock consists of two economic elements: (i) the right to receive a
liquidation value of $1,000 plus the 20% per annum return described above, in
respect of which Thayer (through DC Cycle) invested $1,000 per share; and (ii)
the economic rights equivalent to one-half share of Class A Common Stock, in
respect of which Thayer (through DC Cycle) invested $500 per share (the
"Deemed Common Stock"). After all such amounts required to be paid to holders
of Series A Preferred Stock and Series B Preferred Stock have been paid, any
distribution made by DCC will be paid (i) first, to holders of Class A Common
Stock and Series A Preferred Stock until such holders have received $1,000 for
each share of Class A Common Stock and $500 for each
34
<PAGE>
share of Series A Preferred Stock (in respect of the Deemed Common Stock)
(subject to adjustment in certain circumstances), (ii) second, to holders of
Class B Common Stock until such holders have received $1,000 for each share of
Class B Common Stock (subject to adjustment in certain circumstances), (iii)
third, to holders of Class A Common Stock and Series A Preferred Stock until
such holders have received a 25% internal rate of return, (iv) fourth, to
holders of Class B Common Stock until such holders have received a 20%
internal rate of return and (v) fifth, to holders of Class A Common Stock and
Series A Preferred Stock.
The Recapitalization Agreement provides that, on or before the 60th day
following the delivery of the audited financial statements of DCC for the 1998
fiscal year, DCC will be obligated to pay the Additional Payment to DFS, the
amount of which will be determined by reference to (i) the earnings before
interest and taxes of DCW, (ii) the gross margin achieved by DCC with respect
to its sales, (iii) the earnings before interest and taxes of Raleigh U.K. and
(iv) the earnings before interest and taxes of the Company. DCC may defer the
making of such Additional Payment, if any, if and to the extent that the
making of such Additional Payment would cause a default under the Revolving
Credit Agreement or the Indentures, in which case the amount to be paid as the
Additional Payment (or any unpaid portion thereof) will accrue interest at the
rate of 9.75% per annum, although such Additional Payment will be payable upon
consummation of the sale of all or substantially all the assets or capital
stock of DCC, subject to certain limited exceptions, and prior to any
distribution (other than a distribution of securities of DCC) to DCC's
shareholders (other than payments of such Additional Payment to DFS).
Mr. Gottesman and Mr. Finden-Crofts entered into non-competition and non-
solicitation agreements in connection with the execution of the
Recapitalization Agreement, whereby Mr. Finden-Crofts agreed not to solicit
any employees of, or compete with, the Company for a period of at least one
year after termination of his employment and Mr. Gottesman agreed not to
solicit any employees of, or compete with, the Company so long as Mr.
Gottesman owns (directly or indirectly) an equity interest of more than 5% in
DCC and for an additional period of two years thereafter.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statements of income
(the "Unaudited Pro Forma Condensed Combined Financial Statements") for the
year ended December 31, 1997, and for the nine months ended September 27,
1998, give effect to the Recapitalization as if it had occurred on January 1,
1997, but do not give effect to the Company's obligation to make the
Additional Payment to DFS of up to $10 million depending on the performance of
DCC and certain of its subsidiaries in the 1998 fiscal year.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with the notes included therewith, the combined financial
statements and the notes thereto included elsewhere herein and the description
of the Recapitalization set forth under "The Recapitalization". The Unaudited
Pro Forma Condensed Combined Financial Statements do not purport to represent
what the Company's results of operations actually would have been had such
transactions and events occurred on the dates specified, or to project the
Company's results of operations for any future period or date. The pro forma
adjustments are based upon available information and certain adjustments that
management believes are reasonable. In the opinion of management, all
adjustments have been made that are necessary to present fairly the pro forma
data.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net revenues................................ $ 465.7 $ -- $ 465.7
Cost of sales............................... (345.9) -- (345.9)
-------- ------- --------
Gross profit................................ 119.8 -- 119.8
Selling, general, and administrative ex-
penses..................................... (90.1) -- (90.1)
-------- ------- --------
Operating income............................ 29.7 -- 29.7
Interest expense............................ (7.5) (12.1)(a) (19.6)
Interest income............................. 1.0 (1.0)(b) --
Other income (expense), net................. 0.1 (0.1)(c) --
-------- ------- --------
Income before income taxes.................. 23.3 (13.2) 10.1
Provision for income taxes.................. (10.6) 6.0 (d) (4.6)
Minority interest........................... (0.1) 0.1 (e) --
-------- ------- --------
Net income.................................. $ 12.6 $ (7.1) $ 5.5
======== ======= ========
EBITDA(g)................................... $ 35.8 $ -- $ 35.8
======== ======= ========
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net revenues............................... $358.7 $ -- $358.7
Cost of sales.............................. (270.0) -- (270.0)
------ ------ ------
Gross profit............................... 88.7 -- 88.7
Selling, general, and administrative ex-
penses.................................... (66.0) -- (66.0)
Reorganization costs....................... (5.7) 5.7 (f) --
------ ------ ------
Operating income........................... 17.0 5.7 22.7
Interest expense........................... (11.5) (5.0)(a) (16.5)
Interest income............................ 0.7 (0.7)(b) --
Other income (expense), net................ (1.3) 1.3 (c) --
------ ------ ------
Income (loss) before income taxes and ex-
traordinary item.......................... 4.9 1.3 6.2
Provision for income taxes................. (4.2) (1.1)(d) (5.3)
Minority interest.......................... -- -- --
------ ------ ------
Income before extraordinary item........... 0.7 0.2 0.9
Extraordinary item......................... (0.3) 0.3 (f) --
------ ------ ------
Net income (loss).......................... $ 0.4 $ 0.5 $ 0.9
====== ====== ======
EBITDA(g).................................. $ 27.7 $ -- $ 27.7
====== ====== ======
</TABLE>
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Reflects (i) an increase in interest expense to reflect total interest
expense both on the Notes (at interest rates of 10% on the Dollar Notes
and 9 3/8% on the DM Notes) and on amounts outstanding under the Revolving
Credit Agreement (at an assumed interest rate of 7.79% for December 31,
1997, and September 27, 1998) and (ii) amortization of deferred financing
costs, less historical interest expense associated with the Company's
indebtedness repaid, calculated as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEAR ENDED
ENDED 9/27/98 12/31/97
-------------- ----------
(IN MILLIONS)
<S> <C> <C>
Historical Interest Expense $ (11.5) $ (7.5)
Elimination of all Interest Expense related to
Old Notes 11.2 7.1
Interest Expense related to New Revolving Credit
Agreement (2.8) (1.6)
Commitment Fee related to Unused Portion of New
Revolving Credit Agreement (0.3) (0.5)
Interest Expense related to New Notes (12.1) (15.7)
Amortization of Deferred Financing Costs related
to New Notes (1.0) (1.4)
------- ------
Pro Forma Interest Expense $ (16.5) $(19.6)
======= ======
</TABLE>
(b) Reflects the elimination of historical interest income.
(c) Reflects the elimination of the gain on the swaps entered into in
connection with the existing senior notes for the year ended December 31,
1997, and the elimination of the loss incurred in connection with the
Recapitalization and the early termination of the swaps for the nine
months ended September 27, 1998.
(d) Reflects the tax effect of the pro forma adjustments.
(e) Eliminates the minority interest income of Derby Holdings South Africa.
(f) Transaction expenses of $5.7 million (including $2.7 million of investment
banking fees, $1.7 million in legal fees, $1.0 million in accounting fees,
and $0.3 million in miscellaneous fees) and the loss of $0.3 million upon
the early extinguishment of indebtedness have not been included in the pro
forma adjustments as such costs are nonrecurring charges incurred in
connection with the Recapitalization. The amortization of goodwill
recognized in connection with the purchase of the equity held by the
minority shareholders of Derby Holdings South Africa (which occurred
within 30 days following the consummation of the Recapitalization) is
approximately $26 thousand and is not reflected in the accompanying pro
forma condensed combined financial statements as it is not significant.
(g) EBITDA is calculated herein as operating income plus depreciation and
amortization (net of negative amortization) less amortization into income
of the pension transition asset (recognized upon adoption of SFAS No. 87)
of $2.5 million and $1.9 million for the year ended December 31, 1997, and
the nine months ended September 27, 1998, respectively (see Note 14 in
"Notes to Combined Financial Statements"). EBITDA has not been adjusted for
what management believes to be one-time expenses of $2.9 million recognized
in 1997. These one-time expenses include: (i) employee severance and a
terminated management compensation program of $0.9 million, (ii) warehouse
closing costs of $0.6 million, (iii) transaction costs of $0.3 million and
(iv) certain other one-time expenses of $1.1 million. EBITDA excludes $5.7
million of one-time reorganization costs incurred in the nine months ended
September 27, 1998, for the Recapitalization. The Company includes
information concerning EBITDA because it is commonly used by certain
investors as a measure of a company's ability to generate cash flows and
service debt. EBITDA should not be considered in isolation or as a
substitute for net income or cash flow from operating activities presented
in accordance with U.S. GAAP as items excluded from EBITDA, such as
depreciation and amortization, are significant components in understanding
and assessing the Company's financial performance.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of the Company as of
the dates and for the periods presented. The selected historical financial
data as of December 31, 1996 and 1997 and for each of the three years in the
period ended December 31, 1997 were derived from the audited combined
financial statements of the Company. The selected unaudited historical
financial data of the Company as of December 31, 1993, 1994, 1995 and
September 27, 1998 and for each of the two years in the period ended December
31, 1994 and each of the nine months in the periods ended September 28, 1997
and September 27, 1998 were prepared by management in a manner consistent with
the audited combined financial statements. The information contained in this
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the combined financial
statements and accompanying notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
-------------------------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 27,
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............ $466.6 $432.6 $473.8 $452.6 $465.7 $355.0 $358.7
Cost of sales........... 354.2 332.5 366.2 339.1 345.9 264.3 270.0
------ ------ ------ ------ ------ ------ ------
Gross profit............ 112.4 100.1 107.6 113.5 119.8 90.7 88.7
Selling, general and
administrative
expenses............... 83.3 77.4 81.3 80.1 90.1 68.4 66.0
Operating income........ 29.1 22.7 22.0 33.4 29.7 22.3 17.0
Interest expense........ 10.5 10.5 9.4 8.0 7.5 5.9 11.5
Income before income
taxes and extraordinary
items.................. 17.8 11.9 23.5 23.5 23.3 17.0 4.9
Provision for income
taxes.................. 7.0 6.1 10.1 8.9 10.6 7.5 4.2
Net income.............. 10.6 5.6 13.2 14.6 12.6 9.5 0.4
OTHER FINANCIAL DATA:
Depreciation and
amortization........... 6.5 7.8 8.7 8.2 8.6 6.9 6.9
Amortization of pension
transition asset....... (2.5) (2.5) (2.7) (2.7) (2.5) (1.9) (1.9)
Capital expenditures.... 13.0 7.0 11.1 10.8 7.4 4.2 4.9
Ratio of earnings to
fixed charges(a)....... 2.5x 2.0x 3.0x 3.3x 3.4x 3.1x 1.4x
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents............ 4.1 21.8 12.7 8.8 15.4 13.1
Working capital......... 91.5 96.9 85.3 80.0 63.3 113.5
Total assets............ 227.8 250.3 263.3 260.6 288.5 297.2
Total debt, including
current portion........ 94.5 93.7 92.0 78.6 102.2 199.0
Preferred stock with
redemption rights...... -- -- -- -- -- 43.4
Stock rights(b)......... -- -- -- -- -- 23.3
Shareholders' equity
(deficit).............. 38.8 56.3 66.1 83.1 81.9 (62.7)
</TABLE>
- --------
(a) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before taxes and fixed charges. Fixed charges
consist of (i) interest, whether expensed or capitalized, (ii)
amortization of deferred financing costs and (iii) the portion of rental
expense considered to represent interest (assumed to be one-third).
(b) Reflects Class A Common Stock having a value of $8.3 million and Class B
Common Stock having a value of $15.0 million issuable to DICSA upon
exchange of the Raleigh Canada Preferred Stock. The Raleigh Canada
Preferred Stock may be redeemed subsequent to the vesting of the Company's
right to exchange such stock for shares of its Common Stock, at the option
of DICSA under certain circumstances, for a cash payment of $23.3 million,
plus all accrued and unpaid dividends thereon.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the audited
combined financial statements of the Issuers and the selected financial and
other data contained elsewhere in this Prospectus.
Derby is a world-leading designer, manufacturer and marketer of bicycles.
Competing primarily in the medium- to premium-priced market, Derby owns or
licenses many of the most recognized brand names in the bicycle industry,
including leading global brands such as Raleigh, Nishiki and Univega, and
leading regional brands such as Gazelle in The Netherlands and Kalkhoff,
Musing, Winora and Staiger in Germany. For the fiscal year ended December 31,
1997 and the nine months ended September 28, 1997 and September 27, 1998, the
Company had net revenues of $465.7 million, $355.0 million and $358.7 million,
respectively, and EBITDA of $35.8 million, $27.3 million and $27.7 million,
respectively.
The following table summarizes the Company's historical results of
operations as a percentage of net revenues for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 28, 1997 and September
27, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... (77.3) (74.9) (74.3) (74.4) (75.3)
------- ------- ------- ------ ------
Gross profit............ 22.7 25.1 25.7 25.6 24.7
Selling, general, and
administrative
expenses............... (17.2) (17.7) (19.3) (19.3) (18.4)
Reorganization costs.... (0.9) -- -- -- (1.6)
------- ------- ------- ------ ------
Operating income........ 4.6 7.4 6.4 6.3 4.7
Interest expense........ (2.0) (1.8) (1.6) (1.7) (3.1)
Interest income......... 0.2 0.2 0.2 0.2 0.2
Other income (expense),
net.................... 2.1 (0.6) -- -- (0.4)
------- ------- ------- ------ ------
Income before income
taxes and extraordinary
item .................. 4.9 5.2 5.0 4.8 1.4
Provision for income
taxes.................. (2.1) (2.0) (2.3) (2.1) (1.2)
Minority interest....... -- -- -- -- --
------- ------- ------- ------ ------
Income before extraordi-
nary item.............. 2.8 3.2 2.7 2.7 0.2
Extraordinary item...... -- -- -- -- (0.1)
------- ------- ------- ------ ------
Net income.............. 2.8% 3.2% 2.7% 2.7% 0.1%
======= ======= ======= ====== ======
</TABLE>
Derby operates in ten countries around the world with a majority of its
operations conducted in countries other than the United States. In 1997, 51%
of the Company's net revenues were denominated in currencies within the
European Monetary System, 23% were denominated in pounds Sterling and 26% were
denominated in other currencies. In the same period, 45% of the Company's
material costs, which in turn accounted for 74% of its cost of goods sold,
were purchased in currencies other than the currency of the related revenues.
The Company reduces its currency exposure by maintaining operations in the
major markets in which it sells its products. The Company further mitigates
foreign exchange risk by purchasing currency options and entering into forward
purchase contracts primarily related to transactions denominated in U.S.
dollars, New Taiwan dollars and Yen, which accounted for 13%, 12% and 11%,
respectively, of the Company's material costs in 1997. See Note 8 of the
"Notes to Combined Financial Statements".
The Company is a net importer of products from Asian markets and accordingly
was not adversely impacted by the Asian currency depreciation in late 1997.
40
<PAGE>
ACQUISITION HISTORY AND INVESTMENT PROGRAM
Derby was organized in 1986 to acquire the Raleigh, Gazelle and Sturmey-
Archer bicycle and bicycle component businesses from TI Group plc. In
September 1988, Derby acquired the assets of Neue Kalkhoff, the second largest
bicycle manufacturer in the former Federal Republic of Germany at the time,
and established DCW. In October 1988, the Company acquired the assets of
Raleigh Cycle Company of America from Raleigh's U.S. licensee, Huffy
Corporation, and the West Coast Cycle division of Medalist Industries Inc.
(owner of the Nishiki brand in the United States). These two businesses were
merged to form Raleigh USA. Derby formed the Company's Probike South Africa
operating company with the acquisitions of Cycle and Hardware Factors in 1989,
J.H. Slotar in 1990 and Cycle Centre Wholesale in 1991. In 1992, Derby
acquired Musing, the German bicycle manufacturer.
Derby has continued to acquire bicycle and bicycle component companies and
leading brand names. On July 18, 1998, the Company entered into a nonbinding
letter of intent to acquire a bicycle design and distribution company for a
purchase price of approximately $20 million in cash, the assumption of certain
indebtedness and a contingent payment based on purchases. The letter of intent
has since expired. The Company is still in the process of negotiating the
terms of purchase of the target. In January 1997, Derby completed the
acquisition of the assets and operations of the Winora and Staiger businesses
for approximately $2.7 million in cash and $9.1 million of assumed debt.
Winora-Staiger is a long-established bicycle manufacturer and distributor
located in southwestern Germany that sells bicycles to a network of IBDs to
which the Company was not previously a major supplier. In March 1997, Derby
acquired the worldwide rights to the Univega brand name and its associated
trade names, trademarks and designs for approximately $2.6 million. In August
1997, the Company formed Univega to serve as a holding company for the
acquisition of the MS Sport Group from Robert Holzer over a specified period
of years. Univega agreed to pay Mr. Holzer a purchase price based on the MS
Sport Group's performance through the year 2000 in a maximum amount of DM13.1
million and a minimum amount of DM5.35 million. The Company also formed
Univega License, which is owned by Derby Holding (Deutschland) and Mr. Holzer,
to hold and license the Univega trademarks.
Since 1990, Derby has invested in labor-saving, flexible production
machinery and restructured the workforces at its manufacturing locations. From
1992 to 1993, taking advantage of substantial incentives from the German
government, Derby built a factory in Rostock, in the former German Democratic
Republic. Derby completed its internal reorganization and investment program
in 1996, having made major steps toward improving production efficiency and
increasing manufacturing flexibility.
41
<PAGE>
RESULTS OF OPERATIONS
Summary of Operations by Operating Company
The following table summarizes certain historical results of operations for
Derby's operating companies:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
------- ------- ------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Raleigh U.K. (United
Kingdom):
Net Revenues.......... $ 106.7 $ 107.4 $ 107.3 $ 74.4 $ 58.6
EBITDA(/1/)........... 4.6 8.8 14.9 9.9 3.5
Operating Income...... 3.3 7.5 13.1 9.0 2.4
Gazelle (The Nether-
lands):
Net Revenues.......... 119.7 120.8 107.8 81.5 82.3
EBITDA(/1/)........... 14.0 16.8 13.9 11.2 11.4
Operating Income...... 13.6 16.2 13.4 10.8 11.0
DCW/Winora-Staiger/MS
Sport Group (Germany):
Net Revenues.......... 92.5 82.4 103.8 89.1 105.4
EBITDA(/1/)........... 0.8 4.0 0.6 2.4 5.7
Operating Income...... (2.6) 1.1 (2.2) (0.2) 3.2
Raleigh USA (United
States):
Net Revenues.......... 57.4 53.5 57.9 41.9 49.6
EBITDA(/1/)........... (1.3) (0.1) (1.4) (2.0) 1.5
Operating Income...... (1.9) (0.7) (2.0) (2.5) 1.1
Raleigh Canada (Canada):
Net Revenues.......... 36.2 29.5 29.5 26.7 26.5
EBITDA(/1/)........... 3.5 3.1 3.1 2.8 2.9
Operating Income...... 3.2 2.8 2.8 2.5 2.6
Sturmey-Archer (United
Kingdom):
Net Revenues.......... 32.4 30.1 29.6 23.2 19.4
EBITDA(/1/)........... 4.5 5.6 3.3 2.7 0.8
Operating Income...... 4.4 5.5 3.4 2.6 0.7
Probike South Africa
(South Africa):
Net Revenues.......... 22.6 20.5 20.6 12.8 11.2
EBITDA(/1/)........... 2.2 2.2 2.3 1.0 0.7
Operating Income...... 1.9 2.0 2.1 0.9 0.6
Other and inter-company
adjustments(/2/):
Net Revenues.......... 6.3 8.4 9.2 5.4 5.7
EBITDA(/1/)........... (0.4) (1.4) (0.9) (0.7) 1.2
Operating Income...... 0.1 (1.0) (0.9) (0.8) 1.1
Total:
Net Revenues.......... $ 473.8 $ 452.6 $ 465.7 $355.0 $358.7
EBITDA(/1/)........... 27.9 39.0 35.8 27.3 27.7
Operating In-
come(/3/)............ 22.0 33.4 29.7 22.3 22.7
</TABLE>
- --------
(1) EBITDA is calculated herein as operating income plus depreciation and
amortization (net of negative amortization) less amortization into income
of the pension transition asset (recognized upon adoption of SFAS No. 87)
(see Note 14 in "Notes to Combined Financial Statements"). EBITDA has not
been adjusted for what management believes to be one-time expenses of $2.9
million recognized in 1997. These one-time expenses include: (i) employee
severance and a terminated management compensation program of $0.9
million, (ii) warehouse closing costs of $0.6 million, (iii) transaction
costs of $0.3 million and (iv) certain other one-time expenses of $1.1
million. EBITDA excludes $5.7 million of one-time reorganization costs
incurred in the nine months ended September 27, 1998, for the
Recapitalization. The Company includes information concerning EBITDA
because it is commonly used by certain investors as a measure of a
company's ability to generate cash flows and service debt. EBITDA should
not be considered in isolation or as a substitute for net income or cash
flow from operating activities presented in accordance with U.S. GAAP as
items excluded from EBITDA, such as depreciation and amortization, are
significant components in understanding and assessing the Company's
financial performance.
(2) The amounts shown have been calculated by subtracting, for each item, the
sum of the amounts for each of the operating companies from the
corresponding total amount. These amounts reflect the margin made on
revenues on Company produced bicycles by distribution companies, including
Raleigh Europe and Raleigh Ireland, revenues from sales of components to
third parties by Derby Trading and inter-company adjustments.
(3) Operating income excludes $5.7 million of one-time reorganization costs
incurred in the nine months ended September 27, 1998, for the
Recapitalization.
42
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 27, 1998 TO NINE MONTHS ENDED
SEPTEMBER 28, 1997
Net Revenues. Net revenues increased by $3.7 million to $358.7 million for
the nine months ended September 27, 1998, compared with the corresponding
period in 1997. In local currencies, net revenues increased by 5.0% over the
same period. The smaller increase in U.S. dollar terms compared with the local
currency figures is due primarily to the strengthening of the U.S. dollar
against the Deutsche mark and the Dutch guilder. Sales growth was driven by
volume increases and a richer sales mix. Units sold increased by 27,000 in the
nine months ended September 27, 1998, as compared to the corresponding period
in 1997.
Gazelle's business continued to benefit from the buoyant Dutch market, with
a 7.2% increase in revenues in local currency, in the nine month period.
Strong consumer demand through the end of 1997 drove beginning 1998 inventory
levels down for Dutch retailers, and benefited Gazelle's first half 1998
sales, but exceptionally wet weather in the summer (June 1998 had the highest
rainfall on record in The Netherlands) decreased sales in the third quarter by
4.6% compared to the corresponding period in 1997.
Derby Germany benefited from sales of Univega bicycles, a business which the
Company did not own in the first seven months of 1997. The private label and
trade businesses also contributed to year-over-year revenue increases. In
local currency, Derby Germany revenues increased 24.9% in the nine month
period, of which 7.7% was represented by Univega.
Revenues at Raleigh USA increased 18.3% in the nine month period. The
increase is attributable to the improved product range as well as to sales
under the Univega brand. The Company purchased the loss-making Univega brand
in 1997 and successfully re-launched it in the United States in the fall of
that year.
In Canada, the first quarter was adversely affected by production and
commercial interruptions caused by an ice storm in January 1998. This was
followed by strong demand for product in the second and third quarters, driven
by favorable spring and summer weather and the rapid response to manufacturing
a fast-selling new product. The recovery produced revenues that were 4.6%
higher for the nine month period in local currency terms than the
corresponding period in 1997.
The United Kingdom businesses (Raleigh U.K. and Sturmey-Archer) have been
negatively impacted by the strength of sterling and by competitive pricing. As
an exporter of components, Sturmey-Archer's Dutch guilder-based revenues have
been reduced on conversion into sterling by a 5.8% depreciation of the guilder
compared with 1997. Lower sales volume resulted from a slight increase in
Sturmey-Archer's guilder prices to partially offset the depreciation of the
guilder against lower German and Japanese competitors' prices in guilder
terms. Revenues were further reduced by the loss of a major customer in the
automotive industry, producing an overall decline in revenues of 16.3% for the
nine month period. Raleigh U.K. designed its product range for the 1998 season
to maintain selling prices close to 1997 levels, giving enhanced margins
through reduced component costs due to the strength of sterling and price
reductions gained from vendors. However, competitors, who gained a bigger cost
advantage from the fall in Asian currencies from having their own
manufacturing based in Asia, passed their cost savings on to consumers by
giving more highly specified products at no increase in price. This produced a
12.9% drop in revenues for the six months ended June 28, 1998, as compared to
the corresponding period in 1997. Management responded by upgrading the
specification of products to remain competitive. However, the market was
further weakened by poor summer weather in the United Kingdom, Ireland, and
The Netherlands, and a supply chain temporarily over-stocked with Taiwanese
products imported to beat the introduction of EU anti-dumping duties on Taiwan
in August 1998. As a result, revenues in the third quarter dropped by 34.4%
compared with the third quarter of 1997, with no improvement anticipated in
the final quarter of 1998. This resulted in revenues of $58.6 million for the
nine months ended September 27, 1998, 21.2% less than the corresponding period
in 1997.
43
<PAGE>
Gross Profit. Gross profit for the nine months ended September 27, 1998,
remained unchanged in local currency terms in comparison with the
corresponding period in 1997, but was $2.1 million lower when translated into
U.S. dollars. Margins were enhanced by a substantial improvement in the German
manufacturing operations, where the integration of the Winora-Staiger and
Univega acquisitions and revenue growth benefited production recoveries.
Margins were enriched at Raleigh USA by effective product management and the
effect of Japanese Yen weakness on component costs. However, these positive
factors were offset by marking-to-market forward foreign exchange contracts
taken out to stabilize the cost of future purchases of components, the impact
of strong sterling on the conversion of export revenues at Sturmey-Archer and
lower production recoveries at Raleigh U.K. as production was cut-back in line
with sales demand, together with the cost of enhanced product specifications.
Selling, General, and Administrative Expenses. For the nine months ended
September 27, 1998, expenses of $66.0 million decreased by $2.5 million, or
3.6%, over the comparable period in 1997 when translated into U.S. dollars.
Aggregate selling, general, and administrative expenses in local currency
remained essentially unchanged from the previous year. The inclusion of costs
from the acquisitions of Winora-Staiger and Univega for the entire period in
1998, compared with their gradual phasing-in during 1997, plus cost inflation,
were counter-balanced by one-time cost items of $1.8 million which were
incurred during 1997 and foreign currency exchange gains of $2.0 million which
were recognized during 1998. A Dutch subsidiary realized most of this exchange
gain upon changing U.S. dollar denominated debt into Dutch guilders. After
this change, and similar changes in certain other group companies, the net
monetary assets and liabilities in the Company and its subsidiaries are
denominated in their own home currency to eliminate any foreign currency
exchange exposure. The exposure position is monitored to avoid any significant
aggregate exposure arising across the Company. However, due to the unusual
complexity of the Recapitalization, a large exposure arose which was
subsequently eliminated by replacing the Dutch subsidiaries' U.S. dollar bank
drawdown with a Dutch guilder drawdown in September 1998. An exchange gain was
realized due to the strengthening of the Dutch guilder since the initial U.S.
dollar drawdown at the time of the Recapitalization.
Operating Income. Operating income for the nine months ended September 27,
1998, before reorganization costs of $5.7 million, was $22.7 million, an
increase of $0.4 million over the comparable period in 1997 due to the
increased sales volume. The operating profit margin was 6.3% in both 1997 and
1998. Reorganization costs included in the calculation of operating income
include legal, accounting and investment banking fees incurred in connection
with implementing the Recapitalization on May 14, 1998. These costs resulted
in lower total operating income than the comparable period in 1997.
Interest Expense. Interest expense increased by $5.6 million for the nine
months ended September 27, 1998, to $11.5 million compared with the
corresponding period in 1997 due to the increased debt and higher interest
rates following the Recapitalization.
Other Income (Expense), Net. Other income (expense) for the nine months
ended September 27, 1998, mainly represents the reduction in market value of
the outstanding interest rate swap contracts upon their amortization over the
remaining term and the loss upon their early termination due to the
Recapitalization. It also includes the reduction in mark-to-market value of
options and caps which were purchased to safeguard the Company's ability to
service its debt from future increases in U.S. dollar strength and interest
rates.
Provision for Income Taxes. Income taxes decreased $3.3 million or 44% from
$7.5 million in the nine months ended September 28, 1997, to $4.2 million in
the nine months ended September 27, 1998, due to lower income in the United
Kingdom. The effective tax rate on income before income taxes and
extraordinary item increased from 44% in 1997 to 85% in 1998, primarily due to
reorganization expenses of $5.7 million, for which the related tax benefit has
been fully reserved, resulting in an increase in the combined effective tax
rate.
Extraordinary Item. The extraordinary item of $.3 million in the nine months
ended September 27, 1998, represents a $0.5 million charge for the loss on the
early retirement of debt on May 14, 1998, in connection with the
Recapitalization, less the related tax benefit of $0.2 million.
44
<PAGE>
Net Income. Net income decreased from $9.5 million in the nine months ended
September 28, 1997, to $0.4 million in the nine months ended September 27,
1998, primarily as a result of the $5.6 million increase in interest expense,
$5.7 million in reorganization costs, and the losses on the early retirement
of debt and the early termination of the swaps, less the related tax benefit.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Net Revenues. Net revenues increased $13.1 million, or 2.9%, to $465.7
million for 1997 from $452.6 million for 1996. This increase was primarily due
to increases in selling prices as the Company's product mix strengthened.
Average unit selling prices decreased by 1.5%. Net revenues from sales of
parts and accessories, which accounted for 14.7% of total 1997 net revenues,
increased by 25.5% in 1997, due in part to the acquisition of Winora-Staiger.
Bicycle sales volume increased 22.9 thousand units, or 0.8%, to 2.1 million
units. The benefits of increased volume were partially offset by the continued
strength of the U.S. dollar against the major continental European currencies,
tempered by the U.S. dollar's weaker position relative to the pound Sterling.
Raleigh U.K.'s net revenues decreased $0.1 million, or 0.1%, from 1996. In
local currency, Raleigh U.K.'s net revenues declined 4.5%. Raleigh U.K.'s
sales to dealers declined by 34 thousand units, or 11%, from 1996, while mail
order sales declined by 8 thousand units.
Gazelle's net revenues decreased $13.0 million, or 10.8%, from 1996. In
local currency, Gazelle's net revenues increased 2.4%. The decrease in sales
was primarily due to high levels of dealer inventories resulting from
overstocking during the second half of 1996.
DCW's net revenues increased $21.4 million, or 26%, from 1996. In local
currency, DCW's net revenues increased 43.9%. DCW's acquisitions in 1997 of
Winora-Staiger and the MS Sport Group, which distributes the Univega brand,
contributed substantially to volume increases. In addition, the introduction
of high specification Winora bicycles strengthened the product mix. These
factors offset a decline of 27 thousand units, or 7.5%, in DCW sales other
than in the Winora and Univega product lines, reflecting difficult overall
market conditions in Germany. Without the 1997 acquisitions, net revenues
would have decreased by $1.7 million, or 2.1%. Plans are in development to
increase production and sales of private label bicycles at prevailing market
prices to achieve higher margins.
Raleigh USA's net revenues increased $4.4 million, or 8.2%, from 1996 as it
benefited from organizational changes and a well-received mid-priced product
offering for the 1996/97 season. Unit volume increased by 22 thousand units,
or 10.3%, over 1996.
Raleigh Canada's net revenues were relatively flat between 1996 and 1997. In
local currency, Raleigh Canada's net revenues increased CAN$0.2 million.
Gross Profit. Gross profit increased $6.3 million, or 5.6%, to $119.8
million for 1997 from $113.5 million for 1996, and gross margin increased from
25.1% to 25.7%. This increase was primarily due to a relative emphasis on
increasing profit margins rather than sales. Continued weakening of the Yen
led to a fall in material costs as a percentage of sales to 54.7% from 55.1%
in 1996 which offset an increase in labor costs.
Raleigh U.K.'s gross profit increased by $4.9 million, or 19.2%, from 1996,
and gross margin increased from 23.6% to 28.2%. In local currency, gross
profit increased (Pounds)2.3 million, or 14.2%. Favorable exchange rate
movements and lower component costs benefited Raleigh U.K. The benefits of
factory reorganizations at Raleigh U.K. also contributed to the increase in
gross profit.
Gazelle's gross profit decreased by $3.6 million, or 12.0%, from 1996, and
gross margin declined from 24.9% to 24.5%. Gross profit in local currency
increased NLG0.4 million, or 0.8%.
DCW's gross profit increased by $5.6 million, or 38.5%, and gross margin
increased from 17.6% to 19.3%. Without giving effect to the 1997 acquisitions,
gross profit would have decreased by $2.6 million, or 17.7%. Following the
acquisition of Winora-Staiger by DCW, insufficient forward hedging
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<PAGE>
against U.S. dollar purchases of materials resulted in an exchange loss as the
Deutsche Mark significantly depreciated. In local currency, gross profit
increased DM12.6 million, or 58.3%. The acquisition of Winora-Staiger, which
occurred immediately prior to the peak selling season, required short and
inefficient production runs to meet demand, which caused significant factory
disruption at DCW and contributed to increased labor costs. A favorable shift
in product mix to high specification models at DCW required a greater amount
of labor input than required for traditional DCW models, further adding to the
increase in direct labor costs.
Raleigh USA's gross profit increased by $2.0 million, or 15.9%, from 1996,
and gross margin increased from 23.6% to 25.2% primarily due to lower Yen-
denominated component prices.
Raleigh Canada's gross profit increased by $0.5 million, or 7.5%, from 1996,
and gross margin increased from to 20.8% to 22.3%. Gross profit in local
currency increased CAN$0.7 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.0 million, or 12.5%, to $90.1 million in
1997 from $80.1 million in 1996. As a percentage of net revenues, selling,
general and administrative expenses increased to 19.3% from 17.7% in 1996.
This increase was principally the result of the acquisitions of Winora-Staiger
and the MS Sport Group. Included in selling, general and administrative
expenses is net negative amortization of $(0.7) million, which includes
amortization of net negative goodwill related to acquisitions as well as
amortization into income of capital grants from the German government for
facility construction in Germany.
Operating Income. Operating income decreased $3.7 million, or 11.1%, to
$29.7 million for 1997 from $33.4 million in 1996. The operating margin
declined to 6.4% in 1997 from 7.4% in 1996.
Interest Expense. Interest expense decreased $0.5 million, or 6.3%, to $7.5
million in 1997 from $8.0 million in 1996. The decrease was due primarily to
an increased proportion of Deutsche Mark denominated debt which carried a
relatively low interest rate of 5.25%. These benefits were partially offset by
an increase in borrowings associated with acquisitions made during the year.
Other Income (Expense), Net. Other income (expense) increased $2.8 million
to $0.1 million from $(2.7) million in 1996. Other income (expense) in 1997
was comprised entirely of a gain on outstanding swap contracts.
Provision for Income Taxes. Income taxes increased $1.7 million, or 19.1%,
to $10.6 million for 1997 from $8.9 million in 1996. The effective tax rate
increased to 45% in 1997 from 38% in 1996 due to higher losses in Germany and
the United States for which no income tax benefit was available.
Net Income. Net income decreased $1.9 million, or 13.0%, to $12.7 million
for 1997 from $14.6 million for 1996 due to the factors discussed above.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Net Revenues. Net revenues decreased $21.2 million, or 4.5%, to $452.6
million for 1996 from $473.8 million for 1995. Net revenues from sales of
parts and accessories, which accounted for 12.0% of total 1996 net revenues,
increased by 4.5% in 1996. Bicycle sales volume was 7.4% lower than in 1995 as
markets in both Europe and North America weakened, although reduced demand was
partially offset by a 4.3% improvement in average selling price. The U.S.
dollar strengthened against major European currencies but weakened against the
pound Sterling, producing a reduction in net revenues due to foreign exchange
translation.
Raleigh U.K.'s net revenues increased $0.7 million, or 0.7%, from 1995. In
local currency, Raleigh U.K.'s net revenues increased 1.5%. While the number
of units sold in 1996 decreased by 3.9%, Raleigh U.K. was able to raise its
average trade price by 3.1% due to an improved product mix.
Gazelle's net revenues increased $1.1 million, or 0.9%, from 1995. In local
currency, Gazelle's revenues increased 5.5%. Volume increased by 2.5% and
average selling price increased 5.3% from 1995. The increase in sales was
primarily due to continued dealer optimism and high order levels early in the
year following strong consumer demand in 1995.
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<PAGE>
DCW's net revenues decreased $10.1 million, or 10.9%, from 1995. In local
currency, DCW's revenues decreased 6.7% as a result of strong price
competition in the context of decreased bicycle demand in the German market.
DCW focused on maintaining profit margins rather than volume, and units sold
declined by 9.1%. DCW was able to raise its average sales price by 2.2% in
1996, as the benefits of a restructuring undertaken in 1995 to eliminate
certain redundant production processes enabled DCW to remain competitive in
market segments above a DM300 retail price.
Raleigh USA's net revenues decreased $3.9 million, or 6.8%, from 1995 due to
a 7.8% decline in unit sales as customers entered the year with excess
inventories. The average selling price increased by 2.5% as demand for higher
priced suspension and road bicycles improved.
Raleigh Canada's net revenues decreased $6.7 million, or 18.5%, from 1995.
In local currency, Raleigh Canada's net revenues decreased CAN$10.0 million.
Two major customers in the mass merchandiser channel reduced orders for new
private-label bicycles in 1996 after making exceptionally large unit purchases
in 1995.
Gross Profit. Gross profit increased $5.8 million, or 5.4%, to $113.5
million in 1996 from $107.7 million in 1995, and gross margin increased from
22.7% to 25.1%. This increase was primarily due to cost reductions and
increased manufacturing productivity resulting from management actions taken
in late 1995 and early 1996, primarily at DCW and Raleigh USA. These actions
included the elimination of certain redundant production processes at DCW and
changes in material sourcing and factory layout at Raleigh USA, which improved
productivity and reduced unit costs. A reduction in material costs to 55.1% of
revenues in 1996 from 56.9% of revenues in 1995 resulted from over capacity in
the component market, which enabled several operating companies to negotiate
material cost savings, while the weakening of the Yen and lower levels of
discounted sales further improved margins.
Raleigh U.K.'s gross profit decreased by $0.7 million, or 2.6%, from 1995,
and gross margin decreased from 24.4% to 23.6%. In local currency, gross
profit decreased (Pounds)0.3 million, or 1.8%. Implementation of new robotic
welding equipment and a paint plant diluted the benefit of the factory
reorganization at Raleigh U.K. A 3.1% increase in average trade price was
offset by a 3.9% decline in units sold.
Gazelle's gross profit increased by $2.8 million, or 10.2%, from 1995, and
gross margin increased from 22.7% to 24.9%. In local currency, gross profit
increased 15.6%. Gross margins improved primarily due to a strengthening of
the Dutch Guilder and lower component costs. As Gazelle was able to maintain
its unit cost of revenues in 1996, higher average unit sales prices also
contributed to the improvement in the gross margin.
DCW's gross profit increased by $1.4 million, or 10.8%, from 1995, and gross
margin increased from 14.1% to 17.6%. In local currency, gross profit
increased DM2.9 million, or 15.5%.
Raleigh USA's gross profit increased by $1.0 million, or 8.6%, from 1995,
and gross margin increased from 20.2% to 23.6%. The margin improvement was a
result of certain material sourcing changes as well as improvements to Raleigh
USA's manufacturing processes that reduced close-out sales at the end of the
season.
Raleigh Canada's gross profit decreased by $0.2 million, or 3.7%, from 1995,
and gross margin increased from 17.5% to 20.8%. In local currency, gross
profit decreased CAN$0.4 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.2 million, or 1.5%, to $80.1 million for
1996 from $81.3 million for 1995. As a percentage of net revenues, selling,
general and administrative expenses increased to 17.7% for 1996 from 17.2% in
1995. This increase resulted primarily from higher marketing expenditures at
Gazelle and restructuring costs at Raleigh U.K. Also included in selling,
general and administrative expenses is net amortization of $(1.2) million,
which includes amortization of net negative goodwill related to acquisitions
as well as amortization into income of capital grants from the German
government for facility construction in Germany.
Operating Income. Operating income increased $11.4 million, or 51.8%, to
$33.4 million for 1996 from $22.0 million for 1995. The operating margin
improved to 7.4% in 1996 from 4.6% in 1995. This
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<PAGE>
was primarily a result of cost reductions realized in 1996 and reorganization
costs of $4.4 million incurred in 1995 at Raleigh U.K.
Interest Expense. Interest expense decreased $1.4 million, or 14.9%, to $8.0
million for 1996 from $9.4 million for 1995. This was primarily due to the
decrease in interest rates in Europe and North America and the repayment of
the first installment of the medium term senior notes in late 1995.
Other Income (Expense), Net. Other income (expense) decreased $12.7 million
to $(2.7) million from $10.0 million in 1995. Other income (expense) in 1996
was comprised entirely of a loss on the marking-to-market of outstanding swap
contracts. Other income (expense) in 1995 was comprised of $4.7 million of
profit on the disposal of land and building in connection with the
reorganization in 1995 and $5.3 million related to a gain on the marking-to-
market of outstanding swap contracts.
Provision for Income Taxes. Income taxes decreased $1.2 million, or 11.9%,
to $8.9 million for 1996 from $10.1 million for 1995. The effective tax rate
decreased to 38% in 1996 from 43% in 1995 due to decreased losses in Germany
and the United States for which no income tax benefit was available.
Net Income. Net income increased $1.4 million, or 10.6%, to $14.6 million
for 1996 from $13.2 million for 1995. This increase was primarily due to the
reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Demand for bicycles in Derby's principal markets is seasonal, characterized
in most cases by a majority of consumer sales in the spring and summer months
(the "Peak Season"). In the United Kingdom, South Africa and Ireland, consumer
revenues are typically higher in the last four months of the calendar year due
to increased sales of juvenile bicycles in the month preceding Christmas.
Accordingly, dealers' peak purchasing months in those countries are October
and November when they build inventory in anticipation of Christmas sales of
juvenile bicycles. Excluding this holiday seasonality, the Company's working
capital requirements are greatest during February, March and April at the
start of the Company's Peak Season as receivable levels increase. The Company
offers extended credit terms during the months prior to the Peak Season,
although Derby encourages early payments through trade discounts.
Finished goods inventory remains relatively constant throughout the fiscal
year and the level of raw materials increases and decreases normally only to
accommodate production needs. Work in progress represents, on average, eight
days' production. Inventory levels reach a minimum at the end of the Peak
Season.
Net cash flows from operating activities decreased $0.9 million to $11.0
million for the year ended December 31, 1997 from $11.9 million for the year
ended December 31, 1996. Net cash flows from operating activities increased
$3.8 million to $11.9 million for 1996 from $8.1 million during 1995. Net cash
flows from operating activities increased $1.3 million to $10.2 million from
$8.9 million for the nine months ended September 27, 1998. This increase was
due to a change in the second half interest payment date on the Company's long
term debt from July 30, 1997 to November 13, 1998, which reduced the interest
paid in the nine months ended September 27, 1998, to $4.8 million compared
with $5.8 million in the nine months ended September 28, 1997. Accounts
receivable decreased by $8.9 million in the nine months ended September 27,
1998, as compared to a decrease of $5.1 million for the nine months ended
September 28, 1997. The greater decrease in trade accounts receivable is due
to the decrease in revenues in September 1998 as compared with September 1997.
As of September 27, 1998, days sales outstanding are within one day of days
sales outstanding as of September 28, 1997. Inventories increased by
$7.0 million in the nine months ended September 27, 1998, compared with $3.4
million in the corresponding period in 1997 due to Gazelle's higher in-transit
inventories resulting from the greater use of imported derailleurs and hub
gears in the Dutch product range for the 1999 model year currently being
produced. Accounts payable and accrued liabilities decreased $11.3 million for
the nine months ended September 27, 1998, as compared to $4.0 million for the
nine months ended September 28, 1997, due to a reduced rate of purchasing.
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Net cash flows from financing activities increased to $8.5 million in 1997
from a net use of $15.7 million in 1996. This increase of $24.2 million was
due primarily to an increase in short term borrowings of $28.9 million in
1997. For the nine months ended September 27, 1998, net cash flows used in
financing activities were $4.4 million compared with $0.5 million provided by
financing activities in 1997 due to the indebtedness incurred in connection
with the Recapitalization.
The Company's contributions to its defined benefit pension plans were $2.3
million, $2.2 million, $2.3 million, $1.7 million and $1.2 million in 1995,
1996, 1997 and for the nine months ended September 28, 1997 and September 27,
1998, respectively. The Company adopted Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions" on January 1, 1993. The
impact of adopting SFAS No. 87 was the recognition of a transition asset of
$37.8 million. The transition asset is being amortized into income over 15
years. Net periodic pension income was $5.8 million, $6.3 million,
$5.8 million, $4.4 million and $3.7 million in 1995, 1996, 1997 and for the
nine months ended September 28, 1997 and September 27, 1998, respectively. Net
periodic pension income includes amortization of the transition asset into
income of $2.7 million, $2.7 million, $2.5 million, $1.9 million and $1.9
million in 1995, 1996, 1997 and for the nine months ended September 28, 1997
and September 27, 1998, respectively.
The Company's capital expenditures were $11.1 million, $10.8 million, $7.4
million, $4.2 million and $4.9 million in 1995, 1996, 1997 and for the nine
months ended September 28, 1997 and September 27, 1998, respectively. The
Company anticipates that total capital expenditures for 1998 will be
approximately $9 million, which includes $1.0 million to upgrade computer
systems in its operations at Raleigh USA and Raleigh Canada.
The Company incurred significant indebtedness in connection with the
Recapitalization. As of September 27, 1998, the Company had approximately
$199.0 million of combined indebtedness, including $163.9 million of
indebtedness pursuant to the Notes, $32.9 million of borrowings under the
Revolving Credit Agreement, $1.5 million of borrowings under the South African
Credit Facility, and $0.7 million of bank overdraft borrowings by the
Company's subsidiaries. The Notes are issued under Indentures which contain
certain covenants that, among other things, restrict the ability of DCC and
its Restricted Subsidiaries to incur additional indebtedness, pay dividends,
redeem capital stock, redeem subordinated obligations, make investments,
undertake sales of assets and subsidiary stock, engage in transactions with
affiliates, issue capital stock, permit liens to exist, operate in other lines
of business, engage in certain sale and leaseback transactions and engage in
mergers, consolidations or sales of all or substantially all the assets of the
Company. Accordingly, certain activities or transactions that the Company may
want to pursue or enter into may be restricted or prohibited, and such
restrictions and prohibitions could, from time to time, impact available cash
on hand and the liquidity of the Company. See "Description of Exchange Notes".
The Revolving Credit Agreement provides for a seven-year DM214 million senior
secured revolving credit facility to be made available to Derby's operating
companies. Borrowings under the Revolving Credit Agreement are available
subject to a borrowing base determined as a percentage of eligible assets. See
"Description of Revolving Credit Agreement".
The Company was in compliance with all of its financial covenants as of the
end of the third quarter of 1998.
The borrowing covenants under the Revolving Credit Agreement with Chase
Manhattan plc include a limit on Inventory Days, defined as inventory net of
provisions divided by cost of goods sold before depreciation and amortization.
The covenant is set at 100-days and, along with Receivable Days, is tested
monthly; all other financial covenants are tested quarterly. At the end of
October, Inventory Days were 103-days due to the combination of, (i) higher
inventory at Raleigh U.K. following the slow-down in revenues, as well as high
inventory levels in Germany, and (ii) lower cost of goods sold due to the
slow-down in sales at Raleigh U.K. The Company has obtained a waiver from the
banks effective from October 1, 1998, to December 31, 1998, so long as the
test does not exceed 110-days. Management is takings steps to reduce surplus
inventories by year-end, and has arranged to present the outcome to the banks
in mid-December as a basis for negotiating the Inventory Days covenant for the
selling season through to the summer of 1999. The surplus inventories are
localized
49
<PAGE>
to the U.K. and Germany, with inventory levels in other countries held at the
low levels normal for this time of year. The Company believes that its
management of working capital still gives it a significant advantage over its
competitors, with faster inventory turns allowing it to benefit from a
recovering market with new products before them and lower receivables levels
facilitating growing revenues within credit limits which minimize the risk of
bad debt expense.
The slow-down at Raleigh U.K. has been offset by improvements in other areas
of the Company in the nine months ended September 27, 1998, validating the
Company's strategy of geographically diversifying revenues and cash flows to
mitigate the effects of a cyclical downturn in any one country's bicycle
market. As the U.K. bicycle market has historically had a strong Christmas
season, Raleigh U.K. would normally generate approximately 60% of the
Company's Consolidated Adjusted EBITDA in the fourth quarter. As a result, the
other operations are not expected to be able to offset the effect of the slow-
down at Raleigh U.K. in the fourth quarter, and the Company is expected to
fall short of the level of Consolidated Adjusted EBITDA on December 31, 1998,
covenanted under the Revolving Credit Agreement. The Company is finalizing its
operating plans for 1999 and has arranged a meeting in mid-December with the
banks to renegotiate its Consolidated Adjusted EBITDA borrowing covenants. See
"Risk Factors--Restrictive Loan Covenants."
The Company historically has met its working capital needs and capital
expenditure requirements primarily through a combination of operating cash
flow and borrowings under bank facilities. Following the Recapitalization, the
Company will satisfy its debt service requirements and meet its working
capital and capital expenditure needs through a combination of operating cash
flow and funds available under the Revolving Credit Agreement. In connection
with the Recapitalization, the Company refinanced all its existing debt other
than its debt under the South African Credit Facility. In addition, certain
standby letters of credit under the Revolving Credit Agreement in an amount of
approximately $3.5 million are outstanding.
The Company's ability to make scheduled payments of principal, and to pay
the interest on its indebtedness (including the Exchange Notes), and to fund
planned capital expenditures or finance acquisitions, will depend on its
future financial and operating performance, which to a certain extent is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. Based on the current and
anticipated level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under the
Revolving Credit Agreement, will be adequate to meet the Company's anticipated
future requirements for working capital, budgeted capital expenditures and
scheduled payments of principal and interest on its indebtedness, including
the Notes, for the foreseeable future. There can be no assurance, however,
that the Company will be able to meet such obligations.
The Company uses four types of derivative financial instruments including
currency swaps, interest rate swaps, forward foreign exchange contracts, and
options. The Company enters into currency and interest rate swaps such that
the notional principal amount is equal to the principal amount of the
underlying debt. The swaps achieve the effect of synthetically converting the
original United States dollar denominated debt into several other foreign
currencies and converting the interest rate on the debt from United States
dollar rates to those applicable for that currency. The Company enters into
forward foreign exchange contracts and options to minimize the impact of
currency movements, principally on purchases of inventory and sales of goods
denominated in currencies other than the subsidiaries' functional currencies.
INFORMATION TECHNOLOGY--YEAR 2000
The Company is in the process of implementing a plan designed to ensure that
all application software used in connection with the Company's management
information systems, including internally developed systems, software
purchased from outside vendors and embedded chips at the Company's
manufacturing facilities, will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality
and without inaccurate results related to such dates. Due to the fact that
existing software often defines each year with two digits rather than four
digits, the
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Company's computers that have date-sensitive software may recognize a date
using "00" as occurring
in the year 1900 rather than the year 2000, which would result in such
abnormalities and inaccuracies and lead to disruptions of the Company's
operations, including a temporary inability to process customer orders, send
invoices or engage in other normal business activities. Many of the Company's
existing computer systems will need to be retired, replaced or remediated
prior to the year 2000. Retirement, replacement and remediation may require
that, over the next few years, a substantial portion of the Company's
management information systems spending be allocated to such activities. The
Company is currently in the process of replacing and upgrading the computer
systems of its United States and Canadian Operations. The Company expects to
spend a total of approximately $1.8 million in 1998 and $0.1 million in 1999
to achieve "Year 2000 compliance" for all its operations. The Company plans to
complete all Year 2000 compliance efforts by early 1999. The costs and timing
of such efforts, however, are based upon management's best estimates, which
are derived using assumptions relating to, among other things, the
availability of certain resources, the timing of actions taken by third
parties and other factors. Additional expenditures beyond the Company's
projections may be necessary. In the event that the Company materially
underestimates the amount of funds or the time necessary to resolve identified
problems or if any information systems relied upon by the Company for critical
functions are not substantially Year 2000 compliant in a timely manner, there
could be a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's plan for the Year 2000 calls for communication with
significant suppliers and customers to determine the readiness of third
parties' remediation of their own Year 2000 issues. As part of its assessment,
the Company is evaluating the level of validation it will require of third
parties to ensure their Year 2000 readiness. The Company believes that the
purchasing patterns of customers and potential customers may be affected by
Year 2000 issues as companies expend significant resources to correct or patch
their current software systems for Year 2000 compliance. These expenditures
may result in reduced funds available to purchase the Company's products,
which could result in a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
any Year 2000 compliance problems of the Company's customers or suppliers will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
To date, the Company has not encountered any material Year 2000 issues
concerning its computer systems. Accordingly, the Company has not at this time
developed a contingency plan if it fails to achieve Year 2000 compliance and
does not plan to develop such a plan until it learns of material impediments
in timely implementing its plan for the Year 2000.
