<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
Commission File No. 0-22724
CABLE DESIGN TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3601505
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Foster Plaza 7
661 Andersen Drive
Pittsburgh, PA 15220
(Address of principal executive offices)
(412) 937-2300
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at 03/5/99
----- ----------------------
Common Stock, $.01 Par Value 28,148,501
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CABLE DESIGN TECHNOLOGIES CORPORATION
-------------------------------------
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements........................................... 3
Review Report of Independent Public Accountants for
the Three Months and Six Months Ended January 31, 1999 and 1998 4
Condensed Consolidated Statements of
Income - Unaudited for the Three Months and Six Months Ended
January 31, 1999 and 1998...................................... 5
Condensed Consolidated Balance Sheets
as of January 31, 1999 (Unaudited), and July 31, 1998.......... 6
Condensed Consolidated Statements of
Cash Flows - Unaudited for the Six Months
Ended January 31, 1999 and 1998................................ 7
Notes to Condensed Consolidated
Financial Statements - Unaudited............................... 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................. 19
Item 2 Changes in Securities.......................................... 19
Item 3 Defaults upon Senior Securities................................ 19
Item 4 Submission of Matters to a Vote of Security Holders............ 19
Item 5 Other Information.............................................. 20
Item 6 Exhibits and Reports on Form 8-K............................... 20
Signatures ............................................................... 21
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of Cable Design Technologies Corporation's (the "Company")
management, the unaudited condensed consolidated financial statements included
in this filing on Form 10-Q reflect all adjustments which are considered
necessary for a fair presentation of financial information for the periods
presented.
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has made a review, based upon procedures adopted by the
American Institute of Certified Public Accountants, of the unaudited condensed
consolidated financial statements as of and for the three month and six month
periods ended January 31, 1999 and 1998, contained in this report. As stated on
page 4, Arthur Andersen LLP did not audit and accordingly does not express an
opinion on the unaudited consolidated financial statements; however as a result
of such review, they are not aware of any material modifications that should be
made to the financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
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Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholders of Cable Design Technologies
Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Cable
Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of
January 31, 1999, and the related condensed consolidated statements of income
for the three month and six month periods ended January 31, 1999 and 1998, and
the condensed consolidated statements of cash flows for the six month periods
ended January 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Cable Design Technologies
Corporation and Subsidiaries as of July 31, 1998, and, in our report dated
September 11, 1998, we expressed an unqualified opinion on that statement. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of July 31, 1998, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
Pittsburgh, Pennsylvania, Arthur Andersen LLP
February 24, 1999
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
--------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
-------------------------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
--------------------------- ------------------------
1999 1998 1999 1998
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 160,896 $ 155,638 $ 334,520 $ 317,782
Cost of sales 114,030 109,924 233,913 224,470
-------------- ------------ ------------ -----------
Gross profit 46,866 45,714 100,607 93,312
Selling, general and administrative expenses 27,011 26,524 55,215 52,513
Research and development expenses 1,430 1,779 2,897 3,617
Non-recurring charge 6,307 - 6,307 -
-------------- ------------ ------------ -----------
Income from operations 12,118 17,411 36,188 37,182
Interest expense, net 3,196 1,917 6,418 3,831
Other expense (income) 351 (566) 603 (1,095)
-------------- ------------ ------------ -----------
Income before income taxes 8,571 16,060 29,167 34,446
Income tax provision 3,765 6,134 11,997 13,070
-------------- ------------ ------------ -----------
Net income $ 4,806 $ 9,926 $ 17,170 $ 21,376
============== ============ ============ ===========
Per share data:
Basic earnings per common share $0.17 $0.35 $0.58 $0.75
Diluted earnings per common share $0.16 $0.32 $0.58 $0.68
============== ============ ============ ===========
Weighted average common shares 28,833,632 28,499,853 29,405,214 28,348,233
============== ============ ============ ===========
Weighted average common and common equivalent shares 29,337,393 31,290,412 29,802,247 31,322,508
============== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
<TABLE>
<CAPTION>
As of As of
January 31, July 31,
1999 1998
------------- --------
(unaudited)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,868 $ 11,143