INFLATION
The rate of inflation over recent years has been relatively low, and
management believes that inflation has not had a material impact on the
Company's results of operations for any of the fiscal years in the five-year
period ended December 31, 1997. There can be no assurance, however, that in
future years inflation will not have an adverse impact on Derby's business.
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BUSINESS
OVERVIEW
Derby is a world-leading designer, manufacturer and marketer of bicycles.
The Company holds the leading market share in the United Kingdom, The
Netherlands, Canada and Ireland, holds the leading market share in the adult
bicycle market in Germany and is also a leading bicycle supplier in the United
States. Competing primarily in the medium- to premium-priced market, Derby
owns or licenses many of the most recognized brand names in the bicycle
industry, including leading global brands such as Raleigh, Nishiki and
Univega, and leading regional brands such as Gazelle in The Netherlands and
Kalkhoff, Musing, Winora and Staiger in Germany. Derby designs, manufactures
and markets a wide range of bicycles in all major product categories: (i) all-
terrain or mountain bicycles, referred to as MTBs, (ii) city bicycles, also
called touring or upright bicycles, (iii) hybrid bicycles, also called comfort
or cross bicycles, (iv) juvenile bicycles, including BMX bicycles, and (v)
race/road bicycles. The Company distributes branded bicycles through extensive
local market networks of IBDs as well as through national retailers, and
distributes private label bicycles through mass merchandisers and specialty
stores. For the fiscal year ended December 31, 1997, the Company had net
revenues of $465.7 million and EBITDA of $35.8 million.
Through a series of acquisitions and plant expansions, the Company has
created a global bicycle business distinguished by its leading market
positions, low cost production, extensive distribution network and reputation
for high quality. Organized in 1986 for the purpose of acquiring the Raleigh,
Gazelle and Sturmey-Archer bicycle and bicycle component businesses from TI
Group plc, Derby expanded into the United States and Germany in 1988. Since
then, Derby has acquired additional well-known brands and leveraged its
existing manufacturing plants and component sourcing operations to lower unit
costs for its acquired businesses. See "--History".
The Company has manufacturing operations in five countries, each led by
experienced local management, and maintains marketing or purchasing operations
in five additional countries. Each local operation manages national
distribution channels, dealer service and working capital and benefits from
shared product design and manufacturing technologies as well as from economies
of scale generated by the Company's aggregate purchasing power. Consequently,
each local operation has the flexibility to respond to shifts in local market
demand and product preference.
The Company's operations are concentrated in the United Kingdom, The
Netherlands, Germany, the United States and Canada, markets which generated
sales of more than an estimated 21 million new bicycles in 1997. An overview
of Derby's 1997 operations is as follows:
<TABLE>
<CAPTION>
BICYCLE % OF TOTAL
UNIT SALES US$ SALES DOLLAR
COMPANY (000S) (IN MM) SALES
------- ---------- --------- ----------
<S> <C> <C> <C>
Raleigh U.K. (United Kingdom).................. 664 $107.3 23%
Gazelle (The Netherlands)...................... 294 107.8 23%
DCW/Winora-Staiger/MS Sport Group (Germany).... 415 103.8 22%
Raleigh USA (United States).................... 236 57.9 13%
Raleigh Canada (Canada)........................ 298 29.5 6%
Sturmey-Archer (United Kingdom)(/1/)........... n/a 29.6 6%
Probike South Africa (South Africa)............ 177 20.6 5%
Raleigh Ireland (Ireland)...................... 38 8.1 2%
Other and inter-company adjustments............ (40) 1.1 --
----- ------ ----
Derby Total.................................. 2,082 $465.7 100%
===== ====== ====
</TABLE>
- --------
(1) Represents third party sales.
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COMPETITIVE STRENGTHS
Global Industry Leader. Derby is one of the world's largest designers,
manufacturers and marketers of bicycles. Derby holds the leading market share
in the United Kingdom, The Netherlands, Canada and Ireland, has the leading
market share in the adult bicycle market in Germany and is consistently among
the five largest suppliers to the IBD market in the United States. Derby's
leading market shares in multiple markets position the Company as a global
bicycle industry leader and reduce its vulnerability to local economic cycles
and changing consumer preferences. The table below outlines the Company's
market rank and approximate market share based on unit volumes by country for
1997:
<TABLE>
<CAPTION>
MARKET MARKET RANK MARKET SHARE
------ ----------- ------------
<S> <C> <C>
United Kingdom.................................... #1 26%
The Netherlands(/1/).............................. #1 24%
Germany(/2/)...................................... #1 12%
Canada............................................ #1 26%
Ireland........................................... #1 32%
United States(/3/)................................ #4 8%
</TABLE>
- --------
(1) Represents Gazelle (22%) and Raleigh Europe (2%).
(2) Represents DCW (10%), Gazelle (1%) and Raleigh Europe (1%), and market
rank and market share of the adult bicycle market only.
(3) Represents market rank and market share of IBD market only.
Portfolio of Well-Recognized Brand Names. Derby owns or licenses many of the
most widely-recognized brand names in the bicycle industry. These brands
include leading global brands such as Raleigh, Nishiki and Univega, and
leading regional brands such as Gazelle in The Netherlands and Kalkhoff,
Musing, Winora and Staiger in Germany. The Company has maintained its leading
brand names primarily by providing high quality, reliable and innovative
products supported by strong customer service to its dealers. The Company
promotes its brand names through mass-media advertising and focused
promotional efforts such as sponsoring professional and amateur cycling teams
and individuals, extending cooperative advertising programs to IBDs and
participating in major trade shows. Based on marketing surveys conducted by
the Company, the Raleigh brand has a 97% prompted recognition in the United
Kingdom and is the second most recognized bicycle brand in the United States
with respect to brands sold through IBDs (with Schwinn having a 74% prompted
recognition and Raleigh 6.3%). In addition, Raleigh and Gazelle are the two
most recognized bicycle brands in The Netherlands.
Significant Purchasing Power. As one of the world's largest purchasers of
bicycle components, management believes that the Company's aggregate buying
power and supplier relationships provide the Company with an important
competitive advantage. Typically, bicycle components and raw materials account
for approximately 75% of a bicycle's total manufacturing cost. Derby's ability
to obtain favorable pricing and trade terms on a global basis results in lower
per unit bicycle costs and higher gross margins. The Company's purchasing
subsidiary, Derby Trading, assists the operating companies in negotiating with
Taiwanese and Chinese bicycle component manufacturers. Management believes
that the Company is one of the largest customers of Shimano, the world's
largest bicycle component manufacturer and supplier. Derby's long term
relationships with key suppliers help the Company to obtain high quality
components in a timely, cost-efficient manner.
Extensive Dealer Distribution Networks. Management believes the Company has
the most extensive dealer distribution network of any bicycle company in its
three largest markets, the United Kingdom, The Netherlands and Germany, as
well as in Canada and Ireland. For example, Raleigh U.K. has approximately 225
exclusive retail outlets, while its nearest competitor has fewer than ten. In
The Netherlands, Gazelle distributes through approximately 1,500 dealers,
representing more than 60% of
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<PAGE>
the IBDs in the country, and in Germany, DCW is one of the largest suppliers
to ZEG, a major retail cooperative that supplies approximately 50% of the
German IBD market. The Company actively works with its dealers to develop
brand loyalty and to respond quickly to changes in retailing formats and
customer buying habits, in part by tailoring sales and marketing programs to
each market and distribution channel. The Company believes its strong
relationships with its dealers are a key to its success.
Flexible and Cost-Efficient Design and Manufacturing. Derby operates modern
manufacturing facilities in the United Kingdom, The Netherlands, Germany,
Canada and the United States, each of which has local in-house design and
engineering staff who develop new models and styles. Local market
manufacturing flexibility and integrated product development allow the Company
to respond quickly to changes in customer demand, maintain consistent, high
quality products, manage working capital needs and reduce the risk of
inventory obsolescence for both the Company and its dealers. Furthermore, the
development department at each manufacturing operation participates in the
Company's make-or-buy decision process to help ensure that in-house
manufacturing is the most cost-effective method of production. Between 1991
and 1997, Derby invested approximately $25 million to build a modern
manufacturing facility located in Rostock, in the former German Democratic
Republic, approximately $20 million to reorganize and upgrade its Nottingham,
England, manufacturing facility, and approximately $38 million to increase
quality and capacity and reduce total product and distribution costs in other
existing facilities. The Company reduced its labor hours per manufactured unit
by approximately 19% over that period.
Diversified Revenues and Cash Flows. Derby operates in ten countries around
the world and offers a comprehensive product line in each of its markets.
Management believes the Company's geographical diversification and broad
product line: (i) reduce the effects of cyclical downturns in individual
markets and (ii) help to mitigate the impact of sales volatility due to
changing consumer preferences associated with individual markets and products.
Experienced Management Team. Derby has a strong and experienced management
team at both the corporate and operating levels. The Company's ten executive
managers average more than ten years of experience in the bicycle industry. To
capitalize on the strengths of each of its local operations, management teams
from the Company's local operations meet periodically to share ideas regarding
product innovation, manufacturing processes and component purchasing. Since
the Company's formation in 1986, management has successfully integrated ten
acquisitions and expanded the range of Derby brands and product lines. See
"Management" and "--History".
BUSINESS STRATEGY
The Company intends to enhance and leverage its competitive strengths
through the following business strategies:
Capitalize on Strength of Derby Brand Names. Derby owns or licenses many of
the most recognized brand names in the bicycle industry. The Company intends
to continue to leverage its leading market positions and strong brand equity
to: (i) further penetrate attractive market niches such as the hybrid and BMX
segments, (ii) develop and enhance relationships with existing and new IBDs,
(iii) augment the Company's position in the growing multi-sport retail
channel, principally in the United Kingdom and in the United States and (iv)
pursue attractive ancillary businesses, such as cycling accessories and
branded clothing.
Enhance and Leverage Dealer Relationships. Due to the long-standing market
presence of many of Derby's local operations and brands (e.g., more than 100
years each for Raleigh U.K. and Gazelle), management believes its
relationships with local bicycle dealers are strong as well as extensive. The
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<PAGE>
Company intends to enhance loyalty among IBDs, further penetrate its existing
markets and expand into new markets by maintaining multiple product categories
and superior customer service.
Increase Market Share in Growing Hybrid Bicycle Sector. In several markets,
management expects the hybrid bicycle segment to grow at a rate significantly
higher than that of the overall bicycle industry. For example, in the United
Kingdom and the United States, management estimates that the hybrid segment
will grow at an average annual rate in excess of 10% over the next several
years. Management believes the Company is well-positioned to capitalize on
this growth. For example, Raleigh U.K. held approximately 30% of the hybrid
market in 1996 and maintains strong relationships with IBDs, the principal
channel of distribution for hybrid bicycles. In the United States, Raleigh USA
is strategically positioned in the hybrid segment with Raleigh, Nishiki and
Univega all offering models in this category.
Pursue Strategic Acquisitions. Management believes that the fragmented
nature of the bicycle industry provides opportunities for growth through
strategic acquisitions. The Company intends to pursue acquisitions that will
allow it to leverage its existing distribution network and its modern
manufacturing facilities. The Company also intends to focus its efforts on
acquiring leading brands with particular emphasis on consolidation
opportunities in the United States and Germany and in markets where the
Company is not currently represented. In the ordinary course of business, the
Company routinely considers potential acquisition candidates. On July 18,
1998, the Company entered into a nonbinding letter of intent to acquire a
bicycle design and distribution company for a purchase price of approximately
$20 million in cash, the assumption of certain indebtedness and a contingent
payment based on purchases. The letter of intent has since expired. The
Company is still in the process of negotiating the terms of purchase of the
target. The Company also intends to explore acquisitions which provide
opportunities to expand into ancillary products such as cycling accessories.
GLOBAL BICYCLE INDUSTRY OVERVIEW
The global bicycle industry, including bicycles, parts and accessories, is
estimated to have had total retail sales of $25 billion in 1997. The bicycle
manufacturing segment of the industry, with annual production of approximately
100 million units, is competitive, highly fragmented and locally driven.
Bicycles are produced throughout the world in approximately 65 countries with
product demand, design and distribution driven by varying local market
dynamics and consumer preferences. The bicycle component segment, in contrast,
comprises a few well-positioned suppliers, including RShimano (based in
Japan), Sachs AG ("Sachs") (based in Germany), RockShox, Inc. ("RockShox")
(based in the United States) and Derby's Sturmey-Archer (based in the United
Kingdom), which globally supply to the more fragmented bicycle manufacturing
segment.
Across local markets, bicycle products can be classified into five major
categories: (i) MTBs, which feature wide tires, high-strength frames,
components with multiple gears and powerful brakes, (ii) city bicycles, also
called touring or upright bicycles, which feature more comfortable seats, up
to seven gears within the wheel hub, chain and splash guards, luggage racks
and lights, (iii) hybrid bicycles, also called comfort or cross bicycles,
which combine the technology of MTBs with the comfort and practicality of city
bicycles, (iv) juvenile bicycles with smaller wheels and frame size, including
BMX bicycles, and (v) race/road bicycles, which feature narrow, high pressure
tires, lightweight frames and components with multiple gears. The Company
manufactures and markets bicycles across all five major product categories.
Management believes that the Company is an industry leader because it offers
its customers high quality, comprehensive product lines in each of its local
markets.
Demand in the bicycle industry is driven primarily by four major factors:
(i) new product trends/fashion, (ii) market demographics, (iii) personal
disposable income and (iv) long term lifestyle and behavioral trends. During
the past twenty years, new product innovation and lifestyle changes have been
the major driver of bicycle demand as evidenced by the introduction of MTBs
and BMX bicycles. Starting in the mid-1980s, the growth of the mountain
bicycle segment, which coincided with
55
<PAGE>
a broader trend in the leisure market toward outdoor activities, led to strong
growth in MTB and BMX bicycle sales. In recent years, the hybrid bicycle,
which combines features of the mountain bicycle and the traditional city
bicycle, has become increasingly popular. Growing demand by older cyclists for
a versatile and comfortable bicycle and the expanding use of bicycle paths
world-wide are expected to fuel increasing sales growth of hybrid bicycles.
In general, bicycle products are marketed and sold through two primary
distribution channels: IBDs and mass merchandisers. IBDs typically carry a
broad range of relatively high priced, high quality bicycles, while mass
merchandisers tend to offer relatively lower-priced bicycles focused primarily
in the juvenile market. In many countries, the IBD market is highly fragmented
with most dealers owning a single retail shop and carrying three or four
brands and a wide variety of parts and accessories. Throughout the 1980s, mass
merchandisers increased market share at the expense of IBDs. In recent years,
however, the market shares of IBDs and mass merchandisers have generally
stabilized in the Company's major markets. Factors contributing to this trend
include IBDs (i) offering increased levels of technical expertise and support
for increasingly sophisticated bicycle products, (ii) providing a broad
product selection and (iii) forming buyer groups to enhance purchasing power.
At the same time, multi-sport retailers have become a growing source of
bicycle sales.
While many bicycle manufacturers have lost market share to imported bicycles
from the Far East, the impact of such imports on Derby's operations has
diminished due to E.U. anti-dumping duties and the greater competitiveness and
flexibility of its domestic manufacturing. Specifically, imports from the Far
East have been constrained by E.U. initiatives such as the 30.6% anti-dumping
duty on Chinese bicycles introduced in 1993, which continued in effect until
September 1998. As a result of this initiative, imports of Chinese bicycles
significantly declined, although imports of bicycles from other Asian
countries and imports of Chinese finished frames increased (140% growth
between 1992 and 1996). In response, anti-dumping duties and tariffs ranging
up to 39.4% were imposed by the E.U. on bicycles imported from most
manufacturers in Thailand, Malaysia and Indonesia. In addition, in January
1997, the E.U. strengthened its existing regulations to prevent circumvention
through the importation of kits and partially assembled bicycles. In November
1997, the E.U. opened an anti-dumping inquiry into imports from Taiwan.
Primarily as a result of the imposition of anti-dumping duties, imports of
bicycles from outside the E.U. have stabilized at approximately 54% in the
United Kingdom, 45% in The Netherlands and 42% in Germany for 1996. In the
United States, imports stabilized at approximately 44% in 1996 as bicycle
companies increasingly manufacture in the United States to improve their
flexibility.
HISTORY
Derby was organized in 1986 to acquire the Raleigh, Gazelle and Sturmey-
Archer bicycle and bicycle component businesses from TI Group plc. Shortly
after acquiring these businesses in 1987, Derby divested certain non-core
operations, selling its French operations in 1987 and its Australian
operations in 1987 and 1989. In 1988, Derby began to expand through
acquisition. In September 1988, Derby acquired the assets of Neue Kalkhoff,
the second largest bicycle manufacturer in the former Federal Republic of
Germany at the time, and established DCW. In October 1988, the Company
acquired the shares of Raleigh Cycle Company of America from Raleigh's U.S.
licensee, Huffy Corporation, and the West Coast Cycle division of Medalist
Industries Inc. (owner of the Nishiki brand in the United States). These two
businesses were merged to form Raleigh USA. Derby formed the Company's Probike
South Africa operating company with the acquisitions of Cycle and Hardware
Factors in 1989, J.H. Slotar in 1990 and Cycle Centre Wholesale in 1991. In
1992, Derby acquired Musing, the German bicycle manufacturer.
To further its strategy of growth through strategic acquisitions, Derby has
continued to acquire bicycle and bicycle component companies and leading brand
names. In January 1997, Derby
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<PAGE>
completed the acquisition of the assets and operations of the Winora and
Staiger businesses, a long-established bicycle manufacturer and distributor
located in southwestern Germany. Winora-Staiger sells bicycles to a network of
IBDs to which the Company was not previously a major supplier. In March 1997,
Derby acquired the worldwide rights to the Univega brand name and its
associated trade names, trademarks and designs. In August 1997, the Company
formed Univega to serve as a holding company for the acquisition of the MS
Sport Group from Robert Holzer over a specified period of years. Univega
agreed to pay Mr. Holzer a purchase price based on the MS Sport Group's
performance through the year 2000 in a maximum amount of DM13.1 million and a
minimum amount of DM5.35 million. The Company also formed Univega License,
which is owned 80% by Derby Holding (Deutschland) and 20% by Mr. Holzer, to
hold and license the Univega trademarks.
From 1989 to 1996, Derby implemented a reorganization and rationalization
program. In 1989, Derby consolidated its manufacturing facilities in the
United Kingdom and the United States and closed its South African bicycle
manufacturing facilities, which were sold in 1993. Since 1990, Derby has
invested in labor-saving, flexible production machinery and restructured the
workforces at its manufacturing locations. From 1992 to 1993, taking advantage
of substantial incentives from the German government, Derby built a factory in
Rostock, in the former German Democratic Republic. Derby completed its
reorganization and investment program in 1996, having made major steps toward
improving production efficiency, and increasing manufacturing flexibility.
GROUP OPERATIONS
Suppliers. Derby's aggregate buying power is a key competitive advantage.
Typically, bicycle components and raw materials account for approximately 75%
of a bicycle's total manufacturing cost; hence, controlling component and raw
material costs is essential for cost-competitive manufacturing. Derby is one
of the world's largest purchasers of bicycle components, and management
believes that the Company's aggregate buying power and supplier relationships
provide the Company with an important competitive advantage as the Company
seeks to obtain favorable prices and trade terms from its suppliers. Major
component suppliers include Shimano, Sachs, RockShox and Derby's Sturmey-
Archer. Derby Trading acts as Derby's representative in Taiwan and China,
where most of the large-volume component manufacturers are located. Derby's
operating companies negotiate directly with suppliers and are able to consult
with Derby Trading to determine whether the quoted terms they receive are the
best available. Derby's operating companies can thus achieve volume prices on
smaller orders, thereby reducing inventory risk and working capital
requirements.
Product Design and Development. Each of Derby's major operating companies
complements its flexible manufacturing capabilities with in-house design and
engineering staff who develop new models and styles. Many members of the staff
are bicycle enthusiasts and use their familiarity with local market trends and
fashions to help develop frame shapes, colors, finishes and technological
features that consumers find attractive. Models are designed on computer-aided
workstations and are subsequently tested to ensure that they will be
attractive to consumers. Since product design is managed internally at each
major operating company, the Company is able to respond quickly to new trends,
fill market niches with limited manufacturing runs, and reduce the risk of
inventory obsolescence for both the Company and its dealers. Furthermore, the
development department at each manufacturing operation participates in the
Company's make-or-buy decision process to help ensure that in-house
manufacturing is the most cost-effective method of production.
Distribution. In 1997, the Company sold a total of 2.1 million bicycles. Of
these, approximately 1.9 million bicycles were manufactured by the Company and
the balance of the bicycles was purchased by the Company. Branded products
accounted for approximately 1.7 million, or 81.0%, of the bicycles sold with
the remainder attributable to private label sales, largely in Germany and
Canada.
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<PAGE>
Warranties. The Company offers warranty terms in respect of its products
that are consistent with standard practices in the bicycle industry. For
example, bicycle components are generally warranted for a period of twelve
months, and frames are generally warranted for a period ranging from two years
to the life of the frame, depending upon material composition, channel of
distribution and country of sale. Each of the operating companies maintains a
reserve for warranty expense which management believes to be adequate.
RALEIGH U.K.
General Overview. Raleigh U.K., the largest bicycle company in the United
Kingdom, had a 26% unit market share in 1997. Raleigh is also the United
Kingdom's most recognized bicycle brand. Founded in 1887 and based in
Nottingham, England, Raleigh U.K. has led the U.K. market since the early
1900s by virtue of its commitment to high quality, reliable products and
design innovation. The following table outlines Raleigh U.K.'s historical
operating performance from 1995 to 1997:
RALEIGH U.K. HISTORICAL OPERATING RESULTS
<TABLE>
<CAPTION>
RALEIGH U.K. 1995 1996 1997
------------ ---- ---- ----
<S> <C> <C> <C>
Units (in 000s)............................................ 747 718 664
Sales ((Pounds) in MM)..................................... 67.5 68.5 65.4
Gross Profit ((Pounds) in MM).............................. 16.5 16.2 18.5
Gross Profit Margin (%).................................... 24.4 23.6 28.3
EBITDA ((Pounds) in MM).................................... 2.9 5.5 9.1
EBITDA Margin (%).......................................... 4.3 8.0 13.9
</TABLE>
Market Overview and Competitive Environment. The U.K. bicycle market grew
quickly during the 1980s and the beginning of the 1990s primarily as a result
of the introduction and growth in sales of MTBs. While growth in demand slowed
in the mid-1990s, the Company expects the U.K. market to benefit from (i)
improved general economic conditions, (ii) trends toward fitness and improved
lifestyle, (iii) increased environmental awareness and (iv) initiatives such
as the National Cycling Strategy, a government-led program that seeks to
double bicycle use by 2002, and the National Cycle Network, a 6,500 mile
network of bicycle paths that is currently under construction. The Company
estimates that in 1996, 41% of the bicycles sold in the United Kingdom were
MTBs, 8% were city and hybrid bicycles, 44% were juvenile bicycles, 1% were
race/road bicycles and the remaining 6% were other bicycles. The following
table sets forth the estimated 1997 unit bicycle market share of each major
brand in the U.K. consumer bicycle market:
1997 U.K. UNIT MARKET SHARE
<TABLE>
<CAPTION>
BRAND SHARE
----- -----
<S> <C>
Raleigh.......................................... 26%
Townsend & Falcon................................ 11%
Apollo (Halfords)................................ 11%
Universal........................................ 8%
Others........................................... 44%
----
Total.......................................... 100%
====
</TABLE>
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<PAGE>
Products and Brands. Based on marketing surveys conducted by the Company,
the Raleigh brand has a 97% prompted recognition in the United Kingdom and is
associated with a tradition of quality. Raleigh U.K. leverages its brand
equity by sponsoring well-known athletes in competitive biking and has also
recently started licensing the Raleigh brand to producers of clothing, toys,
soft drinks and postcards. Raleigh U.K. designs, manufactures and markets a
wide range of bicycles as outlined in the following table:
<TABLE>
<CAPTION>
TYPE BRANDS/MODELS MARKET
- -----------------------------------------------------------------------------------
<C> <C> <S>
MTB M-Trax Mountain biking enthusiasts and
Max Cromo sports-minded 15-30 year olds
MTB Pro-Line
- -----------------------------------------------------------------------------------
Hybrid; Trekking Freedom Commuters, 25+ year olds and families
Pioneer
- -----------------------------------------------------------------------------------
Juvenile Play 2-6 year olds
Action 6-11 year olds
Max 11-16 year olds
- -----------------------------------------------------------------------------------
Race/Road Pro-Line 853 Race/road bicycling enthusiasts,
cycling tourists
- -----------------------------------------------------------------------------------
Electrically Power Assisted Select 45+ year olds
</TABLE>
Manufacturing. Raleigh U.K.'s manufacturing facility in Nottingham, England,
is the Company's largest manufacturing plant. Production equipment includes
laser cutting and robotic welding equipment used in frame manufacturing,
automated wheel trueing units, a paintshop using chemical pre-treatment and
electrophoretic processes, component sub-assembly units and final assembly
lines. This facility, which has a production capacity of 5,500 units per day
operating on a double shift basis, produced an average of 2,900 units per day
in 1997, reaching 3,700 units per day in the spring and summer months. This
production represents more than 65% of the United Kingdom's total domestic
bicycle production for 1997. At the beginning of 1996, Raleigh U.K. completed
a major restructuring of its manufacturing processes that improved production
flow, reduced work-in-progress and unnecessary movement of components and
substantially improved product quality. Raleigh U.K.'s approximate (Pounds)10
million investment to restructure its manufacturing processes between 1994 and
1996 resulted in annual savings of approximately (Pounds)2.1 million.
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<PAGE>
Sales, Marketing and Distribution. Raleigh U.K.'s sales and marketing
department works closely with its in-house design and engineering staff to
develop new models and styles with coloring and detailing that reflect current
trends and fashions. The Nottingham factory's paint shop is capable of
creating a wide range of colors and finishes, an important capability given
that style, color and detailing attract consumers and support Raleigh U.K.'s
pricing strategy. While Raleigh U.K. markets products at multiple price points
in most segments, the largest portion of units is sold at the mid-price range.
Juvenile bicycles and Raleigh models sold through mass merchandisers or mail
order distributors account for most of the lower-priced units sold. The
following table sets forth the retail price segmentation of bicycles sold in
the U.K. market for 1996:
U.K. MARKET PRICE SEGMENTATION
<TABLE>
<CAPTION>
TOTAL
RETAIL PRICE U.K. MARKET RALEIGH U.K.
------------ ----------- ------------
<S> <C> <C>
< (Pounds)100.................................... 46% 28%
(Pounds)100-(Pounds)120.......................... 9% 10%
(Pounds)120-(Pounds)160.......................... 26% 37%
(Pounds)160-(Pounds)200.......................... 10% 17%
(Pounds)200-(Pounds)300.......................... 6% 6%
> (Pounds)300.................................... 3% 2%
---- ----
Total.......................................... 100% 100%
==== ====
</TABLE>
Raleigh U.K. has the most extensive dealer distribution network in the
United Kingdom, comprised of approximately 225 exclusive retail dealers and
approximately 800 multi-brand dealers. Raleigh U.K.'s distribution network of
approximately 1,100 IBDs constitutes approximately 37% of the approximately
3,000 total IBDs in the United Kingdom. In addition, Raleigh U.K. distributes
21% of its units through Halfords, a national retailer of bicycle and
automotive parts with approximately 400 stores, and approximately 11% of its
units through multi-sport retailers and mail order distributors. The following
table sets forth Raleigh U.K.'s sales to major customers in 1997:
RALEIGH U.K. SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
1997 SALES % OF TOTAL
MAJOR CUSTOMER ((Pounds) IN MM) 1997 SALES
-------------- ---------------- ----------
<S> <C> <C>
Halfords...................................... (Pounds)13.7 21%
Great Universal Stores........................ 1.1 2%
Sports Division Ltd........................... 0.9 1%
Mr. G.L.F. Read............................... 0.9 1%
Others........................................ 48.8 75%
------------ ----
Total....................................... (Pounds)65.4 100%
============ ====
</TABLE>
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GAZELLE
General Overview. Gazelle, the leading bicycle manufacturer and brand name
in The Netherlands, had a 22% unit market share in 1997. In the city bicycle
segment, which accounted for 57% of the approximately 1.1 million bicycles
sold in The Netherlands 1996, Gazelle had a 33% market share. Founded in 1892,
the Gazelle brand has been the leader in the Dutch market for more than 100
years. The Company believes Gazelle has a reputation for producing the most
reliable, highest quality bicycles sold in The Netherlands. Gazelle added
"Koninklijke", meaning "Royal", in Dutch, to its name after receiving the
Royal Warrant on the occasion of its 100th anniversary in 1992. The following
table outlines Gazelle's historical operating performance from 1995 to 1997:
GAZELLE HISTORICAL OPERATING RESULTS
<TABLE>
<CAPTION>
GAZELLE 1995 1996 1997
-------- ----- ----- -----
<S> <C> <C> <C>
Units (in 000s)......................................... 286 293 294
Sales (NLG in MM)....................................... 192.1 202.7 207.5
Gross Profit (NLG in MM)................................ 43.6 50.4 50.8
Gross Profit Margin (%)................................. 22.7 24.9 24.5
EBITDA (NLG in MM)...................................... 22.5 28.2 26.5
EBITDA Margin (%)....................................... 11.7 13.9 12.8
</TABLE>
Market Overview and Competitive Environment. Cycling is a way of life in The
Netherlands, where a population of approximately 15.5 million owns
approximately 16 million bicycles. The Dutch use bicycles primarily for
transportation, as opposed to the Company's other major markets, where
bicycles are used primarily for leisure. Due to the widespread use of bicycles
for transportation, city models have retained the majority share of the Dutch
market, unlike other European and North American markets where the MTB segment
has gained a large share of the market. Hybrid bicycles, which combine
features of city bicycles and MTBs, are currently growing in popularity in The
Netherlands. Gazelle is strongly positioned in the city bicycle segment with
an estimated 33% unit market share in 1997 and has developed a range of hybrid
bicycles to respond to growing demand. The Company estimates that in 1996, 57%
of the bicycles sold in The Netherlands were city bicycles, 25% were hybrid
bicycles and MTBs, 15% were juvenile bicycles and the remaining 3% were other
bicycles. The following table sets forth the estimated 1997 unit market share
based on sales to distributors for each major bicycle brand in The
Netherlands:
1997 DUTCH UNIT MARKET SHARE
<TABLE>
<CAPTION>
BRAND SHARE
----- -----
<S> <C>
Gazelle.......................................... 22%
Batavus.......................................... 19%
Giant............................................ 10%
Union/Rivel...................................... 10%
Others........................................... 39%
----
Total.......................................... 100%
====
</TABLE>
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<PAGE>
Products and Brands. The Gazelle brand is regarded as a premium brand in The
Netherlands with extensive consumer recognition. As evidence of its success,
Gazelle has won the Bicycle of the Year Award from the Dutch Bicycle
Foundation in The Netherlands in four of the last seven years. Gazelle's
product developers work in partnership with outside design consultants, with
one such partnership leading to Gazelle's Expresso concept bicycle winning
Shimano's European Design Contest in 1995. Gazelle also won the 1997 Dutch
Children's Bike of the Year Award from the Dutch Tourist Association.
Gazelle's own design and engineering staff has successfully broadened
Gazelle's product offering from its market-leading, traditional city bikes to
include other popular models. Gazelle designs, manufactures and markets a wide
range of bicycles as outlined in the following table:
<TABLE>
<CAPTION>
TYPE BRANDS/MODELS MARKET
- ------------------------------------------------------------------------------
<S> <C> <C>
MTB Skyhawk Mountain biking enthusiasts and
Extreme fashion-conscious 15-25 year olds
Instinct
Impulse
- ------------------------------------------------------------------------------
City Primeur (Comfort) Commuters, families and 45-65 year
Impala (Comfort) olds; younger users targeted by Free
Free (Trendy) and Boomerang models in the Trendy
Boomerang (Trendy) line
Orange (Sportief)
Paris (Sportief)
- ------------------------------------------------------------------------------
Hybrid Formula Trekking Commuters, 25+ year olds and
Medeo families
Lausanne
Aristo
Riacho
- ------------------------------------------------------------------------------
Juvenile Street Cruiser 6-14 year olds
Laser
Tempo
Swing
- ------------------------------------------------------------------------------
Race/Road Formula Team Race/road bicycling enthusiasts
Giro
Vuelta
Primavera
Alu Road
</TABLE>
Manufacturing. Gazelle's manufacturing facility, located in Dieren, The
Netherlands, has a production capacity of 1,700 units per day operating on a
single shift basis and produced an average of 1,300 units per day in 1997.
Because Dutch consumers generally prefer a high degree of technological
enhancements in their bicycles and are willing to pay a premium for top
quality frame construction and components, Gazelle's manufacturing facility
employs technologies not used by Derby's other operations. One such technology
is the automated induction brazing of frame joints (as opposed to welding),
which bonds the frame together internally, thus eliminating the "toothpaste
look" around the joints of welded frames.
62
<PAGE>
Sales, Marketing and Distribution. Gazelle focuses on the high value, high
margin price segments of the Dutch bicycle market. The following table sets
forth the retail price segmentation of bicycles sold in the Dutch market in
1996:
DUTCH MARKET PRICE SEGMENTATION
<TABLE>
<CAPTION>
TOTAL
RETAIL PRICE DUTCH MARKET GAZELLE
------------ ------------ -------
<S> <C> <C>
< NLG450............................................. 28% 0%
NLG450-NLG700........................................ 17% 7%
NLG700-NLG1,000...................................... 27% 37%
NLG1,000-NLG1,500.................................... 20% 47%
> NLG1,500........................................... 8% 9%
---- ----
Total.............................................. 100% 100%
==== ====
</TABLE>
Gazelle's network of approximately 1,500 IBDs constitutes the most extensive
dealer network in The Netherlands. Gazelle sells bicycles predominantly to
IBDs in its home market, and approximately 90% of these sales are Gazelle
branded products. Due to the widespread use of bicycles in The Netherlands,
almost every town or village has at least two dealers. Typically, one dealer
carries the Gazelle brand and the other carries the Batavus brand,
manufactured by Atag Bicycle Group. The Company believes that Gazelle's
recognition as the highest quality producer helps Gazelle to maintain its
market share and operating margins. In addition, the Company believes that
Gazelle has excellent relationships with its dealers and that these
relationships are becoming increasingly important as IBDs have begun to form
buying organizations to obtain better terms from bicycle manufacturers and
distributors. Gazelle has partnered with four other manufacturers and
distributors in The Netherlands to sponsor a new association of IBDs. Gazelle
also exports to neighboring countries, principally Germany. The following
table sets forth Gazelle's sales to major customers in 1997:
GAZELLE SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
1997 SALES % OF TOTAL
MAJOR CUSTOMER (NLG IN MM) 1997 SALES
-------------- ----------- ----------
<S> <C> <C>
Meer(/1/).......................................... NLG 7.4 4%
Baumker(/1/)....................................... 5.7 3%
ZEG(/2/)........................................... 5.7 3%
Others............................................. 188.7 90%
-------- ----
Total............................................ NLG207.5 100%
======== ====
</TABLE>
--------
(/1/) Represents export sales.
(/2/) Includes sales to ZEG members in The Netherlands and in Germany.
63
<PAGE>
DCW
General Overview. DCW, an active consolidator in the German market and the
largest bicycle manufacturer and distributor in Germany, had a 12% unit market
share of the German adult bicycle market in 1997. Derby established DCW
following its 1988 acquisition of Neue Kalkhoff, the second largest bicycle
manufacturer in the former Federal Republic of Germany at the time. The
following table outlines DCW's historical operating performance from 1995 to
1997:
DCW HISTORICAL OPERATING RESULTS
<TABLE>
<CAPTION>
DCW 1995 1996 1997(/1/)
--- ----- ----- ---------
<S> <C> <C> <C>
Units (in 000s)..................................... 405 368 415
Sales (DM in MM).................................... 132.3 123.4 177.6
Gross Profit (DM in MM)............................. 18.7 21.6 34.2
Gross Profit Margin (%)............................. 14.1 17.5 19.3
EBITDA (DM in MM)................................... 1.1 5.9 0.6
EBITDA Margin (%)................................... 0.8 4.8 0.3
</TABLE>
--------
(/1/1997)figures include eleven months of sales by Winora-Staiger,
which was acquired in January 1997, and five months of sales by
the MS Sport Group, in which the Company acquired a controlling
interest in August 1997.
Market Overview and Competitive Environment. The integration of the former
German Democratic Republic and the introduction of MTBs created a surge in
bicycle sales that peaked in 1991 at approximately 7 million units. In 1997,
the total German consumer market, excluding juvenile bicycles, is estimated to
have been 3.5 million units. Recent significant consumer trends in the German
bicycle market include growth of the city bicycle segment, reduced share of
the MTB segment and a shift in consumer demand to higher-priced bicycles.
Management expects that the breadth of DCW's product range and the particular
strength of the Kalkhoff brand in the high-end city bicycle segment will drive
DCW's unit sales growth in the near future. The Company estimates that in
1996, 37% of the bicycles sold in Germany were MTBs, 21% were city bicycles,
20% were juvenile bicycles, 20% were race/road bicycles and the remaining 2%
were other bicycles. The following table sets forth the estimated 1997 unit
bicycle market share based on sales to distributors for each major brand in
the German adult bicycle market:
1997 GERMAN UNIT MARKET SHARE
<TABLE>
<CAPTION>
BRAND SHARE
----- -----
<S> <C>
Derby brands(/1/)................................ 12%
Kynast........................................... 10%
Sprick........................................... 6%
Prophete......................................... 5%
Others........................................... 67%
----
Total.......................................... 100%
====
</TABLE>
--------
(/1/Includes)DCW (10%), Gazelle (1%) and Raleigh Europe (1%).
64
<PAGE>
Products and Brands. DCW manufactures and distributes well-known brand names
such as Kalkhoff, Rixe, Musing and Focus. DCW also produces Winora and Staiger
brand bicycles, which are marketed and distributed in Germany by Derby's
Winora-Staiger subsidiary, acquired in January 1997. In 1998, DCW plans to
begin production of Univega brand bicycles, which are marketed and distributed
in Germany and Switzerland by the MS Sport Group. In addition, DCW produces
private label bicycles sold through mass merchandisers. DCW designs,
manufactures and markets a wide range of bicycles as outlined in the following
table:
<TABLE>
<CAPTION>
TYPE BRANDS/MODELS MARKET
- ---------------------------------------------------------------
<S> <C> <C>
MTB Terrafox Mountain biking enthusiasts
Univega
Winora
Staiger
Focus
- ---------------------------------------------------------------
City Winora Commuters, families and 45-
Staiger 65 year olds
Kalkhoff
Rixe
Terrafox
Topside
- ---------------------------------------------------------------
Hybrid Kalkhoff All age groups
Focus
Musing
Rixe
Topside
Terrafox
- ---------------------------------------------------------------
Juvenile Rixe 6-14 year olds
Kalkhoff
Topside
Terrafox
- ---------------------------------------------------------------
Race/Road Focus 18-34 year olds
Musing
</TABLE>
Manufacturing. DCW produces private label bicycles in its manufacturing
facilities in Cloppenburg, Germany, while higher quality models are
manufactured in its Rostock facility in the former German Democratic Republic,
a state-of-the-art, highly automated production site completed in 1993, which
management believes is among the most modern bicycle manufacturing facilities
in the world. These production facilities include automated welding equipment
for frame manufacturing, automated paintshops using chemical or mechanical
pretreatment and automated painting processes, wheel assembly units, component
sub-assembly units and final assembly workshops. DCW's facilities in
Cloppenburg and Rostock have production capacities of 1,800 units per day and
850 units per day, respectively, operating on a single shift basis and
produced averages of 1,150 units per day and 750 units per day, respectively,
in 1997.
Sales, Marketing and Distribution. DCW supports its brand names through
advertising and by sponsoring bicycle teams. DCW plans to capitalize on export
opportunities, particularly with respect to Scandinavian markets, and is
currently examining growth opportunities in the Austrian IBD market. In 1997,
DCW exported 53,000 units, as compared to domestic sales of 351,000 units.
The German bicycle market is price sensitive, especially in the lower price
range. DCW's focus on less price sensitive, higher priced bicycles has helped
it maintain average trade prices at relatively
65
<PAGE>
constant levels, despite a decline in average real bicycle prices in the
German market since 1990. The following table sets forth the retail price
segmentation of bicycles sold in the German market for 1996:
GERMAN MARKET PRICE SEGMENTATION
<TABLE>
<CAPTION>
TOTAL
RETAIL PRICE GERMAN MARKET DCW
------------ ------------- ----
<S> <C> <C>
< DM180................................................. 12% 3%
DM180-DM300............................................. 36% 16%
DM300-DM500............................................. 28% 40%
DM500-DM700............................................. 9% 15%
DM700-DM1,200........................................... 6% 15%
> DM1,200............................................... 9% 11%
---- ----
Total................................................. 100% 100%
==== ====
</TABLE>
Dealer buying groups, of which ZEG is the largest, exert significant
influence over German bicycle manufacturers and distributors. Other
distribution channels in Germany include mail order firms and department
stores, which sell high-end bicycles, and mass merchandisers, including
hypermarkets, which sell low-end bicycles. DCW is the only German manufacturer
which participates in all major distribution channels, selling both branded
and private label products. The following table sets forth DCW's sales to
major customers in 1997:
DCW SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
1997 SALES % OF TOTAL
MAJOR CUSTOMER (DM IN MM) 1997 SALES
-------------- ---------- ----------
<S> <C> <C>
ZEG.................................................. DM 27.8 16%
GHD.................................................. 7.3 4%
METRO (D)............................................ 6.1 3%
METRO (A)............................................ 3.5 2%
Others............................................... 132.8 75%
------- ----
Total.............................................. DM177.5 100%
======= ====
</TABLE>
RALEIGH USA
General Overview. Raleigh is the second most recognized bicycle brand in the
U.S. IBD market. In October 1988, Derby acquired all the shares of Raleigh
Cycle Company of America from Raleigh's U.S. licensee, Huffy Corporation, and
the West Coast Cycle division of Medalist Industries (owner of the Nishiki
brand in the United States). These two businesses were merged to form Raleigh
USA. In 1997, Raleigh USA was the fourth largest supplier to the U.S. IBD
market with approximately 8% unit market share. Raleigh USA designs,
manufactures and markets a full range of bicycles under the Raleigh and
Nishiki brands. In March 1997, Derby acquired the worldwide rights to the
Univega brand name, as well as Univega's distribution business in the United
States. As a result, Raleigh USA increased its annual production for 1997 by
approximately 25,000 units. Management expects sales of Univega brand bicycles
and the strength of the Univega distribution network to increase Raleigh USA's
penetration of the IBD market.
From 1994 to 1996, management reorganized Raleigh USA's manufacturing
facility located in Kent, Washington, and established a flexible, efficient
operation that management believes is capable of competing on the basis of
price and quality with imports from the Far East. Through this reorganization,
management improved Raleigh USA's financial performance, despite a challenging
66
<PAGE>
market environment. Moreover, management expects further enhancement of
Raleigh USA's financial performance as a result of improved market conditions
and the addition of the Univega brand to Raleigh USA's existing brand names.
Raleigh USA is currently positioned as a strong platform from which to expand
the Company's market position through acquisitions. The following table
outlines Raleigh USA's historical operating performance from 1995 to 1997:
RALEIGH USA HISTORICAL OPERATING RESULTS
<TABLE>
<CAPTION>
RALEIGH USA 1995 1996 1997
----------- ---- ---- ----
<S> <C> <C> <C>
Units (in 000s).......................................... 232 214 236
Sales ($ in MM).......................................... 57.4 53.5 57.9
Gross Profit ($ in MM)................................... 11.6 12.6 14.6
Gross Profit Margin (%).................................. 20.2 23.6 25.2
EBITDA ($ in MM)......................................... (1.3) 0.1 (1.4)
EBITDA Margin (%)........................................ n/a n/a n/a
</TABLE>
Market Overview and Competitive Environment. Cycling is the third largest
participant sport in the United States with more than 50 million cyclists and
approximately 12 million bicycles sold annually. The Company estimates that in
1996, 57% of the bicycles sold in the United States were MTBs, 10% were hybrid
bicycles, 28% were juvenile bicycles, 2% were race/road bicycles and the
remaining 3% were other bicycles. The following table sets forth the estimated
1997 IBD unit market share for each major brand in the United States based on
sales to IBDs.
1997 U.S. UNIT MARKET SHARE
<TABLE>
<CAPTION>
BRAND SHARE
----- -----
<S> <C>
Trek............................................. 24%
GT............................................... 18%
Schwinn.......................................... 14%
Raleigh(/1/)..................................... 8%
Specialized...................................... 8%
Others........................................... 28%
----
Total.......................................... 100%
====
</TABLE>
--------
(/1/)Includes sales of Nishiki bicycles.
Products and Brands. With a history of more than 50 years in the U.S.
market, Raleigh is the second best-known bicycle brand in the U.S. IBD market.
Raleigh USA markets a full range of bicycle models under the Raleigh and
Nishiki brands. The recently acquired Univega brand broadens Raleigh USA's
product offering, especially in the MTB and hybrid segments. Raleigh USA
designs, manufactures and markets a wide range of bicycles as outlined in the
following table:
<TABLE>
<CAPTION>
TYPE BRANDS/MODELS MARKET
- ---------------------------------------------------------------------
<S> <C> <C>
MTB Raleigh Mountain biking enthusiasts and
Nishiki fashion-conscious 15-25 year olds
Univega
- ---------------------------------------------------------------------
Hybrid Raleigh 35+ year olds
Nishiki
Univega
- ---------------------------------------------------------------------
Juvenile Raleigh 6-14 year olds
Univega
- ---------------------------------------------------------------------
Race/Road Raleigh Race/road bicycling enthusiasts
</TABLE>
67
<PAGE>
Manufacturing. Beginning in early 1994, Raleigh USA made the strategic
decision to increase its domestic manufacturing capability and reduce its use
of finished bicycle imports from the Far East. This decision was based
primarily on a detailed make-or-buy analysis which indicated that Raleigh
USA's manufacturing facility could produce bicycles competitive with those
imported from Taiwan and mainland China. The resulting increase in
manufacturing flexibility has helped to reduce the risk of inventory "close-
outs". Management believes Raleigh USA's domestic manufacturing capability has
improved product quality, delivery time and inventory management. Domestic
manufacturing also provides a key marketing advantage: Raleigh USA is one of
the few bicycle manufacturers able to leverage the "Made in USA' label.
Raleigh USA's factory has a production capacity of 1,100 units per day
operating on a single shift basis and produced an average of 950 units per day
in 1997.
Sales, Marketing and Distribution. Raleigh USA has a diversified customer
base of more than 1,500 IBDs, the top fifty of which represent less than 30%
of sales. In 1996, Raleigh USA reorganized its sales force and distribution
centers into three regions covering the western, central and eastern United
States. This reorganization has resulted in lower operating costs and better
customer service.
Management believes that in 1996 more IBDs became distributors of Raleigh
bicycles than of any other brand, evidencing Raleigh USA's increasing market
penetration. In 1996 and 1997, IBD dealer surveys ranked Raleigh USA second in
overall dealer satisfaction among all bicycle manufacturers and distributors.
Both Raleigh and Nishiki are positioned in the $200 to $500 price segment, the
largest volume and fastest growing segment of the adult IBD market. Raleigh
and Nishiki bicycles are marketed through IBDs, and Nishiki bicycles are also
sold through multi-sport outlets. To increase penetration of the IBD market,
Raleigh USA recently began selling Univega brand bicycles to non-Raleigh
dealers. The following table sets forth Raleigh USA's sales to major customers
in 1997:
RALEIGH USA SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
1997 SALES % OF TOTAL
MAJOR CUSTOMER ($ IN MM) 1997 SALES
-------------- ---------- ----------
<S> <C> <C>
Dick's Clothing and Sporting........................ $ 1.8 3%
Retail Concepts Inc................................. 1.4 2%
Recreational Equipment.............................. 1.2 2%
Sports Chalet....................................... 1.2 2%
Others.............................................. 52.3 91%
----- ----
Total............................................. $57.9 100%
===== ====
</TABLE>
RALEIGH CANADA
General Overview. Raleigh Canada, the largest distributor and one of the
largest bicycle manufacturers in Canada, had an estimated 25% unit market
share in 1997. Raleigh Canada produces an extensive range of bicycles,
including MTBs, hybrid bicycles, city bicycles and juvenile bicycles. The
following table outlines Raleigh Canada's historical operating performance
from 1995 to 1997:
RALEIGH CANADA HISTORICAL OPERATING RESULTS
<TABLE>
<CAPTION>
RALEIGH CANADA 1995 1996 1997
-------------- ---- ---- ----
<S> <C> <C> <C>
Units (in 000s)............................................ 378 307 298
Sales (CAN$ in MM)......................................... 50.3 40.3 40.5
Gross Profit (CAN$ in MM).................................. 8.8 8.4 9.1
Gross Profit Margin (%).................................... 17.5 20.8 22.5
EBITDA (CAN$ in MM)........................................ 4.9 4.3 4.2
EBITDA Margin (%).......................................... 9.7 10.7 10.4
</TABLE>
68
<PAGE>
Market Overview and Competitive Environment. In 1997, approximately 1.2
million bicycles were sold in Canada. Management expects that Raleigh Canada's
recent introduction of hybrid bicycles with traditional components and other
attractive features will drive Raleigh Canada's unit sales growth in the near
future. Raleigh Canada's two major competitors are Groupe Procycle Inc. and
Victoria Precision Inc. The Company estimates that in 1996, 84% of the
bicycles sold in Canada were MTBs, 6% were hybrid bicycles, 8% were juvenile
bicycles, 1% were race/road bicycles and the remaining 1% were other bicycles.
Products and Brands. Of Raleigh Canada's total 1997 sales, 72% were private
label products, and 28% were Raleigh brand products. Raleigh Canada leverages
its brand equity by participating in the Toronto Consumer Bicycle Show and the
Montreal Bicycle Consumer Show.
Manufacturing. Raleigh Canada's Waterloo, Quebec, facility, which has a
production capacity of 3,300 units per day operating on a double shift basis,
produced an average of 1,900 units per day in 1997. Raleigh Canada recently
invested in laser cutting equipment to improve productivity and quality and is
considering additional automation to reduce operating costs further.
Sales, Marketing and Distribution. Raleigh Canada's products are sold under
the Raleigh brand to a network of approximately 250 IBDs and under private
labels to specialty stores and numerous mass merchandisers, including Wal-Mart
and Zellers. Raleigh Canada also exports its products to the Caribbean Islands
and Israel, which management believes will provide opportunities for future
growth.
STURMEY-ARCHER
General Overview. Sturmey-Archer, founded in 1902 and based in Nottingham,
England, is known for its high quality bicycle gears, hub brakes and Brooks
seats. Historically, Sturmey-Archer principally supplied bicycle components to
the Company, but currently 75% of its sales are to third parties. In 1997, 67%
of net sales were generated by bicycle hub gears and brakes, seats, spokes and
spoke nipples, and 33% of net sales were generated by automotive parts and
domestic appliance components. In 1997, Sturmey-Archer had sales of
(Pounds)18.0 million and EBITDA of (Pounds)2.0 million.
Market Overview and Competitive Environment. Increased demand for hybrid
bicycles is generating growth for Sturmey-Archer's hub gears. Major
competitors of Sturmey-Archer in the bicycle component market include Shimano,
the largest bicycle components manufacturer in the world, and Sachs, a German-
based manufacturer whose bicycle components business was recently acquired by
SRAM Corporation ("SRAM"), the manufacturer of Gripshift bicycle gear
controls.
Products and Brands. Sturmey-Archer's bicycle gears include fully-enclosed,
planetary hub gear sets, with and without brakes, in three, five and seven
speeds. Sturmey-Archer developed the three-speed hub gear in 1902 and has
since led this market in Europe. Although the design concept of hub gears has
changed relatively little, Sturmey-Archer has enhanced its product offering
over the past decade, improving the performance of its hub gears and
introducing press button and grip shifting, while expanding the gear range to
five and seven speeds.
Sturmey-Archer's automotive parts and domestic appliance segment has
expanded steadily in recent years, partially offsetting a decline in sales of
bicycle parts. Management believes sales in this segment will continue to grow
as automotive manufacturers increasingly use sintered and cold forged
components which are typically less expensive to manufacture than components
manufactured by traditional machining.
Sales, Marketing and Distribution. Sturmey-Archer is recognized within the
bicycle industry as a producer of high quality bicycle components. Sturmey-
Archer advertises its products in the trade press, promoting their safety and
reliability. As 75% of Sturmey-Archer's sales are made to continental European
countries, Sturmey-Archer operates a European distribution company, Sturmey-
Archer BV, with a sales office in The Netherlands. Major customers include
Gazelle, as well as third-party bicycle
69
<PAGE>
manufacturers, and automotive and domestic appliance manufacturers. Sturmey-
Archer BV accounted for approximately 51% of Sturmey-Archer's 1997 revenues.
Manufacturing. Sturmey-Archer has two manufacturing facilities in England:
one located in Nottingham, which produces bicycle and engineering components,
and one located in Birmingham, which produces high-quality, traditional
leather seats under the Brooks brand name.
MARKETING COMPANIES
Probike South Africa. Probike South Africa sells bicycles under the Haro,
Nishiki and Raleigh brand names. Derby formed the Company's Probike South
Africa operating company with the acquisitions of Cycle and Hardware Factors
in 1989, J.H. Slotar in 1990 and Cycle Centre Wholesalers in 1991. The South
African manufacturing facility was closed at the end of 1992, and Probike
South Africa currently purchases low-cost bicycles from a variety of third
party sources in Asia. In 1997, Probike South Africa had sales of R95.5
million and EBITDA of R10.7 million. Parts and accessories accounted for 39.3%
of 1997 sales.
Raleigh Ireland. Raleigh Ireland is the largest importer and distributor of
bicycles throughout Ireland with a 32% unit market share in 1997. Incorporated
in 1947, Raleigh Ireland imports bicycles and bicycle parts and accessories
manufactured or sourced by Raleigh U.K. In 1997, Raleigh Ireland had sales of
IRL(Pounds)5.4 million and EBITDA of IRL(Pounds)0.1.
Raleigh Europe. Raleigh Europe acts as the European export sales and
marketing arm of Raleigh U.K. In 1997, Raleigh Europe had sales of NLG27.8
million and EBITDA of NLG(2.6) million. Raleigh Europe was formed in 1995 by
combining the distribution operations of Raleigh Holland, Raleigh Fahrrader
and Raleigh Belgium.
Raleigh International. Raleigh International sells products to, and grants
licenses in, markets other than those served by the other Derby operating
companies. These markets include Australia, China, France, Malaysia, New
Zealand, Nigeria and Uganda. Raleigh International generally assists
distributors and licensees by: (i) facilitating imports of Raleigh bicycles
into the country; (ii) providing engineering services and technical advice to
help ensure that licensee-produced bicycles meet Raleigh International quality
standards; and (iii) providing guidance in the import of bicycles produced by
third parties. In 1997, Raleigh International had net sales of (Pounds)1.0
million and EBITDA of (Pounds)0.4 million.
DERBY TRADING
Derby Trading acts as Derby's purchasing arm for components, frames and
finished bicycles. Established in 1984, Derby Trading has two separate and
distinct sales branches in Taiwan and Shenzhen, China. In addition to
assisting the operating companies in negotiating with Taiwanese and Chinese
bicycle component manufacturers, Derby Trading sources parts and accessories
for third party distributors, components for original equipment manufacturers
("OEMs") and a small number of finished bicycles for Derby licensees and
others. Derby Trading also plays an important role as Derby's liaison to
component manufacturers, gathering information on product design and OEM
buying patterns and monitoring suppliers' production quality. In 1997, Derby
Trading had sales of NT$1.4 billion, NT$1.1 billion of which were made to
Derby operating companies, and EBITDA of NT$3.1 million.
LYON
Lyon, a Dutch company, is a wholly-owned subsidiary of DCC and a non-
operating company. Prior to the Recapitalization, Lyon was a dormant
subsidiary. As a result of the Recapitalization, Lyon became a holding company
in which its sole assets are the shares of Derby Nederland, a Dutch
70
<PAGE>
company, and E. Wiener Bike Parts GmbH, a German company. Derby Nederland is a
holding company, owning 100% of Gazelle, the Company's main designer,
manufacturer and distributor of bicycles in The Netherlands. E. Wiener Bike
Parts GmbH is a bicycle distribution company in Germany. Derby Nederland also
owns 100% of Sturmey-Archer B.V. and Raleigh B.V. See "Business--Gazelle" and
"Business--DCW."
EMPLOYEES
At December 31, 1997, Derby employed 3,136 people in ten countries. Each
year Derby increases it workforce to over 3,500 in preparation for the Peak
Season. The following table sets forth employees by operating company and
function as of December 31, 1997:
<TABLE>
<CAPTION>
SALES/MARKETING/ PRODUCTION/
COMPANY ADMINISTRATION DISTRIBUTION TOTAL
------- ---------------- ------------ -----
<S> <C> <C> <C>
Raleigh U.K........................... 126 724 850
Gazelle............................... 72 455 527
DCW................................... 115 464 579
Raleigh USA........................... 97 191 288
Raleigh Canada........................ 24 148 172
Sturmey-Archer........................ 17 385 402
Probike South Africa.................. 65 134 199
Raleigh Europe........................ 27 0 27
Raleigh Ireland....................... 16 11 27
Raleigh International................. 5 0 5
Derby Trading......................... 52 0 52
Derby Headquarters.................... 8 0 8
--- ----- -----
Total............................... 624 2,512 3,136
=== ===== =====
</TABLE>
Substantially all the Company's hourly workers outside the United States are
unionized, with the principal terms of the union contracts generally
negotiated each year. Management believes the Company's relations with the
unions are generally satisfactory.
LEGAL PROCEEDINGS
Due to the nature of the Company's business, the Company is a defendant in a
number of product liability lawsuits. The plaintiffs in these lawsuits
generally seek damages, in amounts that may be material, for personal injuries
allegedly sustained as a result of alleged defects in the Company's products.
Derby carries insurance policies, subject to customary deductibles, to cover
product liability claims in amounts which management believes to be adequate.
The deductible under Derby's insurance policies is currently $250,000 per
claim; however, prior to 1993, the deductible was $1.0 million per claim. Not
all claims arising during the period in which the deductible was $1.0 million
per claim have been resolved and it is possible that additional claims will be
filed. The aggregate amount of liability under existing and potential claims
could exceed the reserves established by Derby for product liability claims.
Derby is not involved in any pending legal proceedings, other than routine
litigation incidental to its business. None of these legal actions is expected
to have a material adverse effect on Derby's business, financial condition or
results of operations.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to a wide variety of foreign, federal, state and
local laws and regulations relating to air emissions, wastewater discharges
and hazardous substance and hazardous waste management ("Environmental Laws").
The Company is also required to comply with worker health and
71
<PAGE>
safety requirements in the various jurisdictions in which it operates.
Although the Company has made and will continue to make significant
expenditures related to its environmental, health and safety compliance
obligations, there can be no assurance that the Company will at all times be
in compliance with all such requirements. Under certain Environmental Laws,
the Company could be held responsible for the remediation of, or other damages
caused by, hazardous substances at currently- or formerly-owned or operated
properties, or at third-party waste disposal sites. In addition, as a result
of changes in Environmental Laws, the Company may be required to implement
equipment or process changes that would reduce emissions from the Company's
manufacturing operations, perhaps at substantial cost.
The Company is responsible for investigating and remediating groundwater
contamination associated with certain of its existing and historical
operations. Based on the Company's present information regarding the nature
and volume of the contamination and its experience with similar matters, the
Company does not believe that investigation or remediation costs associated
with these operations will be material, either individually or in the
aggregate.
72
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan J. Finden-Crofts..... 56 Chief Executive Officer and Director of DCC
Gary S. Matthews.......... 41 Chief Executive Officer Designate of DCC
William W. Austin, Jr. ... 60 President, Raleigh USA
Simon J. Goddard.......... 46 Chief Financial Officer of DCC
Klaas Dantuma ............ 54 Managing Director, Gazelle
Robert Holzer............. 33 Managing Director, MS Sport Group
Peter Miller.............. 50 Joint Managing Director, Probike South Africa
Kim Roether............... 34 Managing Director, DCW
Irwin R. Slotar........... 50 Joint Managing Director, Probike South Africa
John V. Spon-Smith........ 45 Director, Raleigh U.K.
Mark J. Todd.............. 35 Managing Director, Raleigh U.K.
Farid Vaiya............... 54 President, Raleigh Canada
Peter E. Wittering........ 60 Managing Director, Sturmey-Archer
A. Edward Gottesman....... 61 Director of DCC
Frederic V. Malek......... 61 Chairman and Director of DCC
Frank H. Pearl............ 54 Director of DCC
Carl J. Rickertsen........ 38 Director of DCC
Paul G. Stern............. 59 Director of DCC
Dr. Thomas H. Thomsen..... 64 Director of DCC
</TABLE>
ALAN J. FINDEN-CROFTS, Chief Executive Officer and Director of DCC
Mr. Finden-Crofts, age 56, has been the Chief Executive Officer of DCC since
1987. He is resigning as Chief Executive Officer in mid-January 1999 but will
serve as a consultant to DCC for several months thereafter in order to ensure
a smooth transition. Mr. Finden-Crofts was previously the chief executive
officer of Dunlop Slazenger International from 1985 to 1987 and director,
consumer group, of Dunlop from 1982 to 1984. Prior to joining the Company, Mr.
Finden-Crofts served on the operational board of BTR plc from 1982 to 1986.
From 1968 to 1982, Mr. Finden-Crofts was managing director of various
subsidiaries of Norcros plc, an industrial conglomerate in the United Kingdom.
Mr. Finden-Crofts also serves on the board of numerous subsidiaries of the
Company.
GARY S. MATTHEWS, CHIEF EXECUTIVE OFFICER DESIGNATE OF DCC
Mr. Matthews, age 41, will become the Chief Executive Officer of DCC
effective mid-January 1999. Mr. Matthews is currently the Managing Director of
UK Operations of Guinness Great Britain Limited, a position he has held since
April 1998 and from which he will resign in early January 1999. Prior to that,
Mr. Matthews was President of Guinness Import Company from 1996 to 1998. From
1990 to 1995, Mr. Matthews held a variety of marketing and corporate strategy
positions at PepsiCo, Inc.
WILLIAM W. AUSTIN, JR., President of Raleigh USA
Mr. Austin, age 60, has been President of Raleigh USA since 1994. Mr. Austin
was previously group vice president of Schwinn Cycling and Fitness, Inc. from
1981 to 1986. From 1988 to 1993, Mr. Austin was president of Giant Bicycle
Company.
SIMON J. GODDARD, Chief Financial Officer of DCC
Mr. Goddard, age 46, has been the Group Financial Controller of the Company
since 1990. Mr. Goddard began working at Raleigh U.K. in 1985 as the
management accountant for international operations. Prior to that, Mr. Goddard
was with Coopers & Lybrand in the United Kingdom and Zimbabwe. Mr. Goddard is
also a director of Curragh Finance, Derby Holding Limited and Raleigh
International, each a subsidiary of DCC.
73
<PAGE>
KLAAS DANTUMA, Managing Director of Gazelle
Mr. Dantuma, age 54, has been Managing Director of Gazelle since 1990. He
has been a director of DHBV, Derby Nederland, Lyon and Raleigh Europe since
1991. Mr. Dantuma has held a variety of positions with the Company since 1973,
including Deputy Commercial Director for four years, before becoming
Commercial Director in 1985.
ROBERT HOLZER, Managing Director of the MS Sport Group
Mr. Holzer, age 33, has been Managing Director of the MS Sport Group since
the Company acquired an interest in the MS Sport Group in 1997. Prior to this
acquisition, Mr. Holzer owned the MS Sport Group since 1988. Mr. Holzer was
also an executive officer of Univega, in which the Company acquired a
controlling interest in 1997. From 1994 to 1995, Mr. Holzer was the general
manager and owner of Winners Bike & Fun Sport Center GmbH. Since 1992, Mr.
Holzer has been a general manager and director of Nobel Haus Industrie und
Wohnbau GmbH.
PETER MILLER, Joint Managing Director of Probike South Africa
Mr. Miller, age 50, has been Joint Managing Director of Probike South Africa
since the Company acquired Cycle Center Wholesalers in 1991, a company that
Mr. Miller had founded.
KIM ROETHER, Managing Director of DCW
Mr. Roether, age 34, has been Managing Director of DCW since 1997. Mr.
Roether started with DCW as its Controller in 1994. In 1995, he became DCW's
Financial Director. From 1991 to 1994, Mr. Roether was a consultant to Grant
Thornton International in Oldenburg, Germany.
IRWIN R. SLOTAR, Joint Managing Director of Probike South Africa
Mr. Slotar, age 50, has been Joint Managing Director of Probike South Africa
since the Company acquired Probike South Africa in 1990. Prior to the
acquisition, Probike South Africa had been owned by Mr. Slotar's family for
several generations. Prior to the acquisition by the Company, Mr. Slotar was
Managing Director of Probike South Africa.
JOHN V. SPON-SMITH, Director of Raleigh U.K.
Mr. Spon-Smith, age 45, has been Director of Raleigh U.K. and General
Manager of Raleigh Parts & Accessories-U.K. since 1996. From 1991 to 1996, Mr.
Spon-Smith was Sales and Marketing Director of Stanley Tools for the United
Kingdom, South Africa and Ireland.
MARK J. TODD, Managing Director of Raleigh U.K.
Mr. Todd, age 35, has been Managing Director of Raleigh U.K. since July
1997. Prior to joining Raleigh U.K., Mr. Todd was business unit director of
Courage Limited, the U.K.'s largest brewing company from 1994 to 1997. From
1994 to 1995, Mr. Todd was managing director of Moulinex Limited, which
manufactures food processing appliances. Prior to joining Moulinex, Mr. Todd
was sales and marketing director for Toshiba U.K., Limited from 1989 to 1994.
FARID VAIYA, President of Raleigh Canada
Mr. Farid Vaiya, age 54, has been President of Raleigh Canada since 1989.
Mr. Vaiya has been with the Company since 1972, as Vice President of Sales and
Marketing of Raleigh Canada from 1987 to 1988 and National Account Sales
Manager and Product Manager of Raleigh Canada from 1981 to 1987.
PETER E. WITTERING, Managing Director of Sturmey-Archer
Mr. Wittering, age 60, has been Managing Director of Sturmey-Archer since it
was established as a separate operating unit in 1985. From 1982 to 1985, Mr.
Wittering was Production Director for Raleigh U.K. Mr. Wittering joined
Raleigh U.K. in 1977 as Manufacturing Director of Sturmey-Archer, which
position he held until 1982. Prior to working for the Company, Mr. Wittering
was general manager of Herbert Morris Ltd., a crane manufacturer in the United
Kingdom.
74
<PAGE>
A. EDWARD GOTTESMAN, Director of DCC
Mr. Gottesman, age 61, is the chairman of DICSA. Mr. Gottesman has been
chairman of Centenary since its formation in 1989. Mr. Gottesman was a partner
of Coudert Brothers from 1963 to 1970 and has been a partner of Gottesman
Jones & Partners since 1970. Mr. Gottesman is chairman of Exeter International
Corporation S.A. which, through its subsidiaries, manufactures and distributes
Royal Worcester and Spode fine bone china and porcelain, and Piedmont
International S.A., a company formed in 1996 to acquire the personal computer
business of Olivetti SpA.
FREDERIC V. MALEK, Chairman of the Board of Directors of DCC
Mr. Malek, age 61, has been chairman of Thayer Capital, the general partner
of Thayer, since 1993. Prior to that, Mr. Malek was president of Marriott
Hotels and Resorts from 1980 to 1988, and president and then vice chairman of
Northwest Airlines from 1989 to 1991. Mr. Malek currently serves on the board
of directors of Automatic Data Processing Corporation, American Management
Systems, Inc., FPL Group, Inc., Choice Hotels, Inc., Manor Care, Inc., CB
Commercial Real Estate Group, Inc., Northwest Airlines, Colorado Prime, Inc.,
Paine Webber Mutual Funds and Global Vacation Group, Inc.
FRANK H. PEARL, Director of DCC
Mr. Pearl, age 54, is chairman and president of Perseus and Perseus
Management, the managing member of Perseus. Prior to founding Perseus in 1996,
Mr. Pearl founded, and is also chairman of, Rappahannock Investment Company
("Rappahannock"), a private investment fund which owns approximately 57% of
Perseus Management. From 1984 to 1988, Mr. Pearl was a principal and managing
director of Wesray Capital Corporation. Mr. Pearl is also a founding
shareholder and director of DICSA.
CARL J. RICKERTSEN, Director of DCC
Mr. Rickertsen, age 38, is a partner of Thayer Capital, the general partner
of Thayer. Prior to joining Thayer Capital in 1995, Mr. Rickertsen acted as a
private financial consultant from 1993 through August 1994, and was a partner
at Hancock Park Associates, a private equity investment firm based in Los
Angeles, from 1989 to 1993. Before joining Hancock Park Associates, Mr.
Rickertsen was an associate at Brentwood Associates from 1987 to 1989, and
worked in the high technology group at Morgan Stanley & Co., Inc. from 1983 to
1985. Mr. Rickertsen currently serves as a director of MLC Holdings, Inc. and
Global Vacation Group, Inc. and as the chairman of the board of Software AG
Systems, Inc.
PAUL G. STERN, Director of DCC
Mr. Stern, age 59, is a partner of Thayer Capital, the general partner of
Thayer. Prior to joining Thayer Capital in 1995, Mr. Stern was a special
limited partner of Forstmann Little, a leveraged buy-out investment fund. From
1988 to 1993, Mr. Stern was a director, vice-chairman and chief executive
officer of Northern Telecom Ltd., a Canadian telecommunications equipment
vendor and manufacturer. Mr. Stern currently serves on the board of directors
of LTV Steel Corporation, Whirlpool Corporation, Dow Chemical Company and
Software AG Systems, Inc.
DR. THOMAS H. THOMSEN, Director of DCC
Dr. Thomsen, age 64, is a director of DICSA. Dr. Thomsen was director of
corporate engineering of The Gillette Company from 1969 to 1981. From 1982 to
1991, Dr. Thomsen was a member of the management board of Braun AG. Dr.
Thomsen currently serves on the board of directors of Travelplans and A.
Paukner S.A., as well as the German Institute for New Technical Form and the
Design Council, State of Hesse.
COMPENSATION OF DIRECTORS
The Company compensates non-executive directors for services provided as a
director by paying such directors a retainer of $10,000 per annum, plus $1,500
for each board meeting plus reasonable out-of-pocket expenses incurred by
them. The Company does not compensate salaried executive directors. Recently,
the Company's Board of Directors appointed a compensation committee.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation paid
or accrued by the Company for services in all capacities to the Company for
each of the years ended December 31, 1997, 1996, and 1995, of those persons
who served as (i) the chief executive officer of the Company during fiscal
year 1997 and (ii) the other four most highly compensated executive officers
of the Company for fiscal 1997 (each, a "Named Executive Officer"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Alan J. Finden-Crofts(/1/)............. 1997 $273,288 $362,856 $143,809
Chief Executive Officer, DCC 1996 273,288 686,404 143,226
1995 273,288 323,908 167,829
William W. Austin, Jr. ................ 1997 248,827 70,910 --
President, Raleigh USA 1996 228,067 25,681 --
1995 209,090 61,803 --
Klaas Dantuma(/2/)..................... 1997 151,946 54,701 --
Managing Director, Gazelle 1996 149,052 74,526 --
1995 144,711 68,014 --
Farid Vaiya(/3/)....................... 1997 129,706 62,259 --
President, Raleigh Canada 1996 125,500 45,180 --
1995 119,190 59,595 --
Mark J. Todd(/4/)...................... 1997 73,321 32,495 10,615
Managing Director, Raleigh U.K. 1996 -- -- --
1995 -- -- --
</TABLE>
--------
(/1/Mr.)Finden-Crofts is compensated in pounds Sterling. The amounts
reported in the table have been converted at the rate of
(Pounds)0.6001 per $1.00.
(/2/Mr.)Dantuma is compensated in Dutch Guilders. The amounts reported
in the table have been converted at the rate of NLG2.0731 per $1.00.
(/3/Mr.)Vaiya is compensated in Canadian dollars. The amounts reported
in the table have been converted at the rate of CAN$1.4263 per
$1.00.
(/4/Mr.)Todd joined Raleigh U.K. as Managing Director in July 1997. Mr.
Todd's annual salary is (Pounds)101,000. Mr. Todd is compensated in
pounds Sterling. The amounts reported in the table have been
converted at the rate of (Pounds)0.6001 per $1.00.
EMPLOYMENT AGREEMENTS
At the time of the Recapitalization, Alan Finden-Crofts, the then Chief
Executive Officer of the Company, agreed to continue to serve as the CEO for a
period of one year while the Company searched for Mr. Finden-Crofts'
successor. On October 20, 1998, DCC entered into an employment contract with
Mr. Gary S. Matthews to become the new Chief Executive Officer and President
of DCC effective mid-January 1999. Mr. Finden-Crofts will serve as a
consultant to DCC for several months thereafter in order to ensure a smooth
transition. Mr. Finden-Crofts will remain a shareholder of DCC (indirectly
through DFS), and a director of DCC.
Mr. Matthews' compensation package will initially include a base annual
salary of $450,000 and a bonus of up to 120% of his base salary. The contract
is for a four year term with a three year extension. DCC issued Mr. Matthews
stock options to purchase 1,625 shares of DCC's Class A Common Stock which
vest over three years, and performance stock options for 3,250 shares of Class
A Common Stock.
Pursuant to a Management Stock Purchase Agreement dated October 20, 1998,
Mr. Matthews purchased 1,500 shares of DCC's class A Common Stock for $1,000
per share. Mr. Matthews paid for such shares with a secured promissory note
that is nonrecourse except for 20% of the principal
76
<PAGE>
amount and all accrued interest. Upon the termination of Mr. Matthews
employment with the Company, DCC has the right or is required to repurchase,
depending on the reason for such termination, such Class A Common Stock,
provided no event of default exists under material financing agreements,
including the Indentures.
Mr. Finden-Croft's employment contract expires on May 14, 1999. It provides
for an annual base salary of $333,260 plus a targeted bonus of $416,575
subject to adjustment based on the Company's performance.
The terms of Mr. Austin's employment agreement as President of Raleigh USA
provide for a base salary of $248,827 and a bonus ranging from 20% to 50% of
base salary tied to DCC's profit before interest payments and taxes, inventory
turns and account receivables turnover. DICSA paid Mr. Austin approximately
$552,000 upon the closing of the Recapitalization pursuant to a change of
control provision in his former employment agreement.
Under the terms of Mr. Holzer's employment agreement with the MS Sport
Group, the MS Sport Group will pay Mr. Holzer for each of the five calendar
years from 1997 to 2001 as follows: (i) if the profit before tax ("PBT") of
the MS Sport Group is less than DM 2.3 million, 10% of the amount by which PBT
exceeds DM 1.35 million and, in addition, (ii) if PBT exceeds DM 2.3 million,
25% of the amount by which PBT exceeds DM 2.3 million.
The Company has entered into employment contracts with other senior managers
of the Company which generally contain remuneration packages including base
salary, bonus, insurance, pension benefits and noncompete provisions.
MANAGEMENT STOCK OPTION
On October 21, 1998, the Board of Directors of DCC adopted The Derby Cycle
Corporation 1998 Stock Option Plan (the "Stock Plan"), which authorizes DCC to
grant stock options (including options intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code). The
Stock Plan authorizes DCC's Board of Directors to grant options at any time in
such quantity, at such price, on such terms and subject to such conditions as
established by the board. To date, DCC has granted an aggregate of 4,875 stock
options to its management, none of which have vested yet.
PAYMENT OF CERTAIN FEES AND EXPENSES
In connection with the Recapitalization, DCC paid closing fees (i) to Thayer
in the amount of $1.2 million, (ii) to Perseus in the amount of $1.0 million
and (iii) to Centenary (which is controlled in part by Mr. A. Edward
Gottesman) in the amount of $0.7 million. In addition, DCC paid all the out-
of-pocket expenses of Thayer and Perseus, certain expenses incurred in order
to effect the reorganization, and up to $150,000 of the out-of-pocket expenses
of DICSA and DFS. In the future, affiliates of Thayer may receive customary
fees for advisory and other services rendered to the Company. If such services
are rendered in the future, the fees will be negotiated from time to time and
will be based on the services performed and the prevailing fees then charged
by third parties for comparable services.
DESCRIPTION OF SHAREHOLDERS' AGREEMENT AND REGISTRATION AGREEMENT
DCC, DFS, DC Cycle and Perseus Cycle (DFS, DC Cycle and Perseus Cycle being
referred to as the "Shareholders") entered into a Shareholders' Agreement in
connection with the consummation of the Recapitalization (the "Shareholders'
Agreement"). The following summary of certain provisions of the Shareholders'
Agreement does not purport to be complete and is qualified in its entirety by
reference to all the provisions of the Shareholders' Agreement. The
Shareholders' Agreement provides, among other things, for the following: (i)
the Board of Directors of DCC initially consists of seven individuals, four of
77
<PAGE>
whom will be appointed by DC Cycle, two by DFS and one by Perseus Cycle, (ii)
certain restrictions on the transfer of shares of DCC, including, but not
limited to, provisions providing that (a) the Shareholders have limited rights
of first offer in any proposed third party sale of Class A Common Stock and
Series A Preferred Stock by any Shareholder and (b) the Shareholders have
limited participation rights in any proposed third party sale of Class A
Common Stock and Series A Preferred Stock by any Shareholder, (iii) an
agreement among the Shareholders that, upon approval of a sale of all or
substantially all of DCC's outstanding capital stock or a sale of all or
substantially all of DCC's assets by DCC's Board of Directors, each
Shareholder will consent to, and raise no objections against, such sale and
sell its shares and rights to acquire shares, if so required, and (iv) certain
limited preemptive rights of the Shareholders with respect to an issuance or
sale of common stock by DCC. Certain material transactions require the
approval of a supermajority of the Board of Directors which can be achieved
with the votes of the DC Cycle nominees and any one other director. The
Shareholders' Agreement also provides that DFS shall be deemed to own all
shares of DCC's capital stock which DICSA can acquire pursuant to the Raleigh
Canada Exchange Agreement for purposes of determining the voting power of the
stock held by DFS and for all other purposes.
The Shareholders also entered into a Registration Agreement (the
"Registration Agreement") upon the consummation of the Recapitalization.
Pursuant to the Registration Agreement, subject to certain restrictions, all
holders of Registrable Securities (as defined in the Registration Agreement)
are entitled to piggyback registration rights, whenever the Company proposes
to register any of its securities under the Securities Act. Each such holder
is subject to certain pro rata limitations, including priorities and
preferences for certain holders, on its ability to participate in such a
piggyback registration. DCC will pay all expenses related to these
registrations (other than underwriting discounts and commissions) and, subject
to certain conditions and limitations, is required to use its best efforts to
effect such registrations. DCC has agreed to indemnify all holders of
Registrable Securities for certain liabilities arising out of such
registrations, including certain liabilities under the Securities Act.
78
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The authorized capitalization of DCC is: 200,000 shares of Class A Common
Stock, 15,000 shares of Class B Common Stock, 25,000 shares of Series A
Preferred Stock and 3,000 shares of Series B Preferred Stock. The issued and
outstanding capital stock of DCC consists of 45,700 shares Class A Common
Stock, 25,000 shares of Series A Preferred Stock and 3,000 shares of Series B
Preferred Stock. Holders of Class B Common Stock and Series B Preferred Stock
have no voting rights except as required by applicable law. In addition, DICSA
has the right to acquire 15,000 shares of Class B Common Stock and 8,300
shares of Class A Common Stock under the Raleigh Canada Exchange Agreement.
The Holders of Class A Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders of DCC, including the election of
directors. Holders of Series A Preferred Stock are entitled to 1.5 votes per
share, voting together with the Class A Common Stock as a single class.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Class A Common Stock and Series A
Preferred Stock by (i) each shareholder known by the Company to own
beneficially five percent or more of each class of the Company's voting
securities, (ii) each current director of DCC, (iii) each Named Executive
Officer of DCC and (iv) all directors of DCC and executive officers of the
Company as a group. Unless indicated otherwise below, to the knowledge of the
Company, each shareholder has sole voting and investment power with respect to
the shares indicated as beneficially owned.
<TABLE>
<CAPTION>
CLASS A SERIES A PERCENT OF
COMMON STOCK PREFERRED STOCK DCC'S TOTAL
-------------------- -------------------- OUTSTANDING
NAME AND ADDRESS NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTING
OF BENEFICIAL OWNER(/1/) SHARES CLASS SHARES CLASS SECURITIES(/2/)
- ------------------------ --------- ---------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
DC Cycle, L.L.C.(/3/)... 12,500 27.35 25,000 100 60.10
1455 Pennsylvania Ave-
nue, Ste. 350
Washington, DC 20004
Derby Finance 21,700 47.48 -- -- 26.08
S.a.r.l.(/4/)..........
5 Boulevard de la Foire
L-1528 Luxembourg
Grand Duchy of Luxem-
bourg
Derby International Cor- 8,300 15.37 -- -- 9.07
poration S.A.(/5/).....
5 Boulevard de la Foire
L-1528 Luxembourg
Grand Duchy of Luxem-
bourg
Perseus Cycle, 10,000 21.88 -- -- 12.10
L.L.C(/6/).............
1627 "I" Street NW,
Ste. 610
Washington, D.C. 20006
Frederic V. Malek(/7/).. 12,500 27.35 25,000 100 60.10
1455 Pennsylvania Ave-
nue, Ste. 350
Washington, DC 20004
Paul G. Stern(/8/)...... 12,500 27.35 25,000 100 60.10
1455 Pennsylvania Ave-
nue, Ste. 350
Washington, DC 20004
Carl J. 12,500 27.35 25,000 100 60.10
Rickertsen(/9/)........
1455 Pennsylvania Ave-
nue, Ste. 350
Washington, DC 20004
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
CLASS A SERIES A PERCENT OF
COMMON STOCK PREFERRED STOCK DCC'S TOTAL
-------------------- -------------------- OUTSTANDING
NAME AND ADDRESS NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTING
OF BENEFICIAL OWNER(/1/) SHARES CLASS SHARES CLASS SECURITIES(/2/)
- ------------------------ --------- ---------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
A. Edward Gottes- 30,000 55.55 -- -- 32.79
man(/10/)..............
38 Chester Terrace
London, England NW1 4ND
Alan J. Finden- 30,000 55.55 -- -- 32.79
Crofts(/11/)...........
c/o Raleigh Industries
Ltd. Triumph Rd.
Nottingham, England NG7
2DD
Frank H. Pearl(/12/).... 40,000 74.07 -- -- 43.72
1627 I Street NW, Suite
610
Washington, D.C. 20006
Gary S. Matthews........ 1,500 3.28 -- -- 1.80
c/o Raleigh Industries
Ltd. Triumph Rd.
Nottingham, England NG7
2DD
Dr. Thomas H. Thomson... -- -- -- -- --
Salkensteinerstrasse 36
Konigstein im Taunus
Frankfurt, Germany
William W. Austin, Jr... -- -- -- -- --
c/o Raleigh USA Bicycle
Co.
22710 72nd Avenue South
Kent, Washington 98032-
1926
Mark J. Todd............ -- -- -- -- --
c/o Raleigh Industries
Limited
Triumph Road
Nottingham, England NG7
2DD
Farid Vaiya............. -- -- -- -- --
c/o Raleigh Industries
of Canada Limited
Les Industries Raleigh
du Canada Limitee
2124 London Lane
Oakville, Ontario L6H
5V8
Klass Dantuma........... -- -- -- -- --
c/o Koninklijke Gazelle
B.V.
Wilhelminaweg VII
6951 BP Dieren
The Netherlands
All Directors and Execu-
tive Officers
as a Group (6 per-
sons)(/13/)............ 54,000 -- 25,000 100 --
</TABLE>
- --------
(/1/The)percentages of DCC's voting securities held by DC Cycle, Perseus
Cycle and DFS set forth in this table differ from the percentages of
total voting power indirectly held by their respective parent companies
under "Summary--Investor Group" and "The Recapitalization" for two
reasons: first, rights to acquire shares of Class A Common Stock which
are exercisable within 60 days of the date hereof are considered
outstanding for the purpose of determining the percent of the class held
by the holder of such rights, but not for the purpose of computing the
percentage held by others (in accordance with Rule 13d-3(d)(1)(ii)), and
second, under the terms of the Shareholders' Agreement, all shares of DCC
beneficially owned by DICSA are deemed to be beneficially owned by DFS
for voting purposes and all other purposes thereunder. See "Description
of Shareholders' Agreement and Registration Agreement".
(/2/Pursuant)to the rules of the Commission, shares are deemed to be
"beneficially owned" by a person if such person directly or indirectly
has or shares (i) the power to vote or dispose of such shares, whether or
not such person has any pecuniary interest in such shares, or (ii) the
right to acquire the power to vote or dispose of such shares within 60
days, including any right to acquire through the exercise of any option,
warrant or right, or the conversion or exchange of a security.
80
<PAGE>
(/3/DC)Cycle is 100% owned by Thayer Equity Investors III, L.P. ("Thayer"), a
Delaware limited partnership. TC Capital Partners, a Delaware general
partnership, is the general partner of Thayer. Messrs. Frederic V. Malek,
Paul G. Stern and Carl J. Rickertsen, directors of DCC, are general
partners of TC Capital Partners. As such, Messrs. Malek, Stern and
Rickertsen have shared voting and investment power (as well as an
indirect pecuniary interest within the meaning of Rule 16a-1 under the
Exchange Act), with respect to the shares held by DC Cycle. As a result,
each of Messrs. Malek, Stern and Rickertsen may be deemed to be the
beneficial owners of the 12,500 shares of Class A Common Stock and the
25,000 shares of Series A Preferred Stock held by DC Cycle.
(/4/DFS)is a wholly owned subsidiary of DICSA. See note 5 below.
(/5/Includes)8,300 shares of Class A Common Stock issuable to DICSA upon
conversion of its Raleigh Canada Preferred Stock under the Raleigh Canada
Exchange Agreement. Mr. Gottesman, a director of DCC, is the chairman of
DICSA. Mr. Gottesman and a charitable trust of which he is the settlor,
control a majority of the capital stock of DICSA indirectly through an
industrial holding company, Centenary. Mr. Finden-Crofts, a director of
DCC and the Chief Executive Officer of DICSA, and Mr. Pearl, a director
of DCC and a director of DICSA, own minority interests in DICSA. As a
result of their shared voting and investing power with respect to shares
beneficially owned by DFS and DICSA, Messrs. Gottesman, Finden-Crofts and
Pearl may each be deemed to be the beneficial owner of the shares owned
by DFS and DICSA.
(/6/Perseus)Cycle is 100% owned by Perseus Capital, L.L.C., a Delaware
limited liability company ("Perseus"). Perseus Management, a Delaware
limited liability company, is the managing member of Perseus and owns
approximately 17% of Perseus. Mr. Frank H. Pearl is the Chairman and
President of Perseus Management. Rappahannock Investment Company, a
Delaware corporation, owns approximately 57% of Perseus Management.
Rappahannock is 100% owned by Mr. Pearl. Mr. Pearl, by virtue of his
indirect ownership interest in Perseus, may be deemed the beneficial
owner of the 10,000 shares of Class A Common Stock held by Perseus.
(/7/Includes)the 12,500 shares of Class A Common Stock and 25,000 shares of
Series A Preferred Stock beneficially owned by DC Cycle. See note 3
above.
(/8/Includes)the 12,500 shares of Class A Common Stock and 25,000 shares of
Series A Preferred Stock beneficially owned by DC Cycle. See note 3
above.
(/9/Includes)the 12,500 shares of Class A Common Stock and 25,000 shares of
Series A Preferred Stock beneficially owned by DC Cycle. See note 3
above.
(/10/Includes)the 21,700 shares of Class A Common Stock beneficially owned by
DFS and the 8,300 shares of Class A Common Stock beneficially owned by
DICSA. See note 5 above.
(/11/Includes)the 21,700 shares of Class A Common Stock beneficially owned by
DFS and the 8,300 shares of Class A Common Stock beneficially owned by
DICSA. See note 5 above.
(/12/Includes)the 10,000 shares of Class A Common Stock beneficially owned by
Perseus, the 21,700 shares of Class A Common Stock beneficially owned by
DFS and the 8,300 shares of Class A Common Stock beneficially owned by
DICSA. See notes 5 and 6 above.
(/13/Includes)(1) 12,500 shares of Class A Common Stock and 25,000 shares of
Series A Preferred Stock beneficially owned by DC Cycle which may be
deemed to be beneficially owned by Messrs. Malek, Stern, and Rickertsen
(see note 3 above); (2) 21,700 shares of Class A Common Stock
beneficially owned by DFS and 8,300 shares of Class A Common Stock
beneficially owned by DICSA which may be deemed to be beneficially owned
by Messrs. Gottesman, Finden-Crofts and Pearl (see note 5 above); (3)
10,000 shares of Class A Common Stock beneficially owned by Perseus which
may be deemed to be beneficially owned by Mr. Pearl (see note 5 above);
and (4) 1,500 shares of Class A Common Stock owned by Mr. Matthews.
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DESCRIPTION OF REVOLVING CREDIT AGREEMENT
Concurrently with the consummation of the Recapitalization, DCC and certain
of its subsidiaries, including Raleigh U.K., Gazelle, Raleigh Canada, Sturmey-
Archer, Derby Holding (Deutschland) and Derby Holdings South Africa (which was
not a Borrower upon closing of the Recapitalization) (collectively, the
"Borrowers", and together with certain guarantors, the "Obligors") entered
into the Revolving Credit Agreement with Chase Manhattan plc, as Arranger,
Chase Manhattan International Limited, as both Facility Agent and as Security
Agent, and the financial institutions named therein as banks, pursuant to
which such banks provide a revolving, multi-currency loan facility (the
"Facility") to the Company. Other subsidiaries of DCC may become borrowers
under the Revolving Credit Agreement, subject to the approval of each of the
banks.
The following summary of the Revolving Credit Agreement does not purport to
be complete and is qualified in its entirety by reference to the Revolving
Credit Agreement, including the definitions therein of certain terms used in
this section entitled "Description of Revolving Credit Agreement".
GENERAL
The Revolving Credit Agreement provides a revolving credit line of up to
DM225 million (which is also available in U.S. dollars, pounds Sterling and
other currencies which are freely transferable and convertible into Deutsche
Marks), of which DM214 million can be used by the Borrowers or, if and when
any bank in South Africa accedes to the Revolving Credit Agreement, and so
long as the South African Credit Facility is terminated, DM225 million of the
revolving credit line may be used by the Borrowers, of which up to (A) DM69
million, or, if and when any bank in South Africa accedes to the Revolving
Credit Agreement, and so long as the South African Credit Facility is
terminated, DM75 million, may be made available by the Ancillary Banks to the
Borrowers as Ancillary Facilities, less amounts drawn under Standby Letters of
Credit, and (B) up to DM15 million may be used by means of Standby Letters of
Credit; provided, however, that DCC may use up to a maximum of $7.5 million of
the revolving credit line. The Facility is available in multiple Advances from
time to time, subject to conditions precedent standard for facilities of this
size and type, and subject further to certain limitations, including a
requirement that no Requested Amount of any proposed Advance exceed the then
Adjusted Available Amount in relation to the relevant Borrower. Advances and
Standby Letters of Credit or Ancillary Facilities drawn under the Revolving
Credit Agreement were used to finance (i) the repayment of the Existing
Indebtedness (other than indebtedness incurred under the South African Credit
Facility), (ii) the payment of certain fees and expenses related to the
Recapitalization and (iii) general working capital requirements and other
corporate purposes of the relevant Borrower and its Subsidiaries.
SECURITY
The obligations under the Revolving Credit Agreement are secured and
guaranteed by the Obligors through a first priority fully perfected security
interest in all the assets, properties and undertakings of DCC and each other
Obligor, where available and cost effective to do so, and to the extent
permissible by local laws; except that (i) no obligation of DCC is guaranteed
by any other entity and (ii) DCC has not pledged more than approximately 66%
of the voting stock it holds in any other entity to secure its indebtedness.
The security covers at least 85% of the Company's Consolidated Adjusted EBITDA
and Total Assets and, if such security falls below this percentage in the
future, further security must be granted, by the accession of additional
Obligors or otherwise.
INTEREST RATE; FEES
The interest rate per annum applicable to each Advance under the Revolving
Credit Agreement is based upon (i) LIBOR relative to each Advance for each
Interest Period, plus (ii) an applicable
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margin ranging from 1.25% to 2.00% depending upon the financial performance of
the Group; provided, however, that the margin is 2.00% per annum (i) until the
first anniversary of the consummation of the Recapitalization and (ii) if a
Default is continuing.
The Borrowers have agreed to pay Chase customary fees with respect to the
Facility, including an up-front structuring and arrangement fee and an annual
administration fee. DCC will pay a commitment fee equal to 0.50% per annum on
the daily unused portion of the Facility, payable quarterly in arrears. DCC
will pay a utilization fee equal to 0.25% per annum on all Advances, Standby
Letters of Credit and Ancillary Facilities if the average amount outstanding
thereunder equals or exceeds 50% of the Facility over a three-month period,
calculated with regard to each day such percentage is exceeded and payable
quarterly in arrears. In addition, all overdue amounts, whether of principal,
interest, fees or otherwise, shall bear interest at 2.00% per annum over the
otherwise applicable rate.
COVENANTS
The Revolving Credit Agreement contains certain affirmative and negative
covenants that, among other things, restrict the ability of DCC and its
Subsidiaries to dispose of shares in DCC or in any Subsidiary, dispose of
assets, incur additional indebtedness, engage in mergers and acquisitions,
exercise options other than under an Approved Hedging Program or the MS Group
Option, make investments, incur guaranty obligations, make loans, make capital
distributions, enter into joint ventures, repay the Exchange Notes, make loans
or pay any dividend or distribution to the Issuers for any reason other than
(among other things) to pay interest (but not principal or Additional Amounts)
owing in respect of the Exchange Notes, incur liens and encumbrances and
permit the amount of receivables and inventory to exceed specified thresholds.
However, certain acquisitions are permitted up to a total value of $30
million. In addition, the Revolving Credit Agreement requires the Company to
maintain specified financial ratios and tests, including a minimum interest
coverage ratio, minimum consolidated net worth, a minimum level of Adjusted
EBITDA (as defined in the Revolving Credit Agreement), a maximum leverage
ratio and a minimum working capital turnover ratio.
EVENTS OF DEFAULT
The Revolving Credit Agreement contains customary events of default
including, but not limited to, non-payment, breach of undertaking,
misrepresentation, cross default, repudiation of the Transaction Documents,
invalidity, inability to pay debts, insolvency, liquidation, bankruptcy,
appointment of a receiver, unlawfulness, qualification of accounts, cessation
of business, change of control, litigation, DICSA's warranties under the
Recapitalization Agreement being incorrect (subject to a materiality
threshold), failure to comply with ERISA requirements, expropriation of assets
and certain material adverse effects.
GUARANTORS
Each of the Borrowers and certain other Subsidiaries are guarantors.
However, no obligation of DCC or Lyon under the Revolving Credit Agreement is
guaranteed by any other entity.
MATURITY
Loans made pursuant to the Revolving Credit Agreement may be borrowed,
repaid and reborrowed from time to time until the date falling 83 months after
the completion of the Recapitalization, subject to satisfaction of certain
conditions on the date of any such borrowing. The Facility will be reduced by
DM20 million and DM25 million on the fifth and sixth anniversary,
respectively, of the Facility and will mature on the seventh anniversary of
the closing of the Facility.
The obligation of the banks to make Advances or extend letters of credit
under the Revolving Credit Agreement is subject to the satisfaction of certain
customary closing conditions.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
As used in this section entitled "Description of Exchange Notes", the term
"Issuers" means The Derby Cycle Corporation, a Delaware corporation ("DCC" or
"Raleigh USA"), together with Lyon Investments B.V., a company organized under
the laws of The Netherlands and a wholly owned subsidiary of DCC, which was
formerly known as Lyon Cycle B.V. ("Lyon").
The Exchange Dollar Notes are to be issued under an Indenture, dated as of
May 14, 1998 (the "Dollar Notes Indenture"), among the Issuers, as joint and
several obligors, and IBJ Schroder Bank & Trust Company, as trustee (the
"Dollar Notes Trustee"), a copy of which is available upon request to DCC.
The Exchange DM Notes are to be issued under an Indenture, dated as of May
14, 1998 (the "DM Notes Indenture"), among the Issuers, as joint and several
obligors, and IBJ Schroder Bank & Trust Company, as trustee (the "DM Notes
Trustee"), a copy of which is available upon request to DCC.
The Dollar Notes Indenture and the DM Notes Indenture are together referred
to as the "Indentures". The Dollar Notes Trustee and the DM Notes Trustee are
together referred to as the "Trustees". Any reference to a "Trustee" means the
Dollar Notes Trustee or the DM Notes Trustee, as the context may require.
The form and terms of the Exchange Dollar Notes and Exchange DM Notes are the
same as the form and terms of the Old Dollar Notes and Old DM Notes,
respectively (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act, and therefore, will not bear legends
restricting their transfer, and (ii) the holder of Exchange Notes will not be
entitled to certain rights under the Exchange and Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes under certain circumstance relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated.
The following summary of certain provisions of the Indentures and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indentures and the Notes,
including the definitions of certain terms therein and those terms made a part
thereof by the TIA. Capitalized terms used herein and not otherwise defined
have the meanings set forth under "--Certain Definitions".
Principal of, premium, if any, and interest on the Dollar Notes will be
payable, and the Dollar Notes may be exchanged or transferred, at the office or
agency of the Issuers maintained for that purpose in the Borough of Manhattan,
The City of New York, and, so long as the Notes are listed on the Luxembourg
Stock Exchange and the rules of such exchange so require, at the offices of the
paying agent in Luxembourg (which initially shall be The Industrial Bank of
Japan (Luxembourg), S.A.), except that, at the option of the Issuers, payment
of interest on the Dollar Notes may be made by check mailed to the registered
holders of the Dollar Notes at their registered addresses. Principal of,
premium, if any, and interest on the DM Notes will be payable, and the DM Notes
may be exchanged or transferred, at the office or agency of the Issuers
maintained for that purpose in Frankfurt, Germany, and, so long as the Notes
are listed on the Luxembourg Stock Exchange and the rules of such exchange so
require, at the offices of the paying agent in Luxembourg (which initially
shall be The Industrial Bank of Japan (Luxembourg), S.A.). The Issuers will
ensure that, with respect to the Dollar Notes, there will be a paying agent in
the United States to perform the functions assigned to it in the Dollar Notes
Indenture and, with respect to the DM Notes, there will be a paying agent in
Germany to perform the functions assigned to it in the DM Notes Indenture, and,
so long as the Notes are listed on the Luxembourg Stock Exchange, and the rules
of such exchange so require, the Issuers will ensure that there will be a
paying agent in Luxembourg (or such other place as the Luxembourg Stock
Exchange may approve).
The Dollar Exchange Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of
$1,000. The DM Exchange Notes will be issued
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only in fully registered form, without coupons, in denominations of DM1,000
and any integral multiple of DM1,000. No service charge will be made for any
registration of transfer or exchange of Notes, but the Issuers, or the paying
agent, as applicable, may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Application has been made to list the Notes on the Luxembourg Stock Exchange
concurrently with the Exchange Offer.
TERMS OF THE NOTES
The Dollar Notes are unsecured senior obligations of the Issuers, limited to
$100 million aggregate principal amount, and will mature on May 15, 2008. Each
Dollar Note bears interest at a rate per annum shown on the front cover of
this Prospectus from its issuance date. Holders of Old Dollar Notes that are
accepted for exchange will receive, in cash, accrued interest thereon to, but
not including, the issuance date of the Exchange Dollar Notes. Such interest
will be paid with the first interest payment on the Exchange Dollar Notes.
Interest on the Old Dollar Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Dollar Notes. Interest shall be computed on the
basis of a 360-day year of twelve 30-day months. The Issuers will pay interest
on overdue principal at 1% per annum in excess of such rate, and the Issuers
will pay interest on overdue installments of interest at such higher rate to
the extent lawful. The Dollar Notes will be redeemed at par on the final
maturity date.
The DM Notes are unsecured senior obligations of the Issuers, limited to
DM110 million aggregate principal amount, and will mature on May 15, 2008.
Each DM Note will bear interest at a rate per annum shown on the front cover
of this Prospectus from its issuance date. Holders of Old DM Notes that are
accepted for exchange will receive, in cash, accrued interest thereon to, but
not including, the issuance date of the Exchange DM Notes. Such interest will
be paid with the first interest payment on the Exchange DM Notes. Interest on
the Old DM Notes accepted for exchange will cease to accrue upon issuance of
the Exchange DM Notes. Interest shall be computed on the basis of a 360-day
year of twelve 30-day months. The Issuers will pay interest on overdue
principal at 1% per annum in excess of such rate, and the Issuers will pay
interest on overdue installments of interest at such higher rate to the extent
lawful. The DM Notes will be redeemed at par on the final maturity date.
The interest rate on the Notes is subject to increase in certain
circumstances if the Issuers fail to file a registration statement relating to
the Notes or if such registration statement is not declared effective on a
timely basis or if certain other conditions are not satisfied, all as further
described under "The Exchange Offer".
OPTIONAL REDEMPTION
Except as set forth below or under "--Redemption for Taxation Reasons", the
Notes will not be redeemable at the option of the Issuers prior to May 15,
2003. Thereafter, the Notes will be redeemable at the option of the Issuers,
in whole or in part, on not less than 30 nor more than 60 days' prior notice
delivered to each holder of Notes in accordance with the provisions set forth
under "--Notices", at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest and
Additional Amounts, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant payment date and Additional Amounts, if any, in respect thereof), if
redeemed during the 12-month period commencing on May 15 of the years set
forth below:
For the Dollar Notes
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................... 105.000%
2004........................................................... 103.333%
2005........................................................... 101.667%
2006 and thereafter............................................ 100.000%
</TABLE>
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For the DM Notes
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................... 104.688%
2004........................................................... 103.125%
2005........................................................... 101.563%
2006 and thereafter............................................ 100.000%
</TABLE>
At any time and from time to time prior to May 15, 2001, the Issuers may, at
their option, redeem up to a maximum of 33 1/3% of the original aggregate
principal amount of the Dollar Notes with all or a portion of the proceeds of
one or more Public Equity Offerings following which there is a Public Market,
at a redemption price equal to 110.000% of the principal amount thereof, plus
accrued and unpaid interest and Additional Amounts, if any, to the redemption
date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant payment date and Additional Amounts, if
any, in respect thereof); provided, however, that, after giving effect to any
such redemption, at least 66 2/3% of the original aggregate principal amount
of the Dollar Notes (calculated giving effect to any issuance of Additional
Dollar Notes) remains outstanding. Any such redemption shall be made within 60
days of such Public Equity Offering upon not less than 30 nor more than 60
days' notice delivered to each holder of Dollar Notes being redeemed in
accordance with the provisions set forth under "--Notices" and otherwise in
accordance with the procedures set forth in the Dollar Notes Indenture.
At any time and from time to time prior to May 15, 2001, the Issuers may, at
their option, redeem up to a maximum of 33 1/3% of the original aggregate
principal amount of the DM Notes with all or a portion of the proceeds of one
or more Public Equity Offerings following which there is a Public Market, at a
redemption price equal to 109.375% of the principal amount thereof, plus
accrued and unpaid interest and Additional Amounts, if any, to the redemption
date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant payment date and Additional Amounts, if
any, in respect thereof); provided, however, that, after giving effect to any
such redemption, at least 66 2/3% of the original aggregate principal amount
of the DM Notes (calculated giving effect to any issuance of Additional DM
Notes) remains outstanding. Any such redemption shall be made within 60 days
of such Public Equity Offering upon not less than 30 nor more than 60 days'
notice delivered to each holder of DM Notes being redeemed in accordance with
the procedures set forth under "--Notices" and otherwise in accordance with
the procedures set forth in the DM Notes Indenture.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the applicable Trustee in compliance with the requirements of
the principal securities exchange, if any, on which the Notes are listed and
the requirements of any depositary holding the global certificates
representing the Notes, or, if the Notes are not so listed or such exchange
prescribes no method of selection and the depositary, if any, holding the
global certificates representing the Notes imposes no requirements, on a pro
rata basis, by lot or by such other method as such Trustee in its sole
discretion shall deem to be fair and appropriate, although no Dollar Note of
$1,000 in original principal amount or less and no DM Note of DM1,000 in
original principal amount or less will be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note
in principal amount equal to the unredeemed portion thereof will be issued in
the name of the holder thereof upon cancellation of the original Note.