Accounts receivable, net of allowance for uncollectible amounts of $4,540
and $3,995, respectively 113,142 117,265
Inventories 142,420 130,307
Other current assets 25,859 17,830
---------- ---------
Total current assets 289,289 276,545
Property, plant and equipment, net 199,801 160,891
Goodwill, net 74,367 57,656
Other assets 12,268 8,468
---------- ---------
Total assets $575,725 $503,560
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Current liabilities $131,362 $101,869
Long-term debt, excluding current maturities 188,996 136,052
Other non-current liabilities 24,219 20,741
---------- ---------
Total liabilities 344,577 258,662
---------- ---------
Stockholders' Equity:
Preferred stock, par value $.01 per share -
authorized 1,000,000 shares, no shares issued --- ---
Common stock, par value $.01 per share -
authorized 100,000,000 shares, 30,694,078
and 30,660,472 shares issued, respectively 307 307
Paid in capital 178,815 165,681
Retained earnings 105,775 88,605
Treasury stock, at cost, 2,623,452 and 200,000 shares, respectively (49,297) (4,291)
Currency translation adjustment (4,442) (5,394)
Minimum pension liability (10) (10)
---------- ---------
Total stockholders' equity 231,148 244,898
---------- ---------
Total liabilities and stockholders' equity $575,725 $503,560
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
-----------------------------------------------------------
(Dollars in thousands)
----------------------
<TABLE>
<CAPTION>
Six Months Ended
January 31,
---------------------
1999 1998
----------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 22,701 $ 22,885
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (15,604) (27,633)
Acquisition of businesses, including transaction costs,
net of cash acquired (43,646) (10,656)
----------- ---------
Net cash used by investing activities (59,250) (38,289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving note borrowings 65,633 13,564
Funds provided by long-term debt 11,237 285
Funds used to reduce long-term debt (5,153) (3,320)
Purchase of treasury stock (45,006) ---
Net proceeds from exercise of stock options and related
tax benefits 6,416 1,976
Net proceeds from issuance of common stock --- 5
----------- ---------
Net cash provided by financing activities 33,127 12,510
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 147 27
----------- ---------
Net decrease in cash (3,275) (2,867)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,143 9,017
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,868 $ 6,150
=========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net $ 5,768 $ 4,191
=========== =========
Income taxes $ 8,954 $ 10,414
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------------------------------------------------------------
1. BASIS OF PRESENTATION:
---------------------
The condensed consolidated financial statements presented herein are unaudited.
Certain information and footnote disclosures normally prepared in accordance
with generally accepted accounting principles have been either condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Although the registrant believes that all adjustments necessary for
a fair presentation have been made, interim period results are not necessarily
indicative of the results of operations for a full year. As such, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the registrant's most recent Form 10-K which was
filed for the fiscal year ended July 31, 1998.
2. INVENTORIES
-----------
Inventories of the Company consist of the following:
January 31, July 31,
1999 1998
-------------- --------
(Dollars in
thousands)
Raw materials $ 37,024 $ 40,089
Work-in-process 34,767 27,485
Finished goods 70,629 62,733
-------------- --------
$142,420 $130,307
============== ========
3. EARNINGS PER SHARE
------------------
Basic earnings per common share are computed based on the weighted average
common shares outstanding. Diluted earnings per common share are computed based
on the weighted average common shares outstanding plus additional shares assumed
to be outstanding to reflect the dilutive effect of common stock equivalents.
The following table sets forth the computation of basic and diluted earnings per
share:
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
------------- ----------- ----------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $ 4,806 $ 9,926 $ 17,170 $ 21,376
----------- ----------- ----------- -----------
Basic earnings per common share:
Weighted average common shares outstanding 28,833,632 28,499,853 29,405,214 28,348,233
Basic earnings per common share $ 0.17 $ 0.35 $ 0.58 $ 0.75
=========== =========== =========== ===========
Diluted earnings per common share:
Weighted average common shares outstanding 28,833,632 28,499,853 29,405,214 28,348,233
Shares issuable from assumed conversion of
dilutive stock options 503,761 2,790,559 397,033 2,974,275
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares 29,337,393 31,290,412 29,802,247 31,322,508
Diluted earnings per common share $ 0.16 $ 0.32 $ 0.58 $ 0.68
=========== =========== =========== ===========
</TABLE>
Options to purchase 106,500 and 899,850 shares of common stock were outstanding
during the three and six month periods, respectively, ended January 31, 1999 and
options to purchase 99,000 shares of common stock were outstanding during the
three and six month periods ended January 31, 1998, but were not included in the
computation of diluted EPS as the option's exercise price was greater than the
average market price of the common stock for the respective periods.