REDEMPTION FOR TAXATION REASONS
The Dollar Notes and the DM Notes may be redeemed, at the option of the
Issuers, in whole but not in part, any time upon giving not less than 30 nor
more than 60 days' prior notice delivered to each
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holder of Notes in accordance with the provisions set forth under "--Notices"
(which notice shall be irrevocable), at a redemption price equal to the
principal amount thereof, together with accrued and unpaid interest, if any,
to the date fixed by the Issuers for redemption (a "Tax Redemption Date") and
all Additional Amounts, if any, then due and which will become due on the Tax
Redemption Date as a result of the redemption or otherwise, if the Issuers
determine that, as a result of (i) any change in, or amendment to, the laws or
treaties (or any regulations, protocols or rulings promulgated thereunder) of
the United States or The Netherlands or any other jurisdiction in which either
of the Issuers is organized or engaged in business for tax purposes (or, in
each case, any political subdivision or taxing authority thereof or therein)
or of the jurisdiction from or through which payment is made or where the
payor is located affecting taxation, which change or amendment becomes
effective on or after the date of the Indentures, or (ii) any change in
position regarding the application, administration or interpretation of such
laws, treaties, regulations or rulings (including a holding, judgment or order
by a court of competent jurisdiction), which change, amendment, application or
interpretation becomes effective on or after the date of the Indentures, the
Issuers are or will be required to pay Additional Amounts, and the Issuers
determine that such payment obligation cannot be avoided by the Issuers taking
reasonable measures. Notwithstanding the foregoing, no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on
which the Issuers would be obligated to make such payment or withholding if a
payment in respect of the Dollar Notes or the DM Notes, as the case may be,
were then due. Prior to the delivery of any notice of redemption of the Dollar
Notes or the DM Notes pursuant to the foregoing, the Issuers will deliver to
the Dollar Notes Trustee or the DM Notes Trustee, as applicable, an opinion of
a tax counsel reasonably satisfactory to such Trustee to the effect that the
circumstances referred to above exist. Each of the Dollar Notes Trustee and
the DM Notes Trustee shall accept such opinion as sufficient evidence of the
satisfaction of the conditions precedent described above, in which event it
shall be conclusive and binding on all holders of Dollar Notes or the DM
Notes, as the case may be.
RANKING
The indebtedness evidenced by the Notes is unsecured Senior Indebtedness of
the Issuers, ranks pari passu in right of payment with all existing and future
Senior Indebtedness of the Issuers and senior in right of payment to all
existing and future Subordinated Obligations of the Issuers. The Notes are
effectively subordinated to any Secured Indebtedness of the Issuers and their
respective Subsidiaries to the extent of the value of the assets securing such
Secured Indebtedness.
Certain of the operations of the Issuers are conducted through their
respective Subsidiaries. Claims of creditors of such Subsidiaries, including
trade creditors, and claims of preferred shareholders (if any) of such
Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Issuers,
including holders of the Notes. The Notes, therefore, are effectively
subordinated to creditors, including trade creditors, and preferred
shareholders (if any) of the Subsidiaries of DCC (excluding Lyon). As of
September 27, 1998, the total liabilities of the Subsidiaries of DCC
(excluding Lyon) were approximately $114.1 million, including trade payables.
Although the Indentures limit the Incurrence of Indebtedness by, and the
issuance of preferred stock of, certain of the Subsidiaries of DCC (including
Lyon), such limitations are subject to a number of significant qualifications.
As of September 27, 1998, (a) the outstanding Senior Indebtedness of the
Issuers was $196.8 million (including all Indebtedness and Guarantees of
Indebtedness under the Revolving Credit Agreement, but excluding unused
commitments thereunder), of which $32.9 million was Secured Indebtedness, and
the Issuers had no outstanding Indebtedness that is subordinate or junior in
right of payment to the Notes, and (b) the outstanding Indebtedness of the
Subsidiaries of DCC (other than Lyon) was $35.1 million (consisting of
Indebtedness under the Revolving Credit Agreement and
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indebtedness under the South African Credit Facility, but excluding, in each
case, unused commitments thereunder), all of which was Secured Indebtedness.
Although the Indentures contain limitations on the amount of additional
Indebtedness which DCC and certain of its Subsidiaries (including Lyon) may
Incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness.
See "--Certain Covenants--Limitation on Indebtedness".
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Notes will have the right to require the Issuers to
repurchase all or any part of such holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and Additional Amounts, if any, to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant payment date and Additional Amounts, if any, in respect
thereof);
(i) prior to an Initial Public Offering, the Permitted Holders cease to
be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of a majority in the aggregate of
the total voting power of the Voting Stock of DCC, whether as a result of
issuance of securities of DCC, any merger, consolidation, liquidation or
dissolution of DCC, any direct or indirect transfer of securities by any
Permitted Holder or otherwise (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of an entity (the "specified entity") held by any other entity
(the "parent entity") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent entity);
(ii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except that
for purposes of this clause (ii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of DCC and (B) the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of DCC than such other person and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of DCC (for the purposes of
this clause (ii), such other person shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation, if
such other person is the beneficial owner (as defined in this clause (ii)),
directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders "beneficially
own" (as defined in clause (i) above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of DCC
(together with any new directors whose election by such board of directors
or whose nomination for election by the shareholders of DCC was approved by
a vote of at least 50% of the directors of DCC then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of such board of directors then in office;
(iv) the adoption of a plan relating to the liquidation or dissolution of
either of the Issuers; or
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(v) the merger or consolidation of DCC with or into another Person (other
than Lyon) or the merger of another Person (other than Lyon) with or into
DCC, or the sale of all or substantially all the assets of DCC to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of DCC
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of DCC are
changed into or exchanged for cash, securities or property, unless pursuant
to such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving Person or
transferee that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
Person or transferee.
In the event that, at the time of such Change of Control, the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to
either of the Indentures, then prior to the mailing of the notice to holders
of Notes as provided in the immediately following paragraph but in any event
within 30 days following any Change of Control, the Issuers will be required
to (i) repay in full all Bank Indebtedness or (ii) obtain the requisite
consent under the agreements governing the Bank Indebtedness to permit the
repurchase of the Notes as provided for in the immediately following
paragraph.
Within 30 days following any Change of Control, the Issuers shall notify
each holder of Notes in accordance with the provisions set forth under "--
Notices", with a copy of such notice to each Trustee (the "Change of Control
Offer"), stating: (1) that a Change of Control has occurred and that such
holder has the right to require the Issuers to purchase such holder's Notes at
a purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Additional Amounts, if any, to the date of
repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant payment date and Additional
Amounts, if any, in respect thereof); (2) the circumstances and relevant facts
and financial information regarding such Change of Control; (3) the repurchase
date (which shall be no earlier than 30 days nor later than 60 days from the
date such notice is delivered, except as otherwise may be required by
applicable law) and (4) the instructions determined by the Issuers that a
holder of Notes must follow in order to have its Notes purchased.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the required Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indentures applicable to a Change of Control Offer made by
the Issuers and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or
regulations, including any securities laws of The Netherlands and the
requirements of the Luxembourg Stock Exchange or any other securities exchange
on which the Notes are listed, to the extent such laws or regulations or
requirements are applicable, in connection with the repurchase of Notes
pursuant to the Indentures. To the extent that the provisions of any
securities laws or regulations conflict with provisions of the Indentures, the
Issuers will comply with the applicable securities laws and regulations and
will not be deemed to have breached their obligations under the Indentures by
virtue thereof.
The Change of Control purchase feature is a result of negotiations between
DCC and the Initial Purchasers. Management of DCC has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that management would decide to do so in the future. Subject to the
limitations discussed below, the Issuers could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a
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Change of Control under the Indentures, but that could increase the amount of
Indebtedness of the Issuers and their respective Subsidiaries outstanding at
such time or otherwise affect the capital structure or credit ratings of the
Issuers. Restrictions on the ability of DCC and certain of its Subsidiaries
(including Lyon) to incur additional Indebtedness are described under "--
Certain Covenants--Limitation on Indebtedness", "--Limitation on Liens" and
"--Limitation on Sale/Leaseback Transactions". Such restrictions can only be
waived with the consent of the holders of a majority in principal amount of
each class of Notes then outstanding. Except for the limitations contained in
such covenants, however, the Indentures do not contain any covenants or
provisions that may afford holders of the Notes protection in the event of a
highly leveraged transaction involving the Issuers and their respective
Subsidiaries.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Revolving Credit Agreement.
Future Senior Indebtedness of the Issuers may contain prohibitions of certain
events which would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Moreover, the
exercise by the holders of Notes of their right to require the Issuers to
repurchase the Notes could cause a default under such Senior Indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on the Issuers. Finally, the ability of the Issuers to pay
cash to holders of Notes upon a repurchase may be limited by the then existing
financial resources of the Issuers. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Dollar Notes Indenture and the DM Notes Indenture
relative to the obligation of the Issuers to make an offer to repurchase the
Dollar Notes or the DM Notes, as applicable, as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Dollar Notes or the DM Notes, as
applicable.
CERTAIN COVENANTS
The Indentures contain covenants including, among others, the following:
Limitation on Indebtedness. (a) DCC will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that DCC or any Restricted Subsidiary may Incur
Indebtedness, if on the date of such Incurrence and after giving effect
thereto, the Consolidated Coverage Ratio would be greater than 2.00:1.00 if
such Indebtedness is Incurred on or prior to the second anniversary of the
date of the original issuance of the Notes and 2.25:1.00 if such Indebtedness
is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), DCC and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness outstanding at any one time in an aggregate principal
amount not to exceed the greater of (A) 100% of the total commitment under
the Revolving Credit Agreement on the date of the Indentures (DM225
million) less the aggregate amount of Indebtedness incurred by all
Securitization Entities in connection with Qualified Securitization
Transactions that is outstanding at such time; or (B) 75% of accounts
receivable and 35% of inventory, in each case net of reserves and as shown
on the consolidated balance sheet of DCC as of the most recent month for
which financial statements are available from time to time (so that
Indebtedness incurred pursuant to this clause (B) is not at any time
greater than the permitted amount based on the most recent such financial
statements);
(ii) Indebtedness of DCC owed to, and held by, any Restricted Subsidiary
or Indebtedness of a Restricted Subsidiary owed to, and held by, DCC or any
other Restricted Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock or any other event that results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of any such Indebtedness (except to DCC or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
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(iii) Indebtedness (A) represented by the Notes outstanding on the date
of the Indentures (other than the Indebtedness described in clauses (i) and
(ii) above), (B) consisting of Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (iii) (including Indebtedness
Refinancing Refinancing Indebtedness) or the foregoing clause (i) and (C)
consisting of Guarantees of any Indebtedness not prohibited by the
Indenture;
(iv) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
DCC or a Restricted Subsidiary (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Subsidiary of DCC or a Restricted Subsidiary or was otherwise acquired by
DCC or a Restricted Subsidiary); provided, however, that on the date that
such Restricted Subsidiary is acquired by DCC or a Restricted Subsidiary,
DCC would have been able to Incur $1.00 of additional Indebtedness pursuant
to the foregoing paragraph (a) after giving effect to the Incurrence of
such Indebtedness pursuant to this clause (iv) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (iv);
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by DCC
and its Restricted Subsidiaries in the ordinary course of business and (B)
under Currency Agreements and Interest Rate Agreements entered into for
bona fide hedging purposes of DCC and its Restricted Subsidiaries in the
ordinary course of business; provided, however, that such Currency
Agreements and Interest Rate Agreements do not increase the Indebtedness of
DCC and its Restricted Subsidiaries outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates
or by reason of fees, indemnities and compensation payable thereunder;
(vi) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not in excess of $10 million at any time
outstanding;
(vii) Indebtedness arising from agreements of DCC or any of its
Restricted Subsidiaries providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of a Restricted
Subsidiary or any business or assets of DCC or a Restricted Subsidiary,
other than Guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or such Restricted Subsidiary for
the purpose of financing such acquisition; provided that the maximum
assumable liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds actually received by DCC or its Restricted
Subsidiaries in connection with such disposition;
(viii) Indebtedness incurred by a Securitization Entity in a Qualified
Securitization Transaction that is Non-Recourse Indebtedness with respect
to DCC and its other Restricted Subsidiaries (except for Standard
Securitization Undertakings);
(ix) the incurrence of Indebtedness by Foreign Subsidiaries which does
not exceed $5 million at any one time outstanding;
(x) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(x) and then outstanding, shall not exceed $20 million; and
(xi) Contribution Indebtedness.
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(c) Notwithstanding the foregoing, neither of the Issuers may Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations of such Issuer unless such Indebtedness
will be subordinated to the Notes to at least the same extent as such
Subordinated Obligations.
(d) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that DCC or any Restricted Subsidiary may Incur pursuant to
this covenant shall not be deemed to be exceeded solely as a result of
fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness Incurred pursuant to the Revolving
Credit Agreement prior to or on the date of the Indentures shall be treated as
Incurred pursuant to clause (i) of paragraph (b) above, (ii) Indebtedness
permitted by this covenant need not be permitted solely by reference to one
provision permitting such Indebtedness but may be permitted in part by one
such provision and in part by one or more other provisions of this covenant
permitting such Indebtedness and (iii) in the event that Indebtedness meets
the criteria of more than one of the types of Indebtedness described in this
covenant, DCC, in its sole discretion, shall classify such Indebtedness and
only be required to include the amount of such Indebtedness in one of such
clauses.
Limitation on Restricted Payments. (a) DCC will not, and will not permit any
Restricted Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving DCC) or similar payment (including any payment in respect of the
Additional Payment) to the direct or indirect holders of its Capital Stock
except dividends or distributions payable solely in its Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to purchase
such Capital Stock and except dividends or distributions payable to DCC or
another Restricted Subsidiary (and, if such Restricted Subsidiary has
shareholders other than DCC or other Restricted Subsidiaries, to its other
shareholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of DCC or any Restricted Subsidiary held
by Persons other than DCC or another Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Restricted Investment in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement or
Investment being herein referred to as a "Restricted Payment") if at the time
DCC or such Restricted Subsidiary makes such Restricted Payment: (1) a Default
will have occurred and be continuing (or would result therefrom); (2) DCC
could not Incur at least $1.00 of additional Indebtedness under paragraph (a)
of the covenant described under "--Limitation on Indebtedness"; or (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
(the amount so expended, if other than in cash, to be determined in good faith
by the board of directors of DCC, whose determination will be conclusive and
evidenced by a resolution of such board of directors) declared or made
subsequent to the date of the Indentures would exceed the sum of: (A) 50% of
the Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter immediately
following the fiscal quarter during which the Notes are originally issued to
the end of the most recent fiscal quarter for which financial statements are
available (or, in case such Consolidated Net Income will be a deficit, minus
100% of such deficit); (B) the aggregate Net Cash Proceeds received by DCC
from the issue or sale of its Capital Stock (other than Disqualified Stock) or
other capital contributions subsequent to the date of the Indentures other
than an issuance or sale to (x) a Subsidiary of DCC or (y) an employee stock
ownership plan or other trust established by DCC or any of its Subsidiaries to
the extent such sale to an employee stock ownership plan or similar trust is
financed by loans from, or is Guaranteed by, DCC
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or any Restricted Subsidiary unless such loans have been repaid in cash prior
to the date of such determination; (C) the amount by which Indebtedness of DCC
or its Restricted Subsidiaries is reduced on DCC's consolidated balance sheet
upon the conversion or exchange (other than by a Subsidiary of DCC) subsequent
to the date of the Indentures of any Indebtedness of DCC or its Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of DCC (less the amount of any cash or the fair market
value of other property distributed by DCC or any Restricted Subsidiary upon
such conversion or exchange), plus the amount of cash and the fair market
value of any other property (determined as provided above) received by DCC or
any Restricted Subsidiary upon such conversion or exchange; and (D) the amount
equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from (i) payments of dividends, repayments of the principal of loans
or advances or other transfers of assets to DCC or any Restricted Subsidiary
from Unrestricted Subsidiaries or the disposal of such Investments or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investment") not to exceed, in
the case of any Unrestricted Subsidiary, the amount of Investments previously
made by DCC or any Restricted Subsidiary in such Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments, less (E) the aggregate principal amount of any outstanding
Contribution Indebtedness.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i) any
Restricted Payment made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of DCC (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of DCC or an employee stock ownership plan or other trust established by DCC
or any of its Subsidiaries to the extent such sale to an employee stock
ownership plan or similar trust is financed by loans from, or is Guaranteed
by, DCC or any Restricted Subsidiary unless such loans have been repaid in
cash prior to the date of such determination) or a substantially concurrent
capital contribution to DCC; provided, however, that (A) such Restricted
Payment will be excluded in the calculation of the amount of Restricted
Payments under clause (3) of paragraph (a) above and (B) the Net Cash Proceeds
from such sale applied in the manner set forth in this clause (i) will be
excluded from the calculation of amounts under clause (3)(B) of paragraph (a)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of DCC or its
Restricted Subsidiaries made by exchange for, or out of the proceeds of, the
substantially concurrent sale of, Indebtedness of DCC or its Restricted
Subsidiaries that is permitted to be Incurred pursuant to paragraph (b) of the
covenant described under "--Limitation on Indebtedness"; provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value will be excluded in the calculation of the amount of
Restricted Payments under clause (3) of paragraph (a) above; (iii) any
purchase or redemption of Subordinated Obligations of any Subsidiary of DCC
from Net Available Cash to the extent permitted by the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock"; provided,
however, that such purchase or redemption will be excluded in the calculation
of the amount of Restricted Payments under clause (3) of paragraph (a) above;
(iv) dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividend would have complied with this covenant;
provided, however, that such dividend will be included in the calculation of
the amount of Restricted Payments under clause (3) of paragraph (a) above; (v)
the repurchase or other acquisition of shares of, or options to purchase
shares of, common stock of DCC or any of its Subsidiaries from employees,
former employees, directors or former directors of DCC or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the relevant board of directors under which such individuals purchase or sell,
or are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases or
acquisitions shall not exceed $2 million in any calendar year or $5 million in
total; provided further, however, that such repurchases and other acquisitions
shall be excluded in the calculation of the amount of Restricted Payments
under clause (3) of paragraph (a) above; (vi) repurchases of Capital
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Stock deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; provided further, however,
that such repurchases shall be excluded in the calculation of the amount of
Restricted Payments under clause (3) of paragraph (a) above; (vii) any
purchases of Capital Stock of Univega or the MS Sport Group for aggregate
consideration not in excess of $7.0 million; provided, however, that such
purchases will be included in the calculation of the amount of Restricted
Payments under clause (3) of paragraph (a) above; (viii) any purchases of
Capital Stock of Derby Holdings South Africa for aggregate consideration not
in excess of $2 million; provided, however, that such purchases will not be
included in the calculation of the amount of Restricted Payments under clause
(3) of paragraph (a) above; or (ix) any distribution on or in respect of any
Capital Stock of DCC or any Restricted Subsidiary or similar payment made in
connection with any sale of Excluded Assets undertaken in accordance with the
terms of the Recapitalization Agreement in an aggregate amount not in excess
of $0.3 million; provided, however, that such distribution or payment will not
be included in the calculation of the amount of Restricted Payments under
clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. DCC will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to either of the
Issuers, (ii) make any loans or advances to either of the Issuers or (iii)
transfer any of its property or assets to either of the Issuers, except: (1)
any encumbrance or restriction pursuant to an agreement in effect at, or
entered into on, the date of the Indentures; (2) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary prior to
the date on which such Restricted Subsidiary was acquired by DCC or another
Restricted Subsidiary or of another Person that is assumed by DCC or any
Restricted Subsidiary in connection with the acquisition of assets from, or
merger or consolidation with, such Person (other than Indebtedness Incurred as
consideration paid in connection with, in contemplation of, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired
by DCC or another Restricted Subsidiary) and outstanding on such date; (3) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
any agreement not relating to any Indebtedness in existence when a Person
becomes a Subsidiary of DCC or any other Restricted Subsidiary or when such
assets are acquired by DCC or any Restricted Subsidiary, that is not created
in contemplation of such Person becoming such a Subsidiary or such
acquisition; (4) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness, including agreements that increase
the amount of such Indebtedness to the extent otherwise permitted by the
Indenture, Incurred pursuant to an agreement referred to in clause (1) or (2)
of this covenant or this clause (4) or contained in any amendment to an
agreement referred to in clause (1) or (2) of this covenant or this clause
(4); provided, however, that the encumbrances and restrictions contained in
any such refinancing agreement or amendment are no less favorable to holders
of the Notes than the encumbrances and restrictions contained in such
predecessor agreements; (5) in the case of clause (iii) above, any encumbrance
or restriction (A) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a lease,
license or similar contract, or the assignment or transfer of any lease,
license or contract, (B) that is or was created by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of DCC or any Restricted Subsidiary not otherwise
prohibited by the Indentures or (C) contained in security agreements securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restriction restricts the transfer of the property subject to such security
agreements; (6) with respect to a Restricted Subsidiary, any restriction
imposed pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; (7) any agreement
or instrument governing Capital Stock of any person that is in effect on the
date such Person is acquired by DCC or a Restricted Subsidiary and that is not
created in contemplation of such acquisition or of such Person becoming a
Subsidiary of
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DCC or a Restricted Subsidiary; (8) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business; (9) any Purchase Money Note or other Indebtedness or other
contractual requirements of a Securitization Entity in connection with a
Qualified Securitization Transaction; provided, that such restrictions apply
only to such Securitization Entity; and (10) any agreement or instrument
governing Indebtedness of Foreign Subsidiaries operating in jurisdictions in
which the Issuers, as of the date of the Indentures, do not have any
significant operations; provided, however, that, at the time such agreement or
instrument is executed by the parties thereto, the aggregate earnings before
interest, taxes, depreciation and amortization of such Foreign Subsidiaries
for the period of the most recent four consecutive fiscal quarters for which
financial statements are available (calculated, in the case of each such
Foreign Subsidiary, in a manner consistent with the calculation of EBITDA,
and, in the case of each such Foreign Subsidiary that is acquired by DCC, on a
pro forma basis as if such acquisition had occurred on the first day of such
period) shall not exceed 10% of EBITDA for such period.
Limitation on Sales of Assets and Subsidiary Stock. (a) DCC will not, and
will not permit any Restricted Subsidiary to, make any Asset Disposition
unless (i) DCC or such Restricted Subsidiary receives consideration (including
by way of relief from, or by any other Person assuming sole responsibility
for, any liabilities, contingent or otherwise) at the time of such Asset
Disposition at least equal to the fair market value, as determined in good
faith by the board of directors of DCC or such Restricted Subsidiary, as the
case may be, of the shares and assets subject to such Asset Disposition, (ii)
at least 80% of the consideration thereof received by DCC or such Restricted
Subsidiary is in the form of cash or cash equivalents and (iii) an amount
equal to 100% of the Net Available Cash from such Asset Disposition is applied
by DCC or such Restricted Subsidiary, as the case may be, (A) first, to the
extent the Issuers elect (or are required by the terms of the Revolving Credit
Agreement or any secured refinancing thereof (including refinancings that
increase the amount of Indebtedness outstanding to the extent otherwise
permitted by the Indenture)), to prepay, repay, redeem or purchase
Indebtedness of the Issuers or a Restricted Subsidiary of DCC outstanding
under the Revolving Credit Agreement or any such refinancing referred to above
within one year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (B) second, to the extent of the balance
of Net Available Cash after application in accordance with clause (A), to the
extent DCC or such Restricted Subsidiary elects, to reinvest in Additional
Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by DCC or another
Restricted Subsidiary) within one year from the later of such Asset
Disposition or the receipt of such Net Available Cash (or DCC or such a
Restricted Subsidiary enters into an agreement to reinvest in Additional
Assets within one year from the later of such Asset Disposition or the receipt
of such Net Available Cash, which reinvestment must be consummated within 18
months from the later of such Asset Disposition or the receipt of such
Available Net Cash); (C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to
make an Offer (as defined below) to purchase Notes pursuant to and subject to
the conditions set forth in paragraph (b) of this covenant; provided, however,
that, if the Issuers elect (or are required by the terms of any other Senior
Indebtedness of the Issuers or any Restricted Subsidiary), such Offer may be
made ratably to purchase the Notes and other Senior Indebtedness of the
Issuers or any Restricted Subsidiary and (D) fourth, to the extent of the
balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C), for any other general corporate purpose not
prohibited by the Indentures, including Restricted Payments; provided, however
that, in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (C) or (D) above, DCC or such Restricted Subsidiary
will retire such Indebtedness and will cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this
covenant, DCC and the Restricted Subsidiaries will not be required to apply
any Net Available Cash in accordance with this covenant except to the extent
that the aggregate Net Available Cash from all Asset Dispositions that is not
applied in accordance with this covenant exceeds $5 million. The provisions of
this covenant will not apply to any consideration received by DCC or any
Restricted Subsidiary in connection with any sale
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of Excluded Assets undertaken in accordance with the terms of the
Recapitalization Agreement to the extent that the aggregate amount of such
consideration does not exceed $0.3 million.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Indebtedness of DCC (other than Disqualified Stock of DCC)
or any Restricted Subsidiary and the release of DCC or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition, (y) securities received by DCC or any Restricted Subsidiary
from the transferee that are promptly converted by DCC or such Restricted
Subsidiary into cash and (z) any Designated Non-Cash Consideration received by
DCC or any Restricted Subsidiary in such Asset Disposition having an aggregate
fair market value, taken together with all other Designated Non-Cash
Consideration received pursuant to this clause (z) that is at that time
outstanding, not to exceed 3% of Total Assets at the time of the receipt of
such Designated Non-Cash Consideration (with the fair market value of each
item of Designated Non-Cash Consideration being measured at the time received
without giving effect to subsequent changes in value).
(b) In the event of an Asset Disposition that requires the purchase of Notes
(and other Senior Indebtedness of the Issuers or any Restricted Subsidiary)
pursuant to clause (a)(iii)(C) of this covenant, the Issuers will be required
to purchase Notes (and other Senior Indebtedness of the Issuers or any
Restricted Subsidiary) tendered pursuant to an offer by the Issuers for the
Notes (and other Senior Indebtedness of the Issuers or any Restricted
Subsidiary) (the "Offer") at a purchase price of 100% of their principal
amount (without premium) plus accrued and unpaid interest and Additional
Amounts, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
payment date and Additional Amounts, if any, in respect thereof) in accordance
with the procedures (including prorationing in the event of oversubscription)
set forth in the Indentures. If the aggregate purchase price of Notes (and
other Senior Indebtedness of the Issuers or any Restricted Subsidiary)
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase of the Notes (and other Senior Indebtedness of the Issuers or any
Restricted Subsidiary), the Issuers will apply the remaining Net Available
Cash in accordance with clause (a)(iii)(D) of this covenant. The Issuers will
not be required to make an Offer for Notes (and other Senior Indebtedness of
the Issuers or any Restricted Subsidiary) pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (A) and (B) of clause (a)(iii)) is less than $10 million
for any particular Asset Disposition (which lesser amount will be carried
forward for purposes of determining whether an Offer is required with respect
to the Net Available Cash from any subsequent Asset Disposition). Upon
completion of any such offer pursuant to clause (a)(iii)(C), the Net Available
Cash amount shall be reset at zero.
(c) The Issuers will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations, including any securities laws of The Netherlands and the
requirements of the Luxembourg Stock Exchange or any other securities exchange
on which the Notes are listed, to the extent such laws or regulations or
requirements are applicable, in connection with the repurchase of Notes
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Issuers
will comply with the applicable securities laws and regulations and will not
be deemed to have breached its obligations under this covenant by virtue
thereof.
Limitation on Transactions with Affiliates. (a) DCC will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of DCC (an
"Affiliate Transaction") on terms (i) that are less favorable to DCC or such
Restricted Subsidiary, as the case may be, than those that could be obtained
at the time of such transaction in arm's-length dealings with a Person who is
not such an Affiliate, (ii) if such Affiliate Transaction involves an
aggregate amount in excess of $5 million, (1) set forth in writing and (2)
that have been approved by a majority of the members of the board of directors
of DCC or such Restricted Subsidiary, as the case may be, having no personal
stake in such Affiliate Transaction, or have been determined by a
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nationally recognized appraisal or investment banking firm to be fair, from a
financial standpoint, to DCC and its Restricted Subsidiaries and (iii) if such
Affiliate Transaction involves an amount in excess of $10 million, that have
been determined by a nationally recognized appraisal or investment banking
firm to be fair, from a financial standpoint, to DCC and its Restricted
Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments" or any Permitted Investment, (ii)
any issuance of securities, or other payments, awards or grants in cash, or
otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the board of directors of DCC or
such Restricted Subsidiary, as the case may be, (iii) the grant of stock
options or similar rights to employees and directors of DCC or such Restricted
Subsidiary pursuant to plans approved by the board of directors of DCC or such
Restricted Subsidiary, as the case may be, (iv) loans or advances to employees
in the ordinary course of business in accordance with past practices of DCC or
such Restricted Subsidiary, as the case may be, but in any event not to exceed
$4 million in the aggregate outstanding at any one time, (v) the entering
into, maintaining or performance of any employment contract, collective
bargaining agreement, benefit plan, program or arrangement, related trust
agreement or any other similar arrangement for or with any employee, officer
or director entered into before or after the date of the Indentures in the
ordinary course of business, including vacation, health, insurance deferred
compensation, retirement, savings or other similar plans, (vi) the payment of
customary annual management, consulting and advisory fees and related expenses
to the Investor Group and any of their respective Affiliates made pursuant to
any financial advisory, financing, underwriting or placement agreement or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which are approved by the
board of directors of DCC or any Restricted Subsidiary in good faith;
provided, however, that the aggregate amount of such fees and related expenses
shall not exceed $2 million in any calendar year, (vii) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of DCC or any of its Subsidiaries as
determined in good faith by the board of directors of DCC or such Subsidiary,
as the case may be, (viii) any agreement in effect as of the date of the
Indentures or any amendment or replacement thereto or any transaction
contemplated thereby (including pursuant to any amendment or replacement
thereto) so long as any such amendment or replacement agreement is not more
disadvantageous to the holders of Notes in any material respect than the
original agreement as in effect on the date of the Indentures, (ix)
transactions with customers, clients, suppliers, joint venture partners or
purchasers or sellers of goods or services, in each case in the ordinary
course of business (including, without limitation, pursuant to joint venture
agreements) and otherwise in compliance with the terms of the Indentures and
which are fair to DCC and its Restricted Subsidiaries, in the reasonable
determination of the board of directors of DCC or such Restricted Subsidiary,
as the case may be, or are on terms at least as favorable as might reasonably
have been obtained at such time from an unaffiliated party, (x) transactions
effected as part of a Qualified Securitization Transaction, (xi) any
transaction between DCC and a wholly owned Restricted Subsidiary or between or
among wholly owned Restricted Subsidiaries and (xii) any sale of Excluded
Assets undertaken in accordance with the terms of the Recapitalization
Agreement; provided that the consideration received by DCC or any Restricted
Subsidiary in connection does not exceed $0.3 million.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. DCC will not sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except: (i) to DCC or a Wholly Owned
Subsidiary; (ii) if, immediately after giving effect to such issuance, sale or
other disposition, none of DCC or any of its Subsidiaries own any Capital
Stock of such Restricted Subsidiary or (iii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made under the
covenant described under "--Limitation on Restricted Payments" if made on the
date of such issuance, sale or
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other disposition. The proceeds of any sale of such Capital Stock permitted
hereby will be treated as Net Available Cash from an Asset Disposition and
must be applied in accordance with the terms of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock".
Limitation on Liens. DCC will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of
any nature whatsoever on any of its property or assets (including Capital
Stock of a Restricted Subsidiary), whether owned on the date of the Indentures
or thereafter acquired, other than Permitted Liens, without effectively
providing that the Notes shall be secured equally and ratably with (or prior
to) the obligations so secured for so long as such obligations are so secured;
provided, however, that DCC may Incur other Liens to secure Indebtedness as
long as the amount of outstanding Indebtedness secured by Liens Incurred
pursuant to this proviso does not exceed 5% of Consolidated Net Tangible
Assets, as determined based on the consolidated balance sheet of DCC as of the
end of the most recent fiscal quarter for which financial statements are
available.
Reports to Holders of Notes. Notwithstanding that DCC may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, DCC
will file with the Commission and provide each Trustee and holders of Notes
and prospective holders of Notes (upon request) within 15 days after DCC files
them with the Commission, copies of its annual report and the information,
documents and other reports that are specified in Sections 13 and 15(d) of the
Exchange Act. In addition, following a Public Equity Offering, DCC shall
furnish to each Trustee and the holders of Notes, promptly upon their becoming
available, copies of the annual report to shareholders and any other
information provided by such Issuer to its public shareholders generally. The
Issuers will comply with the other provisions of Section 314(a) of the TIA.
Limitation on Lines of Business. DCC will not, and will not permit any
Restricted Subsidiary to, engage in any business, other than a Related
Business.
Limitation on Sale/Leaseback Transactions. DCC will not, and will not permit
any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with
respect to any property unless (a) DCC or such Restricted Subsidiary would be
entitled to (i) Incur Indebtedness in an amount equal to the Attributable Debt
with respect to such Sale/Leaseback Transaction pursuant to the covenant
described under "--Limitation on Indebtedness" and (ii) create a Lien on such
property securing such Attributable Debt without equally and ratably securing
the Notes pursuant to the covenant described under "--Limitation on Liens",
(b) the net proceeds received by DCC or such Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
market value (as determined in good faith by the board of directors of DCC or
such Restricted Subsidiary, as the case may be) of such property and (c) the
transfer of such property is permitted by, and DCC applies the proceeds of
such transaction in compliance with, the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock".
Future Note Guarantors. DCC will cause each Domestic Subsidiary that Incurs
Indebtedness and each Restricted Subsidiary that is a guarantor of
Indebtedness Incurred by either of the Issuers pursuant to the covenant
described under "--Limitation on Indebtedness" to become a guarantor of the
Dollar Notes and the DM Notes pursuant to a Guarantee (each, a "Note
Guarantee"), and, if applicable, execute and deliver to each Trustee a
supplemental indenture in the form set forth in the applicable Indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Dollar Notes and the DM Notes. Each Note Guarantee will be limited to an
amount not to exceed the maximum amount that can be Guaranteed by the
applicable Restricted Subsidiary without rendering the Note Guarantee, as it
relates to such Restricted Subsidiary, voidable under applicable law relating
to fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
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MERGER AND CONSOLIDATION
Neither of the Issuers will consolidate with or merge with or into, or
convey, transfer or lease all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia, in
the case of DCC, or The Netherlands, in the case of Lyon, and the Successor
Company (if not an Issuer) will expressly assume, by a supplemental indenture,
executed and delivered to each Trustee, in form reasonably satisfactory to
each Trustee, all the obligations of such Issuer under the Notes and the
Indentures; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time of
such transaction), no Default will have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company
would be able to Incur an additional $1.00 of Indebtedness under paragraph (a)
of the covenant described under "--Certain Covenants--Limitation on
Indebtedness"; (iv) the Issuers will have delivered to each Trustee Officers'
Certificates and Opinions of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indentures and (v) the Issuers will have delivered to each Trustee opinions of
tax counsel reasonably acceptable to each Trustee stating that (A) any payment
of principal, redemption price or purchase price of, premium, if any, interest
on, and, if any, Additional Amounts in respect of, the Notes by the Successor
Company to a holder of Notes after the consolidation, merger, conveyance,
transfer or lease of assets will be exempt from the Taxes described under "--
Withholding Taxes" and (B) no other taxes on income (including taxable capital
gains) will be payable under the laws of The Netherlands and any other
jurisdiction where the Successor Company is or becomes located by a holder of
Notes who is not deemed to be a resident of The Netherlands or other
jurisdiction where the Successor Company is or becomes located and does not
carry on any business activities through a branch, agency or permanent
establishment in The Netherlands or such other jurisdiction where the
Successor Company is or becomes located in respect of the acquisition,
ownership or disposition of Notes, including receipt of principal, premium, if
any, interest on, and, Additional Amounts, if any, paid pursuant to such
Notes.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, such Issuer under the Indentures, but the
predecessor company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay
the principal of and interest on the Notes.
Notwithstanding the foregoing, (a) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to
either of the Issuers and (b) either of the Issuers may merge with an
Affiliate of the Issuers incorporated solely for the purpose of
reincorporating such Issuer in another jurisdiction to realize tax or other
benefits.
DEFAULTS
An Event of Default is defined in the Indentures as (i) a default in any
payment of interest on, or Additional Amounts, if any, with respect to, any
Dollar Note or DM Note, as the case may be, when due and payable, continued
for 30 days, (ii) a default in the payment of principal of any Dollar Note or
DM Note, as the case may be, when due and payable at its Stated Maturity, upon
required redemption or repurchase, upon declaration or otherwise, (iii) the
failure by either of the Issuers to comply with its obligations under the
covenant described under "--Merger and Consolidation", (iv) the failure by
either of the Issuers to comply for 30 days after written notice with any of
its obligations under the covenants described under "--Change of Control" or
"--Certain Covenants" (in each case, other than a failure to purchase Dollar
Notes or DM Notes), (v) the failure by either of the Issuers to comply for 60
days after written notice with its other agreements contained in the Dollar
Notes or the DM Notes or the applicable Indenture, (vi) the failure by either
of the Issuers or any Significant Subsidiary (other than a Securitization
Entity) to pay any Indebtedness within any applicable grace period after final
maturity
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(giving effect to any extensions thereof) or the acceleration of any such
Indebtedness by the holders thereof because of a default if the total amount
of such Indebtedness unpaid or accelerated exceeds $5 million or its foreign
currency equivalent (the "cross acceleration provision") and such failure
continues for 10 days after receipt of the notice specified in the applicable
Indenture, (vii) certain events of bankruptcy, insolvency or reorganization of
either of the Issuers or a Significant Subsidiary (the "bankruptcy
provisions") or (viii) the rendering of any judgment or decree for the payment
of money in excess of $10 million or its foreign currency equivalent at the
time it is entered against either of the Issuers or a Significant Subsidiary
and is not discharged, waived or stayed if (A) an enforcement proceeding
thereon is commenced by any creditor or (B) such judgment or decree remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed (the "judgment default provision").
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
A default under clauses (iv), (v) or (viii) above, however, will not
constitute an Event of Default until the Dollar Notes Trustee or the DM Notes
Trustee, as applicable, or the holders of at least 25% in principal amount of
the outstanding Dollar Notes or DM Notes, as applicable, notify the Issuers of
the default and the Issuers do not cure such default within the time specified
in clauses (iv), (v) or (viii) above after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of either of the Issuers)
occurs and is continuing, the Dollar Notes Trustee or the DM Notes Trustee, as
applicable, or the holders of at least 25% in principal amount of the
outstanding Dollar Notes or the DM Notes, as applicable, by notice to the
Issuers may declare the principal of and accrued but unpaid interest and
Additional Amounts, if any, on all Dollar Notes or DM Notes, as applicable, to
be due and payable by notice in writing to the Issuers and the Dollar Notes
Trustee or the DM Notes Trustee, as applicable, specifying the Event of
Default and that the notice is a "notice of acceleration". Upon such a
declaration, such principal, interest and Additional Amounts will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of either of the Issuers occurs, the
principal of and interest and Additional Amounts, if any, on all Dollar Notes
and DM Notes will become immediately due and payable without any declaration
or other act on the part of either the Dollar Notes Trustee or the DM Notes
Trustee or any holders of Dollar Notes or DM Notes. Under certain
circumstances, the holders of a majority in principal amount of the
outstanding Dollar Notes or DM Notes, as applicable, may rescind any such
acceleration with respect to the Dollar Notes or the DM Notes, as applicable,
and its consequences.
Subject to the provisions of each Indenture relating to the duties of the
applicable Trustee, in case an Event of Default occurs and is continuing, the
Dollar Notes Trustee or the DM Notes Trustee, as the case may be, will be
under no obligation to exercise any of the rights or powers under the
applicable Indenture at the request or direction of any of holders of the
Dollar Notes or the DM Notes, as the case may be, unless such holders have
offered to such Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, interest or Additional Amounts, if any, when due,
no holder of Dollar Notes or DM Notes may pursue any remedy with respect to
the Dollar Notes Indenture or the DM Notes Indenture, as applicable, or the
Dollar Notes or the DM Notes, as applicable, unless (i) such holder has
previously given the applicable Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the
outstanding Dollar Notes or the DM Notes, as applicable, have requested the
Dollar Notes Trustee or the DM Notes Trustee, as applicable, in writing to
pursue the remedy, (iii) such holders have offered the Dollar Notes Trustee or
the DM Notes, as applicable, reasonable security or indemnity against any
loss, liability or expense, (iv) the Dollar Notes Trustee or the DM Notes
Trustee, as applicable, has not complied with such request within 60 days
after the
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receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Dollar Notes or
DM Notes, as applicable, have not given Dollar Notes Trustee or the DM Notes
Trustee, as applicable, a direction inconsistent with such request within such
60-day period. Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Dollar Notes and DM Notes have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Dollar Notes Trustee or the DM Notes Trustee, as
applicable, or of exercising any trust or power conferred on such Trustee.
Each of the Dollar Notes Trustee and the DM Notes Trustee, however, may refuse
to follow any direction that conflicts with law or the Dollar Notes Indenture
or the DM Notes Indenture, as applicable, or that such Trustee determines is
unduly prejudicial to the rights of any other holder of Dollar Note or DM
Notes, as applicable, or that would involve such Trustee in personal
liability. Prior to taking any action under the Dollar Notes Indenture or the
DM Notes Indenture, the Dollar Notes Trustee or the DM Notes Trustee, as the
case may be, will be entitled to indemnification satisfactory to it in its
sole discretion against all losses and expenses caused by taking or not taking
such action.
The Indentures provide that if a Default occurs and is continuing and is
known to the Dollar Notes Trustee or the DM Notes Trustee, such Trustee must
deliver to each holder of Dollar Notes or DM Notes, as applicable, notice of
the Default in accordance with the provisions set forth under "--Notices" and
otherwise in accordance with the procedures set forth in the applicable
Indenture within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer in respect of such Trustee or written notice of it is
received by such Trustee. Except in the case of a Default in the payment of
principal of, premium, if any, or interest or Additional Amounts, if any, on
any Dollar Note or DM Note (including payments pursuant to the redemption
provisions of such Dollar Note or DM Note), the Dollar Notes Trustee or the DM
Notes Trustee, as applicable, may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding
notice is in the interests of the holders of Dollar Notes or the DM Notes, as
applicable. In addition, the Issuers will be required to deliver to each
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred
during the previous year. The Issuers also will be required to deliver to each
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Events of Default, the status of any such
event and the action the Issuers are taking or propose to take in respect
thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of either of the Issuers, as
such, shall have any liability for any obligations of such Issuer under the
Notes or the Indentures or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of a Note by accepting
such Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
AMENDMENTS AND WAIVERS
Each Indenture provides, subject to certain exceptions, that such Indenture
or the Notes issued thereunder may be amended with the written consent of the
holders of a majority in principal amount of such Notes then outstanding
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for, such Notes), and any past default or compliance with
any provisions may be waived with the consent of the holders of a majority in
principal amount of such Notes then outstanding. Without the consent of each
holder of an outstanding Dollar Note or DM Note, as the case may be, that
would be affected, no amendment may, among other things, (i) reduce the amount
of Dollar Notes or DM Notes, as applicable, whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest
or any liquidated damages on any Dollar Note or DM Note, as applicable, (iii)
reduce the principal of or extend the Stated Maturity of any Dollar Note or DM
Note, as applicable, (iv) reduce the premium payable upon the redemption of
any Dollar Note or DM Note, as applicable, or change the time at which any
Dollar Notes or DM Note, as applicable, may be redeemed as described under "--
Optional Redemption", (v) make any Dollar Note or DM Note, as
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applicable, payable in money other than that stated in such Note, (vi) impair
the right of any holder of Dollar Notes or DM Notes, as applicable, to receive
payment of principal of and interest, any liquidated damages or Additional
Amounts, if any, on such holder's Dollar Notes or DM Notes, as the case may
be, on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Dollar Notes or
DM Notes, as the case may be, (vii) make any change in the amendment
provisions which require the consent of each holder of Dollar Notes or DM
Notes, as applicable, or in the waiver provisions, or (viii) make any change
in the provisions of the Dollar Notes Indenture or the DM Notes Indenture, as
applicable, described under "--Withholding Taxes" that adversely affects the
rights of any holder of Dollar Notes or DM Notes, as applicable, or amend the
terms of the Dollar Notes Indenture or the DM Notes Indenture, as applicable,
in a way that would result in a loss of an exemption from any of the Taxes
described thereunder or an exemption from any obligation to withhold or deduct
Taxes so described thereunder unless the Issuers agree to pay Additional
Amounts, if any, in respect thereof.
The Indentures provide that, without the consent of any holder of Dollar
Notes or DM Notes, the Issuers and Dollar Notes Trustee or the DM Notes
Trustee, as applicable, may amend the Dollar Notes Indenture or the DM Notes
Indenture, as the case may be, to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of either of the Issuers under the Dollar Notes Indenture or the
DM Notes Indenture, as applicable, to provide for uncertificated Dollar Notes
or DM Notes, as applicable, in addition to or in place of certificated Dollar
Notes or DM Notes (provided that the uncertificated Dollar Notes or DM Notes,
as the case may be, are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Dollar Notes
or DM Notes, as the case may be, are described in Section 163(f)(2)(B) of the
Code), to add any Guarantee of the Dollar Notes or the DM Notes, as
applicable, to secure the Dollar Notes or the DM Notes, as applicable, to add
to the covenants of the Issuers for the benefit of the holders of the Dollar
Notes or the DM Notes, as applicable, or to surrender any right or power
conferred upon the Issuers by such Indenture, to make any change that does not
adversely affect the rights of any holder of the Dollar Notes or the DM Notes,
as applicable, subject to the provisions of the Dollar Notes Indenture or the
DM Notes Indenture, as applicable, to provide for the issuance of the Exchange
Notes, Private Exchange Notes or Additional Notes or to comply with any
requirement of the Commission in connection with the qualification of the
Dollar Notes Indenture or the DM Notes Indenture, as applicable, under the
TIA.
The consent of the holders of Notes will not be necessary under either of
the Indentures to approve the particular form of any proposed amendment. It
will be sufficient if such consent approves the substance of the proposed
amendment.
After an amendment under the Dollar Notes Indenture or the DM Notes
Indenture becomes effective, the Issuers will be required to deliver to each
holder of the Dollar Notes or the DM Notes, as applicable, a notice briefly
describing such amendment in accordance with the provisions set forth under
"--Notices". The failure to give such notice to all holders of Dollar Notes or
DM Notes, as applicable, or any defect therein, however, will not impair or
affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder of Notes may transfer or exchange Dollar Notes and DM Notes in
accordance with the Dollar Notes Indenture and the DM Notes Indenture, as
applicable. Upon any transfer or exchange, the registrar under the applicable
Indenture and the applicable Trustee may require a holder of Dollar Notes or
DM Notes, as the case may be, among other things, to furnish appropriate
endorsements and transfer documents, and the Issuers or the paying agent, as
applicable, may require a holder of Dollar Notes or DM Notes, as the case may
be, to pay any taxes required by law or permitted by the Dollar Notes
Indenture or the DM Notes Indenture, as applicable. The Issuers will not be
required to transfer or exchange any Dollar Notes or DM Notes selected for
redemption or to transfer or exchange any Dollar Notes or DM Notes for a
period of 15 days prior to a selection of Dollar Notes or DM Notes, as
applicable, to be redeemed. Transfers and exchanges of the DM Notes and the
Dollar Notes may be made through the Industrial Bank of Japan (Luxembourg)
S.A.
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REPLACEMENT SECURITIES
If a mutilated Note is surrendered to the registrar appointed by the Issuers
(the "Registrar") or if the holder of a Note claims that the Note has been
lost, destroyed or wrongfully taken, the Issuers shall issue and the Trustee
shall authenticate a replacement Note if the requirements of Section 8-405 of
the Uniform Commercial Code are met, such that the holder (i) satisfied the
Issuers or the Trustee within a reasonable time after he has notice of such
loss, destruction or wrongful taking and the Registrar does not register a
transfer prior to receiving such notification, (ii) makes such request to the
Issuers or the Trustee prior to the Note being acquired by a protected
purchaser as defined in Section 8-303 of the Uniform Commercial Code (a
"protected purchaser") and (iii) satisfies any other reasonable requirements
of the Trustee. If required by the Trustee of the Issuers, such holder shall
furnish an indemnity bond sufficient in the judgment of the Trustee to protect
the Issuers, the Trustee, the Paying Agent and the Registrar from any loss
that any of them may suffer if a Note is replaced. The Issuers and the Trustee
may charge the holder for their expenses in replacing a Note. In the event any
such mutilated, lost, destroyed or wrongfully taken Note has become or is
about to become due and payable, the Issuers in their discretion may pay such
Note instead of issuing a new Note in replacement thereof. Every replacement
Note is an additional obligation of the Issuers. Transfers and exchanges of
the DM Notes and the Dollar Notes may be made through the Industrial Bank of
Japan (Luxembourg) S.A.
NOTICES
Notice regarding the Notes will be (i) mailed by first-class mail to each
holder's registered address and (ii) published in a leading newspaper having a
general circulation in (a) New York City (which is expected to be The Wall
Street Journal), (b) Frankfurt, Germany (which is expected to be Frankfurter
Allgemeine Zeitung and (c) if and so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, a newspaper having a general circulation in Luxembourg (which is
expected to be Luxembourg Wort). If and so long as the Notes are listed on any
other securities exchange, notices will also be given in accordance with any
applicable requirements of such securities exchange. Notices given by
publication will be deemed to be given on the first date on which publication
is made, and notices given by first-class mail will be deemed given five
calendar days after mailing.
DEFEASANCE
The Issuers at any time may terminate all their obligations under the Dollar
Notes and the Dollar Notes Indenture or the DM Notes and the DM Notes
Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of Dollar Notes or DM Notes, as applicable, to replace mutilated,
destroyed, lost or stolen Dollar Notes or DM Notes, as applicable, and to
maintain a registrar and paying agent in respect of the Dollar Notes or the DM
Notes, as applicable. The Issuers at any time may terminate their obligations
under the covenants described under "--Change of Control" and "--Certain
Covenants", the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under "--Defaults" and the limitations contained in
clauses (iii) and (iv) under the first paragraph of "--Merger and
Consolidation" ("covenant defeasance").
The Issuers may exercise their legal defeasance option notwithstanding their
prior exercise of their covenant defeasance option. If the Issuers exercise
their legal defeasance option, payment of the Dollar Notes or the DM Notes, as
applicable, may not be accelerated because of an Event of Default with respect
thereto. If the Issuers exercise their covenant defeasance option, payment of
the Dollar Notes or the DM Notes, as applicable, may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries) or (viii) (with respect only to
Significant Subsidiaries) under "--Defaults" or because of the failure of
either of the Issuers to comply with clause (iii) or (iv) under the first
paragraph of "--Merger and Consolidation".
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In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the Dollar Notes Trustee or the
DM Notes Trustee, as applicable, in the case of the Dollar Notes, money in
U.S. dollars or U.S. Government Obligations, and, in the case of the DM Notes,
money in Deutsche Marks or German Government Obligations, for the payment of
principal, premium, if any, and interest on the Dollar Notes or the DM Notes,
as applicable, to redemption or maturity, as the case may be, and must comply
with certain other conditions, including delivery to the Dollar Notes Trustee
or the DM Notes Trustee, as applicable, of Opinions of Counsel to the effect
that (i) holders of the Dollar Notes or the DM Notes, as applicable, will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such deposit and defeasance and will be subject to U.S. federal
income tax and income tax under applicable law of The Netherlands on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinions of Counsel as to U.S. federal income tax
law must be based on a ruling of the Internal Revenue Service or other change
in applicable U.S. federal income tax law), (ii) after the 91st day following
the deposit, trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally under applicable U.S. federal or state law or applicable law
of The Netherlands and that the Dollar Notes Trustee or the DM Notes Trustee,
as applicable, has a perfected security interest in such trust funds for the
ratable benefit of holders of the Dollar Notes or the DM Notes, as applicable,
and (iii) payments from the defeasance trust will be free and exempt from any
and all withholding taxes and other income taxes of whatever nature imposed or
levied by or on behalf of The Netherlands or any political subdivision thereof
or therein having the power to tax.
WITHHOLDING TAXES
All payments made by the Issuers on the Notes will be made without
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature (collectively,
"Taxes") imposed or levied by or on behalf of the United States, The
Netherlands or any other jurisdiction in which either of the Issuers is
organized or engaged in business for tax purposes or, in each case, any
political subdivision thereof or any authority having power to tax therein
(each a "Tax Authority"), unless the withholding or deduction of such Taxes is
then required by law. If any deduction or withholding for, or on account of,
any Taxes of any Tax Authority shall at any time be required on any payments
made by the Issuers with respect to the Notes, including payments of
principal, redemption price, interest, liquidated damages or premium, the
Issuers will pay such additional amounts (the "Additional Amounts") as may be
necessary in order that the net amounts received in respect of such payments
by the holders of the Notes or the applicable Trustee, as the case may be,
after such withholding or deduction, equal the respective amounts which would
have been received in respect of such payments in the absence of such
withholding or deduction, except that no such Additional Amounts will be
payable with respect to:
(i) any Taxes which would not have been imposed but for the existence of
any present or former connection between a holder of Notes and the United
States, The Netherlands or any other jurisdiction in which either of the
Issuers is organized or engaged in business for tax purposes other than the
mere receipt of such payment or the holding of such Notes;
(ii) any Taxes which would not have been imposed but for the presentation
by a holder of Notes for payment on a date more than 30 days after the date
on which such payment became due and payable or the date on which payment
thereof was duly provided for;
(iii) the extent that such Taxes would not have been imposed but for the
failure of a holder of Notes to comply with any certification,
identification or other reporting requirements concerning the nationality,
residence, identity or connection with The Netherlands of such holder if
(A) such compliance is required or imposed by law as a precondition to
exemption from all or a part of such Taxes, (B) such holder may legally
comply with such requirements and (C) at least 30 days prior to the date on
which the Issuers shall apply this clause (iii), the Issuers shall have
notified all holder of Notes of such requirements;
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(iv) any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or governmental charge; or
(v) any combination of the items set forth in clause (i), (ii), (iii) or
(iv).
The Issuers will pay any present or future stamp, court or documentary
taxes, or any other excise or property taxes, charges or similar levies which
arise in any jurisdiction from the execution, delivery or registration of the
Notes or any other document or instrument referred to therein, or the receipt
of any payments with respect to the Notes, excluding any such taxes, charges
or similar levies imposed by any jurisdiction outside of the United States,
The Netherlands or any jurisdiction in which a paying agent is located, other
than those resulting from, or required to be paid in connection with, the
enforcement of the Notes or any other such document or instrument following
the occurrence of any Event of Default with respect to the Notes.
No Additional Amounts will be paid with respect to any payment on a Note to
a holder that is a fiduciary or partnership or other than the sole beneficial
owner of such payment to the extent a beneficiary or settlor with respect to
such fiduciary or member of such partnership or beneficial owner would not
have been entitled to receive payment of the Additional Amounts had the
beneficiary, settlor, member or beneficial owner been the holder of the Notes.
Upon request, the Issuers will provide the Dollar Notes Trustee or the DM
Notes Trustee, as applicable, with documentation satisfactory to such Trustee
evidencing the payment of Additional Amounts. Copies of such documentation
will be made available to the holders of Dollar Notes or DM Notes, as
applicable, upon request.
CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is to be the Dollar Notes Trustee under
the Dollar Notes Indenture and the DM Notes Trustee under the DM Notes
Indenture.
The Indentures contain certain limitations on the rights of the Dollar Notes
Trustee or the DM Notes Trustee, as applicable, should it become a creditor of
either of the Issuers, to obtain payment of claims in certain cases or to
realize on certain property received in respect of any such claim as security
or otherwise. Each Trustee will be permitted to engage in other transactions;
provided, however, if it acquires any conflicting interest, it must eliminate
such conflict within 90 days, apply to the Commission for permission to
continue or resign.
GOVERNING LAW
The Indentures provide that the Indentures, and the Dollar Notes or the DM
Notes, as applicable, are governed by, and construed in accordance with, the
laws of the State of New York without giving effect to applicable principles
of conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
CURRENCY INDEMNITY
The U.S. dollar is the sole currency of account and payment for all sums
payable by the Issuers under or in connection with the Dollar Notes, including
damages. Any amount received or recovered in a currency other than U.S.
dollars (whether as a result of, or the enforcement of, a judgment or order of
a court of any jurisdiction, in the winding-up or dissolution of either of the
Issuers or otherwise) by any holder of a Dollar Note in respect of any sum
expressed to be due to it from the Issuers will only constitute a discharge to
the Issuers to the extent of the U.S. dollar amount which the recipient is
able to purchase with the amount so received or recovered in that other
currency on the date of that receipt or recovery (or, if it is not practicable
to make that purchase on the date, on the first date on which it is
practicable to do so). If the U.S. dollar amount is less than the U.S. dollar
amount expressed to be due to the recipient under any Dollar Note, the Issuers
shall indemnify the recipient against any loss sustained by it as a result. In
any event, the Issuers shall indemnify the recipient against the cost of
making any such purchase. For the purposes of this paragraph, the holder of a
Dollar Note shall certify
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in a satisfactory manner to the Dollar Notes Trustee (indicating the sources
of information used) that it would have suffered a loss had an actual purchase
of U.S. dollars been made with the amount so received in that other currency
on the date of receipt or recovery (or, if a purchase of U.S. dollars on such
date had not been practicable due to currency market conditions generally, on
the first date on which it would have been practicable, it being required that
the need for a change of date be certified in the manner mentioned above).
These indemnities constitute a separate and independent obligation from the
other obligations of the Issuers, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence
granted by any holder of a Dollar Note and shall continue in full force and
effect despite any other judgment, order, claim or proof for a liquidated
amount in respect of any sum due under any Dollar Note.
The Deutsche Mark is the sole currency of account and payment for all sums
payable by the Issuers under or in connection with the DM Notes, including
damages. Any amount received or recovered in a currency other than Deutsche
Marks (whether as a result of, or the enforcement of, a judgment or order of a
court of any jurisdiction, in the winding-up or dissolution of either of the
Issuers or otherwise) by any holder of a DM Note in respect of any sum
expressed to be due to it from the Issuers will only constitute a discharge to
the Issuers to the extent of the Deutsche Mark amount which the recipient is
able to purchase with the amount so received or recovered in that other
currency on the date of that receipt or recovery (or, if it is not practicable
to make that purchase on the date, on the first date on which it is
practicable to do so). If the Deutsche Mark amount is less than the Deutsche
Mark amount expressed to be due to the recipient under any DM Note, the
Issuers shall indemnify the recipient against any loss sustained by it as a
result. In any event, the Issuers shall indemnify the recipient against the
cost of making any such purchase. For the purposes of this paragraph, the
holder of a DM Note shall certify in a satisfactory manner to the DM Notes
Trustee (indicating the sources of information used) that it would have
suffered a loss had an actual purchase of Deutsche Marks been made with the
amount so received in that other currency on the date of receipt or recovery
(or, if a purchase of Deutsche Marks on such date had not been practicable due
to currency market conditions generally, on the first date on which it would
have been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from the other obligations of the Issuers,
shall give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any holder of a DM Note and shall
continue in full force and effect despite any other judgment, order, claim or
proof for a liquidated amount in respect of any sum due under any DM Note.
SUBSTITUTION OF CURRENCY
Under the treaty of the European Economic and Monetary Union (the "Treaty"),
to which the Federal Republic of Germany is a signatory, on January 1, 1999,
and subject to the fulfillment of certain conditions, the "Euro", a European
single currency, may replace all or some of the currencies of the member
states of the European Union, including the Deutsche Mark. If, pursuant to the
Treaty, the Deutsche Mark is replaced by the Euro, the payment of principal
of, or interest on, the DM Notes will be effected in Euro in conformity with
legally applicable measures taken pursuant to, or by virtue of, the Treaty. In
addition, the regulations of the European Commission relating to the Euro will
then apply to the DM Notes and the DM Notes Indenture. The circumstances and
consequences described in this paragraph do not entitle the Issuers or any
holder of DM Notes to early redemption, rescission, notice, repudiation,
adjustment or renegotiation of the terms and conditions of the DM Notes or the
DM Notes Indenture or to raise any other defenses or to request any
compensation or claim, nor will they affect any of the obligations of the
Issuers under the DM Notes or the DM Notes Indenture.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by DCC or a Restricted Subsidiary
in a Related Business, (ii) the Capital Stock of a Person
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that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by DCC or another Restricted Subsidiary or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; provided, however, that any such Restricted Subsidiary
described in clause (ii) or (iii) above is primarily engaged in a Related
Business.
"Additional Payment" means the contingent payment of up to $10 million
payable to DFS pursuant to the Recapitalization Agreement.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the provisions described under "--Certain
Covenants--Limitation on Transactions with Affiliates" and "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis)
of DCC or of rights or warrants to purchase such Voting Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Applicable Premium" means, on any date of redemption, the greater of (i)
1.0% of the principal amount of a Note and (ii) the excess of (A) the present
value as of such date of redemption of (1) the redemption price of such Note
at May 15, 2003 (such redemption price being set forth under "--Certain
Covenants--Optional Redemption") plus (2) all required payments of interest
and Additional Amounts, if any, due on such Note through May 15, 2003
(excluding accrued and unpaid interest), computed using a discount rate equal
to the Treasury Rate plus 50 basis points over (B) the principal amount of
such Note.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
DCC or any Restricted Subsidiary, including any disposition by means of a
merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than DCC or a
Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of DCC or any Restricted Subsidiary or (iii) any
other assets of DCC or any Restricted Subsidiary outside of the ordinary
course of business of DCC or such Restricted Subsidiary; provided, however,
that Asset Dispositions shall not include (A) a disposition by a Restricted
Subsidiary to DCC or by DCC or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (B) for purposes of the provisions described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "--Certain Covenants--
Limitation on Restricted Payments", (C) a disposition of assets with a fair
market value of less than $500,000, (D) the disposition of all or
substantially all of the assets of the Issuers as permitted under the
provisions described under "--Merger and Consolidation" or any disposition
that constitutes a Change of Control, (E) the sale or discount, in each case
without recourse, of accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof,
(F) the factoring of accounts receivable arising in the ordinary course of
business pursuant to arrangements customary in the industry, (G) the licensing
of intellectual property, (H) disposals or replacements of obsolete,
uneconomical, negligible, worn out or surplus property in the ordinary course
of business and (I) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of the
term "Qualified Securitization Transaction" to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to 75%
of the fair market value thereof. For the purposes of clause (I), Purchase
Money Notes shall be deemed to be cash.
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"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Dollar Notes or the DM Notes, as applicable, compounded annually)
of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Revolving Credit Agreement and any Refinancing Indebtedness with respect
thereto, as amended from time to time, including principal, premium, if any,
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to either of the Issuers whether
or not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the board of directors or similar governing body
of either of the Issuers or any Restricted Subsidiary, or any committee
thereof duly authorized to act on behalf of such board or directors or
governing body.
"Business Day" means a day other than a Saturday, Sunday or other day on
which the banking institutions in the United States, Germany, Luxembourg or
The Netherlands or any place of payment are authorized or required by law to
close.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of, or
interests in (however designated), equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with U.S. GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with U.S. GAAP, and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be prepaid
by the lessee without payment of a penalty.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (A) if DCC or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (B) if DCC or any Restricted
Subsidiary
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has repaid, repurchased, defeased or otherwise discharged any Indebtedness
since the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if DCC or such Restricted Subsidiary has not
earned the interest income actually earned during such period in respect of
cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (C) if, since the beginning of such
period (including on the date of the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio), DCC or any Restricted Subsidiary
shall have made any Asset Disposition, the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly attributable
to the assets that are the subject of such Asset Disposition for such period
or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period, and Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of DCC or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect
to DCC and its continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
DCC and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (D) if, since the beginning of such period, DCC
or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a calculation to
be made hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred
on the first day of such period (and irrespective of the method (purchase or
pooling) of accounting for such Investment or acquisition of assets) and (E)
if, since the beginning of such period, any Person (that subsequently became a
Restricted Subsidiary or was merged with or into DCC or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (C) or (D) above if made by DCC or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For all purposes of the foregoing
definition, with respect to any EBITDA (or component thereof) and any
Consolidated Interest Expense (unless subject to a Currency Agreement covering
principal, premium, if any, and interest payable on such Indebtedness)
denominated in a currency other than dollars, the amount of such EBITDA (or
component thereof) or Consolidated Interest Expense shall be calculated at the
relevant currency exchange rate in effect on the date of determination. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
DCC. If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has
a remaining term as at the date of determination in excess of 12 months).
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of DCC and its Consolidated Restricted
Subsidiaries which may properly be classified as
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current liabilities (including taxes accrued as estimated), on a Consolidated
basis, after eliminating (i) all intercompany items between DCC and any
Restricted Subsidiary and (ii) all current maturities of long-term
Indebtedness, all as determined in accordance with U.S. GAAP consistently
applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of DCC and its Consolidated Restricted Subsidiaries, plus, to the
extent Incurred by DCC or its Subsidiaries in such period but not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations and the interest expense attributable to leases constituting part
of any Sale/Leaseback Transaction, (ii) the earned discount or yield with
respect to any sale of receivables or equipment by any Securitization Entity
in connection with any Qualified Securitization Transaction, (iii)
amortization of debt discount and debt issuance cost other than as related to
the Recapitalization, (iv) capitalized interest, (v) non-cash interest
expense, (vi) commissions, discounts and other fees and charges attributable
to letters of credit and bankers' acceptance financing, (vii) interest
accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by DCC or any Restricted Subsidiary, (viii) net
costs associated with Hedging Obligations (including amortization of fees),
(ix) dividends in respect of (A) all Preferred Stock of DCC and any of its
Subsidiaries and (B) Disqualified Stock of DCC, in the case of clause (A),
other than non-cash dividends, and, in the case of each of clauses (A) and
(B), to the extent held by Persons other than DCC or a Wholly Owned
Subsidiary, (x) interest Incurred in connection with investments in
discontinued operations and (xi) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than DCC) in
connection with Indebtedness Incurred by such plan or trust. Notwithstanding
the foregoing, for the purpose of the covenant described under "--Certain
Covenants--Limitation on Indebtedness", only, there shall be excluded from
Consolidated Interest Expense all non-cash interest payable in respect of the
Additional Payment.
"Consolidated Net Income" means, for any period, the net income of DCC and
its Consolidated Subsidiaries for such period; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income of
any Person (other than DCC) if such Person is not a Restricted Subsidiary,
except that (A) subject to the limitations contained in clause (iv) below, the
equity of DCC in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to DCC or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution made to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the equity of DCC in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any person
acquired by DCC or any of its Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any
net income (or loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to DCC, except that (A) subject to the limitations
contained in clause (iv) below, the equity of DCC in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to DCC or another
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution made to another Restricted
Subsidiary, to the limitation contained in this clause (iii)); provided,
however, that, for purposes of determining the Consolidated Coverage Ratio,
any net income of any Restricted Subsidiary subject only to any such direct or
indirect restrictions on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to DCC
that are permitted pursuant to the covenant described under "--Certain
Covenants--Limitation on Restrictions on Distributions from Restricted
Subsidiaries" shall be included in Consolidated Net Income; and provided
further, that, for purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" the amount of Consolidated Net
Income of DCC and
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its Consolidated Subsidiaries to be included pursuant to subclause (A) of
clause (3) of paragraph (a) shall be increased by 100% of any increase in
Consolidated Net Income resulting from cash distributions from Restricted
Subsidiaries, but only to the extent that such increase in Consolidated Net
Income does not cause the amount Consolidated Net Income included pursuant to
such subclause (A) to exceed the amount of Consolidated Net Income that would
have been included if this clause (iii) were inapplicable to the net income of
Restricted Subsidiaries which are the source (direct or indirect) of such cash
distributions; provided, further, however, that, for purposes of the
immediately foregoing proviso as it applies to amounts available for
Restricted Investments, the Restricted Subsidiaries shall be deemed to have
distributed cash to DCC that they could have distributed to DCC (to the extent
such amount exceeds the cash distributions actually made); provided that any
resulting increase in Consolidated Net Income shall be subject to the overall
limitation on increases set forth in such proviso and (B) the equity of DCC in
a net loss of any such Restricted Subsidiary for such period shall be included
in determining such Consolidated Net Income; (iv) any gain or loss realized
upon the sale or other disposition of any asset of DCC or any of its
Consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) that is not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any Person together with any related tax effects
according to U.S. GAAP associated with the foregoing; (v) any extraordinary
gain or loss; (vi) any gain or loss included in other income that is
attributable to Hedging Obligations; (vii) any gain or loss that is
attributable to minority interests; and (viii) the cumulative effect of a
change in accounting principles. Notwithstanding the foregoing, for the
purpose of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" only, there shall be excluded from Consolidated Net
Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to DCC or any Restricted Subsidiary to
the extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet
of DCC and its Consolidated Restricted Subsidiaries, determined on a
Consolidated basis in accordance with U.S. GAAP, and after giving effect to
purchase accounting and after deducting therefrom Consolidated Current
Liabilities and, to the extent otherwise included, the amounts of: (i)
minority interests in consolidated Subsidiaries held by Persons other than DCC
or a Restricted Subsidiary; (ii) excess of cost over fair value of assets of
businesses acquired, as determined in good faith by the board of directors of
DCC; (iii) any revaluation or other write-up in book value of assets
subsequent to the date of the Indentures as a result of a change in the method
of valuation in accordance with U.S. GAAP consistently applied; (iv)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights,
licenses, organization or developmental expenses and other intangible items;
(v) treasury stock; (vi) cash set apart and held in a sinking or other
analogous fund established for the purpose of redemption or other retirement
of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of DCC and its Restricted Subsidiaries, determined on a Consolidated
basis, as of the end of the most recent fiscal quarter of DCC ending at least
45 days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of DCC plus (ii) paid-in capital or capital surplus relating to
such Capital Stock plus (iii) any retained earnings or earned surplus less (A)
any accumulated deficit and (B) any amounts attributable to Disqualified
Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of DCC in accordance with U.S. GAAP
consistently applied; provided, however, that
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"Consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of DCC or any Restricted Subsidiary
in an Unrestricted Subsidiary will be accounted for as an investment. The term
"Consolidated" has a correlative meaning.
"Contribution Indebtedness" means unsecured Indebtedness of DCC incurred in
connection with the acquisition of all or substantially all the Capital Stock
or assets of a Related Business in an aggregate principal amount not greater
than the aggregate amount of cash contributions made to the capital of DCC,
which amount shall not, in any event, exceed $40 million in the aggregate;
provided that such Contribution Indebtedness (i) has a Stated Maturity later
than the Stated Maturity of the Notes, (ii) is Incurred substantially
concurrently with such cash contributions and (iii) is so designated as
Contribution Indebtedness pursuant to an Officers' Certificate delivered on
the date of Incurrence.
"Corporate Trust Office of the Trustee" means the office at which the
corporate trust business of the Dollar Notes Trustee or the DM Notes Trustee,
as the case may be, is principally administered.
"Currency Agreement" means, in respect of any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or beneficiary.
"DCC" means The Derby Cycle Corporation, a corporation organized under the
laws of the State of Delaware.
"DC Cycle" means DC Cycle, L.L.C., a limited liability company organized
under the laws of the State of Delaware.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Derby Holdings South Africa" means Derby Investment Holdings (Pty) Limited.
"Designated Non-Cash Consideration" means any non-cash consideration
received by DCC or any of its Restricted Subsidiaries in connection with an
Asset Disposition that is so designated as Designated Non-Cash Consideration
pursuant to an Officers' Certificate executed by the Principal Executive
Officer and the Principal Financial Officer of DCC or such Restricted
Subsidiary.
"DFS" means Derby Finance S.a.r.l., a corporation (societe a responsibilite
limitee) organized under the laws of the Grand Duchy of Luxembourg.
"DICSA" means Derby International Corporation S.A., a corporation (societe
anonyme) organized under the laws of the Grand Duchy of Luxembourg.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock (excluding capital stock which is
convertible or exchangeable solely at the option of DCC or any of its
Restricted Subsidiaries) or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that only
the portion of Capital Stock which so matures is mandatorily redeemable, is so
convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such date shall be deemed to be Disqualified Stock; provided,
further, that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the first anniversary
of the Stated Maturity of the Notes shall not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock
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are not more favorable to the holders of such Capital Stock than the
provisions of the covenants described under "--Change of Control" and "--
Certain Covenants--Limitation on Sale of Assets and Subsidiary Stock".
"DM Notes Trustee" means the party named as such in the DM Notes Indenture
until a successor replaces it and, thereafter, means the successor.
"Dollar Notes Trustee" means the party named as such in the Dollar Notes
Indenture until a successor replaces it and, thereafter, means the successor.
"Domestic Subsidiary" means any Restricted Subsidiary other than a Foreign
Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense of DCC and its Consolidated Restricted
Subsidiaries, (ii) Consolidated Interest Expense, (iii) depreciation expense
of DCC and its Consolidated Restricted Subsidiaries, (iv) amortization of DCC
and its Consolidated Restricted Subsidiaries (excluding amortization
attributable to a prepaid cash item that was paid in a prior period), (v) all
other non-cash charges of DCC and its Consolidated Restricted Subsidiaries
(excluding any such non-cash charge to the extent it represents an accrual of
or reserve for cash expenditures in any future period), in each case for such
period, (vi) all one time cash payments made for the payment (and amortization
thereof) of fees, expenses and charges incurred in connection with the
Recapitalization in an amount not to exceed $5.7 million and (vii) all
expenses attributable to achieving Year 2000 compliance in an aggregate
principal amount not to exceed $1.9 million, less all amounts attributable to
the amortization into income of the transition asset related to the defined
benefit pension plans of DCC and its Subsidiaries, which transition asset was
recognized upon the adoption of Statement of Financial Accounting Standards
No. 87. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and non-cash
charges of, any Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended to DCC by such Restricted
Subsidiary without prior approval (that has not been obtained) pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its shareholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means a registered exchange offer for the Notes undertaken
by the Issuers pursuant to the Exchange and Registration Rights Agreement.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated the date of the Indentures, among the
Issuers and the Initial Purchasers.
"Exchange Notes" means, collectively, debt securities of the Issuers that
are identical in all material respects to the Notes, except for transfer
restrictions relating to the Notes, issued in a like aggregate principal
amount of the Notes originally issued pursuant to the Exchange and
Registration Rights Agreement.
"Excluded Assets" means the assets identified in the Recapitalization
Agreement as the assets to be transferred and sold to one or more affiliates
of DICSA and DFS.
"Foreign Subsidiary" means any Restricted Subsidiary that is not organized
under the laws of the United States of America or any State thereof or the
District of Columbia.
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"German Government Obligations" means securities that are direct and
unconditional obligations of the Federal Republic of Germany or any of its
states (Bundeslander), as defined in Section 1807, No. 2 of the German Civil
Code (Burgerliches Gesetzbuch), as from time to time in amended, and which are
not callable or redeemable at the issuer's option.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or other obligation of such
other Person (whether arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Currency Agreement or Interest Rate Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary of another Person
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be Incurred by such Person at the time it becomes a Subsidiary of such
other Person. The term "Incurrence" when used as a noun has a correlative
meaning. The accretion of principal of a non-interest bearing or other
discount security shall be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium, if any,
in respect of indebtedness of such Person for borrowed money; (ii) the
principal of and premium, if any, in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services (except accrued expenses and Trade Payables), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services; (v) all Capitalized Lease Obligations and all Attributable Debt
of such Person; (vi) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends); (vii) all Indebtedness of
other Persons secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person; provided, however, that the
amount of Indebtedness of such Person shall be the lesser of (A) the fair
market value of such asset at such date of determination and (B) the amount of
such Indebtedness of such other Persons, (viii) to the extent not otherwise
included in this definition, Hedging Obligations of such Person; or (ix) all
obligations of the type referred to in clauses (i) and (ii) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
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The amount of indebtedness of any person at any date shall be determined as
set forth above or otherwise in accordance with U.S. GAAP. For purposes of
calculating the amount of Indebtedness of a Securitization Entity outstanding
as of any date, the face or notional amount of any interest in receivables or
equipment that is outstanding as of such date shall be deemed to be
Indebtedness but any such interests held by Affiliates of such Securitization
Entity shall be excluded for purposes of such calculation.
"Initial Public Offering" means the first underwritten public offering of
common stock (or ordinary shares) by either of the Issuers pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act for aggregate net cash proceeds of at least $10 million.
"Initial Purchasers" means Chase Securities Inc., Chase Manhattan Bank AG
and Chase Manhattan International Limited.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others) or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments", (i) "Investment" shall include
the portion (proportionate to the equity interest of DCC in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of DCC at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that, upon a redesignation of such Subsidiary as a Restricted
Subsidiary, DCC shall be deemed to continue to have a permanent "Investment"
in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the
"Investment" of DCC in such Subsidiary at the time of such redesignation less
(y) the portion (proportionate to the equity interest of DCC in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at
the time of such redesignation; and (ii) any property transferred to or from
an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined in good faith by the board
of directors of DCC.
"Investor Group" means, collectively, Thayer, Perseus and DICSA.
"Issuers" means, collectively, DCC and Lyon.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Lyon" means Lyon Investments B.V., a company organized under the laws of
The Netherlands and a wholly owned Restricted Subsidiary, which was formerly
known as Lyon Cycle B.V.
"MS Sport Group" means, collectively, MS Sport Vertriebs AG and MS Sport
Vertriebs GmbH.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from
the sale or other disposition of any securities received as
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consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to the properties or assets that
are the subject of such Asset Disposition or received in any other non-cash
form, and excluding Designated Non-Cash Consideration) therefrom, in each case
net of (i) all legal, accounting and investment banking fees, and sales
commissions, and all title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state, provincial, local and
foreign taxes required to be paid or accrued as a liability under U.S. GAAP,
as a consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon or other security agreement of
any kind with respect to such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Disposition, or by applicable law,
be repaid out of the proceeds from such Asset Disposition, (iii) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries of DCC or joint ventures as a result of such Asset
Disposition and (iv) appropriate amounts to be provided by the seller as a
reserve, in accordance with U.S. GAAP, against any liabilities associated with
the property or other assets disposed of in such Asset Disposition and
retained by DCC or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither DCC
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of DCC or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its state of maturity and (iii) as to which the lenders have been notified
in writing they will not have recourse to the shares or assets of DCC or any
of its Restricted Subsidiaries.
"Noteholder" or "Holder" means the Person in whose name a Note is registered
on the registrar's books.
"Notes" means the notes (including the Exchange Notes) issued under the
Indentures.
"Officer" means the Chairman of the Board, the Principal Executive Officer,
the Principal Financial Officer, the President, any Vice President, the
Treasurer or the Secretary of either of the Issuers, or any of the Restricted
Subsidiaries, as the case may be.
"Officers' Certificate" means a certificate signed by two Officers of either
of the Issuers, or any of the Restricted Subsidiaries, as the case may be.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Dollar Notes Trustee or the DM Notes Trustee, as applicable.
The counsel may be an employee of, or counsel to, DCC or such Trustee.
"Permitted Holders" means DC Cycle, Perseus Cycle and DFS, any of their
respective Affiliates, any Person who is a beneficial owner of DC Cycle,
Perseus Cycle or DFS on the date of the Indentures, and any investment fund
managed by Thayer or Perseus, and any Person acting in the capacity of an
underwriter in connection with a public or private offering of the Capital
Stock of either of the Issuers.
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"Permitted Investment" means an Investment by DCC or any Restricted
Subsidiary in (i) DCC, any Restricted Subsidiary or any Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if, as a result of such Investment, such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, DCC or any Restricted Subsidiary; provided,
however, that the primary business of such Person is a Related Business; (iii)
Temporary Cash Investments; (iv) receivables owing to DCC or any Restricted
Subsidiary if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as
DCC or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of DCC or any Restricted Subsidiary and not
exceeding $2 million in the aggregate outstanding at any one time; (vii)
stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to DCC or any Restricted Subsidiary
or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for
an Asset Disposition that was made pursuant to and in compliance with the
covenant described under "--Certain Covenants--Limitation on Sale of Assets
and Subsidiary Stock"; (ix) Investments existing on the date of the
Indentures; (x) Hedging Obligations otherwise in compliance with the
Indentures; (xi) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (xi)
that are at the time outstanding, not to exceed $10 million (with a fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); and (xii) any Investment by DCC
or a Subsidiary of DCC in a Securitization Entity or any Investment by a
Securitization Entity in any other Person in connection with a Qualified
Securitization Transaction; provided that any Investment in a Securitization
Entity is in the form of a Purchase Money Notes or an equity interest.
"Permitted Liens" means, with respect to any Person, (a) Liens, pledges or
deposits by such Person under worker's compensation laws, unemployment
insurance and other types of social security laws or similar legislation, or
good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness), or leases to which such Person is a party,
or deposits to secure public or statutory obligations of such Person or
deposits of cash or government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case Incurred in the ordinary
course of business; (b) statutory liens of landlords and other Liens imposed
by law, including carriers', warehousemen's, suppliers', material men's,
repairmen's and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings or other Liens arising out
of judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review; (c)
Liens for taxes, assessments or governmental charges not yet due or payable or
subject to penalties for non-payment on which are being contested in good
faith by appropriate proceedings; (d) Liens in favor of issuers of surety
bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred
in connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use
in the operation of the business of such Person; (f) Liens securing
Indebtedness Incurred to finance the construction, purchase or lease of, or
repairs, improvements or
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additions to, property of such Person; provided, however, that the Lien may
not extend to any other property owned by such Person or any of its
Subsidiaries at the time the Lien is Incurred, and the Indebtedness (other
than any interest thereon) secured by the Lien may not be Incurred more than
180 days after the later of the acquisition, completion of construction,
repair, improvement, addition or commencement of full operation of the
property subject to the Lien; (g) Liens to secure Indebtedness permitted
pursuant to clause (b)(i) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness", and other Liens to secure Indebtedness
permitted pursuant to the other clauses thereunder; (h) Liens existing on the
date of the Indentures; (i) Liens on property or shares of stock of another
Person at the time such other Person becomes a Subsidiary of such Person;
provided, however, that such Liens are not created, Incurred or assumed in
connection with, or in contemplation of, such other Person becoming such a
Subsidiary; provided further, however, that such Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (j) Liens on
property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with
or into such Person or any Subsidiary of such Person; provided, however, that
such Liens are not created, Incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that the Liens
may not extend to any other property owned by such Person or any of its
Subsidiaries; (k) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of
such Person; (l) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be under the
Indentures, secured by a Lien on the same property securing such Hedging
Obligations; (m) Liens to secure any Refinancing (or successive Refinancings)
as a whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (f), (h), (i) and (j); provided, however, that (x) such
new Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clause (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien under the Indentures
and (B) an amount necessary to pay any fees and expenses, including premiums,
related to such Refinancings. Notwithstanding the foregoing, "Permitted Liens"
will not include any Lien described in clause (f), (i) or (j) above to the
extent such Lien applies to any Additional Assets acquired directly or
indirectly from Net Available Cash pursuant to the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"; (n)
judgment Liens not giving rise to an Event of Default; (o) an interest or
title of a lessor under any Capitalized Lease Obligation; (p) Liens on
specific items of inventory or other goods and proceeds of any Person securing
such Person's obligations in respect of bankers' acceptances issued or created
for the account of such Person to facilitate the purchase, shipment or storage
of such inventory or other goods; (q) liens securing reimbursement obligations
with respect to commercial letters of credit which encumber documents and
other property relating to such letters of credit; (r) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of DCC and its Restricted Subsidiaries; and (s) Liens in favor of
customers and revenue authorities arising as a matter of law to secure payment
of customer duties. For purposes of this definition, the term "Indebtedness"
shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Perseus" means Perseus Capital, L.L.C., a limited liability company
organized under the laws of the State of Delaware.
"Perseus Cycle" means Perseus Cycle, L.L.C., a limited liability company
organized under the laws of the State of Delaware.
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"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred
as to the payment of dividends or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over
shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Private Exchange Notes" means, collectively, debt securities of the Issuers
that are identical in all material respects to the Exchange Notes, except for
transfer restrictions relating to such Private Exchange Notes, issued by the
Issuers (under the same indenture as the Exchange Notes) simultaneously with
the delivery of the Exchange Notes in the Exchange Offer to any Noteholder
that holds any Notes acquired by it that have, or that are reasonably likely
to be determined to have, the status of an unsold allotment in an initial
distribution, or to any holder of Notes that is not entitled to participate in
the Exchange Offer, upon the request of any such holder, in exchange for a
like aggregate principal amount of Notes held by such holder.
"Public Equity Offering" means a primary public offering of common stock,
ordinary shares or equivalent equity interests (other than Disqualified Stock)
of either of the Issuers, following which shares of common stock, ordinary
shares or equivalent equity interests, as the case may be, of such Issuer
either (i) are listed on a nationally recognized stock exchange or automated
quotation system in the United States, Canada or a member of the European
Union or (ii) have been distributed in the United States by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"Public Market" means that at any time with respect to the common stock,
ordinary shares or equivalent equity interests of either of the Issuers (i) at
least 10% of the total issued and outstanding common stock, ordinary shares or
equivalent equity interests of such Issuer has been distributed prior to such
time by means of an effective registration statement under the Securities Act
or (ii) an established public trading market otherwise exists for any such
common stock, or ordinary shares or equivalent equity interests.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of an asset, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by DCC or a Restricted Subsidiary of such asset,
including additions and improvements; provided, however, that such
Indebtedness is incurred within 180 days after the acquisition by DCC or such
Restricted Subsidiary, as the case may be, of such asset.
"Purchase Money Notes" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from DCC or any
Restricted Subsidiary in connection with a Qualified Securitization
Transaction, which note shall be repaid from cash available to the
Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly
acquired equipment.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which DCC or any Restricted Subsidiary may sell,
convey or otherwise transfer to (a) a Securitization Entity (in the case of a
transfer by DCC or any of Restricted Subsidiary) and (b) any other Person (in
the case of a transfer by a Securitization Entity), or may grant a security
interest in, any accounts receivable or equipment (whether existing on the
date of the Indentures or arising or acquired thereafter) of DCC or any of its
Restricted Subsidiaries, and any assets related thereto including,
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without limitation, all collateral securing such accounts receivable and
equipment, all contracts and contract rights and all Guarantees or other
obligations in respect of such accounts receivable and equipment, proceeds of
such accounts receivable and equipment and other assets (including contract
rights) which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable and equipment.
"Recapitalization" means the recapitalization of DCC pursuant to the
Recapitalization Agreement.
"Recapitalization Agreement" means the Recapitalization Agreement dated as
of March 11, 1998, as amended as of the date of the Indentures, among DCC, DC
Cycle, Perseus Cycle, DICSA and DFS, and, for the purposes specified therein,
A. Edward Gottesman, Alan J. Finden-Crofts and Frank H. Pearl.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, modify, restate, defer, substitute
or supplement (including pursuant to any defeasance or discharge mechanism)
any Indebtedness of DCC or any Restricted Subsidiary existing on the date of
the Indentures or Incurred in compliance with the Indentures (including
Indebtedness of DCC or such Restricted Subsidiary that Refinances Refinancing
Indebtedness); provided, however, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced, (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being Refinanced (plus fees and expenses, including any premium and defeasance
costs associated with the Refinancing) and (vi) if the Indebtedness being
Refinanced is subordinated in right of payment to the Notes, such Refinancing
Indebtedness is subordinated in right of payment to the Notes at least to the
same extent as the Indebtedness being Refinanced; provided further, however,
that Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that Refinances Indebtedness of DCC or (y) Indebtedness
of DCC or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of DCC and the Restricted Subsidiaries on the date of the
Indentures.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of DCC other than an
Unrestricted Subsidiary.
"Revolving Credit Agreement" means the credit agreement, to be dated as of
the date of the Indentures, as amended, waived or otherwise modified from time
to time, among DCC, the subsidiaries of DCC identified therein, Chase
Manhattan plc, as Arranger, the financial institutions named therein as banks
and Chase Manhattan International Limited, as Facility Agent and Security
Agent (except to the extent, if any, that any such amendment, waiver or other
modification thereto would be prohibited by the terms of either of the
Indentures, unless otherwise agreed to by the holders of at least a majority
in aggregate principal amount of Dollar Notes or the DM Notes, as applicable,
at the time outstanding).
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by DCC or a Restricted Subsidiary whereby DCC or a
Restricted Subsidiary transfers such property to a Person and DCC or such
Restricted Subsidiary leases it from such Person, other than leases between
DCC and a Wholly Owned Subsidiary or leases between Wholly Owned Subsidiaries.
"Secured Indebtedness" means any Indebtedness of either of the Issuers
secured by a Lien. "Secured Indebtedness" of any Subsidiary of either of the
Issuers has a correlative meaning.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Entity" means a Wholly Owned Subsidiary (or a wholly owned
Subsidiary of another Person in which DCC or any Subsidiary of DCC makes an
Investment and to which DCC or any Subsidiary of DCC transfers accounts
receivable or equipment and related assets) that engages in no activities
other than in connection with financing of accounts receivable or equipment
and that is designated by the board of directors of DCC (as provided below) as
a Securitization Entity (A) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (i) is Guaranteed by DCC or any
Restricted Subsidiary (excluding Guarantees of obligations (other than the
principal of, and interest on, Indebtedness)) pursuant to Standard
Securitization Undertakings, (ii) is recourse to or obligates DCC or any
Restricted Subsidiary in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of DCC or
any Restricted Subsidiary, directly or indirectly, contingently or otherwise,
to the satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (B) with which neither DCC nor any Restricted Subsidiary has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to DCC or such Restricted Subsidiary than those that might
be obtained at the time from Persons that are not Affiliates of DCC, other
than fees payable in the ordinary course of business in connection with
servicing receivables of such entity, and (C) to which neither DCC nor any
Restricted Subsidiary has any obligation to maintain or preserve such
entities' financial condition or cause such entity to achieve certain levels
of operating results. Any such designation by the board of directors of DCC
shall be evidenced to each Trustee by filing with each Trustee a certified
copy of the resolution of the board of directors of DCC giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Senior Indebtedness" of either of the Issuers means the principal of,
premium (if any) and accrued and unpaid interest on (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization of such Issuer, regardless of whether or not a claim for post-
filing interest is allowed in such proceedings) on, and fees and other amounts
owing in respect of, Bank Indebtedness and all other Indebtedness of such
Issuer, whether outstanding on the date of the Indentures or thereafter
Incurred, unless in the instrument creating or evidencing the same or pursuant
to which the same is outstanding it is provided that such obligations are not
superior in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (i) any obligation of DCC to any of its
Subsidiaries or any obligation of Lyon to any of the Subsidiaries of DCC, (ii)
any liability for federal, state, provincial, local, foreign or other taxes
owed or owing by such Issuer, (iii) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), (iv) any
Indebtedness or obligation of such Issuer (and any accrued and unpaid interest
in respect thereof) that by its terms is subordinate or junior in any respect
to any other Indebtedness or obligation of such Issuer, including any
Subordinated Obligations, (v) any obligations with respect to any Capital
Stock or (vi) any Indebtedness Incurred in violation of the Indentures.
"Senior Indebtedness" of any Subsidiary of either of the Issuers has a
correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of either of the Issuers within the meaning of Rule
1-02 under Regulation S-X promulgated by the Commission.
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"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by DCC or any Subsidiary of DCC that
are reasonably customary in an accounts receivable or equipment securitization
transaction.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of either of the Issuers
(whether outstanding on the date of the Indentures or thereafter Incurred)
that is subordinate or junior in right of payment to the Notes pursuant to a
written agreement. "Subordinated Obligation" of any Subsidiary of either of
the Issuers has a correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and
one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of
such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States or any agency thereof or
obligations Guaranteed by the United States or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the
United States, any state thereof or any foreign country recognized by the
United States having capital, surplus and undivided profits aggregating in
excess of $250,000,000 (or the foreign currency equivalent thereof) and whose
long-term debt is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act), (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of DCC) organized and in existence under the laws of
the United States or any foreign country recognized by the United States with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. ("Moody's") or "A-1" (or
higher) according to Standard and Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and (v) investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, or by
any political subdivision or taxing authority thereof, and rated at least "A"
by Moody's or "A" by S&P.
"Thayer" means Thayer Equity Investors III, L.P., a limited partnership
organized under the laws of the State of Delaware.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date of the Indentures.
"Total Assets" means the total Consolidated assets of DCC and its Restricted
Subsidiaries, as set forth on DCC's most recent consolidated balance sheet.
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"Trade Payables" means, with respect to any Person, any accounts payable or
any Indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by,
and published in, the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two Business Days prior
to the date fixed for redemption of the Notes following a Change of Control
(or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the then
remaining Average Life to Stated Maturity of the Notes; provided, however,
that if the Average Life to Stated Maturity of the Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the Average Life to Stated Maturity of the
Securities is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Dollar Notes Trustee or the DM Notes
Trustee, as applicable, assigned by such Trustee to administer its corporate
trust matters.
"Univega" means Univega Beteiligungen GmbH.
"Unrestricted Subsidiary" means (i) any Subsidiary of DCC (other than Lyon)
that at the time of determination shall be designated an Unrestricted
Subsidiary by the board of directors of DCC in the manner provided below and
(ii) any Subsidiary of an Unrestricted Subsidiary. The board of directors of
DCC may designate any Subsidiary of DCC (other than Lyon) (including any newly
acquired or newly formed Subsidiary of DCC) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, either of the
Issuers or any other Subsidiary of either of the Issuers that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less or (B) if such Subsidiary has Consolidated assets greater than
$1,000, then such designation would be permitted under the covenant described
under "--Certain Covenants--Limitation on Restricted Payments". The board of
directors of DCC may designate any Subsidiary of DCC that is an Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation, (x) DCC could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation of a Subsidiary as a
Restricted Subsidiary or Unrestricted Subsidiary by the board of directors of
DCC shall be evidenced to each of the Trustees by promptly filing with each of
the Trustees a copy of the resolution of such board of directors giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Indentures, including
those set forth in (i) the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
(ii) statements and pronouncements of the Financial Accounting Standards
Board, (iii) such other statements by such other entity as approved by a
significant segment of the accounting profession and (iv) the rules and
regulations of the Commission governing the inclusion of financial statements
(including pro forma financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements
from the accounting staff of the Commission. All ratios and computations based
on U.S. GAAP contained in the Indentures shall be computed in conformity with
U.S. GAAP.
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"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States is pledged and which are not
callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of DCC all the
Capital Stock of which (other than directors' qualifying shares) is owned by
DCC or another Wholly Owned Subsidiary.
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DESCRIPTION OF EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
As a condition to the Purchase Agreement among the Issuers and the Initial
Purchasers dated May 14, 1998 (the "Purchase Agreement"), the Issuers and the
Initial Purchasers entered into the Exchange and Registration Rights Agreement
on May 14, 1998. Pursuant to the Exchange and Registration Rights Agreement,
the Issuers agreed to (i) file with the Commission on or prior to 90 days
after the date of original issuance of the Old Notes, which is referred to as
the Issue Date, a registration statement on an appropriate form, which is
referred to as the Exchange Offer Registration Statement, relating to a
registered Exchange Offer for the Old Notes under the Securities Act and (ii)
use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 210 days
after the Issue Date. As soon as practicable after the effectiveness of the
Exchange Offer Registration Statement, the Issuers will offer to the holders
of Transfer Restricted Notes (as defined below) who are not prohibited by any
law or policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Transfer Restricted Notes for an issue of a
second series of notes, the Exchange Notes, that are identical in all material
respects to the Old Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions) and that would be registered
under the Securities Act. The Issuers will keep the Exchange Offer open for
not less than 30 days (or longer, if required by applicable law) after the
date on which notice of the Exchange Offer is mailed to the holders of the
Notes.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, the Issuers are not permitted to effect the
Exchange Offer as contemplated by the Exchange and Registration Rights
Agreement, (ii) any Old Notes validly tendered pursuant to the Exchange Offer
are not exchanged for Exchange Notes within 240 days after the Issue Date,
(iii) any of the Initial Purchasers so requests with respect to Old Notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer, (iv) any
applicable law or interpretations do not permit any holder of Old Notes to
participate in the Exchange Offer, (v) any holder of Old Notes that
participates in the Exchange Offer does not receive freely transferable
Exchange Notes in exchange for tendered Old Notes or (vi) the Issuers so
elect, then the Issuers will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") to cover resales of Transfer
Restricted Notes by such holders who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. For purposes of the foregoing, "Transfer Restricted Notes" means
each Old Note until (i) the date on which such Old Note has been exchanged for
a freely transferable Exchange Note in the Exchange Offer, (ii) the date on
which such Old Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iii)
the date on which such Old Note is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
The Issuers will use their reasonable best efforts to have the Exchange
Offer Registration Statement or, if applicable, the Shelf Registration
Statement (each, a "Registration Statement") declared effective by the
Commission as promptly as practicable after the filing thereof. Unless the
Exchange Offer would not be permitted by a policy of the Commission, the
Issuers will commence the Exchange Offer and will use their reasonable best
efforts to consummate the Exchange Offer as promptly as practicable, but in
any event prior to 240 days after the Issue Date. If applicable, the Issuers
will use their reasonable best efforts to keep the Shelf Registration
Statement effective for a period of two years after the Issue Date.
If (i) the applicable Registration Statement is not filed with the
Commission on or prior to 90 days after the Issue Date; (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 210 days after the Issue Date; (iii)
the Exchange Offer is not consummated on or prior to 240 days after the Issue
Date or (iv) the Shelf Registration Statement is filed and declared effective
within 210 days after the Issue Date but shall thereafter cease to be
effective (at any time that the Issuers are obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and
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declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Issuers will be obligated to pay liquidated
damages to each holder of Transfer Restricted Notes, during the period of one
or more such Registration Defaults, in an amount equal to $0.192 per week per
$1,000 principal amount of Dollar Notes constituting Transfer Restricted Notes
held by such holder and DM0.192 per week per DM1,000 principal amount of DM
Notes constituting Transfer Restricted Notes held by such holder, until the
applicable Registration Statement is filed, the Exchange Offer Registration
Statement is declared effective and the Exchange Offer is consummated or the
Shelf Registration Statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Notes on semi-annual payment dates
that correspond to interest payment dates for the Old Notes. Following the
cure of all Registration Defaults, the accrual of liquidated damages will
cease.
The Exchange and Registration Rights Agreement also provides that the
Issuers (i) shall make available for a period of 180 days after the
consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale
of any such Exchange Notes and (ii) shall pay all expenses incident to the
Exchange Offer (including the expense of one counsel to the holders of the Old
Notes) and will jointly and severally indemnify certain holders of the Old
Notes (including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of Old Notes who wishes to exchange such Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of its business; (ii) it has no
arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Issuers, or if it is an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
Holders of the Old Notes will be required to make certain representations to
the Issuers (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Old Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells
Old Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Exchange and Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations).
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Issuers on May 14, 1998, in a private
placement. In connection with that placement, the Issuers entered into the
Exchange and Registration Rights Agreement, which requires the Issuers to file
a registration statement under the Securities Act with respect to the Old
Notes and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of Exchange Notes, which will be issued without a
restrictive legend and may be reoffered and resold by holders that are not
affiliates of the Issuers without registration under the Securities Act. Upon
the completion of the Exchange Offer, the Issuers' obligations with respect to
the registration of the Old Notes and the Exchange Notes will terminate. The
Exchange and Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Following the
completion of the Exchange Offer, holders of Old Notes not tendered will not
have any further registration rights, and those Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected upon completion of the
Exchange Offer.
Based on an interpretation by the Commission's staff set forth in
interpretive letters issued to third parties unrelated to the Issuers, the
Issuers believe that, with the exceptions set forth below, Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any person receiving such
Exchange Notes, whether or not such person is the holder (other than any such
holder or such other person which is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the Exchange Notes are acquired in the ordinary course of
business of the holder or such other person, and neither the holder nor such
other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who tenders
in the Exchange Offer for the purpose of participating in a distribution of
the Exchange Notes cannot rely on this interpretation by the Commissions's
staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where the Old Notes were acquired by that
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution".
EXCHANGE OF BOOK-ENTRY INTERESTS
In connection with the Exchange Offer, Book-Entry Interests in the
certificateless depositary interests in the Old Notes ("Old Book-Entry
Interests") may be tendered to the Book-Entry Depositary (as defined) in
exchange for Book-Entry Interests in the depositary interests in the Exchange
Notes ("New Book-Entry Interests") which are traded, in the case of the Dollar
Notes, through the facilities of DTC and, in the case of the DM Notes, through
the facilities of Euroclear and Cedel (each of DTC, Euroclear and Cedel, a
"Book-Entry Depositary" and a "Book-Entry Transfer Facility"). In such case,
the Book-Entry Depositary has committed to exchange a like principal amount of
New Book-Entry Interests of the applicable series for the Old Book-Entry
Interests of each series so tendered. Other than as described below under
"Procedures for Tendering", the terms and conditions for exchanging Old Book-
Entry Interests for New Book-Entry Interests are identical to the terms and
conditions for exchanging Old Notes for Exchange Notes. In this regard, except
as the context otherwise requires, holders, as used below, include, as
appropriate, any participant in the Book-Entry Transfer Facility system whose
name appears on a security position as a holder of Book-Entry Interests,
references to Exchange Notes or Old Notes include New Book-Entry Interests and
Old Book-Entry Interests, as appropriate, and provisions of the following
discussion that apply to the Issuers also apply, as appropriate, to the Book-
Entry Depositary. The Exchange Agent for the Issuers will also act as exchange
agent for the Book-Entry Depositary in effecting such exchange.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Issuers will issue $1,000 principal amount
of Exchange Dollar Notes in exchange for each $1,000 principal amount of
outstanding Old Dollar Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Dollar Notes pursuant to the Exchange Offer.
However, Old Dollar Notes may be tendered only in integral multiples of
$1,000.
The Issuers will issue DM1,000 principal amount of Exchange DM Notes in
exchange for each DM1,000 principal amount of outstanding Old DM Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old DM
Notes pursuant to the Exchange Offer. However, Old DM Notes may be tendered
only in integral multiples of DM1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a different CUSIP
Number from the Old Notes, (ii) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting their transfer
and (iii) the holders of the Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the Exchange Offer, all of
which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indentures.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Dollar Notes and DM110,000,000 aggregate principal amount of Old DM
Notes were outstanding. The Issuers have fixed the close of business on
November 30, 1998, as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, Dutch law or the Indentures in
connection with the Exchange Offer. The Issuers intend to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and
the rules and regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Issuers.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
December 31, 1998, unless the Issuers, in their sole discretion, extend the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
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The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on May 15, 1999. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 15 and
November 15, commencing on May 15, 1999.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal, or
(ii) in the case of Book-Entry Interests, a timely confirmation of a book-
entry transfer of such Book-Entry Interests (a "Book-Entry Confirmation"), if
that procedure is available, into the Exchange Agent's account at a Book-Entry
Transfer Facility pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Letter of Transmittal and other
required documents must be completed and received by the Exchange Agent at the
address set forth below under "Exchange Agent" prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Issuers
the representations set forth below under "--Resale of the Exchange Notes".
The tender by a holder and the acceptance thereof by the Issuers will
constitute agreement between such holder and the Issuers in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENTS IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal must be
guaranteed by an Eligible Institution (as defined below) unless the Old Notes
tendered pursuant thereto are tendered (i) by a
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registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal are required
to be guaranteed, such guarantee must be by a member firm of the Medallion
System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at a Book-Entry Transfer Facility, for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Issuers in their sole discretion, which
determination will be final and binding. The Issuers reserve the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Issuers' acceptance of which would, in the opinion of counsel for the
Issuers, be unlawful. The Issuers also reserve the right in their sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Issuers' interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuers shall determine. Although the Issuers
intend to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Issuers, nor the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution; and
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(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Old Notes to be withdrawn (including the certificate number(s) and principal
amount of such Old Notes, or, in the case of Old Notes transferred by book-
entry transfer, the name and number of the account at the Book-Entry Transfer
Facility to be credited), (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee with respect to the
Old Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Issuers, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn
are validly re-tendered. Any Old Notes which have been tendered but which are
not accepted for exchange will be returned to the holder thereof without cost
to such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be re-
tendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Issuers, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuers or any of its subsidiaries; or
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(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Issuers, might materially impair the ability of the Issuers to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval the
Issuers shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Issuers determine in their sole discretion that any of the conditions
are not satisfied, the Issuers may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation into the Exchange Agent's account at a Book-Entry Transfer
Facility, a properly completed and duly executed Letter of Transmittal (or,
with respect to DTC and its participants, electronic instructions in which the
tendering holder acknowledges its receipt of and agreement to be bound by the
Letter of Transmittal), and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer, or if Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering holder thereof (or,
in the case of Book-Entry Interests, such non-exchanged Book-Entry Interests
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of the
Exchange Offer.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange Agent.
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions, requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal in connection with
the Exchange Notes should be directed to the Exchange Agent addressed as
follows:
For Information or
Confirmation by Telephone:
(212) 858-2103
By Mail: By Facsimile Transmission By Hand or Overnight
IBJ Schroder Bank & (for Eligible Institutions Delivery:
Trust Company Only): IBJ Schroder Bank & Trust
P. O. Box 84 (212) 858-2611 Company
Bowling Green Station Steven Giurlando One State Street
New York, NY 10274-0084 New York, NY 10004
Attention: Attention: Securities
Reorganization Processing Window
Operations Department Subcellar One (SC-1)
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay
the Exchange Agent's reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Issuers' accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Issuers. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Issuers (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Issuers), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based upon interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Issuers believe that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
who is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely upon the position of the staff of the
Commission enunciated in such no-action letters or any similar interpretive
letters, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Further, each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
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As contemplated by these no-action letters and the Exchange and Registration
Rights Agreement, each holder accepting the Exchange Offer is required to
represent to the Issuers in the Letter of Transmittal that (i) the Exchange
Notes are to be acquired by the holder or the person receiving such Exchange
Notes, whether or not such person is the holder, in the ordinary course of
business, (ii) the holder or any such other person (other than a broker-dealer
referred to in the next sentence) is not engaging and does not intend to
engage, in the distribution of the Exchange Notes, (iii) the holder or any
such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Issuers within the meaning
of Rule 405 under the Securities Act, and (v) the holder or any such other
person acknowledges that if such holder or other person participates in the
Exchange Offer for the purpose of distributing the Exchange Notes it must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the Exchange Notes and cannot
rely upon those no-action letters. As indicated above, each Participating
Broker-Dealer that receives an Exchange Note for its own account in exchange
for Old Notes must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. For a description of the procedures
for such resales by Participating Broker-Dealers, see "Plan of Distribution".