4. OTHER COMPREHENSIVE INCOME
--------------------------
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") in the first quarter of fiscal
1999. SFAS No. 130 established standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income is defined as net income and all nonowner changes in stockholders'
equity. The Company's comprehensive income differs from net income due to
foreign currency translation adjustments. Total comprehensive income was $4.7
million and $7.6 million for the three months and $18.1 million and $19.2
million for the six months ended January 31, 1999 and 1998, respectively.
5. BUSINESS ACQUISITIONS
---------------------
On August 3, 1998, the Company acquired an 80% interest in HEW-Kabel Heinz
Eilentropp GmbH & Co. KG, and related entities, ("HEW/CDT") located in
Wipperfurth, Germany. The acquisition was accounted for using the purchase
method under APB Opinion No. 16 and the assets and liabilities assumed were as
follows:
(Dollars in thousands)
Assets acquired, net of cash $ 65,679
Liabilities assumed (22,942)
Notes issued (8,566)
-------------
Net cash paid $ 34,171
=============
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<PAGE>
On September 25, 1998, the Company acquired the assets of Network Essentials,
Inc., ("Red Hawk") based in Milpitas, California. The acquisition was accounted
for using the purchase method under APB Opinion No. 16.
The operations and financial position of HEW/CDT and Red Hawk are not material
to either the consolidated operations or financial position of the Company,
therefore, pro forma financial information is not presented.
6. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the prior year statements to conform
with the current year presentation.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cable Design Technologies is a leading manufacturer of technologically advanced
electronic data transmission cable for network, communication, specialty
electronics, and automation and process control applications, including complete
voice and data wiring solutions, fiber optic connective solutions and other
components required to build high performance telecommunication infrastructures.
This discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Company's unaudited condensed
consolidated financial statements and the notes thereto.
Results of Operations
Overview
Sales for the six months ended January 31, 1999 ("first half 1999") increased
$16.7 million, or 5%, to $334.5 million compared to $317.8 million for the six
months ended January 31, 1998 ("first half 1998"), including $31.9 million of
additional sales attributable to recently acquired businesses, primarily
HEW/CDT, Orebro/CDT and Red Hawk. Adjusted for the unfavorable effects of
foreign currency translation and the decline in the average price of copper on
communication cable sales, the increase in sales would have been approximately
8%. Income from operations excluding the non-recurring charge increased $5.3
million, or 14%, to $42.5 million for the first half 1999 compared to $37.2
million for the first half 1998. Net income for the first half 1999 excluding
the non-recurring charge was $21.4 million ($0.72 per diluted share) compared to
net income of $21.4 million ($0.68 per diluted share) for the first half 1998.
Reported net income including the non-recurring charge for the first half 1999
was $17.2 million ($0.58 per diluted share). The increase of $5.3 million in
first half 1999 income from operations excluding the non-recurring charge, as
compared to the same period last year, was offset by a $2.6 million increase in
interest expense, a net unfavorable change of $1.7 million in other
income/expense, primarily foreign currency exchange and minority interest, and a
$1.0 million increase in tax expense.
Sales for the three months ended January 31, 1999 ("second quarter 1999")
increased $5.3 million, or 3%, to $160.9 million compared to $155.6 million for
the three months ended January 31, 1998 ("second quarter 1998"), including $15.3
million of additional sales attributable to the recent acquisitions. Adjusted
for the unfavorable effects of foreign currency translation and the decline in
the average price of copper on communication cable sales, the increase in sales
would have been 5%. Income from operations excluding the non-recurring charge
for the second quarter 1999 increased $1.0 million, or 6%, to $18.4 million
compared to $17.4 million for the second quarter 1998. Net income excluding the
non-recurring charge for the second quarter 1999 was $9.0 million ($0.31 per
diluted share) compared to $9.9 million ($0.32 per diluted share) for the second
quarter 1998. The $1.0 million increase in second quarter 1999 income from
operations excluding the non-recurring charge compared to the second quarter
1998 was offset by a $1.3 million increase in interest expense, a $0.9 million
net unfavorable change in other income/expense, primarily foreign currency
exchange and minority interest, and a $0.3 million decrease in tax expense.