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CERTAIN U.S. INCOME TAX CONSEQUENCES
The following discussion is based upon the current provisions of the
Internal Revenue Code of 1986, as amended, applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below. The
Issuers recommend that each holder consult such holder's own tax advisor as to
the particular tax consequences of exchanging such holder's Old Notes for
Exchange Notes, including the applicability and effect of any state, local or
foreign tax laws.
The Issuers believe that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered
to differ materially in kind or extent from the Old Notes. Rather, the
Exchange Notes received by a holder will be treated as a continuation of the
Old Notes in the hands of such holder. As a result, there will be no federal
income tax consequences to holders exchanging Old Notes for Exchange Notes
pursuant to the Exchange Offer.
CERTAIN NETHERLANDS INCOME TAX CONSEQUENCES
The following is a summary of certain Netherlands tax consequences relating
to the exchange of the Old Notes for the Exchange Notes pursuant to the
Exchange Agreement. The summary does not address any laws other than the tax
laws of the Netherlands as currently in effect and as interpreted in published
case law by the courts of the Netherlands as the date hereof. Any changes of
law with retroactive effect are not addressed. The summary does not purport to
address all possible Netherlands tax consequences relating to the exchange.
Any Netherlands tax consequences due to the applications of a special regime,
such as the tax-exempt status of qualifying pension funds, are excluded from
the summary. In view of the general nature of the summary, the summary should
be treated with corresponding caution. Holders of Notes who or which are in
doubt with regard to the Netherlands tax consequences of the exchange of the
Old Notes for the Exchange Notes should consult with their professional
advisors.
The Issuers believe that a holder of Notes will not be subject to any
Netherlands taxes on income or capital gains in respect of any gain realized
on the exchange of Old Notes for Exchange Notes pursuant to the Exchange
Offer, provided that (i) such holder is neither resident nor deemed to be
resident in The Netherlands, (ii) such holder does not have an enterprise or
an interest in an enterprise which is, in whole or in part, carried on through
a permanent establishment or a permanent representative in The Netherlands and
to which enterprise or part of an enterprise the Notes are attributable, and
(iii) neither such holder nor his spouse, other persons sharing his household
or certain of their relatives by blood or marriage in the direct line
(including foster children) have a substantial or deemed substantial interest
(a term defined by statute) in Lyon or, if such holder or one or more of the
other persons referred to do have such an interest, both the Notes and such
interest(s) form part of the assets of an enterprise.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Issuers
have agreed that, for a period of 180 days after the Expiration Date, they
will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until February 28, 1999 (90 days after the commencement of the
Exchange Offer), all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Issuers have agreed to pay
all expenses incident to the Exchange Offer (including the expenses of one
counsel for the Holders of the Old Notes) other than commissions or
concessions of any Participating Broker-Dealers and will indemnify the Holders
of the Old Notes (including any Participating Broker-Dealers) against certain
liabilities, including liabilities under the Securities Act.
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BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTES
Dollar Global Note. The Exchange Dollar Notes will initially be issued in
the form of a single registered note in global form, without interest coupons
(the "Dollar Global Note"). The Dollar Global Note will be deposited on the
date of the closing of the exchange of the Notes (the "Closing Date") with, or
on behalf of, The Depository Trust Company ("DTC") and registered in the name
of Cede & Co., as nominee of DTC, or will remain in the custody of the Dollar
Notes Trustee pursuant to the FAST Balance Certificate Agreement between DTC
and the Dollar Notes Trustee. Investors may hold their interests in the Dollar
Global Note directly through DTC, if they are participants in such system, or
indirectly through organizations which are participants in such system.
DM Global Note. The Exchange DM Notes will initially be issued in the form
of a single registered note in global form, without interest coupons (the "DM
Global Note"). The DM Global Note will be deposited on the Closing Date with,
or on behalf of, The Industrial Bank of Japan (Luxembourg), S.A., as common
depositary (the "Common Depositary") for Euroclear and Cedel, and registered
in the name of the Common Depositary. Investors may hold their interests in
the DM Global Note directly through Euroclear or Cedel, if they are account
holders in such systems, or indirectly through organizations which are account
holders in such systems.
Except as set forth below, the Dollar Global Note may be transferred, in
whole and not in part, solely to another nominee of DTC or to a successor of
DTC or its nominee. In addition, the DM Global Note (together with the Dollar
Global Note, the "Global Notes") may be transferred, in whole but not in part,
solely to a nominee of the Common Depositary, a successor of the Common
Depositary or its nominee. Beneficial interests in the Global Notes may not be
exchanged for Notes in physical, certificated form ("Certificated Notes")
except in the limited circumstances described below.
All interests in the Dollar Global Notes, including those held through
Euroclear or Cedel, may be subject to the procedures and requirements of DTC.
All interests in the DM Global Note held through Euroclear and Cedel may be
subject to the procedures and requirements of such systems. In addition, all
interests in the DM Global Note may be subject to the procedures and
requirements of the Common Depositary, its nominee or their respective
successors.
No Exchanges between Dollar Global Note and the DM Global Note. Beneficial
interests in the Dollar Global Note are not exchangeable for interests in the
DM Global Note, or vice versa, under any circumstances.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change at any time or from time to time.
None of the Issuers or the Initial Purchasers takes any responsibility for
these operations or procedures, and investors are urged to contact the
relevant system or its participants or account holders directly to discuss
these matters.
DTC. DTC has advised the Issuers that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member
of the Federal Reserve System, (iv) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (v) a "clearing
agency" registered
137
<PAGE>
pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitates the clearance and settlement
of securities transactions between its participants through electronic book-
entry changes to the accounts of its participants, thereby eliminating the
need for physical transfer and delivery of certificates. DTC's participants
include securities brokers and dealers (including the Initial Purchasers),
banks and trust companies, clearing corporations and certain other
organizations (including Euroclear and Cedel). Indirect access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with one of
DTC's participants, either directly or indirectly. Investors who are not
participants in DTC may beneficially own securities held by or on behalf of
DTC only through DTC's participants or indirect participants.
The Issuers expect that pursuant to procedures established by DTC (i) upon
deposit of the Dollar Global Note, DTC will credit the accounts of its
participants as directed by holders of Old Dollar Notes in their letters of
transmittal with an interest in the Dollar Global Note and (ii) ownership of
the Exchange Dollar Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of its participants) and the records of its participants and
indirect participants (with respect to the interests of persons other than
DTC's participants).
Euroclear and Cedel. Euroclear and Cedel each hold securities for their
account holders and facilitate the clearance and settlement of securities
transactions by electronic book-entry transfer between their respective
account holders, thereby eliminating the need for physical movements of
certificates and any risk from lack of simultaneous transfers of securities.
Euroclear and Cedel provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedel also deal with
domestic securities lending and borrowing as well as domestic securities
markets in several countries through established depositary and custodial
relationships. Euroclear and Cedel have established an electronic bridge
between their two systems across which their respective account holders may
settle trades with each other.
Account holders in Euroclear and Cedel are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to Euroclear and
Cedel is available to other institutions that clear through or maintain a
custodial relationship with an account holder in either system.
Account holders' overall contractual relations with Euroclear and Cedel are
governed by the respective rules and operating procedures of Euroclear and
Cedel and any applicable laws. Euroclear and Cedel act under such rules and
operating procedures only on behalf of their respective account holders and
have no record of or relationship with persons holding through their
respective account holders.
Certain Consequences. The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Accordingly, the ability to transfer interests in the
Exchange Notes represented by a Global Note to such persons may be limited. In
addition, because DTC can act only on behalf of its participants, who in turn
act on behalf of persons who hold interests through such participants, and
because Euroclear and Cedel act only on behalf of their respective account
holders, who in turn act on behalf of persons who clear through or maintain a
custodial relationship with such account holders, the ability of a person
having an interest in Exchange Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in the
systems of DTC, Euroclear or Cedel, as the case may be, or to otherwise take
actions in respect of such interest, may be affected by the lack of a physical
definitive security in respect of such interest.
138
<PAGE>
So long as DTC or its nominee or the Common Depositary or its nominee, as
the case may be, is the owner of a Global Note, DTC or its nominee, or the
Common Depositary or its nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the applicable Indenture and the applicable Exchange Notes.
Except as provided below, owners of beneficial interests in a Global Note will
not be entitled to have Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Certificated Notes, and will not be considered the owners or holders thereof
under the applicable Indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in the Dollar Global
Note must rely on the procedures of DTC and, if such holder is not one of
DTC's participants or indirect participants, on the procedures of the
participant through which such holder owns its interest, and each holder
owning a beneficial interest in the DM Global Note must rely on the procedures
of the Common Depositary and the procedures of Euroclear or Cedel, as
applicable, and, if such holder is not one of Euroclear's or Cedel's account
holders, on the procedures of the account holder through which such holder
owns its interest, to exercise any rights of a holder of Exchange Notes under
the applicable Indenture or such Global Note. The Issuers understand that
under existing industry practice, in the event that the Issuers request any
action of holders of Exchange Notes, or a holder that is an owner of a
beneficial interest in a Global Note desires to take any action that DTC or
the Common Depositary, as the case may be, as the holder of such Global Note,
is entitled to take, DTC or the Common Depositary (acting with Euroclear and
Cedel), as the case may be, would authorize its participants or account
holders, as the case may be, to take such action and the participants or
account holders, as the case may be, would authorize holders owning through
such participants or account holders, as the case may be, to take such action
or would otherwise act upon the instruction of such holders. None of the
Issuers, any paying agent, the Initial Purchasers or the Trustees will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC or the Common Depositary (or
Euroclear or Cedel), as the case may be, or for maintaining, supervising or
reviewing any records of DTC or the Common Depositary (or Euroclear or Cedel),
as the case may be, relating to such Global Notes.
PAYMENT
The Issuers appointed IBJ Schroder Bank & Trust Company as principal paying
agent and The Industrial Bank of Japan (Luxembourg) S.A. as additional paying
agent for all amounts owing in respect of the Dollar Notes (the "U.S. Paying
Agent"), and all such amounts will be payable in U.S. dollars. The Issuers
appointed The Industrial Bank of Japan (Luxembourg) S.A. as principal paying
agent and the Industrial Bank of Japan (Germany) as additional paying agent
for all amounts owing in respect of the DM Notes (the "DM Paying Agents", and,
collectively with the U.S. Paying Agent, the "Paying Agents"), and all such
amounts will be payable in Deutsche Marks. The Issuers will ensure that, with
respect to the Dollar Notes, there will be a paying agent in the United States
to perform the functions assigned to it in the Dollar Notes Indenture and,
with respect to the DM Notes, there will be a paying agent in Germany to
perform the functions assigned to it in the DM Notes Indenture, and, so long
as the Notes are listed on the Luxembourg Stock Exchange, and such exchange so
requires, the Issuers will ensure that there will be a paying agent in
Luxembourg (or such other place as the Luxembourg Stock Exchange may approve).
Payments with respect to principal of, premium, if any, liquidated damages
or Additional Amounts, if any, and interest on, the Dollar Notes will be made
by the Issuers in U.S. dollars to the U.S. Paying Agent, which will in turn
distribute all such payments to DTC's nominee as the registered holder of each
of the Dollar Global Notes. DTC will promptly credit such payments on its
book-entry registration and transfer system to the accounts of its
participants in amounts proportionate to their respective beneficial interests
in the principal or face amount of Dollar Notes represented by each such
Dollar Global Note, as shown on the records of DTC or its nominee.
139
<PAGE>
Payments with respect to principal of, premium, if any, liquidated damages
or Additional Amounts, if any, and interest on, the DM Notes will be made by
the Issuers in Deutsche Marks to either of the DM Paying Agents, which will in
turn distribute all such payments to the Common Depositary as the registered
holder of the DM Global Note. Upon receipt of such payments, the Common
Depositary will promptly distribute such payments to Euroclear and Cedel in
proportion to their respective interests, as shown on the records of the
Common Depositary. Euroclear and Cedel will promptly credit such payments on
their respective book-entry registration and transfer systems to the accounts
of their respective account holders in amounts proportionate to their
respective beneficial interests in the principal or face amount of the DM
Notes represented by the DM Global Note, as shown on their respective records.
Under the terms of the Indentures, the Issuers and the applicable Trustee
may treat the persons in whose names the Notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever. Accordingly, none of
the Issuers, the Paying Agents, the Initial Purchasers or the Trustees has or
will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a Global Note (including principal, premium,
if any, liquidated damages or Additional Amounts, if any, and interest).
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a Dollar Global Note will be governed by standing
instructions and customary industry trade practice and will be the
responsibility of the participants and indirect participants and DTC, and
payments by account holders and indirect account holders at Euroclear and
Cedel to the owners of beneficial interests in the DM Global Note will be
governed by standing instructions and customary industry trade practice and
will be the responsibility of the account holders and indirect account holders
and Euroclear and Cedel.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
account holders in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures and will be
settled in same-day funds.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between participants in DTC, on the one hand,
and account holders at Euroclear or Cedel, on the other hand, will be effected
by the applicable Trustee through the deposit or withdrawal at custodian
("DWAC") system in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such cross-
market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established deadlines (Brussels
time) of such system. Euroclear or Cedel, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf
by delivering or receiving interests in the relevant Global Note in DTC and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear and Cedel account holders may
not deliver instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel account holder purchasing an interest in a Global Note from a
participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or Cedel account holder, during the securities
settlement processing day (which must be a business day for Euroclear and
Cedel) immediately following the settlement date of DTC. Credit of any
transactions in interests in Notes represented by a Global Note settled during
such processing day will be reported to the relevant Euroclear or Cedel
account holder on such day. Cash received in Euroclear or Cedel as a result of
sales of interests in a Global Note by or through a Euroclear or Cedel account
holder to a participant in DTC will be received with value on the settlement
date of DTC but will be available in the relevant Euroclear or Cedel cash
account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
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<PAGE>
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC and account holders at Euroclear and Cedel, they are under no obligation
to perform or to continue to perform such procedures, and such procedures may
be discontinued at any time. None of the Issuers, any Paying Agent or the
Trustees will have any responsibility for the performance by DTC, Euroclear or
Cedel or their respective participants or indirect participants or account
holders or indirect account holders of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
If (i) the Issuers notify the Dollar Notes Trustee in writing that DTC is no
longer willing or able to act as a depositary or DTC ceases to be registered
as a clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Issuers, at
their option, notify the Dollar Notes Trustee in writing that they elect to
cause the issuance of Dollar Notes in definitive form under the Dollar Notes
Indenture or (iii) upon the occurrence of certain other events as provided in
the Dollar Notes Indenture, then, upon surrender by DTC of the Dollar Global
Notes, Certificated Notes will be issued to each person that DTC identifies as
the beneficial owner of the Dollar Notes represented by the Dollar Global
Notes. Upon any such issuance, the Dollar Notes Trustee will be required to
register such Certificated Notes in the name of such person or persons (or the
nominee of any thereof) and cause the same to be delivered thereto.
If (i) the Issuers notify the DM Notes Trustee in writing that each of
Euroclear and Cedel is no longer willing or able or ceases to be registered as
a clearing agency under the Exchange Act and a successor registered as a
clearing agency under the Exchange Act is not appointed within 90 days of such
notice or cessation, (ii) the Issuers, at their option, notify the DM Notes
Trustee in writing that they elect to cause the issuance of DM Notes in
definitive form under the DM Notes Indenture, (iii) the Common Depositary at
any time notifies the Issuers that it is unwilling or unable to continue as
the Common Depositary and a successor to such Common Depositary is not
appointed within 90 days of such notice or (iv) upon the occurrence of certain
other events as provided in the DM Notes Indenture, then, upon surrender by
the Common Depositary of the DM Global Note, Certificated Notes will be issued
to each person that Euroclear or Cedel identifies as the beneficial owner of
the DM Notes represented by the DM Global Note. Upon any such issuance, the DM
Notes Trustee will be required to register such Certificated Notes in the name
of such person or persons (or the nominee of any thereof) and cause the same
to be delivered thereto.
None of the Issuers or the Trustees shall be liable for any delay by DTC, or
any of its participants or indirect participants, or Euroclear or Cedel, or
any of their respective account holders or indirect account holders, in
identifying the beneficial owners of the related Notes and each such person
may conclusively rely on, and shall be protected in relying on, instructions
from DTC, Euroclear or Cedel, as applicable, for all purposes (including with
respect to the registration and delivery, and the principal amounts, of the
Notes to be issued).
141
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LISTING AND GENERAL INFORMATION
1. Application has been made to list the Notes on the Luxembourg Stock
Exchange. Prior to the listing, a legal notice relating to the issue of the
Notes and the Memorandum and Articles of Association of the Issuers will be
deposited with the Chief Register of the District Court of Luxembourg
(Greffier en Chef du Tribunal d'Arrondissement de et a Luxembourg), where
such documents may be examined or copies obtained.
2. So long as the Notes are listed on the Luxembourg Stock Exchange and the
rules of such stock exchange shall so require, copies of the constituent
documents of each Issuer (including the articles of association), the
Indenture, the Revolving Credit Agreement and the Exchange and Registration
Rights Agreement will be available for inspection at the office of the
Luxembourg Listing Agent. So long as the Notes are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange shall so require,
copies of any and all annual and quarterly reports of the Company may be
obtained during normal business hours on any weekday at the office of the
Luxembourg Listing Agent.
3. DCC and Lyon (company number B.V. 366.894) were each incorporated on
October 24, 1988 and October 9, 1989, respectively. Article 3 of DCC's
Restated Certificate of Incorporation sets forth the objects and purposes
for which DCC has been established. Article 2 of Lyon's Articles of
Association sets forth the objects for which Lyon has been established. The
creation and issuance of the Notes was authorized by resolutions adopted by
the Board of Directors of each of DCC and Lyon on May 7, 1998 and May 9,
1998, respectively.
4. There has been no material adverse change in the consolidated financial
position of the Company or the Issuers since December 31, 1997, except as
disclosed herein.
5. None of the Issuers or any of their subsidiaries is a party to any
litigation that, in the judgment of the Issuers, is material in the context
of the issue of the Exchange Notes, except as disclosed herein.
6. The independent chartered accountants of the Company are Arthur Andersen
LLP, Washington, D.C.
7. The Exchange Dollar Notes and the Exchange DM Notes have been accepted for
clearance through Euroclear and Cedel under the Common Codes 008698520 and
008714894, respectively. The ISIN and the CUSIP numbers for the Exchange
Dollar Notes are US 249750AC43 and 249750 AC 4, respectively. The ISIN and
the CUSIP numbers for the Exchange DM Notes are US 249750AD26 and 249750
AD2. Application will be made for acceptance of the Exchange Notes into
DTC's book-entry settlement system and to have the Exchange Notes
designated as eligible for trading in the PORTAL market.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Issuers by Kirkland & Ellis, Washington, D.C., United States of America,
and Trenite Van Doorne, Amsterdam. Netherlands.
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REGISTERED OFFICE OF THE ISSUERS
THE DERBY CYCLE CORPORATION
LYON INVESTMENTS B.V.
c/o Raleigh Industries Ltd.
Triumph Road
Nottingham NG7 2DD, England
United Kingdom
LEGAL ADVISERS
To the Issuers as to United States To the Issuers as to Dutch law:
law:
TRENITE VAN DOORNE
KIRKLAND & ELLIS INTERNATIONAL Postbus 75265
International Financial Centre 1007 AG Amsterdam, The Netherlands
Old Broad Street, 8th Floor
London EC2N 1HQ, England
United Kingdom
AUDITORS TRUSTEE
Arthur Andersen LLP IBJ Schroder Bank & Trust Company
8000 Towers Crescent Drive One State Street
Vienna, VA 22182-2725
New York, NY 10004
TRANSFER AGENT, PRINCIPAL PAYING
AGENT FOR THE DM NOTES AND EXCHANGE AGENT,
ADDITIONAL PAYING AGENT FOR THE TRANSFER AGENT AND PRINCIPAL PAYING
DOLLAR NOTES AGENT FOR THE DOLLAR NOTES
The Industrial Bank of Japan IBJ Schroder Bank & Trust Company
(Luxembourg) S.A. One State Street
6, rue Jean Monnet New York, NY 10004
L-2180 Luxembourg
ADDITIONAL PAYING AGENT FOR LISTING AGENT
THE DM NOTES Industrial Bank of Japan (Luxembourg)
The Industrial Bank of Japan S.A.
(Germany) 6, rue Jean Monnet
L-2180 Luxembourg
143
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY COMBINED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................................. F-2
Combined Balance Sheets as of December 31, 1996 and 1997 and Consolidated
Balance Sheet as of September 27, 1998................................... F-3
Combined Statements of Income for the years ended December 31, 1995, 1996
and 1997 and the nine months ended September 28, 1997 and September 27,
1998..................................................................... F-4
Combined Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1995, 1996 and 1997 and the nine months ended September 27,
1998..................................................................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and the nine months ended September 28, 1997 and September
27, 1998................................................................. F-6
Notes to Combined Financial Statements.................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Derby Bicycle Group:
We have audited the accompanying combined balance sheets of The Derby
Bicycle Group (the "Group," as described in Note 1) as of December 31, 1996
and 1997, and the related combined statements of income, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial positions of the Group as of
December 31, 1996 and 1997, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 9, 1998
(except with respect to the matter discussed in Note 17,
as to which the date is November 2, 1998)
F-2
<PAGE>
THE DERBY BICYCLE GROUP
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 27,
1996 1997 1998
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 8,830 $ 15,426 $ 13,112
Receivables, net of allowances of $7,573,
$8,259, and $9,445 as of December 31,
1996, 1997, and September 27, 1998,
respectively.............................. 69,169 65,264 56,082
Inventories................................ 80,476 89,792 97,776
Other current assets....................... 7,078 13,881 8,483
-------- -------- --------
Total current assets..................... 165,553 184,363 175,453
-------- -------- --------
PROPERTY, PLANT, AND EQUIPMENT, net of
accumulated depreciation of $55,783,
$59,463, and $67,278 as of December 31,
1996, 1997, and September 27, 1998,
respectively................................ 51,716 49,707 47,991
INTANGIBLES, net of accumulated amortization
of $522, $818, and $1,382 as of December 31,
1996, 1997, and September 27, 1998,
respectively................................ 881 6,651 19,674
PREPAID PENSION ASSETS....................... 42,411 47,777 54,033
-------- -------- --------
Total assets............................. $260,561 $288,498 $297,151
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFI-
CIT)
CURRENT LIABILITIES:
Accounts payable........................... $ 33,059 $ 35,526 $ 24,452
Accrued liabilities........................ 22,435 22,738 24,010
Income taxes payable....................... 4,365 4,027 5,221
Short-term borrowings and current portion
of long-term borrowings (see Notes 9 and
10)....................................... 22,250 51,160 35,070
Other current liabilities.................. 3,454 7,603 6,105
-------- -------- --------
Total current liabilities................ 85,563 121,054 94,858
-------- -------- --------
OTHER LIABILITIES:
Long-term debt, net of current portion (see
Note 10).................................. 56,333 51,059 163,942
Excess of assets acquired over cost of ac-
quisitions................................ 11,971 11,235 11,067
Deferred income taxes...................... 16,092 17,451 18,812
Other liabilities.......................... 6,719 4,950 4,389
Minority interest.......................... 802 876 59
-------- -------- --------
Total liabilities........................ 177,480 206,625 293,127
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK WITH REDEMPTION RIGHTS, $0.01
PAR VALUE, 25,000 SHARES AUTHORIZED, ISSUED,
AND OUTSTANDING OF SERIES A AND 3,000 SHARES
AUTHORIZED, ISSUED, AND OUTSTANDING OF
SERIES B (WITH $2,905 OF ACCRUED DIVIDENDS)
AS OF SEPTEMBER 27, 1998.................... -- -- 43,405
STOCK RIGHTS................................. -- -- 23,300
SHAREHOLDERS' EQUITY (DEFICIT):
Class A common stock, $0.01 par value,
200,000 shares authorized, 44,200 shares
issued and outstanding as of September 27,
1998...................................... -- -- 1
Class B common stock $0.01 par value,
15,000 shares authorized, no shares issued
and outstanding as of September 27, 1998.. -- -- --
Additional paid-in capital................. -- -- 22,499
Capital investment......................... 94,498 91,455 --
Retained earnings (deficit)................ (12,738) (6,162) (79,064)
Accumulated other comprehensive income..... 1,321 (3,420) (6,117)
-------- -------- --------
Total shareholders' equity (deficit)..... 83,081 81,873 (62,681)
-------- -------- --------
Total liabilities and shareholders' eq-
uity (deficit).......................... $260,561 $288,498 $297,151
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
THE DERBY BICYCLE GROUP
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, NINE MONTHS ENDED
------------------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
--------- --------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $ 473,841 $ 452,584 $ 465,687 $ 354,996 $ 358,653
COST OF SALES........... (366,163) (339,119) (345,885) (264,249) (269,996)
--------- --------- --------- --------- ---------
Gross profit........ 107,678 113,465 119,802 90,747 88,657
--------- --------- --------- --------- ---------
SELLING, GENERAL, AND
ADMINISTRATIVE
EXPENSES............... (81,289) (80,083) (90,101) (68,449) (65,983)
REORGANIZATION COSTS.... (4,413) -- -- -- (5,672)
--------- --------- --------- --------- ---------
Operating income.... 21,976 33,382 29,701 22,298 17,002
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense...... (9,429) (8,023) (7,490) (5,940) (11,501)
Interest income....... 872 815 1,038 557 757
Other income
(expense), net....... 10,046 (2,675) 107 81 (1,334)
--------- --------- --------- --------- ---------
Income before income
taxes and
extraordinary
item............... 23,465 23,499 23,356 16,996 4,924
--------- --------- --------- --------- ---------
PROVISION FOR INCOME
TAXES.................. (10,095) (8,924) (10,621) (7,458) (4,192)
MINORITY INTEREST....... (130) (10) (51) (23) (17)
--------- --------- --------- --------- ---------
Income before
extraordinary
item............... 13,240 14,565 12,684 9,515 715
EXTRAORDINARY ITEM-loss
on early extinguishment
of debt (net of related
tax benefit of $187)... -- -- -- -- (348)
--------- --------- --------- --------- ---------
Net income.......... $ 13,240 $ 14,565 $ 12,684 $ 9,515 $ 367
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE>
THE DERBY BICYCLE GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
COMMON CAPITAL PAID-IN (DEFICIT) COMPREHENSIVE
STOCK INVESTMENT CAPITAL EARNINGS INCOME TOTAL
------ ---------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1995......... $-- $ 87,466 $ -- $(29,093) $(2,057) $ 56,316
Comprehensive income--
Net income............ -- -- -- 13,240 -- 13,240
Translation adjust-
ments................ -- -- -- -- 248 248
---- -------- ------- -------- ------- ---------
Total comprehensive in-
come................... -- -- -- 13,240 248 13,488
Increase (decrease) in
capital.............. -- 1,387 -- (2,790) -- (1,403)
Dividends............. -- -- -- (2,311) -- (2,311)
---- -------- ------- -------- ------- ---------
DECEMBER 31, 1995....... -- 88,853 -- (20,954) (1,809) 66,090
---- -------- ------- -------- ------- ---------
Comprehensive income--
Net income............ -- -- -- 14,565 -- 14,565
Translation adjust-
ments................ -- -- -- -- 3,130 3,130
---- -------- ------- -------- ------- ---------
Total comprehensive in-
come................... -- -- -- 14,565 3,130 17,695
Increase in capital... -- 5,645 -- -- -- 5,645
Dividends............. -- -- -- (6,349) -- (6,349)
---- -------- ------- -------- ------- ---------
DECEMBER 31, 1996....... -- 94,498 -- (12,738) 1,321 83,081
---- -------- ------- -------- ------- ---------
Comprehensive income--
Net income............ -- -- -- 12,684 -- 12,684
Translation adjust-
ments................ -- -- -- -- (4,741) (4,741)
---- -------- ------- -------- ------- ---------
Total comprehensive in-
come................... -- -- -- 12,684 (4,741) 7,943
Decrease in capital... -- (3,043) -- -- -- (3,043)
Dividends............. -- -- -- (6,108) -- (6,108)
---- -------- ------- -------- ------- ---------
DECEMBER 31, 1997....... -- 91,455 -- (6,162) (3,420) 81,873
---- -------- ------- -------- ------- ---------
Comprehensive income--
Net income (Unau-
dited)............... -- -- -- 367 -- 367
Translation adjust-
ments (Unaudited).... -- -- -- -- (2,697) (2,697)
---- -------- ------- -------- ------- ---------
Total comprehensive in-
come (Unaudited)....... -- -- -- 367 (2,697) (2,330)
Capital contribution
prior to
recapitalization
(Unaudited).......... -- 1,600 -- 6,040 -- 7,640
Issuance of common
stock (Unaudited).... 1 -- 22,499 -- -- 22,500
Issuance of stock
rights (Unaudited)... -- -- -- (23,300) -- (23,300)
Accrued dividend on
preferred stock
(Unaudited).......... -- -- -- (2,905) -- (2,905)
Distribution to
shareholders in
connection with
recapitalization
(Unaudited).......... -- (93,055) -- (53,104) -- (146,159)
---- -------- ------- -------- ------- ---------
SEPTEMBER 27 ,1998
(UNAUDITED)............ $ 1 $ -- $22,499 $(79,064) $(6,117) $ (62,681)
==== ======== ======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE>
THE DERBY BICYCLE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, NINE MONTHS ENDED
---------------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income............ $ 13,240 $ 14,565 $ 12,684 $ 9,515 $ 367
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Depreciation........ 9,848 9,400 9,362 7,380 7,308
Amortization........ (1,195) (1,164) (730) (458) (382)
Extraordinary item--
loss on early ex-
tinguishment of
debt............... -- -- -- -- 348
Minority interest... 130 10 51 23 17
Profit on disposal
of land and build-
ings............... (4,740) -- -- -- --
(Gain) loss on
swaps.............. (5,306) 2,675 (107) (81) 1,334
Net periodic pension
income............. (5,793) (6,261) (5,828) (4,377) (3,714)
Recapitalization
costs.............. -- -- -- -- 5,672
Net changes in
operating assets and
liabilities, net of
acquisitions--
(Increase) decrease
in receivables..... (560) (5,490) (1,155) 5,114 8,934
(Increase) decrease
in inventories..... (613) 2,753 (10,104) (3,390) (7,024)
(Increase) decrease
in other current
assets............. (1,877) (14) (1,745) (1,197) 1,355
Increase (decrease)
in accounts pay-
able............... 1,220 (5,385) 4,405 (2,472) (11,452)
Increase (decrease)
in accrued liabili-
ties............... 102 (146) 1,673 (1,495) 140
(Decrease) increase
in income taxes
payable............ (771) 882 209 (727) 1,298
Increase (decrease)
in other current
liabilities........ 393 384 288 (624) 5,456
Increase in deferred
income taxes....... 3,155 1,954 2,371 2,029 931
Increase (decrease)
in other liabili-
ties............... 888 (2,249) (416) (370) (431)
-------- -------- -------- ------- --------
Net cash provided
by operating
activities....... 8,121 11,914 10,958 8,870 10,157
-------- -------- -------- ------- --------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchases of proper-
ty, plant, and
equipment............ (11,121) (10,765) (7,413) (4,154) (4,909)
Proceeds from proper-
ty, plant, and
equipment
dispositions......... 3,903 3,933 882 43 530
Cash paid for acqui-
sitions, net of cash
acquired............. -- -- (6,650) (7,520) --
Purchases of trade-
marks................ -- -- (2,663) (2,663) --
Purchase of minority
interest............. (138) -- -- -- (1,933)
-------- -------- -------- ------- --------
Net cash used in
investing activi-
ties............. (7,356) (6,832) (15,844) (14,294) (6,312)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Proceeds from share
issue................ -- -- -- -- 63,000
Redemption of shares
in subsidiaries...... -- -- -- -- (146,159)
Repayment of long-
term debt, net of
cash (paid) received
on related swaps..... -- (14,570) (13,331) (13,331) (53,334)
Proceeds from bonds... -- -- -- -- 161,867
Short term
borrowings, net,
prior to recapitali-
zation............... (1,809) 950 28,910 19,890 45,894
Repayment of short
term borrowings at
recapitalization..... -- -- -- -- (82,721)
Proceeds from short
term borrowings at
recapitalization..... -- -- -- -- 52,024
Proceeds from long
term borrowings at
recapitalization..... -- -- -- -- 32,890
Short term
borrowings, net,
post recapitaliza-
tion................. -- -- -- -- (49,844)
Repayment of term
loan................. -- -- -- -- (9,057)
Bond/debt financing
costs................ -- -- (596) (550) (13,672)
Recapitalization
costs................ -- -- -- -- (5,672)
Dividends paid........ (2,778) (5,607) (1,139) -- --
Contributions made to
pension plans........ (2,276) (2,154) (2,335) (1,746) (1,247)
Net (distribution to)
contribution by
DICSA................ (1,403) 5,645 (3,043) (3,748) 1,600
-------- -------- -------- ------- --------
Net cash (used in)
provided by
financing
activities....... (8,266) (15,736) 8,466 515 (4,431)
-------- -------- -------- ------- --------
EFFECT OF EXCHANGE RATE
CHANGES............... (1,609) 6,799 3,016 2,678 (1,728)
-------- -------- -------- ------- --------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS........... (9,110) (3,855) 6,596 (2,231) (2,314)
CASH AND CASH EQUIVA-
LENTS, beginning of
period................ 21,795 12,685 8,830 8,830 15,426
-------- -------- -------- ------- --------
CASH AND CASH EQUIVA-
LENTS, end of period.. $ 12,685 $ 8,830 $ 15,426 $ 6,599 $ 13,112
======== ======== ======== ======= ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid......... $ 9,036 $ 8,015 $ 7,202 $ 5,764 $ 4,831
Income taxes paid..... $ 7,711 $ 6,088 $ 8,041 $ 6,156 $ 1,963
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-6
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 27, 1998, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 28, 1997, AND SEPTEMBER 27, 1998, IS UNAUDITED)
1.NATURE OF THE BUSINESS AND BASIS OF PRESENTATION:
The accompanying combined financial statements have been prepared to reflect
the financial position and results of operations of the bicycle and bicycle
component businesses of Derby International Corporation SA ("DICSA"), a
Luxembourg holding company. Through May 14, 1998, DICSA owned shares, either
directly or indirectly, in a number of bicycle and bicycle component companies
worldwide that predominantly operate as standalone entities. Each of the
companies manufactures, assembles and/or distributes bicycles and bicycle
components. These bicycle and bicycle component companies, collectively
referred to as The Derby Bicycle Group (the "Group"), have significant
operations in the Netherlands ("Gazelle"), the United Kingdom ("Derby Holding
Ltd." or "DHL," and "Sturmey Archer Ltd." or "SAL"), Canada ("Raleigh
Industries of Canada" or "RIC"), Germany ("Derby Cycle Werke" or "DCW"), South
Africa ("Derby Investment Holdings Pty Ltd.") and the United States ("The
Derby Cycle Corporation" or "DCC"). The Group owns or licenses many of the
most recognized brands in the bicycle industry, including leading global
brands such as Raleigh, Nishiki (for USA only) and Univega, and leading
national brands such as Gazelle in the Netherlands and Kalkoff, Musing, Winora
and Staiger in Germany.
Effective May 14, 1998, DICSA, reorganized its businesses in connection with
a recapitalization agreement (the "Recapitalization Agreement," see Note 17)
so that each of its bicycle and bicycle component companies are owned directly
or indirectly by DCC, a Delaware corporation with operations in the United
States. Subsequent to the recapitalization, Lyon Investments B.V. is a wholly
owned subsidiary of DCC. Accordingly, the accompanying combined financial
statements have been prepared in conformity with accounting principles
generally accepted in the United States and are presented in United States
dollars.
The accompanying combined financial statements have been prepared as if the
Group had been in existence for all periods presented. DICSA's historical
basis in the assets and liabilities of the Group has been carried over. All
material intercompany transactions and balances between entities included in
these combined financial statements have been eliminated. Certain expenses
were originally recorded by DICSA on behalf of the Group, such as
headquarters' management costs and other corporate expenses. These amounts
have been allocated in their entirety in the Group's financial statements, as
such costs were incurred on behalf of the Group except for an immaterial
amount that related to DICSA. The headquarters' management costs and other
corporate expenses were $1,494,000, $2,069,000, and $1,198,000 for the years
ended December 31, 1995, 1996, and 1997, respectively, and $977,000 and
$1,216,000 for the nine months ended September 28, 1997, and September 27,
1998, respectively. Management believes this allocation is reasonable and
represents the expenses as if the Group had been a stand-alone operation.
2.ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses. Actual results
could differ from those estimates.
F-7
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim consolidated balance sheet as of September 27, 1998,
and the unaudited interim combined statements of operations and cash flows for
the nine months ended September 28, 1997, and September 27, 1998, have been
prepared on the same basis as the audited combined financial statements and,
in the opinion of management, includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
information set forth therein, in accordance with generally accepted
accounting principles. The data disclosed in the notes to the combined
financial statements for these periods is unaudited. The Group's results of
operations for the nine month period ended September 27, 1998, are not
necessarily indicative of the results to be expected for any future period.
QUARTER ENDS
The Group's first, second and third quarters end on the last Sunday in
March, June and September, respectively. The fiscal year ends on December 31
of each year.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Group's companies have been translated in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52
"Foreign Currency Translation." Current rates of exchange are used to
translate the balance sheets of the Group's companies, while the average
exchange rate for each year is used to translate the statements of income and
cash flows. The resulting translation adjustments are recorded as a component
of shareholder's equity. Gains or losses resulting from transactions in other
than a functional currency are reflected in selling, general, and
administrative expenses in the accompanying statements of income. Total
foreign currency gains or losses were $198,000, $(4,000) and $(19,000) for the
years ended December 31, 1995, 1996, and 1997, respectively, and $82,000 and
$2,064,000 for the nine months ended September 28, 1997, and September 27,
1998, respectively.
REVENUE RECOGNITION
Revenue is generally recognized net of sales taxes, returns, discounts and
allowances, when products are shipped to customers or services are rendered.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Total advertising costs were
$10,608,000, $11,329,000 and $10,245,000 for the years ended December 31,
1995, 1996, and 1997, respectively, and $7,793,000 and $8,240,000 for the nine
months ended September 28, 1997, and September 27, 1998, respectively.
INCOME TAXES
The Group accounts for income taxes under the liability method in accordance
with SFAS No. 109 "Accounting for Income Taxes." Deferred taxes are recognized
for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. Future
tax benefits are recognized to the extent that realization of such benefits is
more likely than not.
COMPREHENSIVE INCOME
The Group adopted SFAS No. 130 "Reporting Comprehensive Income" during 1998.
The adoption of this standard did not have a material effect on the Group's
financial statements as the Group's comprehensive income does not differ
materially from net income except for foreign currency
F-8
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
translation adjustments included in comprehensive income, the effect of which
could be material depending on future changes in foreign exchange rates.
CASH AND CASH EQUIVALENTS
The Group considers liquid investments with an original maturity at the date
of purchase of three months or less to be cash equivalents. Due to the short
maturity of these investments, their carrying amount approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value, with
cost determined on a first in, first out ("FIFO") basis. A provision is made
for obsolete, slow moving and defective items where appropriate.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 27,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Finished products............................ $35,891 $43,211 $46,913
Work in process.............................. 9,053 8,841 9,643
Raw materials................................ 35,532 37,740 41,220
------- ------- -------
Total inventories........................ $80,476 $89,792 $97,776
======= ======= =======
</TABLE>
The market for bicycles, parts and accessories is subject to the risk of
changing consumer trends. In the event that a particular bicycle model or
accessory does not achieve widespread consumer acceptance, and the Group holds
excess inventory of that bicycle model, part or accessory, the Group may be
required to take significant price markdowns, which could have a material
adverse effect on the Group's business, results of operations and financial
condition.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost and depreciated using
the straight-line method over the useful life of the asset (buildings--50
years; plant and equipment--3 to 13 years) or the lease term if shorter for
leasehold improvements. The cost and accumulated depreciation for property,
plant and equipment sold, retired, or otherwise disposed of are removed from
the financial statements, and the resulting gains and losses are reflected
within other income or expense.
CAPITAL GRANTS
Capital grants received from government authorities to construct facilities
are amortized over the estimated useful life of the respective assets. The
unamortized balance of capital grants was $4,852,000, $3,633,000 and
$3,476,000 as of December 31, 1996, 1997, and September 27, 1998,
respectively, and is included in the accompanying balance sheets as other
long-term liabilities.
INTANGIBLES
The Group has goodwill related to 1997 and 1998 acquisitions of $3,462,000
and $4,601,000 included in intangibles as of December 31, 1997, and September
27, 1998, respectively, and negative goodwill of $11,971,000, $11,235,000, and
$11,067,000 as of December 31, 1996, 1997, and September 27, 1998,
respectively, in excess of assets acquired over cost of acquisitions in the
F-9
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
accompanying balance sheets. Both positive and negative goodwill are amortized
using the straight-line method over 40 years. Total amortization expense on
positive goodwill was $85,000 for the year ended December 31, 1997, and
$68,000 and $71,000 for the nine months ended September 28, 1997, and
September 27, 1998, respectively, and total amortization income related to
negative goodwill was $366,000, $364,000, and $380,000 for the years ended
December 31, 1995, 1996, 1997, and $291,000 and $298,000 for the nine months
ended September 28, 1997, and September 27, 1998, respectively. Trademarks are
amortized over 15 years. Deferred financing costs are amortized over the life
of the related debt using the effective interest rate method.
IMPAIRMENT OF LONG-LIVED ASSETS
The Group periodically evaluates whether events or circumstances have
occurred indicating that the carrying amount of long-lived assets may not be
recoverable. When factors indicate possible impairment, the Group uses an
estimate of undiscounted future cash flows to determine the amount of such
impairments.
DERIVATIVE FINANCIAL INSTRUMENTS
The Group uses derivative financial instruments for purposes other than
trading and does so to reduce its exposure to fluctuations in interest and
foreign currency exchange rates.
FORWARDS--Forward foreign currency exchange contracts are used to minimize
the impact of currency exchange rate movements on purchases of inventory and
sales of goods. Changes in the market value of the forward contracts are
recorded as gains or losses through cost of sales in the accompanying
statements of income. Cash flows resulting from forwards are included in cash
flows from operating activities in the accompanying statements of cash flows.
SWAPS--Currency and interest rate swaps have the effect of synthetically
changing the currency and interest rates of the original underlying liability.
The net receivable or payable related to currency swaps is recorded as other
current assets or other current liabilities, respectively, in the accompanying
balance sheets. Changes in the market value of the currency and interest rate
swaps are recorded as gains or losses through other income (expense) in the
accompanying statements of income. Cash flows resulting from currency and
interest rate swaps are classified in repayment of long-term debt in the
accompanying statements of cash flows.
OPTIONS--Options are used to hedge foreign currency exchange rate movements
on inventory purchases and sales of goods. Changes in the market value of the
options are recorded as gains or losses through cost of sales in the
accompanying statements of income. The options are expensed at maturity if
they are not exercised.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods were used to estimate the fair value of each class of
financial instruments:
CASH AND CASH EQUIVALENTS--The carrying amount approximates the fair value
due to the short-term nature of the instruments.
SHORT-TERM AND LONG-TERM DEBT--The fair value is estimated based upon quoted
market prices at year-end or current interest rates for debt of the same
maturity (see Notes 9 and 10).
FORWARDS AND OPTIONS--The fair value is estimated based on quoted market
prices at year-end (see Note 8).
F-10
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
SWAPS--The fair value of currency and interest rate swap agreements were
estimated based on quoted market prices at year-end (see Note 8).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," which requires financial and descriptive
information about reportable operating segments and related products,
services, geographic areas and major customers. This statement is effective
for fiscal years beginning after December 31, 1997.
3.RECEIVABLES:
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 27,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables.......................... $75,712 $72,785 $64,800
Royalty receivables........................ 1,030 738 727
------- ------- -------
Total receivables........................ 76,742 73,523 65,527
Allowance for doubtful trade accounts...... (4,500) (4,419) (4,775)
Allowance for discounts, rebates, and other
items..................................... (3,073) (3,840) (4,670)
------- ------- -------
Total receivables, net................... $69,169 $65,264 $56,082
======= ======= =======
</TABLE>
4.OTHER CURRENT ASSETS:
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 27,
1996 1997 1998
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid expenses................................ $4,073 $ 4,757 $4,992
Receivable on swaps............................. -- 4,335 --
Sales taxes recoverable......................... 639 827 353
Other receivables............................... 2,366 3,962 3,138
------ ------- ------
Total other current assets.................... $7,078 $13,881 $8,483
====== ======= ======
</TABLE>
5.PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 27,
1996 1997 1998
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $ 2,910 $ 3,910 $ 4,077
Buildings................................ 21,208 22,422 23,100
Equipment................................ 83,381 82,838 88,092
-------- -------- --------
107,499 109,170 115,269
Accumulated depreciation and
amortization............................ (55,783) (59,463) (67,278)
-------- -------- --------
Net property, plant, and equipment....... $ 51,716 $ 49,707 $ 47,991
======== ======== ========
</TABLE>
F-11
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense was $9,848,000, $9,400,000, and $9,362,000 for the
years ended December 31, 1995, 1996, and 1997, and $7,380,000 and $7,308,000
for the nine months ended September 28, 1997, and September 27, 1998,
respectively.
In the United Kingdom, a major reorganization of manufacturing activities at
Raleigh Industries was undertaken in 1995. The cost of the reorganization
charged through the statement of income for the year ended December 31, 1995,
was $4,413,000.
The cost of the reorganization was funded in part by the disposal of 18
acres of a factory site that was released from manufacturing and warehouse
use. The sale price of the land and buildings was $7,750,000, of which
$3,875,000 had been received by the end of 1995, and $3,875,000 was received
in 1996. The net book value of the land and buildings sold was $925,000. After
deducting associated costs and fees, the profit on disposal was $4,740,000,
which is included in other income (expense) for the year ended December 31,
1995, in the accompanying statements of income. There was no tax effect
arising from this disposal.
6. INTANGIBLES:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 27,
1996 1997 1998
----- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Trademarks purchased........................... $ -- $2,665 $ 2,665
Goodwill purchased............................. -- 3,462 4,601
Deferred financing costs....................... 1,403 1,342 13,790
----- ------ -------
1,403 7,469 21,056
Accumulated amortization....................... (522) (818) (1,382)
----- ------ -------
Total intangibles, net....................... $ 881 $6,651 $19,674
===== ====== =======
</TABLE>
7.ACCRUED LIABILITIES:
The following is a breakdown of accrued liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 27,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Sales taxes payable............................ $ 3,500 $ 3,329 $ 3,039
Payroll taxes payable.......................... 3,934 3,089 2,631
Accrued vacation............................... 1,510 1,269 2,083
Accrued unvouchered trade payables............. 13,491 15,051 16,257
------- ------- -------
Total accrued liabilities.................... $22,435 $22,738 $24,010
======= ======= =======
</TABLE>
F-12
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8.DERIVATIVE FINANCIAL INSTRUMENTS:
FORWARDS
A forward foreign exchange contract calls for delivery of a specified amount
of one currency for a specified amount of another currency at a fixed exchange
rate and a specified future date. The exchange rate is established at the time
the contract is agreed on, but payment and delivery are not required until
maturity. Forward contracts are entered into with bank counterparties. The
Group enters into forward foreign exchange contracts to minimize the impact of
currency movements, principally on purchases of inventory and sales of goods
denominated in currencies other than the subsidiaries' functional currencies.
The Group held forward foreign exchange contracts in the following gross
amounts (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 27,
1996 1997 1998
--------------- --------------- --------------
BUY SELL BUY SELL BUY SELL
------- ------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States dollars............ $41,945 $ -- $53,673 $ 6,835 $18,202 $7,481
Japanese yen..................... 12,399 -- 15,139 -- 7,459 --
Dutch guilders................... -- 10,942 1,153 9,643 457 2,341
German marks..................... -- 5,213 -- 1,900 -- --
British pounds sterling.......... 2,358 -- 1,579 -- 540 --
Other............................ 1,222 -- 2,984 -- 836 --
------- ------- ------- ------- ------- ------
Total notional amounts......... $57,924 $16,155 $74,528 $18,378 $27,494 $9,822
======= ======= ======= ======= ======= ======
Fair value..................... $56,331 $14,816 $73,845 $18,502 $26,797 $9,759
======= ======= ======= ======= ======= ======
</TABLE>
CURRENCY AND INTEREST RATE SWAPS
A currency swap is an agreement to exchange principal and interest of one
currency for those of another currency. Interest rate swaps constitute a
contractual agreement between two parties to exchange interest-type cash flows
at periodic intervals based on a hypothetical principal or notional amount.
The Group enters into currency swap and interest rate swap contracts such that
the notional principal amount is equal to the principal amount of the
underlying debt. The swaps achieve the effect of synthetically converting the
original United States dollar denominated debt into several other foreign
currencies and converting the fixed interest rate on the debt to a floating
interest rate. The underlying debt and associated swaps were repaid on May 14,
1998 (see Notes 10 and 17).
With the issuance of the $100,000,000 of 10 percent Senior Notes, the
DM110,000,000 of 9 3/8 percent Senior Notes, and a seven year revolving credit
facility of DM214,000,000 on May 14, 1998 (see Note 10) in connection with the
Recapitalization, the Group entered into new currency swap and interest rate
swap contracts. The new currency swaps hedge the Group's exposure arising from
operating cash flows being generated in different currencies than that
required to service the Group's debt. The interest rate swaps limit the
Group's exposure to floating interest rate increases on the primary portion of
the drawdowns on the revolving credit facility.
The following is a summary of the Group's currency and interest rate swap
net receivables (payables) as of December 31, 1996, 1997, and September 27,
1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- SEPTEMBER 27,
1996 1997 1998
--------------- --------------- --------------
NOTIONAL FAIR NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- ------ -------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Swaps............................ $(1,193) $(214) $3,279 $4,335 $463 $179
</TABLE>
The Group recognized in other income (expense) in the accompanying
statements of income a gain (loss) on swaps of $56,306,000, $(2,675,000), and
$107,000 and $81,000 for the years ended
F-13
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1995, 1996, and for the nine months ended September 28, 1997,
respectively, and a loss of $(1,334,000) due to the early termination of the
swaps in connection with the Recapitalization for the nine months ended
September 27, 1998, and the changes in the market value of the new swap
contracts.
CREDIT RISK
The Group enters into derivative transactions with several counterparties
including Midland Bank and Banque National de Paris. The Group is exposed to
credit loss in the event of non-performance by these counterparties. However,
the Group does not anticipate non-performance by these counterparties. In the
event of non-performance, the Group would be subject to the following
counterparty risk (in thousands):
<TABLE>
<S> <C> <C> <C>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 27,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Forwards................................... $ 1,198 $ 748 $ 154
Swaps...................................... $ -- $ 4,335 $ 179
9. SHORT-TERM BORROWINGS:
Short-term borrowings consist of the following (in thousands):
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 27,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Short-term portion of bank borrowings...... $ -- $34,049 $ --
Bank overdraft............................. 7,917 2,778 2,180
Current portion of long-term debt
(see Note 10)............................. 14,333 14,333 32,890
------- ------- -------
$22,250 $51,160 $35,070
======= ======= =======
</TABLE>
At December 31, 1996, the Group maintained 364 day aggregate unsecured
revolving credit facilities of (Pounds)26,500,000 ($45,100,000), and on which
interest was charged at 1 1/4 percent above the London Interbank Borrowing
Rate. On March 6, 1997, these facilities were replaced by a syndicated
unsecured three year aggregated revolving credit facility of
(Pounds)60,000,000 ($99,000,000), and on which interest is charged at one
percent above the London Interbank Borrowing Rate. In addition the Group's
subsidiaries had available overdraft facilities of up to $24,000,000 during
the periods ended December 31, 1996, 1997, and up to May 14, 1998.
On May 14, 1998, all the revolving credit and overdraft facilities
outstanding, except for those in South Africa, were repaid and replaced by a
seven year revolving credit facility of DM214,000,000 ($127,900,000) (see
Notes 10 and 17).
The weighted average balance outstanding on these facilities was
$18,200,000, $33,500,000 during the years ended December 31, 1996 and 1997,
and $32,306,000 and $60,085,000 for the nine months ended September 28, 1997,
and September 27, 1998, respectively. The highest amount outstanding on these
facilities was $44,800,000 and $60,300,000 during the years ended December 31,
1996 and 1997, and $55,750,000 and $86,032,000 during the nine months ended
September 28, 1997, and September 27, 1998, respectively.
Management believes that there is no material difference between the book
values and fair values of borrowings on revolving credit facilities and bank
overdrafts as of December 31, 1996, 1997, and September 27, 1998.
10. LONG-TERM DEBT:
In 1993, Derby Holding BV, a subsidiary of the Company, issued unsecured
United States dollar denominated Series A, B and C Senior Notes, in the
aggregate principal of $85,000,000. Derby Holding
F-14
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
BV repaid $14,333,000 of the Senior Notes in September 1996 and $14,333,000 in
September 1997, leaving $56,333,000 outstanding at December 31, 1997, and May
14, 1998. On May 14, 1998, these Senior Notes were repaid in full. The long-
term bank loan at December 31, 1997, represents a loan of DM16,250,000
equivalent to $9,059,000 as of December 31, 1997, assumed on the acquisition
of the Winora and Staiger businesses (see Note 13). The long-term bank loan
was repaid on May 14, 1998.
On May 14, 1998, DCC issued $79,750,000 of 10 percent Senior Notes, and Lyon
Investments BV, a subsidiary of DCC, issued $20,250,000 of 10 percent Senior
Notes and DM110,000,000 of 9 3/8 percent Senior Notes (see Note 17). The
Senior Notes mature in full in 2008. The Senior Notes are issued under
indentures which contain certain covenants that, among other things, restrict
the ability of DCC and its restricted subsidiaries to incur additional
indebtedness, pay dividends on and redeem capital stock, redeem certain
subordinated obligations, make investments, undertake sales of assets and
subsidiary stock, engage in certain transactions with affiliates, sell or
issue capital stock, permit liens to exist, operate in other lines of
business, engage in certain sale and leaseback transactions and engage in
mergers, consolidations or sales of all or substantially all of the assets of
DCC.
On May 14, 1998, DCC entered into a seven year revolving credit facility of
DM214,000,000 ($127,900,000) (see Notes 9 and 17). Interest on the facility is
charged at two percent above the London Interbank Borrowing Rate. The
revolving credit agreement requires DCC to maintain specified financial ratios
and tests (all as defined in the agreement), including a minimum interest
coverage ratio, minimum consolidated net worth, a minimum level of adjusted
EBITDA, a maximum level of inventory days on hand and a maximum leverage
ratio, among other restrictions. Management believes that it is probable but
not virtually certain that DCC will not be in compliance with its adjusted
EBITDA covenant as of December 31, 1998. Subsequent to the end of the third
quarter of 1998, DCC was not in compliance with its inventory days covenant
and has obtained a waiver from the banks effective from October 1, 1998,
through December 31, 1998 (the "Grace Period"), that amended the inventory
days covenant such that management believes that DCC will be in compliance
with the amended covenant during the Grace Period. Management will be meeting
with the banks to renegotiate the adjusted EBITDA and inventory days covenants
for 1999. If management is not successful in renegotiating these covenants,
then it is probable that DCC will not be in compliance with the terms of the
revolving credit agreement as of December 31, 1998. The failure to comply with
the provisions of the revolving credit agreement could result in an event of
default thereunder, and depending upon the actions of the lenders thereunder,
all amounts borrowed under the revolving credit facility could be declared due
and payable. If the lenders were to declare the amounts outstanding under the
revolving credit facility due and payable, then the amounts outstanding under
the Senior Notes could become due and payable pursuant to the cross
acceleration provisions under the Senior Notes Indentures.
As of December 31, 1996, 1997, and September 27, 1998, long-term debt
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 27,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
10% $100,000,000 Senior Notes................... $ -- $ -- $100,000
9 3/8% DM110,000,000 Senior Notes............... -- -- 63,942
Long-term portion of bank borrowings............ -- -- 32,890
Series A Senior Notes........................... 44,000 33,000 --
Series B Senior Notes........................... 20,000 20,000 --
Series C Senior Notes........................... 6,666 3,333 --
Long-term bank loan............................. -- 9,059 --
------- ------- --------
Total long-term debt............................ 70,666 65,392 196,832
Less current portion of long-term debt.......... (14,333) (14,333) (32,890)
------- ------- --------
Non-current portion of long-term debt........... $56,333 $51,059 $163,942
======= ======= ========
</TABLE>
F-15
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of the Series A, B and C Senior Notes as of December 31,
1996, and 1997, was approximately $70,305,000 and $56,149,000, respectively.
Management believes that there was no material difference between the fair
value and book value of the long-term bank loan as of December 31, 1997, or
the 10 percent $100,000,000 and the 9 3/8 percent DM110,000,000 Senior Notes
as of September 27, 1998.
11. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
Total rent expense for operating leases, primarily in respect of land and
buildings and automobiles, was $5,223,000, $4,908,000, and $4,837,000 for the
years ended December 31, 1995, 1996, and 1997, and $4,751,000 and $4,819,000
for the nine months ended September 28, 1997, and September 27, 1998,
respectively, which is included in selling, general, and administrative
expenses in the accompanying statements of income.
The future minimum lease payments for operating leases as of December 31,
1997, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1998............................................................. $ 4,502
1999............................................................. 3,770
2000............................................................. 2,411
2001............................................................. 1,125
2002............................................................. 941
Thereafter....................................................... 7,761
-------
Total......................................................... $20,510
=======
</TABLE>
Leases of land and buildings are typically subject to rent reviews at
specified intervals and provide for the lessee to pay all insurance,
maintenance and repair costs. The Group's facilities are subject to the
requirements of environmental regulations in their respective jurisdictions.
There can be no assurance that the Group is at all times in compliance with
all such requirements.
INTERNATIONAL OPERATIONS; DEPENDENCE ON FOREIGN SUPPLIERS AND SALES
A significant portion of the Group's operations are conducted in foreign
countries and are subject to the risks that are inherent in operating abroad,
including, without limitation, the risks associated with foreign governmental
regulation, foreign taxes, import duties and trade restrictions. The Group's
business is highly dependent upon products manufactured by foreign suppliers
located primarily in Taiwan and Japan and to a lesser extent the People's
Republic of China. A substantial majority of the Group's multi-speed bicycles
contain components supplied on a purchase order basis by one Japanese
manufacturer. The Group's business is also subject to the risks generally
associated with doing business abroad, such as delays in shipment and foreign
governmental regulations which could have a material adverse effect on the
results of operations and financial condition of the Group. In addition,
several of the Group's manufacturing operations are unionized.
PRODUCT LIABILITY
Because of the nature of the Group's business, the Group at any particular
time is a defendant in a number of product liability lawsuits and expects that
this will continue to be the case in the future. These lawsuits generally seek
damages, sometimes in substantial amounts, for personal injuries
F-16
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
allegedly sustained as a result of defects in the Group's products. Although
the Group maintains product liability insurance, due to the uncertainty as to
the nature and extent of manufacturers' and distributors' liability for
personal injuries, there is no assurance that the product liability insurance
maintained by the Group is or will be adequate to cover product liability
claims or that the applicable insurer will be solvent at the time of any
covered loss. In addition, due to deductibles, self-retention levels and
aggregate coverage amounts applicable under the Group's insurance policies,
the Group may bear responsibility for a significant portion of the defense
costs (which include attorneys' fees and expenses incurred in the defense of
any claim), and the related payments to satisfy any judgments associated with
any claim asserted against the Group in excess of any applicable coverage. The
successful assertion or settlement of an uninsured claim, the settlement of a
significant number of insured claims, or a claim exceeding the Group's
insurance coverage could have a material adverse effect on the Group's
business, results of operations and financial condition. In addition, there
can be no assurance that insurance will remain available or, if available,
will not be prohibitively expensive.
UNCONDITIONAL PURCHASE OBLIGATIONS
The Group had unconditional purchase obligations for raw materials and
bicycle components of $49,188,000 and $35,863,000 as of December 31, 1997, and
September 27, 1998, respectively, which are not recorded in the combined
financial statements.
12. INCOME TAXES:
The Group does not have a formal tax sharing agreement with DCC or DICSA.
The Group calculates its income taxes on a stand-alone basis, with
subsidiaries filing separate returns in their own jurisdictions. The combined
related amounts are included in income taxes payable and deferred income taxes
payable in the accompanying balance sheets.
Income (loss) before income taxes and extraordinary item consists of the
following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 31,
------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
------- ------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United Kingdom........... $22,076 $14,544 $19,533 $12,767 $ 1,827
Holland.................. 13,384 8,136 8,541 8,391 6,095
Germany.................. (11,954) (6,031) (9,753) (6,450) (1,944)
United States............ (5,325) (1,293) (2,807) (3,561) (6,652)
Canada................... 1,407 1,474 1,591 1,484 1,807
South Africa............. 993 1,109 1,369 559 333
Other.................... 2,884 5,560 4,882 3,806 3,458
------- ------- ------- ------- -------
$23,465 $23,499 $23,356 $16,996 $ 4,924
======= ======= ======= ======= =======
</TABLE>
F-17
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 31,
------------------------ SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
------- ------ ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current tax provision:
United Kingdom........ $ 1,520 $1,411 $ 3,547 $1,924 $ (569)
Holland............... 4,124 4,185 3,271 2,856 2,363
Germany............... 364 499 (196) (192) --
United States......... -- -- -- -- --
Canada................ 507 400 525 548 931
South Africa.......... 321 244 759 122 184
Others................ 104 231 344 171 370
------- ------ ------- ------ ------
Total current
provision.......... 6,940 6,970 8,250 5,429 3,279
------- ------ ------- ------ ------
Deferred tax provision
(benefit):
United Kingdom........ 691 2,102 1,844 1,603 1,001
Holland............... 2,510 (326) 498 537 98
Germany............... 136 -- -- -- --
United States......... -- -- -- -- (117)
Canada................ (76) 129 93 (10) (64)
South Africa.......... -- (27) 45 27 --
Others................ (106) 76 (109) (128) (5)
------- ------ ------- ------ ------
Total deferred tax
provision.......... 3,155 1,954 2,371 2,029 913
------- ------ ------- ------ ------
Provision for income
taxes.................. $10,095 $8,924 $10,621 $7,458 $4,192
======= ====== ======= ====== ======
The following table summarizes the significant differences between the United
States statutory tax rate and the Group's effective tax rate for financial
statement purposes:
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 31,
------------------------ SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
------- ------ ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory tax rate--US 35% 35% 35% 35%
Federal................ 35%
Effect of foreign tax
rates.................. 2 3 (2) (5) (14)
Utilization of losses
brought forward........ -- -- -- -- --
Net operating losses for
which no benefit is
currently available.... 10 2 14 16 25
Permanent differences
and other.............. (4) (2) (2) (2) (1)
Recapitalization costs.. -- -- -- -- 40
------- ------ ------- ------ ------
Effective tax rate...... 43% 38% 45% 44% 85%
======= ====== ======= ====== ======
</TABLE>
F-18
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income tax (assets) liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 31,
------------------ SEPTEMBER 28, SEPTEMBER 27,
1996 1997 1997 1998
-------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred income tax assets:
Operating losses......... $ 76,222 $ 66,830 $ 69,607 $ 54,072
Provisions and accruals.. 727 427 668 443
-------- -------- -------- --------
Total deferred income
tax assets............ 76,949 67,257 70,275 54,515
Valuation allowance........ (72,387) (63,523) (66,070) (50,772)
-------- -------- -------- --------
Net deferred income tax
assets................ 4,562 3,734 4,205 3,743
-------- -------- -------- --------
Deferred income tax
liabilities:
Pension.................. (14,276) (15,543) (14,785) (17,589)
Depreciation............. (5,937) (5,272) (5,515) (5,285)
Other.................... (441) (370) (775) 319
-------- -------- -------- --------
Total deferred income
tax liabilities....... (20,654) (21,185) (21,075) (22,555)
-------- -------- -------- --------
Net deferred income tax
liabilities........... $(16,092) $(17,451) $(16,870) $(18,812)
======== ======== ======== ========
</TABLE>
The operating losses, which arise in Germany and the United States, begin to
expire in 1999. The ability of the Group to utilize these losses may be
limited by a change in ownership of the Group.
13. ACQUISITIONS:
In January 1997, the Group completed the acquisition of the assets and
operations of a bicycle and bicycle component business in Germany which
distributes bicycles under the names Winora and Staiger for consideration of
$2,650,000, net of assumed debt equivalent to $9,059,000 as of December 31,
1997 (see Note 10). The results of this business are included in the combined
financial statements from February 1, 1997.
In August 1997, the Group acquired a controlling interest in the MS Sport
Group for consideration of $4,000,000. MS Sport Group is the main distributor
of Univega brand cycles in Europe. The results of MS Sport are included in the
combined financial statements from September 1, 1997.
These acquisitions were accounted for under the purchase method with the
purchase price allocated as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable............................................. $ 2,351
Inventories..................................................... 5,742
Property, plant, and equipment.................................. 6,025
Goodwill........................................................ 3,386
Liabilities assumed and direct acquisitions..................... (10,854)
--------
$ 6,650
========
</TABLE>
Pro forma net revenues and net income reflecting the acquisitions as if they
had occurred on January 1, 1996, and January 1, 1997, respectively, have been
omitted because the differences between those amounts and the historical
results are not material.
F-19
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In March 1997, the Group acquired the Univega brand name, trademarks and
related intellectual property for consideration of $2,550,000 (see Note 6).
Univega is a range of all-terrain and mountain bikes. In addition, further
licenses were acquired during 1997 for $115,000.
In May 1998, the Group purchased the minority interest in its operations in
South Africa for $1,933,000.
14. PENSION PLANS:
The Group operates defined benefit pension plans in its subsidiaries in
Canada, Netherlands, Ireland and the United Kingdom, which are funded in
accordance with local actuarial advice and cover all eligible current and
retired employees. In the United States, the Group operates a 401(k) pension
contribution plan for certain of its employees. The plans are operated under
trusts and their assets are invested independently of the Group. The largest
plans are in the United Kingdom and Netherlands, where valuations are carried
out by qualified actuaries every three years and every year respectively.
The Group adopted SFAS No. 87 "Employers' Accounting for Pensions" on
January 1, 1993. The impact of adopting SFAS No. 87 was a transition asset of
$37,795,000. The transition asset is being amortized into income over 15
years. A cumulative change in accounting principle was recorded as of January
1, 1993, which represented the amortization of the transition asset between
January 1, 1989, the effective date of SFAS No. 87, and January 1, 1993, the
Group's adoption of SFAS No. 87.
The following is a detail of the Group's defined benefit plan assets (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
----------------- -----------------
FAIR FAIR
COST VALUE COST VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
UK quoted equities.......................... $ 38,061 $ 64,201 $ 44,411 $ 73,978
Other equities.............................. 21,871 34,661 21,898 37,332
Treasury instruments........................ 54,829 54,492 47,172 47,735
Property shares............................. 8,544 8,828 8,640 9,608
Cash........................................ 8,921 8,921 10,371 10,371
Other....................................... 1,727 1,728 1,667 1,640
-------- -------- -------- --------
$133,953 $172,831 $134,159 $180,664
======== ======== ======== ========
</TABLE>
Net periodic pension costs of the defined benefit pension plans consist of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost..................................... $ 1,739 $ 2,098 $ 2,792
Interest cost on projected benefit obligation.... 7,224 7,599 8,386
Amortization of prior service costs.............. 152 224 382
Return on assets:
Actual......................................... (19,719) (16,591) (20,927)
Deferred gain.................................. 7,538 3,061 6,075
Amortization of transition asset................. (2,727) (2,652) (2,536)
-------- -------- --------
Net periodic pension income...................... $ (5,793) $ (6,261) $ (5,828)
======== ======== ========
</TABLE>
F-20
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is the actuarial present value of benefit obligations and
funded status of the Group's defined benefit plans (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Accumulated benefit obligation vested.................... $(107,942) $(126,618)
--------- ---------
Projected benefit obligation............................. (113,338) (130,830)
Plan assets at fair value................................ 172,831 180,664
--------- ---------
Projected plan assets in excess of benefit obligation.... 59,493 49,834
Unrecognized net loss.................................... 121 9,660
Unrecognized net transition asset........................ (19,049) (14,981)
Unrecognized prior service cost.......................... 1,846 3,264
--------- ---------
Prepaid pension asset.................................... $ 42,411 $ 47,777
========= =========
</TABLE>
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
United Kingdom:
Weighted average discount rate.............................. 8.5% 8.5% 7.0%
Weighted average expected long-term rate of return.......... 10.0 10.0 10.0
Weighted average rate of salary increases................... 6.0 6.0 6.0
Netherlands:
Weighted average discount rate.............................. 6.5 6.5 6.5
Weighted average expected long-term rate of return.......... 7.0 7.0 7.0
Weighted average rate of salary increases................... 4.5 4.5 4.5
Canada:
Weighted average discount rate.............................. 9.0 8.0 7.0
Weighted average expected long-term rate of return.......... 9.5 9.5 9.5
Weighted average rate of salary increases................... 5.5 5.5 5.5
</TABLE>
F-21
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. GEOGRAPHIC INFORMATION:
OPERATING LOCATIONS
The Group manufactures its products in several geographic locations. A
summary of revenues, operating income, depreciation, identifiable assets and
capital additions categorized by the location of the operating subsidiary from
which the sales were generated is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
United Kingdom........ $109,167 $105,510 $106,425 $ 74,400 $ 60,750
Netherlands........... 133,096 134,591 120,846 92,687 90,434
Germany............... 101,226 90,225 108,745 92,775 107,994
United States......... 55,253 53,516 57,938 41,866 49,548
Canada................ 36,287 29,459 29,503 26,654 26,544
South Africa.......... 22,590 20,010 20,631 12,795 11,213
Rest of the World..... 16,222 19,273 21,599 13,819 12,170
-------- -------- -------- -------- --------
Total net revenues.. 473,841 452,584 465,687 354,996 358,653
-------- -------- -------- -------- --------
Operating income:
United Kingdom........ 13,652 14,015 17,635 13,292 4,410
Netherlands........... 12,082 16,683 13,724 10,980 13,487
Germany............... (4,332) 282 (3,204) (1,217) 2,369
United States......... (3,298) (1,696) (3,011) (4,983) (6,427)
Canada................ 2,326 2,099 2,076 1,986 2,093
South Africa.......... 1,454 1,427 1,811 834 578
Rest of the World..... 92 572 670 1,406 492
-------- -------- -------- -------- --------
Total operating
income............. 21,976 33,382 29,701 22,298 17,002
-------- -------- -------- -------- --------
Depreciation:
United Kingdom........ 2,500 2,465 3,103 2,375 2,466
Netherlands........... 1,967 1,948 1,692 1,242 1,247
Germany............... 4,179 3,757 3,362 2,794 2,737
United States......... 545 608 618 462 354
Canada................ 347 374 322 307 327
South Africa.......... 261 219 164 124 97
Rest of the World..... 49 29 101 76 80
-------- -------- -------- -------- --------
Total depreciation.. 9,848 9,400 9,362 7,380 7,308
-------- -------- -------- -------- --------
Identifiable assets:
United Kingdom........ 71,253 80,567 88,941 91,130 99,424
Netherlands........... 57,147 53,449 56,911 48,728 52,909
Germany............... 64,237 57,960 74,307 70,107 76,475
United States......... 37,183 33,789 35,680 30,168 42,122
Canada................ 16,072 14,798 13,065 7,766 8,447
South Africa.......... 11,041 11,608 9,865 8,158 8,141
Rest of the World..... 6,366 8,390 9,729 5,836 9,633
-------- -------- -------- -------- --------
Total identifiable
assets............. $263,299 $260,561 $288,498 $261,893 $297,151
-------- -------- -------- -------- --------
</TABLE>
F-22
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Capital additions:
United Kingdom........ $ 6,704 $ 4,150 $ 2,432 $ 1,466 $ 1,676
Netherlands........... 2,150 1,862 1,645 531 819
Germany............... 2,022 2,147 2,434 1,631 1,096
United States......... 1,005 481 471 181 774
Canada................ 379 143 151 79 383
South Africa.......... 329 202 38 31 72
Rest of the World..... 145 111 242 235 89
-------- -------- -------- -------- --------
Total capital
additions.......... $ 12,734 $ 9,096 $ 7,413 $ 4,154 $ 4,909
======== ======== ======== ======== ========
NET REVENUES BY GEOGRAPHIC REGION
The Group sells its products in several geographic regions. Net revenues
relating to each region (categorized by the customer's geographic location)
are as follows (in thousands):
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
United Kingdom........ $104,102 $101,260 $100,892 $ 68,776 $ 56,995
Netherlands........... 112,642 113,508 101,216 76,320 78,140
Germany............... 105,590 97,347 117,990 96,591 106,541
United States......... 53,717 52,903 58,316 42,223 50,232
Canada................ 36,312 29,477 29,528 26,147 26,149
South Africa.......... 22,590 20,010 20,631 12,795 11,213
Rest of the World..... 38,888 38,079 37,114 32,144 29,383
-------- -------- -------- -------- --------
Total net revenues.. $473,841 $452,584 $465,687 $354,996 $358,653
======== ======== ======== ======== ========
</TABLE>
16. RELATED-PARTY TRANSACTIONS:
The Group rents land and buildings under operating leases from certain
minority shareholders in Germany and South Africa. Rents charged under such
leases were $418,000, $326,000, and $495,000 for the years ended December 31,
1995, 1996, and 1997, and $252,000 and $364,000 for the nine months ended
September 28, 1997, and September 27, 1998, respectively.
17. RECAPITALIZATION AGREEMENT AND SUBSEQUENT EVENTS:
On May 14, 1998, Derby International Corporation SA ("DICSA") and two
investment groups in the United States completed the recapitalization of The
Derby Cycle Corporation ("DCC"), pursuant to a Recapitalization Agreement
signed on March 11, 1998. As part of the recapitalization, DICSA transferred
the shares of all of its bicycle and bicycle component manufacturing and sales
subsidiaries, other than Raleigh Industries of Canada Limited ("RIC"), to a
wholly-owned company incorporated in Luxembourg, Derby Finance Sarl ("DFS").
DCC issued new equity to the United States investment groups, which diluted
the interest of DFS and DICSA in DCC to approximately 33 percent of the voting
rights. The Recapitalization Agreement also provided for the purchase by DCC
of the minority interests in the South African subsidiaries of DCC.
F-23
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the reorganization of the bicycle business, DCC and its
subsidiaries paid $146.2 million to DICSA and DFS to redeem certain equity
rights in DCC and its affiliates. A further amount of up to $10.0 million is
payable if certain performance targets are met in 1998, although this has not
been included in these financial statements. In addition, existing long term
debt of $62.4 million net of $3.0 million of cash received on related swaps
was retired for which the Group recorded an extraordinary charge of $0.3
million net of taxes upon this early extinguishment of debt. DCC financed this
from the issue of new stock, as detailed below, and $163.9 million in high
yield bonds (see Note 10). The existing $98.4 million ((Pounds)60 million) of
revolving bank facilities, together with local banking facilities except for
those in South Africa, were replaced with a seven-year secured syndicated bank
facility of $127.9 million (DM214 million). In connection with the retirement
of debt, the Group terminated certain interest rate swaps related to the debt
and recorded a loss of $1.1 million in other income (expense) in the
accompanying statements of income for the nine months ended September 27,
1998.
Following the recapitalization, DFS retained voting common stock in DCC with
a value of $21.7 million. DFS's parent, DICSA, retained preferred shares in
its former subsidiary, RIC, which are exchangeable for an additional $8.3
million of voting common stock and $15.0 million of non-voting Class B common
stock in DCC. In addition, DFS purchased 3,000 shares of non-voting Class B
preferred stock for DCC for $3.0 million. Two United States investors
purchased 22,500 shares of voting common stock of DCC for $22.5 million. DCC
also issued 25,000 shares of voting preferred stock to one of the U.S.
investors for $37.5 million of voting preferred stock.
Following the recapitalization, DCC has 25,000 shares of Series A preferred
stock authorized, issued, and outstanding and 3,000 shares of Series B
preferred stock authorized, issued, and outstanding as of September 27, 1998.
DCC has stock rights which include 8,300 shares of Class A common stock which
are valued at $8.3 million and 15,000 shares of Class B common stock which are
valued at $15.0 million that are issuable to DICSA upon the exchange of its
RIC's preferred stock. DCC has 200,000 shares of Class A common stock
authorized with 44,200 shares issued and outstanding and 15,000 shares of
Class B common stock authorized with no shares issued and outstanding as of
September 27, 1998.
The Group incurred estimated fees and professional expenses of $5.7 million
related to the recapitalization which are shown as reorganization costs in the
accompanying combined statements of income. Fees and professional expenses
paid to finance the recapitalization of $13.8 million have been deferred and
will be amortized over the term of the high yield bonds and the bank facility.
These include investment banking fees of $1.2 million payable to the
management company of one of the U.S. investors, $1.0 million to a company
which is wholly owned by the chairman and president of the other U.S.
investor, and $0.7 million to Centenary Corporation, a company in which a
director of DCC is a shareholder.
On October 20, 1998, DCC entered into an employment contract with a new
Chief Executive Officer ("CEO"). The contract is for a four year term with a
three year extension. DCC issued the new CEO stock options to purchase 1,625
shares of DCC's Class A Common Stock for $1,000 per share which vest over
three years, and performance-based stock options to purchase 3,250 shares of
Class A Common Stock for $1,000 per share. Pursuant to a Management Stock
Purchase Agreement dated October 20, 1998, the new CEO purchased 1,500 shares
of DCC's Class A Common Stock for $1,000 per share. The new CEO paid for such
shares with a secured promissory note that is nonrecourse except for 20
percent of the principal amount and all of the accrued interest. Upon the
termination of the new CEO's employment with the Company, DCC has the right or
is required to repurchase, depending on the reason for such termination, such
Class A Common Stock.
F-24
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
18. LYON INVESTMENTS B.V. SUMMARIZED FINANCIAL INFORMATION:
Lyon Investments B.V. ("Lyon"), a Dutch Company, is a wholly owned
subsidiary of DCC. Prior to the Recapitalization, Lyon was a dormant
subsidiary. As a result of the Recapitalization, Lyon became a holding company
and is a co-issuer of $20,250,000 of the $100,000,000 of 10 percent Senior
Notes and all of the DM110,000,000 of 9-3/8 percent Senior Notes
(collectively, the "Senior Notes"). As co-issuers, Lyon and DCC are joint and
severally liable with respect to the Senior Notes. The following summarized
financial information sets forth the combined financial position and results
of operations of Lyon, together with its subsidiaries, Derby Nederland and E.
Wiener Bike Parts GmbH. Derby Nederland is a holding company owning 100
percent of Gazelle, Sturmey-Archer B.V., and Raleigh B.V.
LYON INVESTMENTS B.V.
SUMMARIZED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 27,
1996 1997 1998
ASSETS --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................. $ 5,836 $ 6,285 $ 6,576
Accounts receivable, net.................. 15,157 16,411 14,087
Inventories............................... 19,997 20,477 22,494
Loans to internal group companies......... 532 -- 111,987
Other current assets...................... 2,032 2,820 4,135
--------- --------- ----------
Total current assets.................... 43,554 45,993 159,279
--------- --------- ----------
Property, plant, and equipment, net....... 6,469 11,118 10,545
Other noncurrent assets................... 13,508 13,492 18,346
--------- --------- ----------
Total assets............................ $ 63,531 $ 70,603 $ 188,170
========= ========= ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C> <C> <C>
Short-term borrowings--internal and
current portion of long-term borrowings.. $ 23,539 $ 28,343 $ 117,277
Bank overdraft............................ 3,988 200 --
Other current liabilities................. 16,597 17,794 21,656
--------- --------- ----------
Total current liabilities............... 44,124 46,337 138,933
--------- --------- ----------
Long-term borrowings--internal............ 45,000 44,188 --
10% $100,000,000 Senior Notes............. -- -- 20,250
9 3/8% DM110,000,000 Senior Notes......... -- -- 63,942
Other liabilities......................... 5,498 5,671 6,124
--------- --------- ----------
Total liabilities....................... 94,622 96,196 229,249
--------- --------- ----------
Shareholders' deficit..................... (31,091) (25,593) (41,079)
--------- --------- ----------
Total liabilities and shareholders'
deficit................................ $ 63,531 $ 70,603 $ 188,170
========= ========= ==========
<CAPTION>
RECONCILIATION OF SHAREHOLDERS' DEFICIT
<S> <C> <C> <C>
Shareholders' deficit, beginning balance.. $ (38,553) $ (31,091) $ (25,593)
Capital contributions..................... -- 549 5,800
Net income................................ 4,624 598 5,898
Translation adjustments................... 2,838 4,351 (1,554)
Distribution to shareholders in connection
with the Recapitalization................ -- -- (25,630)
--------- --------- ----------
Shareholders' deficit, ending balance..... $(31,091) $(25,593) $ (41,079)
========= ========= ==========
</TABLE>
F-25
<PAGE>
THE DERBY BICYCLE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
LYON INVESTMENTS B.V.
SUMMARIZED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 31,
------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
--------- --------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 134,121 $ 137,370 $ 137,025 $112,215 $104,570
Cost of sales........... (103,717) (103,362) (103,721) (87,492) (79,328)
--------- --------- --------- -------- --------
Gross profit.......... 30,404 34,008 33,304 24,723 25,242
--------- --------- --------- -------- --------
Selling, general, and
administrative
expenses(/1/).......... (17,171) (20,898) (25,481) (20,133) (12,863)
--------- --------- --------- -------- --------
Operating income...... 13,233 13,110 7,823 4,590 12,379
--------- --------- --------- -------- --------
Interest expense........ (984) (4,358) (4,395) (3,326) (5,526)
Interest income......... 242 181 197 82 766
Other income (expense),
net(/2/)............... -- -- -- -- 898
--------- --------- --------- -------- --------
Income before income
taxes................ 12,491 8,933 3,625 1,346 8,517
--------- --------- --------- -------- --------
Provision for income
taxes.................. (4,519) (4,309) (3,027) (3,097) (2,619)
--------- --------- --------- -------- --------
Net income (loss)..... $ 7,972 $ 4,624 $ 598 $ (1,751) $ 5,898
========= ========= ========= ======== ========
</TABLE>
- --------
(1) Selling, general, and administrative expenses includes a foreign exchange
loss on a loan from The Derby Cycle Corporation to Derby Nederland of
$(3,489), $(5,697), and $(6,103) for the years ended December 31, 1996 and
1997, and for the nine months ended September 28, 1997. The impact of the
foreign exchange loss on this loan eliminates in the consolidation of
DCC's financial statements. In addition, there was also a foreign currency
translation gain on intercompany loans of $851 for the nine months ended
September 27, 1998.
(2) Other income (expense), net is comprised of the profit on the sale of
Curragh Finance Company to Derby Holding B.V. for the nine months ended
September 27, 1998. The impact of the sale eliminates in the consolidation
of DCC's financial statements.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To The Derby Bicycle Group:
We have audited, in accordance with generally accepted auditing standards,
the combined financial statements of The Derby Bicycle Group included in this
registration statement and have issued our report thereon dated April 9, 1998
(except with respect to the matter discussed in Note 17 as to which the date
is November 2, 1998). Our audits were made for the purpose of forming an
opinion on the basic combined financial statements taken as a whole. The
schedule appearing on page S-2 is the responsibility of the Group's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic combined financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic combined financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic combined financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 9, 1998
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED ADDITIONS CHARGED BALANCE AT
BEGINNING TO COSTS AND TO OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) OF PERIOD
----------- ---------- ----------------- ----------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Trade Accounts
1995.................. $3.1 $ .7 $.1 -- $3.9
1996.................. 3.9 .8 (.2) -- 4.5
1997.................. 4.5 .2 (.3) -- 4.4
Allowance for Discounts
and
Rebates
1995.................. $2.8 $(.1) $.1 -- $2.8
1996.................. 2.8 (.3) (.2) -- $2.3
1997.................. 2.3 .7 (.1) -- 2.9
</TABLE>
- --------
(1) Charges to the accounts are for the purpose for which the reserves were
created.
(2) Charges represent foreign currency translation adjustments.
S-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURI-
TIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 17
Exchange Rate Information................................................. 29
Use of Proceeds........................................................... 31
Capitalization............................................................ 32
The Recapitalization...................................................... 33
Unaudited Pro Forma Condensed Combined Financial Statements............... 36
Selected Historical Financial Data........................................ 39
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 40
Business.................................................................. 52
Management................................................................ 73
Description of Shareholders' Agreement and Registration Agreement......... 77
Security Ownership of Certain Beneficial Owners and Management............ 79
Description of Revolving Credit Agreement................................. 82
Description of Exchange Notes............................................. 84
Description of Exchange and Registration Rights Agreement................. 125
The Exchange Offer........................................................ 127
Certain U.S. Income Tax Consequences...................................... 135
Certain Netherlands Income Tax Consequences............................... 135
Plan of Distribution...................................................... 136
Book-Entry; Delivery and Form............................................. 137
Listing and General Information........................................... 142
Legal Matters............................................................. 142
Index to Combined Financial Statements.................................... F-1
</TABLE>
PROSPECTUS
OFFER TO EXCHANGE ITS
$100,000,000
10% SENIOR NOTES DUE 2008 FOR ANY AND ALL OF THEIR OUTSTANDING 10% SENIOR NOTES
DUE 2008
AND
DM110,000,000
9 3/8% SENIOR NOTES DUE 2008
FOR ANY AND ALL OF THEIR OUTSTANDING 9 3/8% SENIOR NOTES DUE 2008
THE DERBY CYCLE CORPORATION
LYON INVESTMENTS B.V.
(FORMERLY KNOWN AS LYON CYCLE B.V.)
PROSPECTUS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Derby Cycle Corporation is incorporated under the laws of the State of
Delaware. Section 145 of the General Corporation Law of the State of Delaware
("Section 145") provides that a Delaware corporation may indemnify any person
who is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any person who is a party, or is threatened to be
made a party, to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorney's fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director has actually and reasonably incurred.
Section 145 further provides that the indemnification provisions of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office. The amended and restated certificate of incorporation of
The Derby Cycle Corporation provides that, to the fullest extent permitted by
the General Corporation Law of the State of Delaware, no director of the
corporation shall be liable to the corporation or its stockholders for
monetary damages arising from a breach of fiduciary duty owed to the
corporation or its stockholders.
Article X of the bylaws of The Derby Cycle Corporation provides that each
person who is or was a director, officer or promoter of The Derby Cycle
Corporation (and the heirs, executors or administrators of such person) who is
or was made a party to, or is or was involved in, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer or promoter of The Derby Cycle Corporation or is or was serving at the
request or for the benefit of The Derby Cycle Corporation as a director,
officer, promoter, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall be held
harmless and indemnified by The Derby Cycle Corporation against any expense
liability or loss (including without limitation judgments, fines, settlement
payments and the expense of legal counsel) incurred by such person in any such
capacity to the fullest extent permitted by applicable law. The right to
indemnification conferred shall also include the right to be paid by The Derby
Cycle Corporation the expenses incurred in defending in any such proceeding in
advance of its final disposition to the fullest extent permitted by applicable
law. The
II-1
<PAGE>
Derby Cycle Corporation may provide indemnification to such other employees
and agents of The Derby Cycle Corporation to such extent and to such effect
permitted or authorized by applicable law.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Article X of the bylaws of The Derby Cycle Corporation provides that The
Derby Cycle Corporation may purchase and maintain insurance, at its expense,
to protect itself and any person who is or was a director, officer, promoter,
employee or agent of The Derby Cycle Corporation or who is or was serving at
the request or for the benefit of The Derby Cycle Corporation as a director,
officer, promoter, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
expense, liability or loss incurred by such person in any such capacity,
whether or not The Derby Cycle Corporation would have the power to indemnify
such person against such expense, liability or loss under applicable law.
Lyon is incorporated under the laws of The Netherlands. The Articles of
Association of Lyon contain no provisions under which any member of its board
of management or its officers is indemnified in any manner against any
liability which he may incur in his capacity as such. Under the laws of The
Netherlands, members of the board may be liable to the company for improper or
negligent acts. For example, Article 2:248 of The Netherlands Civil Code
provides that members of the board are jointly and severally liable to the
estate of a private company with limited liability by shares, such as Lyon,
which suffers an involuntary liquidation when management has manifestly
performed its duties improperly and such is an important cause of the
involuntary liquidation. Members of the management board may be held
personally liable for improper or negligent managerial acts which affect third
parties.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated as of May 7, 1998, among The Derby Cycle
Corporation, Lyon Investments B.V., Chase Securities Inc., Chase
Manhattan Bank AG, and Chase Manhattan International Limited*
2.1 Recapitalization Agreement dated as of March 11, 1998, among The Derby
Cycle Corporation, Derby International Corporation S.A., Derby Finance
S.a.r.l., DC Cycle, L.L.C., and Perseus Cycle, L.L.C.*
2.2 First Amendment to the Recapitalization Agreement dated March 17,
1998, among The Derby Cycle Corporation, Derby International
Corporation S.A., Derby Finance S.a.r.l., DC Cycle, L.L.C., Perseus
Cycle, L.L.C., Frank H. Pearl and Alan J. Finden-Crofts*
2.3 Second Amendment to the Recapitalization Agreement dated as of May 14,
1998, among The Derby Cycle Corporation, Derby International
Corporation S.A., Derby Finance S.a.r.l., DC Cycle, L.L.C., Perseus
Cycle, L.L.C., Alan J. Finden-Crofts, A. Edward Gottesman, Frank H.
Pearl and Thayer Equity Partners, III*
3.1 Amended and Restated Certificate of Incorporation of The Derby Cycle
Corporation*
3.2 Bylaws of The Derby Cycle Corporation*
3.3 Articles of Association of Lyon Investments B.V.*
4.1 Dollar Indenture dated May 14, 1998, by and among The Derby Cycle
Corporation, Lyon Investments, B.V. and IBJ Schroder Bank & Trust
Company, as trustee*
4.2 DM Indenture dated May 14, 1998, by and among The Derby Cycle
Corporation, Lyon Investments B.V. and IBJ Schroder Bank & Trust
Company, as trustee*
4.3 Forms of 10% Senior Note and 9 3/8% Senior Note (contained in Exhibit
4.1 as Exhibit A thereto)*
4.4 Exchange and Registration Rights Agreement dated as of May 14, 1998,
among The Derby Cycle Corporation, Lyon Investments B.V. and Chase
Securities Inc., Chase Manhattan Bank AG, and Chase Manhattan
International Limited*
5.1 Opinion and consent of Kirkland & Ellis*
5.2 Opinion and consent of Trenite Van Doorne*
10.1 Multicurrency Credit Facility Agreement dated May 12, 1998, by and
among The Derby Cycle Corporation, Chase Manhattan plc as arranger,
the Financial Institutions named therein as Banks, and Chase Manhattan
International Limited as Facility Agent and Security Agent*
10.2 Shareholders Agreement of The Derby Cycle Corporation dated as of May
14, 1998, by and among The Derby Cycle Corporation, Derby Finance
S.a.r.l., DC Cycle, L.L.C. and Perseus Cycle, L.L.C.*
10.3 Registration Agreement dated as of May 14, 1998, by and among The
Derby Cycle Corporation, Derby Finance S.a.r.l., DC Cycle, L.L.C. and
Perseus Cycle, L.L.C.*
10.4 Trademark License Agreement dated as of May 14, 1998 between The Derby
Cycle Corporation and Derby International Corporation S.A.*
10.5 Support Agreement dated as of May 12, 1998 among The Derby Cycle
Corporation, Derby International Corporation S.A., Derby Finance
S.a.r.l., DC Cycle, L.L.C., Perseus Cycle, L.L.C. and Raleigh
Industries of Canada Limited*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 Put and Call Option Agreement dated May 13, 1998 among The Derby Cycle
Corporation, Derby International Corporation S.A., Derby Finance
S.a.r.l., DC Cycle, L.L.C., Perseus Cycle, L.L.C. and Raleigh
Industries of Canada Limited*
10.7 Derby Cycle Corporation Share Option Agreement dated May 13, 1998
among The Derby Cycle Corporation, Derby International Corporation,
S.A., Derby Finance S.a.r.l., DC Cycle, L.L.C. Perseus Cycle, L.L.C.
and Raleigh Industries of Canada Limited*
10.8 Employment Agreement dated as of May 14, 1998 between The Derby Cycle
Corporation and Alan J. Finden-Crofts*
10.9 Employment Agreement dated as of May 14, 1998 between The Derby Cycle
Corporation and William W. Austin, Jr.*
10.10 The Derby Cycle Corporation 1998 Stock Option Plan.
10.11 Employment Agreement dated as of October 20, 1998 between The Derby
Cycle Corporation and Gary S. Matthews.
10.12 Management Stock Purchase Agreement dated as of October 20, 1998
between The Derby Cycle Corporation and Gary S. Matthews.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
12.2 Statement Regarding Computation of Ratio of EBITDA to Interest Expense
21.1 Subsidiaries of The Derby Cycle Corporation*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1)*
23.3 Consent of Trenite Van Doorne (included in Exhibit 5.2)*
23.4 Consent of Coba Consulting Limited*
23.5 Consent of Lansdowne Market Research*
24.1 Powers of Attorney of Directors and Officers of The Derby Cycle
Corporation and Lyon Investments B.V. (included on Signature Page)*
25.1 Statement of Eligibility of Trustee on Form T-1*
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal in connection with the DM Notes*
99.2 Form of Notice of Guaranteed Delivery in connection with the DM Notes*
99.3 Form of Book-Entry Facility Participant*
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participant*
99.5 Form of Letter of Transmittal in connection with the Dollar Notes*
99.6 Form of Notice of Guaranteed Delivery in connection with the Dollar
Notes*
99.7 Form of Letters of DTC Participants*
99.8 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participant*
</TABLE>
(b) Financial Statement Schedules*
* Previously filed
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes.
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing any
increase or decrease in volume of securities (if the total dollar value
of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove form registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post effective amendment to the registration statement to
include any financial statements required by (S) 210.3-19.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered, therein, and the offering of such
securities at that item shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of an
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Nottingham, England on November 18, 1998.
Derby Cycle Corporation
/s/ Simon J. Goddard
By: _________________________________
Name: Simon J. Goddard
Title: Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Simon J. Goddard, his true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities (including his
capacity as a director and/or officer of The Derby Cycle Corporation), to sign
any or all amendments (including post-effective amendments) to this
registration statement and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement and power of attorney have been signed by the following persons in
the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
/s/ Alan J. Finden-Crofts President, Chief August 10, 1998
- ------------------------------------- Executive Officer
ALAN J. FINDEN-CROFTS and Director
(principal
executive officer)
/s/ Simon J. Goddard Chief Financial August 10, 1998
- ------------------------------------- Officer (principal
SIMON J. GODDARD financial and
accounting officer)
/s/ Frederic V. Malek Chairman of the August 10, 1998
- ------------------------------------- Board and Director
FREDERIC V. MALEK
/s/ A. Edward Gottesman Director August 10, 1998
- -------------------------------------
A. EDWARD GOTTESMAN
/s/ Frank H. Pearl Director August 10, 1998
- -------------------------------------
FRANK H. PEARL
/s/ Carl J. Rickertsen Director August 10, 1998
- -------------------------------------
CARL J. RICKERTSEN
/s/ Paul G. Stern Director August 10, 1998
- -------------------------------------
PAUL G. STERN
/s/ Thomas H. Thomsen Director October 2, 1998
- -------------------------------------
THOMAS H. THOMSEN
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Nottingham, England on November 18, 1998.
Lyon Investments B.V.
/s/ Simon J. Goddard
By: _________________________________
Name: Simon J. Goddard
Title: Managing Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Simon J. Goddard, his true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities (including his
capacity as a director and/or officer of The Derby Cycle Corporation), to sign
any or all amendments (including post-effective amendments) to this
registration statement and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement and power of attorney have been signed by the following persons in
the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
/s/ A. Edward Gottesman Managing Director August 10, 1998
- -------------------------------------
A. EDWARD GOTTESMAN
/s/ A.J. Straalman Managing Director August 10, 1998
- -------------------------------------
A.J. STRAALMAN
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated as of May 7, 1998, among The Derby Cycle
Corporation, Lyon Investments B.V., Chase Securities Inc., Chase
Manhattan Bank AG, and Chase Manhattan International Limited*
2.1 Recapitalization Agreement dated as of March 11, 1998, among The Derby
Cycle Corporation, Derby International Corporation S.A., Derby Finance
S.a.r.l., DC Cycle, L.L.C., and Perseus Cycle, L.L.C.*
2.2 First Amendment to the Recapitalization Agreement dated March 17,
1998, among The Derby Cycle Corporation, Derby International
Corporation S.A., Derby Finance S.a.r.l., DC Cycle, L.L.C., Perseus
Cycle, L.L.C., Frank H. Pearl and Alan J. Finden-Crofts*
2.3 Second Amendment to the Recapitalization Agreement dated as of May 14,
1998, among The Derby Cycle Corporation, Derby International
Corporation S.A., Derby Finance S.a.r.l., DC Cycle, L.L.C., Perseus
Cycle, L.L.C., Alan J. Finden-Crofts, A. Edward Gottesman, Frank H.
Pearl and Thayer Equity Partners, III*
3.1 Amended and Restated Certificate of Incorporation of The Derby Cycle
Corporation*
3.2 Bylaws of The Derby Cycle Corporation*
3.3 Articles of Association of Lyon Investments B.V.*
4.1 Dollar Indenture dated May 14, 1998, by and among The Derby Cycle
Corporation, Lyon Investments B.V. and IBJ Schroder Bank & Trust
Company, as trustee*
4.2 DM Indenture dated May 14, 1998, by and among The Derby Cycle
Corporation, Lyon Investments B.V. and IBJ Schroder Bank & Trust
Company, as trustee*
4.3 Forms of 10% Senior Note and 9 3/8% Senior Note (contained in Exhibit
4.1 as Exhibit A thereto)*
4.4 Exchange and Registration Rights Agreement dated as of May 14, 1998,
among The Derby Cycle Corporation, Lyon Investments B.V. and Chase
Securities Inc., Chase Manhattan Bank AG, and Chase Manhattan
International Limited*
5.1 Opinion and consent of Kirkland & Ellis*
5.2 Opinion and consent of Trenite Van Doorne*
10.1 Multicurrency Credit Facility Agreement dated May 12, 1998, by and
among The Derby Cycle Corporation, Chase Manhattan plc as arranger,
the Financial Institutions named therein as Banks, and Chase Manhattan
International Limited as Facility Agent and Security Agent*
10.2 Shareholders Agreement of The Derby Cycle Corporation dated as of May
14, 1998, by and among The Derby Cycle Corporation, Derby Finance
S.a.r.l., DC Cycle, L.L.C. and Perseus Cycle, L.L.C.*
10.3 Registration Agreement dated as of May 14, 1998, by and among The
Derby Cycle Corporation, Derby Finance S.a.r.l., DC Cycle, L.L.C. and
Perseus Cycle, L.L.C.*
10.4 Trademark License Agreement dated as of May 14, 1998 between The Derby
Cycle Corporation and Derby International Corporation S.A.*
10.5 Support Agreement dated as of May 12, 1998 among The Derby Cycle
Corporation, Derby International Corporation S.A., Derby Finance
S.a.r.l., DC Cycle, L.L.C., Perseus Cycle, L.L.C. and Raleigh
Industries of Canada Limited*
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 Put and Call Option Agreement dated May 13, 1998 among The Derby Cycle
Corporation, Derby International Corporation S.A., Derby Finance
S.a.r.l., DC Cycle, L.L.C., Perseus Cycle, L.L.C. and Raleigh
Industries of Canada Limited*
10.7 Derby Cycle Corporation Share Option Agreement dated May 13, 1998
among The Derby Cycle Corporation, Derby International Corporation,
S.A., Derby Finance S.a.r.l., DC Cycle, L.L.C. Perseus Cycle, L.L.C.
and Raleigh Industries of Canada Limited*
10.8 Employment Agreement dated as of May 14, 1998 between The Derby Cycle
Corporation and Alan J. Finden-Crofts*
10.9 Employment Agreement dated as of May 14, 1998 between The Derby Cycle
Corporation and William W. Austin, Jr.*
10.10 The Derby Cycle Corporation 1998 Stock Option Plan.
10.11 Employment Agreement dated as of October 20, 1998 between The Derby
Cycle Corporation and Gary S. Matthews.
10.12 Management Stock Purchase Agreement dated as of October 20, 1998
between The Derby Cycle Corporation and Gary S. Matthews.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
12.2 Statement Regarding Computation of Ratio of EBITDA to Interest Expense
21.1 Subsidiaries of The Derby Cycle Corporation*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1)*
23.3 Consent of Trenite Van Doorne (included in Exhibit 5.2)*
23.4 Consent of Coba Consulting Limited*
23.5 Consent of Lansdowne Market Research*
24.1 Powers of Attorney of Directors and Officers of The Derby Cycle
Corporation and Lyon Investments B.V. (included on Signature Page)*
25.1 Statement of Eligibility of Trustee on Form T-1*
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal in connection with the DM Notes*
99.2 Form of Notice of Guaranteed Delivery in connection with the DM Notes*
99.3 Form of Book-Entry Facility Participant*
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participant*
99.5 Form of Letter of Transmittal in connection with the Dollar Notes*
99.6 Form of Notice of Guaranteed Delivery in connection with the Dollar
Notes*
99.7 Form of Letters of DTC Participants*
99.8 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participant*
</TABLE>
(b) Financial Statement Schedules*
* Previously filed.
2
<PAGE>
EXHIBIT 10.10
DERBY CYCLE CORPORATION
1998 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
The 1998 Stock Option Plan (the "Plan") of Derby Cycle Corporation
(the "Company"), adopted by the Board of Directors and shareholders of the
Company effective [____________ __], 1998, is intended to advance the best
interests of the Company by providing executives and other key employees of the
Company or any Subsidiary (as defined below) who have substantial responsibility
for the management and growth of the Company or any Subsidiary with additional
incentives by allowing such employees to acquire an ownership interest in the
Company. [The Plan is a compensatory benefit plan within the meaning of Rule 701
under the Securities Act of 1933, as amended (the "Securities Act") and, unless
and until the Common Stock (as defined below) is publicly traded, the issuance
of stock purchase options ("Options") and Common Stock pursuant to the Plan is
intended to qualify for the exemption from registration under the Securities Act
provided by Rule 701.]
ARTICLE II
DEFINITIONS
For purposes of the Plan the following terms have the indicated
meanings:
"Authorization Date" has the meaning ascribed thereto in Section
5.9(a) hereof.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, such specified Person.
For purposes of this definition, "control" (including the terms "controlled by"
and "under common control with"), with respect to the relationship between or
among two or more Persons, means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
<PAGE>
"Committee" means the Compensation Committee or such other committee
of the Board as the Board may designate to administer the Plan or, if for any
reason the Board has not designated such a committee, the Board. The Committee,
if other than the Board, shall be composed of two or more directors as appointed
from time to time by the Board.
"Common Stock" means the Class A Common Stock, par value [$.01] per
share, of the Company.
"Election Notice" has the meaning ascribed thereto in Section 5.9(b)
hereof.
"Fair Market Value" per share on any given date means the average of
the closing prices of the sales of the Common Stock on all securities exchanges
on which such stock may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
stock is not so listed, the average of the representative bid and asked prices
quoted on the NASDAQ Stock Market as of 4:00 P.M., New York time, or, if on any
day such stock is not quoted on the NASDAQ Stock Market, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization. If at any time the Common Stock is not listed
or quoted, the Fair Market Value per share shall be determined by the Committee
or the Board based on such factors as the members thereof in the exercise of
their business judgment, consider relevant.
"Measurement Date" means the date on which any taxable income
resulting from the exercise of an Option is determined under applicable federal
income tax law.
"Option Agreement" has the meaning set forth in Section 6.1 hereof.
"Option Shares" shall mean (i) all shares of Common Stock issued or
issuable upon the exercise of an Option and (ii) all shares of Common Stock
issued with respect to the Common Stock referred to in clause (i) above by way
of stock dividend or stock split or in connection with any conversion, merger,
consolidation or recapitalization or other reorganization affecting the Common
Stock. Unless provided otherwise herein or in the Participant's Option
Agreement, Option Shares will continue to be Option Shares in the hands of any
holder other than the Participant (except for the Company), and each such
transferee thereof will succeed to the rights and obligations of a holder of
Option Shares hereunder.
"Options" has the meaning set forth in the preamble hereof.
"Participant" means any executive or other key employee of the Company
or any Subsidiary who has been selected to participate in the Plan by the
Committee or the Board.
"Permitted Transferee" means those persons to whom the Participant is
authorized (1) pursuant to Section 5.9, to transfer Option Shares, or (2)
pursuant to Section 6.3, to transfer Options.
-2-
<PAGE>
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity.
"Plan" has the meaning set forth in the preamble hereof.
"Qualified Initial Public Offering" means an initial public offering
of shares of the Common Stock underwritten by an investment banking firm or
firms of national reputation providing aggregate gross proceeds (before
deducting underwriting discounts, commissions and expenses) to the Company of at
least [$25 MILLION].
"Repurchase Notice" has the meaning ascribed thereto in Section 5.8(b)
hereof.
"Repurchase Option" has the meaning ascribed thereto in Section 5.8(a)
hereof.
"Right of First Refusal" has the meaning ascribed thereto in Section
5.9(b) hereof.