Reported net income including non-recurring charge for the second quarter 1999
was $4.8 million ($0.16 per diluted share).
During the second quarter 1999, sales of communication cable were lower in the
U.S. marketplace. The Company believes that the lower domestic demand for
communication cable in the second quarter is in part due to year-end budgetary
constraints at the Regional Bell Operating Companies ("RBOCs") and to the
mergers of major communication companies which affected the order cycle. North
American demand for communication cable is expected to increase during the
spring and summer months as a result of the seasonal pick-up in the laying of
communication cable as the ground thaws in the northern U.S. and Canada as well
as the diminishment of the effects of the RBOC's year end budget constraints and
of the communication company mergers. Also, an industry-wide slowdown in the
U.S. network structured wiring market during the second fiscal quarter 1999
resulted in lower demand and competitive pressure on pricing for network cable
products. The Company believes that the slowdown is in part the result of a
redirection of capital spending by many businesses from investment in network
systems to
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<PAGE>
resolving their Year 2000 compliance issues. The Company believes other key
factors contributing to the slowdown are the uncertainty concerning the minimum
required performance specifications of advanced cabling for use with Gigabit
Ethernet technology and the fact that performance specifications for advanced
cables have not been promulgated by the Telecommunication Industry Association.
Network cables generally conforming to the proposed new Category 5e (enhanced
Category 5) and Category 6 cable specifications have previously been referred to
as Level 6 and Level 7, respectively. Although these factors may continue to
influence the U.S. market for network structured wiring products in the near-
term, the Company believes the long-term growth prospects for higher performance
products in this industry to be positive and over the past 18 months the Company
has invested $64.8 million in its manufacturing capabilities to position itself
to benefit from opportunities in the higher performance network structured
wiring, communication and specialty electronic marketplaces.
Three Months Ended January 31, 1999 Compared to
Three Months Ended January 31, 1998
Sales for the second quarter 1999 of $160.9 million increased $5.3 million, or
3%, compared to sales of $155.6 million for the second quarter 1998, including
additional sales of $15.3 million attributable to the Company's recently
acquired businesses. Second quarter 1999 sales for the Network Communication
group of $88.7 million, which includes network structured wiring systems
products and communication cable, decreased $5.3 million, or 6%, compared to
$94.0 million for the second quarter 1998. Adjusted for the unfavorable effects
of foreign currency translation and the decline in the average price of copper
on communication cable sales, the decrease in sales for this group would have
been 3%. Factors which contributed to the decrease in sales for this product
group compared to the second quarter 1998 were lower sales of Category 5 network
cable and communication cable in the U.S. marketplace and the industry-wide
slowdown in the U.S. network structured wiring market during the second quarter
1999 which resulted in lower selling prices for certain network cable products,
particularly for plenum Category 5 and 5e. However, the lower sales of Category
5 network cable and the lower pricing for the Category 5 and 5e cables were
offset by an improvement in product mix due to increased sales of the higher
priced Category 5e and 6 network cables for the second quarter 1999. Second
quarter 1999 sales for the Specialty Electronics group increased $10.5 million,
or 17%, to $72.2 million compared to $61.7 million for the second quarter 1998,
including additional sales of $13.9 million attributable to the recently
acquired businesses. Excluding acquisitions, Specialty Electronics group sales
declined 6% compared to the second quarter 1998 primarily as a result of
continued competitive conditions in the marketplace for automation and process
control cable products. Sales outside of North America increased $11.8 million,
or 45%, to $38.1 million for the second quarter 1999 compared to $26.3 million
for the same period last year, including additional sales of $14.0 million
attributable to the recently acquired businesses. Sales outside of North
America for the second quarter 1999 were unfavorably affected by the continued
sluggish economy in the United Kingdom and the recent economic turmoil in
Russia, Latin America and the Pacific Rim.
Second quarter 1999 gross profit increased $1.2 million, or 3%, to $46.9 million
compared to $45.7 million for the second quarter 1998, including the additional
gross profit of $4.6 million attributable to the recently acquired businesses
which primarily benefitted the Specialty Electronics group. Factors which
contributed to the decrease in gross profit excluding acquisitions were: for
the Network Communication group, lower sales of Category 5 network cables, lower
pricing for Category 5 and 5e network cables, and lower sales of communication
cable, which together were partially offset by an improved product mix due to
increased sales of higher margin Category 5e and 6 network cables and of
structured wiring system component products; and, for the Specialty Electronics
group, continued competitive conditions for automation and process control cable
products and, to a lesser extent, a lower margin on wireless cable products due
to a shift in product mix. The gross margin percentage for the second quarter
1999 decreased slightly to 29.1% compared to 29.4% for the second quarter 1998.