"Sale Notice" has the meaning ascribed thereto in Section 5.9(a)
hereof.
"Sale of the Company" means the sale of the Company to any Third Party
or Parties pursuant to which such party or parties acquire (i) capital stock of
the Company possessing the voting power under normal circumstances to elect a
majority of the Board (whether by merger, consolidation or sale or transfer of
the Company's capital stock) or (ii) all or substantially all of the Company's
assets determined on a consolidated basis.
"Securities Act" has the meaning ascribed thereto in Article 1 hereof.
"Stockholders Agreement" means the Stockholders Agreement dated as of
_________ __, 1998 by and among the Company and [OTHER PARTIES].
"Subsidiary" means any subsidiary corporation (as such term is defined
in Section 424(f) of the Code) of the Company.
"Termination Date" shall mean the date upon which such Participant's
employment with the Company or the Subsidiary (as the case may be) terminated.
"Third Party" means any Person which is not an Affiliate of the
Company.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to: (i) select Participants, (ii) grant Options to Participants in
such forms and amounts as it shall determine, (iii) impose such limitations,
-3-
<PAGE>
restrictions and conditions upon such Options as it shall deem appropriate, (iv)
interpret the Plan and adopt, amend and rescind administrative guidelines and
other rules and regulations relating to the Plan, (v) correct any defect or
omission or reconcile any inconsistency in the Plan or in any Options granted
under the Plan and (vi) make all other determinations and take all other actions
necessary or advisable for the implementation and administration of the Plan.
The Committee's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other persons.
All expenses associated with the administration of the Plan shall be borne by
the Company. The Committee may, as approved by the Board and to the extent
permissible by law, delegate any of its authority hereunder to such persons or
entities as it deems appropriate.
ARTICLE IV
LIMITATION ON AGGREGATE SHARES
The number of shares of Common Stock with respect to which Options may
be granted under the Plan shall not exceed, in the aggregate, 4,000 shares,
subject to adjustment in accordance with Section 6.4. To the extent any Options
expire unexercised or are canceled, terminated or forfeited in any manner
without the issuance of Common Stock thereunder, such shares shall again be
available under the Plan. The shares of Common Stock available under the Plan
may consist of authorized and unissued shares, treasury shares or a combination
thereof, as the Committee shall determine.
ARTICLE V
AWARDS
5.1 Grant of Options. The Committee may grant Options to Participants
from time to time in accordance with this Article V. Options granted under the
Plan may be nonqualified stock options or "incentive stock options" within the
meaning of Section 422 of the Code or any successor provision as specified by
the Committee; provided, however, that no incentive stock option may be granted
to any Participant who, at the time of grant, owns stock of the Company (or any
Subsidiary) representing more than 10% of the total combined voting power of all
classes of stock of the Company (or any Subsidiary), unless such incentive stock
option shall at the time of grant (a) have a termination date not later than the
fifth anniversary of the issuance date and (b) have an exercise price per share
equal to at least 110% of the Fair Market Value of a share of Common Stock on
the date of grant. The exercise price per share of Common Stock under each
Option shall be determined by the Committee or the Board at the time of grant;
provided, however, that the exercise price per share of Common Stock under each
incentive stock option shall be fixed by the Committee at the time of grant of
the Option and shall equal at least 100% of the Fair Market Value of a share of
Common Stock on the date of grant, but not less than the par value per share (as
adjusted pursuant to Section 6.4). Subject to Section 5.6, Options shall be
exercisable at such time or times as the Committee shall determine. The
Committee shall determine the term of each Option, which term shall not exceed
ten years from the date of grant of the Option.
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5.2 Exercise Procedure. Options shall be exercisable, to the extent they
are vested, by written notice to the Company (to the attention of the Company's
Secretary) accompanied by payment in full of the applicable exercise price in
United States dollars. Payment of such exercise price may be made (i) in cash
(including check, bank draft, money order or wire transfer of immediately
available funds), (ii) in shares of Common Stock (either previously acquired or
to be acquired as part of the option exercise)/1/ valued at their Fair Market
Value as of the date of exercise as provided in Section 5.3 below, or (iii) in a
combination of the foregoing.
5.3 Exchange of Previously Acquired Stock. The Committee, in its
discretion and subject to such conditions as the Committee may determine, may
permit the exercise price for the shares being acquired upon the exercise of an
Option to be paid, in full or in part, by the delivery to the Company of Common
Stock. Any Common Stock so delivered shall be treated as the payment of cash
equal to the aggregate Fair Market Value on the date of delivery of such Common
Stock. In the case of incentive stock options, the Committee shall specify in
the Option Agreement whether the option holder may satisfy the exercise price
with respect to shares of Common Stock purchased upon exercise of such Option by
delivering to the Company shares of previously acquired Common Stock.
5.4 Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a condition of the exercise of
any Option that the Participant exercising the Option make appropriate payment
or other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the "Withholding Amount") shall be
determined by the Treasurer or other appropriate officer of the Company, and the
Participant shall furnish such information and make such representations as such
officer requires to make such determination.
(b) Withholding Procedure. If the Company determines that withholding
tax is required with respect to any Option exercise, the Company shall notify
the Participant of the Withholding Amount, and the Participant shall pay to the
Company an amount not less than the Withholding Amount. In lieu of making such
payment, the Participant may elect to pay the Withholding Amount by either (i)
delivering to the Company a number of shares of Common Stock having an aggregate
Fair Market Value as of the Measurement Date not less than the Withholding
Amount or (ii) directing the Company to withhold (and not to deliver or issue to
the Participant) a number of shares of Common Stock, otherwise issuable upon the
exercise of an Option, having an aggregate Fair Market Value as of the
Measurement Date not less than the Withholding Amount. /2/ Any fractional share
interests resulting from the delivery or withholding of shares of Common Stock
to meet withholding tax requirements shall be settled in cash. All amounts paid
to or withheld by the Company and the value of all shares of Common Stock
delivered to or withheld by the Company
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/1/ Arthur Anderson should confirm whether this creates an accounting charge.
/2/ Arthur Anderson should confirm whether this creates an accounting charge.
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pursuant to this Section 5.4 shall be deposited in accordance with applicable
law by the Company as withholding tax for the Participant's account. If the
Treasurer or other appropriate officer of the Company determines that no
withholding tax is required with respect to the exercise of any Option (because
such option is an incentive stock option or otherwise), but subsequently it is
determined that the exercise resulted in taxable income as to which withholding
is required (as a result of a disposition of shares or otherwise), the
Participant shall promptly, upon being notified of the withholding requirement,
pay to the Company, by means acceptable to the Company, the amount required to
be withheld; and at its election the Company may condition the transfer of any
shares issued upon exercise of an incentive stock option upon receipt of such
payment.
5.5 Notification of Inquiries and Agreements. Each Participant and each
Permitted Transferee shall notify the Company in writing within 10 days after
the date such Participant or Permitted Transferee (i) first obtains knowledge of
any Internal Revenue Service or other tax authority inquiry, audit, assertion,
determination, investigation, or question relating in any manner to the value of
Options granted hereunder; (ii) includes or agrees (including, without
limitation, in any settlement, closing or other similar agreement) to include in
gross income with respect to any Option granted under this Plan (A) any amount
in excess of the amount reported on Form 1099 or Form W-2 to such Participant by
the Company, or (B) if no such Form was received, any amount; and/or (iii)
exercises, sells, disposes of, or otherwise transfers an Option acquired
pursuant to this Plan. Upon request, a Participant or Permitted Transferee
shall provide to the Company any information or document relating to any event
described in the preceding sentence which the Company (in its sole discretion)
requires in order to calculate and substantiate any change in the Company's tax
liability as a result of such event.
5.6 Conditions and Limitations on Exercise. At the discretion of the
Committee, exercised at the time of grant, Options may vest, in one or more
installments, upon (i) the fulfilment of certain conditions, (ii) the passage of
a specified period of time, and/or (iii) the achievement by the Company or any
Subsidiary of certain performance goals. In the event of a Sale of the Company,
the Committee may provide, in its discretion, that the Options shall become
immediately vested and that such Options shall terminate if not exercised as of
the date of the Sale of the Company or any other designated date (the
"Designated Date") or that such Options shall thereafter represent only the
right to receive the excess of the consideration per share of Common Stock
offered in such Sale of the Company over the exercise price of such Options.
The Company shall give all Participants notice of an impending Sale of the
Company at least 15 days prior to the date of such Sale of the Company or the
Designated Date, whichever is earlier.
5.7 Expiration of Options.
(a) Normal Expiration. In no event shall any part of any Option be
exercisable after the stated date of expiration thereof.
(b) Early Expiration Upon Termination of Employment. Any part of any
Option that was not vested on a Participant's Termination Date shall expire and
be forfeited on such date, and any part of any Option that was vested on the
Termination Date shall also expire and be forfeited to the extent not
theretofore exercised on the sixtieth (60th) day (one year, if termination is
caused
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by the Participant's death or disability) following the Termination Date,
but in no event after the stated date of expiration thereof.
5.8 INTENTIONALLY OMITTED
5.9 Restrictions on Transfer.
(a) Restrictions. A Participant may not sell, pledge or otherwise
transfer any interest in any Option Shares except pursuant to the provisions of
this Section 5.9. At least 60 days prior to making any transfer, the
Participant proposing such transfer shall deliver a written notice (the "Sale
Notice") to the Company. The Sale Notice will disclose in reasonable detail the
identity of the prospective transferee(s) and the terms and conditions of the
proposed transfer. Such Participant (and such Participant's transferees) shall
not consummate any such transfer until 60 days after the Sale Notice has been
delivered to the Company, unless the Company has notified such Participant in
writing that it will not exercise its rights under this Section 5.9. (The date
of the first to occur of such events is referred to herein as the "Authorization
Date").
(b) Repurchase Option. The Company may elect to purchase all or any
portion of the Option Shares to be transferred upon the same terms and
conditions as those set forth in the Sale Notice (the "Right of First Refusal")
by delivering a written notice of such election to such Participant within 30
days after the receipt of the Sale Notice by the Company (the "Election
Notice"). If the Company has not elected to purchase all of the Option Shares
specified in the Sale Notice, such Participant may transfer the Option Shares
not purchased by the Company to the prospective transferee(s) as specified in
the Sale Notice at a price and on terms no more favorable to the transferee(s)
thereof than specified in the Sale Notice during the 60-day period immediately
following the Authorization Date. Any Option Shares not so transferred within
such 60-day period must be reoffered to the Company in accordance with the
provisions of this Section 5.9 in connection with any subsequent proposed
transfer.
(c) Exceptions. The restrictions contained in this Section 5.9 will
not apply with respect to transfers of Option Shares (1) pursuant to applicable
laws of descent and distribution or (2) among the Participant's family group;
provided that the restrictions contained in this paragraph will continue to be
applicable to the Option Shares after any such transfer and the transferees of
such Option Shares have agreed in writing to be bound by the terms and
provisions of this Plan and the Option grant, as amended from time to time. The
Participant's "family group" means the Participant's spouse and lineal
descendants (whether natural or adopted) and any trust solely for the benefit of
the Participant and/or the Participant's spouse and/or immediate family.
5.1 Termination of Restrictions. The rights and obligations set forth in
Sections 5.8 and 5.9 hereof will terminate upon the earlier of (A) the
consummation by the Company of a Qualified Initial Public Offering or (B) the
sale of Option Shares in accordance with the terms and conditions of Section 5.9
(except for a transfer pursuant to Section 5.9 (c)); provided that with respect
to clause (B) above, such rights and obligations shall terminate only with
respect to those Option Shares sold.
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ARTICLE VI
GENERAL PROVISIONS
6.1 Written Agreement. Each Option granted hereunder shall be embodied in
a written agreement (the "Option Agreement") which shall be signed by the
Participant to whom the Option is granted and shall be subject to the terms and
conditions set forth herein.
6.2 Listing, Registration and Legal Compliance. If at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
6.3 Options Not Transferrable. Options may not be transferred other than
(i) by will or the laws of descent and distribution, or (ii) to a member of the
Participant's family group and, during the lifetime of the Participant to whom
they were granted, may be exercised only by such Participant (or, if such
Participant is incapacitated, by such Participant's legal guardian or legal
representative) or, if applicable, the member of the Participant's family group
to whom transferred. In the event of the death of a Participant, Options which
are not vested on the date of death shall terminate; exercise of Options granted
hereunder to such Participant, which are vested as of the date of death, may be
made only by the executor or administrator of such Participant's estate or the
person or persons to whom such Participant's rights under the Options will pass
by will or the laws of descent and distribution.
6.4 Adjustments. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the shares of
Common Stock, the Board or the Committee may, in order to prevent the dilution
or enlargement of rights under the Plan or outstanding Options, adjust (1) the
number and type of shares as to which options may be granted under the Plan, (2)
the number and type of shares covered by outstanding Options, (3) the exercise
prices specified therein and (4) other provisions of this Plan which specify a
number of shares, all as such Board or Committee determines to be appropriate
and equitable.
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6.5 Rights of Participants. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such Participant's current (or
other) rate of compensation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.
6.6 Fair Market Value Determination. Until the Common Stock is listed on
a security exchange or quoted on the NASDAQ Stock Market, the Board or the
Committee will determine the Fair Market Value per share of Common Stock based
on such factors as the members thereof in the exercise of their business
judgment consider relevant and any Participant may receive upon termination of
his or her employment with the Company the most recent Fair Market Value
determination for the Common Stock upon written request to the Board.
6.7 Amendment, Suspension and Termination of Plan. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment,
suspension or termination shall impair the rights of Participants under
outstanding Options without the consent of the Participants affected thereby,
except as provided below. No Options shall be granted hereunder after the tenth
anniversary of the adoption of the Plan.
6.8 Amendment of Outstanding Options. The Committee may amend or modify
any Option in any manner to the extent that the Committee would have had the
authority under the Plan initially to grant such Option; provided that, except
as expressly contemplated elsewhere herein or in any agreement evidencing such
Option, no such amendment or modification shall impair the rights of any
Participant under any outstanding Option without the consent of such
Participant.
6.9 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against (i) all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted under the
Plan, and (ii) all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided, however, that any such Committee member shall be entitled
to the indemnification rights set forth in this Section 6.9 only if such member
(1) acted in good faith and in a manner that such member reasonably believed to
be in, and not opposed to, the best interests of the Company, and (2) with
respect to any criminal action or proceeding, (A) had no reasonable cause to
believe that such conduct was unlawful, and (B) upon the institution of any such
action, suit or proceeding a Committee member shall give the Company written
notice thereof and an opportunity to handle and defend the same before such
Committee member undertakes to handle and defend it on his own behalf.
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6.10 Restricted Securities. In addition to any other restrictions set
forth herein or in the Stockholders Agreement, all Common Stock issued pursuant
to the terms of this Plan shall constitute "restricted securities," as that term
is defined in Rule 144 promulgated by the Securities and Exchange Commission
pursuant to the Securities Act, and may not be transferred except in compliance
with the registration requirements of the Securities Act or an exemption
therefrom.
* * * * *
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 14th day of May 1998 by and
between THE DERBY CYCLE CORPORATION, a corporation organized and existing under
the laws of the State of Delaware, with its registered office in the State of
Delaware at Corporation Trust Center, c/o CT Corporation, 1209 Orange Street,
Wilmington, DE 19801 (the "Company") and ALAN J. FINDEN-CROFTS, a British
subject residing at Willowhayne House, Tamarisk Way, The Willowhayne, East
Preston, Littlehampton, West Sussex BN16 2TE, England (the "Executive").
WHEREAS, the Company, Derby International Corporation SA ("DIC"),
Derby Finance S.a.r.l. ("DFS"), DC Cycle, L.L.C. ("LLC") and Perseus Cycle,
L.L.C. ("Perseus") have entered into a Recapitalization Agreement, dated March
11, 1998, contemplating the recapitalization of the Company (the
"Recapitalization") upon satisfaction of certain conditions;
WHEREAS, it is a condition to consummation of the Recapitalization
that Executive enter into an employment agreement with the Company to be
effective upon consummation of the Recapitalization;
WHEREAS, the Company and the Executive have agreed to execute this
Employment Agreement (this "Agreement") to set forth the rights and duties of
the Executive in respect of his employment with the Company following
consummation of the Recapitalization;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:
1. EFFECTIVENESS
Executive and the Company agree that the terms and conditions of
employment set forth below herein shall become effective immediately upon the
consummation of the Recapitalization (the "Effective Date"). At the Effective
Date, Executive acknowledges and agrees that his existing Second Amended &
Restated Employment Agreement dated December 31, 1994 with DIC shall terminate.
2. SERVICES OF EMPLOYEE
The Company hereby agrees to employ the Executive during the
Employment Period, as defined in paragraph 4 below, to perform the duties
specified in Appendix A attached to this Agreement and made a part hereof, and
the Executive hereby agrees to accept such employment by the Company, all on and
subject to the terms and conditions contained in this Agreement.
3. HOURS AND PLACES OF EMPLOYMENT
The Executive's services will be rendered primarily in the United
Kingdom of Great Britain and Northern Ireland, Germany, the Netherlands, the
other countries of continental Europe,
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the Republic of Ireland, South Africa, Canada and the United States of America.
The Executive will be required to travel on the Company's business to such
places as the Board of Directors or any duly authorized director or officer of
the Company shall designate from time to time. Executive shall report to the
Company's Board of Directors, and Executive shall devote his best efforts and
his full business time and attention, both within and outside working hours, to
the business and affairs of the Company and its Subsidiaries and performance of
his duties under this Agreement; provided that, the Executive shall be entitled
to devote up to 20 days per year to oversee his property business and to Exeter
International Corporation S.A., in each case so long as such activity does not
conflict with Executive's duties and obligations to the Company and its
Subsidiaries. Executives duties hereunder will require significant amount of
time working overseas and may necessitate residence in the Channel Islands
and/or North America. The Executive may engage in charitable and personal
business activities which do not conflict with his duties under this Agreement,
but the Executive shall not, without the consent of the Company, enter into any
other paid employment or agreement to provide services during the Employment
Period except with the consent of the Company.
4. EMPLOYMENT PERIOD
(a) The term of the Executive's employment under this Agreement (the
"Employment Period") shall begin on the Effective Date of this Agreement and
shall continue for a period of twelve (12) months (with the last day of such
twelve month period being referred to herein as the "Termination Day");
provided, however, that the Employment Period may be terminated as follows:
(i) in the event the Executive dies during the Employment Period,
the Employment Period shall terminate on the date of death, but the Executive's
remuneration shall continue until the end of the month in which his death
occurs;
(ii) in the event the Executive, by reason of physical or mental
disability (excluding infrequent and temporary absences due to ordinary
transitory illnesses), shall be unable for more than one hundred and eighty
(180) days in the aggregate during any consecutive twelve (12) month period to
perform the services required of him under this Agreement, the Employment Period
shall terminate at the end of the month following the month in which the Company
shall have given notice to the Executive of its intention to terminate the
Employment Period because of such disability; or
(iii) in the event the Executive shall become bankrupt or compound
with his creditors, or if the Executive shall be guilty of any serious or
persistent default or misconduct in connection with or affecting the business of
the Company, or of serious negligence in performing his duties hereunder, or if
the Executive shall be in breach of any law or any rule or regulation of any
regulatory authority which shall disqualify him from performing his duties under
this Agreement, the Employment Period shall terminate immediately upon receipt
by the Executive of notice in writing from the Company of termination of the
Employment Period.
(b) Should the Employment Period terminate by notice as provided for
in sub-paragraph (a) of this paragraph 4, the Executive shall not be entitled to
receive any payment from
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the Company under the United Kingdom Redundancy Payments Act 1965. For the
purposes of this Agreement, the Employment Period shall include and be deemed to
be continuous with the period of employment under the Employment Agreement.
5. REMUNERATION OF EMPLOYEE
The full and complete remuneration of the Executive for his services
under this Agreement shall be as set forth in Appendix B attached to this
Agreement and made a part hereof.
6. EXPENSES
The Executive is authorized to incur reasonable expenses in the
performance of his duties under this Agreement, on a basis consistent with the
policies of the Company and its Subsidiaries (as defined below) from time to
time, including expenses for business entertainment, travel and subsistence.
The Executive shall submit all claims for reimbursement of such expenses
directly to the Company or the Subsidiary for which such expenses were incurred,
and the Company shall ensure that such expenses are reimbursed to the Executive
within a reasonable time after submission by the Executive of an itemized
account of such expenses, together with such vouchers or receipts for individual
expense items as the Company or such Subsidiary may reasonably require.
7. PENSION AND LIFE ASSURANCE PLANS
The Company shall make provision for the Executive's inclusion in any
pension and/or life insurance plan which the Company or its Subsidiaries may
establish or maintain from time to time for senior executive employees, subject
to any conditions which the Company or the insurance company underwriting such
plan may impose with respect to participation in the plan; provided, however,
that the pension benefits provided shall be no less favourable to the Executive
than those set out in Appendix B to this Agreement.
8. VACATION
The Executive shall be entitled to five (5) weeks' vacation in each
calendar year during the Employment Period (in addition to the usual public
holidays in the United Kingdom), provided that such vacation shall be taken at
such time or times as the Board of Directors of the Company approves in advance.
9. REPORTS AND WRITTEN MATERIALS
The Executive shall promptly communicate and disclose to the Company
all information, data and materials obtained by him in the course of his
employment under this Agreement. All written reports, recommendations, advice,
records, documents and other materials prepared or obtained by the Executive or
coming into his possession in the course of his employment under this Agreement
shall, as between the Company and the Executive, be the sole and exclusive
property of the Company and, at the end of the Employment Period, or at the
request of the Company during the Employment Period, the Executive shall
promptly deliver all
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such materials to the Company or to such other person as the Company may direct.
The Executive shall prepare and submit to the Company such regular periodic
reports as the Company may request with respect to the activities undertaken by
him or conducted under his direction in the course of his employment under this
Agreement. As between the Company and the Executive, such reports and the
information contained therein shall be and remain the sole property of the
Company.
10. CONFIDENTIAL INFORMATION
Except as otherwise specifically agreed between the parties, the
Executive shall not, at any time during the Employment Period or thereafter,
communicate or disclose to any unauthorized person or use for his own account or
business any information, data, reports, recommendations, advice, records,
documents or other material referred to in paragraph 9 of this Agreement above,
or any other information concerning the business or affairs of the Company or
any of its Subsidiaries or associated companies. The obligations contained in
this paragraph 10 shall not apply in the event and to the extent that the
information, data, reports, recommendations, advice, records, documents or other
materials referred to in this paragraph 10 become generally known to or
available for use by the public, other than by an act or omission of the
Executive in violation of the terms of this Agreement.
11. ANNOUNCEMENTS
Neither party to this Agreement shall make any public announcement
relating to the Executive's employment by the Company without the prior consent
of the other party to this Agreement, which shall not be unreasonably withheld.
12. OFFICE FACILITIES
The Company shall make available to the Executive during the
Employment Period full office and secretarial facilities at such places as the
Company and the Executive shall agree.
13. NOTICES
All notices, demands, consents or other communications under this
Agreement shall be given or made in writing, and shall be delivered personally,
sent by certified or registered airmail with postage prepaid or transmitted by
telefax or courier service, addressed to the other party at the address set out
at the head of this Agreement or at such other address as may be designated by
notice from such other party; provided, however, that any communication sent by
telefax shall be confirmed by mail as prescribed in this paragraph. Any notice,
demand, consent or other communication given or made by mail in the manner
prescribed in this paragraph shall be deemed to have been received seven (7)
days after the date of mailing.
14. ADDITIONAL ACTION
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Each party to this Agreement shall execute and deliver such other
documents and do such other acts and things as may be necessary or desirable to
carry out the terms, provisions and purposes of this Agreement.
15. AMENDMENTS
This Agreement and the relationships of the parties in connection with
the subject matter of this Agreement may, upon the desire of the parties hereto
expressed in writing, be reviewed by the parties from time to time for such
purposes as the parties may choose to consider. Notwithstanding the foregoing,
no amendment, interpretation or waiver of any of the provisions of this
Agreement shall be effective unless made in writing and signed by the parties to
this Agreement.
16. ASSIGNMENT BY THE COMPANY; SUBSIDIARIES
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any such successor or assigns shall
be deemed substituted for the Company as a party to this Agreement. The term
"successor" shall mean any person, firm, corporation or business entity which at
any time, whether by purchase, merger, assignment or otherwise, acquires all or
substantially all of the assets or business of the Company. The term
"Subsidiary" shall mean a corporation (or equivalent legal entity under the law
of any country) of which the Company owns directly or indirectly more than fifty
percent (50%) of the shares the holders of which are ordinarily and generally,
in the absence of contingencies or special arrangements, entitled to vote for
the election of directors (or the equivalent governing body of the corporation).
The Executive may be required to provide services under this Agreement to any
Subsidiary or associated company of the Company, and all such Subsidiaries or
associated companies shall be deemed to be included in the term "Company" for
the purposes of this Agreement, where the context so requires or permits.
17. ASSIGNMENT BY THE EXECUTIVE
This Agreement shall be binding upon and shall inure to the benefit of
the Executive, his legal representatives and assigns, except that the
Executive's obligations to perform services under this Agreement are personal
and are expressly declared to be non-assignable and non-transferable without the
consent of the Company.
18. ENFORCEMENT
The failure to enforce or to require the performance at any time of
any of the provisions of this Agreement shall in no way be construed to be a
waiver of such provisions, and shall not affect either the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every provision in accordance with the terms of this Agreement. The
Executive acknowledges and agrees that a breach by him of his obligations under
paragraph 10 of this Agreement may cause the Company and any Subsidiary or
associated company to which the Executive provides services during the
Employment Period irreparable injury and damage. The Executive, therefore,
expressly agrees that, in addition to whatever other remedies may be available
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to the Company or such Subsidiaries and associated companies, the Company or any
other company which may be injured by default in the performance of such
obligations shall be entitled to injunctive and/or other equitable relief to
prevent a breach of such obligations and to secure their enforcement.
19. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties up to
the date hereof with respect to the Executive's employment by the Company and
his remuneration therefor.
20. GOVERNING LAW
This Agreement and the relationships of the parties in connection with
the subject matter of this Agreement shall be governed by and determined in
accordance with the laws of England.
21. SEVERABILITY
If any severable provision of this Agreement is held to be invalid or
unenforceable by any judgment of a tribunal of competent jurisdiction, the
remainder of this Agreement shall not be affected by such judgment, and the
Agreement shall be carried out as nearly as possible according to its original
terms and intent.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year set out at the head of this Agreement.
THE DERBY CYCLE CORPORATION
By:_____________________________________ _________________________________
William W. Austin, Jr. ALAN J. FINDEN-CROFTS
Vice-President
<PAGE>
APPENDIX A
TO EMPLOYMENT AGREEMENT
The Executive's duties shall be to:
(a) serve as president and chief executive officer of the Company and
such of its Subsidiaries as shall be agreed between the Executive and the Board
of Directors of the Company;
(b) in cooperation with the chairman and the Board of Directors of the
Company, formulate and implement the overall policies and operating procedures
for the Company and its Subsidiaries;
(c) ensure that full, timely and accurate financial reports and
budgets are prepared and submitted for the Company and each of its Subsidiaries,
and participate in the presentation of such reports to the Board of Directors of
the Company, with the Executive's comments and recommendations thereon;
(d) take responsibility for the achievement of all financial
objectives and budgets for the Company and its Subsidiaries which are mutually
agreed by the Board of Directors of the Company and the Executive;
(e) establish and maintain contacts with senior executives of major
companies in the sporting goods and bicycle industries throughout the world, and
with government officials, representatives of trade and professional
organizations and members of the press and other media in order to maintain and
promote the name, reputation and business of the Company and its Subsidiaries;
(f) take responsibility for the recruitment, appointment, direction
and dismissal (where appropriate) of all senior executives of the Company and
its Subsidiaries;
(g) establish standards and procedures for evaluation of the
performance of senior executives of the Company and its Subsidiaries at all
times;
(h) to the extent elected by the Company's shareholders, serve as a
member of the Board of Directors of the Company and those Subsidiaries of the
Company agreed between the Executive and the chairman of the Company;
(i) in cooperation with the Board of Directors and the chairman of the
Company, maintain communication with the shareholders of and lenders to the
Company and its Subsidiaries;
(j) obtain and review data and information with respect to the
business of the Company and its Subsidiaries, as well as the sporting goods and
bicycle industries throughout the world, for the purpose of evaluating the
competitive position of the Company and its Subsidiaries and formulating
recommendations to the Board of Directors for acquisitions, disposals or
cooperative business arrangements appropriate for the Company or its
Subsidiaries; and
A-1
<PAGE>
(k) perform such other duties as may be assigned to the Executive by
the Board of Directors of Company from time to time which are consistent with
the status of the Executive as president and chief executive of the Company.
A-2
<PAGE>
APPENDIX B
TO EMPLOYMENT AGREEMENT
1. As the full and complete remuneration of the Executive for his
services under the Agreement to which this Appendix B is attached, the Company
shall:
(a) pay to the Executive during the Employment Period, by transfer to
a bank of the Executive's choice, a base salary at the rate of two hundred
thousand pounds sterling ((Pounds)200,000) a year, payable on the fifteenth
(15th) day of each month in twelve (12) equal installments;
(b) pay to the Executive a bonus for the 1998 fiscal year as follows:
(i) (Pounds)125,000 so long as PBIT (as defined below) is at
least (Pounds)14 million; plus
(ii) 2.5% of PBIT over (Pounds)14 million; plus
(iii) 2.5% of PBIT over (Pounds)15 million; plus
(iv) 1% of PBIT over (Pounds)18 million.
For example purposes only, Executive's bonus can be illustrated in tabular form
as follows:
<TABLE>
<CAPTION>
PBIT (im million pounds sterling) Bonus
--------------------------------- -----
<S> <C>
less than 14 (Pounds)0
14 (Pounds)125,000
15 (Pounds)150,000
16 (Pounds)200,000
17 (Pounds)250,000
18 (Pounds)300,000
19 (Pounds)360,000
20 (Pounds)420,000
21 (Pounds)480,000
</TABLE>
"PBIT" means consolidated profits on ordinary activities before interest
payments and taxation of the Company and its Subsidiaries for the 1998 fiscal
year, as shown on the audited financial statements of the Company and its
Subsidiaries for such year. PBIT shall include profits from acquisitions with
the exception of Diamondback, GT and other acquisitions of similar scope and
size. PBIT excludes non-executive director's fees and expenses.
Any bonus due the Executive shall be paid by the Company to the Executive within
the earlier of (i) seven (7) days after the date on which the Company's auditors
have both signed the Company's accounts and produced a certificate setting forth
the amount of, and calculations for, any bonus payment due the Executive, or
(ii) a later mutually agreed upon date .
(c) keep and maintain in effect during the Employment Period non-
contributory pension arrangements which provide to the Executive a pension at
age sixty (60) equal to two-thirds (2/3) of average annual base salary during
the last three (3) years of his employment prior to
B-1
<PAGE>
retirement age (or during the last year of such employment, if higher), with
lump-sum commutation benefits equal to the maximum permitted for approved
pension plans by the United Kingdom Inland Revenue.
(d) keep and maintain in effect during the Employment Period life and
disability insurance for the Executive which provides to his beneficiaries a
lump-sum benefit equal to four (4) times his base salary during the preceding
calendar year, together with widow's or dependent's pension and child allowances
related to the pension and life insurance benefits provided for herein;
(e) keep and maintain in effect during the Employment Period such
medical insurance and other employee health or accident benefits for the
Executive as shall be provided for from time to time in accordance with the
policy of the Company for persons of employee's age, grade and status, but in
any event to include all members of the Executive's immediate family; and
(f) pay or reimburse an agreed proportion of providing to the
Executive a suitable car approved by the chairman of the Company for use by him
in connection with his duties, including all charges and expenses in respect of
licenses, comprehensive insurance, repairs and maintenance, as well as the cost
of petrol and oil used by the Executive.
2. The Executive shall promptly apply for any social security benefits to
which he may become entitled in respect of ill-health or incapacity, and the
Executive shall forthwith notify the Company of the amount of any payment he
receives. The Company shall be entitled to deduct an amount equivalent to any
such payment from any amount which becomes due to the Executive under this
Agreement.
3. The Company shall be entitled to deduct and retain from any amounts
owed by the Company to the Executive any sum properly paid by the Company on
behalf of or at the request of the Executive, or any other sum due to the
Company by the Executive.
B-2
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made this 14th day of May 1998 by and
between THE DERBY CYCLE CORPORATION, a corporation organized and existing under
the laws of the State of Delaware, with its registered office in the State of
Delaware at Corporation Trust Center, c/o CT Corporation, 1209 Orange Street,
Wilmington, DE 19801 (the "Company") and WILLIAM W. AUSTIN, JR. a United States
-------
citizen residing at 14626 S.E. 244th Street, Kent, Washington 98042, in the
United States of America (the "Executive").
---------
WHEREAS, the Company, Derby International Corporation SA ("DIC"),
---
Derby Finance S.a.r.l. ("DFS"), DC Cycle, L.L.C. ("LLC") and Perseus Cycle,
--- ---
L.L.C. ("Perseus") have entered into a Recapitalization Agreement, dated March
-------
11, 1998, contemplating the recapitalization of the Company (the
"Recapitalization") upon satisfaction of certain conditions;
- -----------------
WHEREAS, it is a condition to consummation of the Recapitalization
that Executive enter into an employment agreement with the Company to be
effective upon consummation of the Recapitalization;
WHEREAS, the Company and the Executive have agreed to execute this
Employment Agreement (this "Agreement") to set forth the rights and duties of
---------
the Executive in respect of his employment with the Company following
consummation of the Recapitalization;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:
1. EFFECTIVENESS
-------------
Executive and the Company agree that the terms and conditions of
employment set forth below herein shall become effective immediately upon the
consummation of the Recapitalization (the "Effective Date"). At the Effective
--------------
Date, Executive acknowledges and agrees that his existing Amended & Restated
Employment Agreement dated August 29, 1997 with DIC shall terminate.
2. SERVICES OF EMPLOYEE
--------------------
The Company hereby agrees to employ the Executive during the
Employment Period, as defined in paragraph 4 below, to perform the duties
specified in Appendix A attached to this Agreement and made a part hereof, and
the Executive hereby agrees to accept such employment by the Company, all on and
subject to the terms and conditions contained in this Agreement.
<PAGE>
3. HOURS AND PLACES OF EMPLOYMENT
------------------------------
The Executive's services will be rendered primarily in the United
States of America. The Executive may be required to travel on the Company's
business to such places outside the United States of America as the chief
executive or any duly authorized director or officer of the Company shall
designate from time to time. The Executive shall devote such time and attention
to the performance of his duties under this Agreement, both within and outside
normal working hours, as shall reasonably be required by the Company. The
Executive shall not, without the consent of the Company, enter into any other
paid employment or agreement to provide services during the Employment Period.
The Executive shall not be required to change his principal residence without
his prior consent.
4. EMPLOYMENT PERIOD
-----------------
The term of the Executive's employment under this Agreement (the
"Employment Period") shall begin on the Effective Date of this Agreement and
- ------------------
shall continue under this Agreement until the 65th birthday of the Executive on
October 3, 2002; provided, however, that the Employment Period may be terminated
by notice from either party to the other given at any time and received not less
than eighteen (18) months before the date of termination. The Employment Period
may also be terminated as follows:
(a) by the Company for any reason, the Employment Period shall
terminate immediately upon receipt by the Executive of notice in writing from
the Company of termination of the Employment Period, provided that, if the
Employment Period is terminated under this Section 4(a), the Executive shall be
entitled to his base salary (based upon the Executive's base salary set forth in
Appendix B, Section (a)) for the period through the earlier of (i) eighteen
months after such termination or (ii) October 3, 2002;
(b) in the event the Executive dies during the Employment Period, the
Employment Period shall terminate on the date of death, but the Executive's
remuneration shall continue until the end of the month in which his death
occurs;
(c) in the event the Executive, by reason of physical or mental
disability (excluding infrequent and temporary absences due to ordinary
transitory illnesses), shall be unable for more than one hundred and eighty
(180) days in the aggregate during any consecutive twelve (12) month period to
perform the services required of him under this Agreement, the Employment Period
shall terminate at the end of the month following the month in which the Company
shall have given notice to the Executive of its intention to terminate the
Employment Period because of such disability; or
(d) in the event the Executive shall become bankrupt or compound with
his creditors, or if the Executive shall be guilty of any serious or persistent
default or misconduct in connection with or affecting the business of the
Company, or of serious negligence in performing his duties hereunder, or if the
Executive shall be in breach of any law or any rule or regulation of any
regulatory authority which shall disqualify him from performing his duties under
this Agreement,
-2-
<PAGE>
the Employment Period shall terminate immediately upon receipt by the Executive
of notice in writing from the Company of termination of the Employment Period.
5. REMUNERATION OF EMPLOYEE
------------------------
The full and complete remuneration of the Executive for his services
under this Agreement shall be as set forth in Appendix B attached to this
Agreement and made a part hereof.
6. EXPENSES
--------
The Executive is authorized to incur reasonable expenses in the
performance of his duties under this Agreement, on a basis consistent with the
policies of the Company and its Subsidiaries (as defined below) from time to
time, including expenses for business entertainment, travel and subsistence.
The Executive shall submit all claims for reimbursement of such expenses
directly to the Company or the Subsidiary for which such expenses were incurred,
the Chief Executive Officer of the Company shall review such expenses on a
monthly basis, and, upon the approval of the Chief Executive Officer of the
Company of such expenses, the Company shall ensure that such expenses are
reimbursed to the Executive within a reasonable time after submission by the
Executive of an itemized account of such expenses, together with such vouchers
or receipts for individual expense items as the Company or such Subsidiary may
reasonably require.
7. PENSION AND LIFE ASSURANCE PLANS
--------------------------------
The Company shall make provision for the Executive's inclusion in the
Company's 401K Savings Plan and such medical and dental benefit plans as the
Company shall make available to senior employees located in the United States
from time to time.
8. VACATION
--------
The Executive shall be entitled to four (4) weeks' vacation in each
calendar year during the Employment Period (in addition to the usual public
holidays in the United States), provided that such vacation shall be taken at
such time or times as the chief executive of the Company approves in advance.
9. REPORTS AND WRITTEN MATERIALS
-----------------------------
The Executive shall promptly communicate and disclose to the Company
all information, data and materials obtained by him in the course of his
employment under this Agreement. All information, data, reports,
recommendations, advice, records, documents and other materials prepared or
obtained by the Executive or coming into his possession in the course of his
employment under this Agreement shall, as between the Company and the Executive,
be the sole and exclusive property of the Company and, at the end of the
Employment Period, or at the request of the Company during the Employment
Period, the Executive shall promptly deliver all such materials to the Company
or to such other person as the Company may direct. The Executive shall prepare
and submit to the Company such regular periodic reports as the Company may
request with respect
-3-
<PAGE>
to the activities undertaken by him or conducted under his direction in the
course of his employment under this Agreement. As between the Company and the
Executive, such reports and the information contained therein shall be and
remain the sole property of the Company.
10. CONFIDENTIAL INFORMATION
------------------------
Except as otherwise specifically agreed between the parties, the
Executive shall not, at any time during the Employment Period or thereafter,
communicate or disclose to any unauthorized person or use for his own account or
business any information, data, reports, recommendations, advice, records,
documents or other material referred to in paragraph 9 of this Agreement above,
or any other information concerning the business or affairs of the Company or
any of its Subsidiaries or associated companies. The obligations contained in
this paragraph 10 shall not apply in the event and to the extent that the
information, data, reports, recommendations, advice, records, documents or other
materials referred to in this paragraph 10 become generally known to or
available for use by the public, other than by an act or omission of the
Executive in violation of the terms of this Agreement.
11. REVIEW OF THIS AGREEMENT
------------------------
On July 1, 1999 and July 1 of each calendar year thereafter during the
Employment Period, the parties shall review all of the provisions of this
Agreement to determine if any mutually agreed amendments or additions should be
made to the terms and conditions contained herein.
12. NON-COMPETITION
---------------
During the Employment Period and for a period of twelve (12) months
thereafter, the Executive shall not, except with the prior consent of the Board
of Directors of the Company, be directly or indirectly engaged, concerned or
interested in any activities which involve the manufacture, importing,
distribution or marketing of bicycle parts or accessories at any place where the
Company or its Subsidiaries are engaged in those activities at that time;
provided, however, that the Executive may remain or become a holder for the
purpose of investment only of any shares or other investments in any
partnership, company or corporation the business of which is competitive with
the business of the Company, its Subsidiaries or associated companies at such
time, so long as the Executive owns (together with his wife, siblings and
children) not more than five percent (5%) of the issued shares (or securities
convertible into shares) of such partnership, company or corporation.
13. NOTICES
-------
All notices, demands, consents or other communications under this
Agreement shall be given or made in writing, and shall be delivered personally,
sent by certified or registered airmail with postage prepaid or transmitted by
telefax or courier service, addressed to the other party at the address set out
at the head of this Agreement or at such other address as may be designated by
notice from such other party; provided, however, that any communication sent by
telefax shall be confirmed by mail as prescribed in this paragraph. Any notice,
demand, consent or other
-4-
<PAGE>
communication given or made by mail in the manner prescribed in this paragraph
shall be deemed to have been received seven (7) days after the date of mailing.
14. ADDITIONAL ACTION
-----------------
Each party to this Agreement shall execute and deliver such other
documents and do such other acts and things as may be necessary or desirable to
carry out the terms, provisions and purposes of this Agreement.
15. AMENDMENTS
----------
No amendment, interpretation or waiver of any of the provisions of
this Agreement shall be effective unless made in writing and signed by the
parties to this Agreement.
16. ASSIGNMENT BY THE COMPANY; SUBSIDIARIES
---------------------------------------
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any such successor or assigns shall
be deemed substituted for the Company as a party to this Agreement. The term
"successor" shall mean any person, firm, corporation or business entity which at
- ----------
any time, whether by purchase, merger, assignment or otherwise, acquires all or
substantially all of the assets or business of the Company. The term
"Subsidiary" shall mean a corporation (or equivalent legal entity under the law
- -----------
of any country) of which the Company owns directly or indirectly more than forty
percent (40%) of the shares the holders of which are ordinarily and generally,
in the absence of contingencies or special arrangements, entitled to vote for
the election of directors (or the equivalent governing body of the corporation).
The Executive may be required to provide services under this Agreement to any
Subsidiary or associated company of the Company, and all such Subsidiaries or
associated companies shall be deemed to be included in the term "Company" for
the purposes of this Agreement, where the context so requires or permits.
17. ASSIGNMENT BY THE EXECUTIVE
---------------------------
This Agreement shall be binding upon and shall inure to the benefit of
the Executive, his legal representatives and assigns, except that the
Executive's obligations to perform services under this Agreement are personal
and are expressly declared to be non-assignable and non-transferable without the
consent of the Company.
18. ENFORCEMENT
-----------
The failure to enforce or to require the performance at any time of
any of the provisions of this Agreement shall in no way be construed to be a
waiver of such provisions, and shall not affect either the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every provision in accordance with the terms of this Agreement. The
Executive acknowledges and agrees that a breach by him of his obligations under
paragraphs 10 and 11 of this Agreement may cause the Company and any Subsidiary
or associated company to which
-5-
<PAGE>
the Executive provides services during the Employment Period irreparable injury
and damage. The Executive, therefore, expressly agrees that, in addition to
whatever other remedies may be available to the Company or such Subsidiaries and
associated companies, the Company or any other company which may be injured by
default in the performance of such obligations shall be entitled to injunctive
and/or other equitable relief to prevent a breach of such obligations and to
secure their enforcement.
19. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire agreement of the parties up to
the date hereof with respect to the Executive's employment by the Company and
his remuneration therefor.
20. GOVERNING LAW
-------------
This Agreement and the relationships of the parties in connection with
the subject matter of this Agreement shall be governed by and determined in
accordance with the laws of the State of Washington, in the United States of
America.
21. SEVERABILITY
------------
If any severable provision of this Agreement is held to be invalid or
unenforceable by any judgment of a tribunal of competent jurisdiction, the
remainder of this Agreement shall not be affected by such judgment, and the
Agreement shall be carried out as nearly as possible according to its original
terms and intent.
* * * * *
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year set out at the head of this Agreement.
THE DERBY CYCLE CORPORATION
By: ______________________________
Alan J. Finden-Crofts
President and CEO
______________________________
WILLIAM W. AUSTIN, JR.
<PAGE>
APPENDIX A
----------
TO EMPLOYMENT AGREEMENT WITH
----------------------------
WILLIAM W. AUSTIN, JR.
----------------------
The Executive's duties shall be to:
(a) serve as the president of the Company's United States operations
as currently conducted and in such other executive positions of the Company and
its Subsidiaries as shall be agreed between the Executive and the Board of
Directors of the Company;
(b) in cooperation with and under the direction of the chief executive
of the Company, formulate and implement the overall policies and operating
procedures for the Company's United States operations as currently conducted by
Raleigh USA Bicycle Company ("Raleigh USA");
-----------
(c) in cooperation with and under the direction of the chief executive
of the Company, formulate and implement strategic planning and marketing, sales,
manufacturing, distribution and financial policies for Raleigh USA;
(d) in cooperation with and under the direction of the chief executive
of the Company, formulate and implement operating procedures for Raleigh USA,
including operating procedures on marketing, sales, manufacturing, importing,
distribution, financial reporting, internal cost controls, budgeting and
budget/cost analysis, working capital management, banking and capital spending
controls, product pricing and credit management;
(e) ensure that full, timely and accurate financial reports and
budgets are prepared and submitted by Raleigh USA to the Company, and
participate in the presentation of such reports to the Board of Directors of the
Company, with the Executive's comments and recommendations thereon;
(f) take responsibility for the achievements of all financial
objectives and budgets for Raleigh USA;
(g) establish and maintain contacts with senior executives of major
companies in the bicycle industry throughout the world, and with governmental
officials, representatives of trade and professional organizations and members
of the press and other media in order to maintain and promote the name,
reputation and business of Raleigh USA, as well as the brands of bicycles,
bicycle parts and accessories and related products manufactured and sold by that
company;
(h) establish and maintain contacts with banking institutions,
external auditors, legal counsel, tax counsel and government tax officials;
-8-
<PAGE>
(i) in cooperation with and under the direction of the chief executive
of the Company, take responsibility for the recruitment, appointment, direction
and dismissal (where appropriate) of senior executive and financial staff of
Raleigh USA;
(j) in cooperation with and under the direction of the chief executive
of the Company, establish standards and procedures for evaluation of the
performance of the senior executive staff of Raleigh USA at all times;
(l) in cooperation with the Board of Directors and the chief executive
of the Company, participate in communications with the shareholders of and
lenders to the Company and its Subsidiaries;
(m) assist the chairman of the Board of Directors and chief executive
of the Company in the identification and development of new products,
appropriate manufacturing technology, additional markets, proposed acquisitions,
dispositions and cooperative business arrangements and improved management
controls and operating procedures of and for companies in the bicycle industry;
and
(n) perform such other duties as may be assigned to the executive by
the Board of Directors and chief executive of the Company from time to time
which are consistent with the status of the Executive as the president of
Raleigh USA.
-9-
<PAGE>
APPENDIX B
----------
TO EMPLOYMENT AGREEMENT WITH
----------------------------
WILLIAM W. AUSTIN, JR.
----------------------
1. The full and complete remuneration of the Executive for his services
under the Agreement to which this Appendix B is attached shall be as follows:
(a) the Company shall pay to the Executive during the Employment
Period, by transfer to a bank of the Executive's choice, a base salary at the
rate of two hundred and fifty-five thousand United States dollars ($255,000) a
year, payable semi-monthly in arrears in twenty-four (24) equal installments
each year;
(b) for each calendar year during the Employment Period, beginning
with calendar year 1998, the Company shall pay to the Executive a bonus of up to
fifty percent (50%) of his base salary upon the achievement of financial targets
for Raleigh USA for such calender year, with such financial targets to be agreed
between the Executive and the chief executive of the Company;
(c) the Company shall pay during the Employment Period the lease and
insurance costs for an automobile for the Executive's use with a list price of
up to thirty-six thousand United States dollars ($36,000), based on a four year
lease of such vehicle; and
(d) the Company shall reimburse to the Executive for the cost of
professional subscriptions which are relevant to his position and duties with
the Company or Raleigh USA.
2. The Executive shall promptly apply for any social security benefits to
which he may become entitled in respect of ill-health or incapacity, and the
Executive shall forthwith notify the Company of the amount of any payment he
receives. The Company shall be entitled to deduct an amount equivalent to any
such payment from any amount which becomes due to the Executive under this
Agreement.
3. The Company shall be entitled to deduct and retain from any amounts
owed by the Company to the Executive any sum properly paid by the Company on
behalf of or at the request of the Executive, or any other sum due to the
Company by the Executive.
-10-
<PAGE>
EXHIBIT 12.1
PAGE 1 OF 1
THE DERBY BICYCLE GROUP
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------------------- ---------------------------
PRO FORMA
PRO FORMA SEPTEMBER 27, SEPTEMBER 27,
1993 1994 1995 1996 1997 1997 1998 1998
----------- ---- ---- ---- ---- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from operations
before income taxes.... 17.8 11.9 23.5 23.5 23.4 10.1 4.9 6.2
Add
Fixed charges.......... 12.3 12.7 11.6 10.1 9.7 22.3 14.0 19.0
Capitalized interest... -- -- -- -- -- -- -- --
Amortization of
capitalized interest.. -- -- -- -- -- -- -- --
Net losses related to
certain 50% or less
owned affiliate....... -- -- -- -- -- -- -- --
Minority interest in
consolidated
affiliates............ 1.1 1.0 0.1 -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Adjusted earnings....... 31.2 25.6 35.2 33.6 33.1 32.4 18.9 25.2
==== ==== ==== ==== ==== ==== ==== ====
Fixed charges:
Interest on debt and
capitalized leases.... 10.5 10.5 9.4 8.0 7.5 19.6 11.5 16.5
Amortization of debt
financing............. 0.1 0.5 0.5 0.5 0.6 1.1 0.9 0.9
Portion of rents repre-
sentative of the in-
terest factor......... 1.7 1.7 1.7 1.6 1.6 1.6 1.6 1.6
Debt service guarantee
interest expense of
unconsolidated
affiliates............ -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Total fixed charges..... 12.3 12.7 11.6 10.1 9.7 22.3 14.0 19.0
==== ==== ==== ==== ==== ==== ==== ====
Ratio of earnings to
fixed charges.......... 2.5 2.0 3.0 3.3 3.4 1.5 1.4 1.3
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 12.2
PAGE 1 OF 1
THE DERBY BICYCLE GROUP
COMPUTATION OF RATIO OF EBITDA TO INTEREST EXPENSE
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
----------------------------------------------- ----------------------------
PRO FORMA
PRO FORMA SEPTEMBER 27, SEPTEMBER 27,
1993 1994 1995 1996 1997 1997 1998 1998
----------- ---- ---- ---- ---- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income........ 29.1 22.7 22.0 33.4 29.7 29.7 22.7(/1/) 22.7(/1/)
Add
Depreciation........... 7.3 9.1 9.8 9.4 9.4 9.4 7.3 7.3
Amortization........... (0.8) (1.3) (1.1) (1.2) (0.8) (0.8) (0.4) (0.4)
Amortization of pension
transition asset...... (2.5) (2.5) (2.7) (2.7) (2.5) (2.5) (1.9) (1.9)
---- ---- ---- ---- ---- ---- ---- ----
EBITDA.................. 33.1 28.0 28.0 38.9 35.8 35.8 27.7 27.7
==== ==== ==== ==== ==== ==== ==== ====
Interest expense........ 10.5 10.5 9.4 8.0 7.5 19.6 11.5 16.5
Ratio of EBITDA to in-
terest expense......... 3.2 2.7 3.0 4.9 4.8 1.8 2.4 1.7
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------
(1) Operating income excludes $5.7 million of one-time reorganization costs
incurred in the nine months ended September 27, 1998, for the
Recapitalization.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
November 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001067447
<NAME> DERBY CYCLE CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1997 SEP-27-1998
<CASH> 15,426 13,112
<SECURITIES> 0 0
<RECEIVABLES> 73,523 65,527
<ALLOWANCES> 8,259 9,445
<INVENTORY> 89,792 97,776
<CURRENT-ASSETS> 184,363 175,453
<PP&E> 109,170 115,269
<DEPRECIATION> 59,463 67,278
<TOTAL-ASSETS> 288,498 297,151
<CURRENT-LIABILITIES> 121,054 94,858
<BONDS> 51,059 163,942
0 43,405
0 0
<COMMON> 0 1
<OTHER-SE> 81,873 (62,681)
<TOTAL-LIABILITY-AND-EQUITY> 288,498 297,151
<SALES> 465,687 358,653
<TOTAL-REVENUES> 465,687 358,653
<CGS> 345,885 269,996
<TOTAL-COSTS> 345,885 269,996
<OTHER-EXPENSES> 1,073 597
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,490 11,501
<INCOME-PRETAX> 23,356 4,924
<INCOME-TAX> 10,621 4,192
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 348
<CHANGES> 0 0
<NET-INCOME> 12,684 367
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