Selling, general and administrative expense ("SG&A") for the second quarter 1999
increased $0.5 million, or 2%, to $27.0 million compared to $26.5 million for
the second quarter 1998, including $2.4 million of additional SG&A attributable
to the recent acquisitions. The reduction in SG&A excluding acquisitions of
$1.9 million was primarily the result of significantly lower expenses at
NORDX/CDT due to the discontinuance of its DynaTraX (TM) product line and other
restructuring activities implemented in July 1998, lower volume related sales
expenses, and the favorable effect of foreign currency translation, which
together almost entirely offset the additional SG&A from
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<PAGE>
acquisitions. As a percentage of sales, SG&A for the second quarter 1999 was
16.8% compared to 17.0% for the second quarter 1998. Second quarter 1999
research and development expense decreased $0.4 million to $1.4 million compared
to $1.8 million for second quarter 1998. The decrease in research and
development expense is primarily the result of NORDX/CDT's discontinuance of its
DynaTraX (TM) product line.
On December 14, 1998, the Company purchased 1.6 million shares of the Company's
common stock acquired by key employees through the exercise of incentive stock
options pursuant to a share purchase plan previously adopted by the Board of
Directors (the "Share Purchase Plan"). During the second quarter 1999 the
Company, as part of the Share Purchase Plan, recorded a $6.3 million ($4.2
million, net of tax) non-recurring charge as a result of incentive payments
offered to key employees for the purchase by the Company of such shares. As a
result of the purchase of such shares, the Company obtained a cash benefit of
approximately $12.8 million to be realized through the reduction of income taxes
payable. The incentive payments were made to partially compensate the employees
for the difference between the income tax rates for ordinary income and long
term capital gains. See "Share Purchase Plan".
Income from operations for the second quarter 1999 decreased $5.3 million to
$12.1 million compared to $17.4 million for the second quarter 1998, primarily
as a result of the non-recurring charge discussed above. Income from operations
excluding the non-recurring charge increased $1.0 million, or 6%, to $18.4
million. The operating margin, excluding the non-recurring charge, was 11.5%
for the second quarter 1999 compared to 11.2% for the second quarter 1998. The
improvement in operating margin was primarily the result of the improvement in
both SG&A and research and development expenses as a percentage of sales, which
was partially offset by the slightly lower gross margin percentage.
Interest expense was $3.2 million for the second quarter 1999, an increase of
$1.3 million compared to the second quarter 1998. This increase was primarily
due to the higher average balance of debt outstanding due to the acquisition of
HEW/CDT at the beginning of fiscal 1999 and the purchase of 1.6 million shares
of the Company's common stock pursuant to the Share Purchase Plan. The
effective tax rate increased to 43.9% in the second quarter 1999 compared to
38.2% in the second quarter 1998. The increase in the effective tax rate for
the second quarter 1999 was primarily due to the fact that approximately $0.9
million of the non-recurring charge is non-deductible for income tax purposes.
Excluding the non-recurring charge, the increase in the effective tax rate to
39.5% compared to 38.2% for the second quarter 1998 was primarily the result of
a higher German tax rate applicable to the Company's recently acquired HEW/CDT
subsidiary, lower Canadian research and development tax credits as a result of
the reduction in research and development spending, and a change in the income
mix among domestic and foreign statutory entities.
Net income for the second quarter 1999 excluding the non-recurring charge
decreased $0.9 million, or 9%, to $9.0 million ($0.31 per diluted share)
compared to net income of $9.9 million ($0.32 per diluted share) for the second
quarter 1998. The $1.0 million increase in income from operations excluding the
non-recurring charge was offset by the $1.3 million increase in interest
expense, a $0.9 million net unfavorable change in other income/expense,
primarily foreign currency exchange and minority interest, and the higher
effective tax rate. Reported net income for the second quarter 1999 including
the non-recurring charge was $4.8 million ($0.16 per diluted share).
Six Months Ended January 31, 1999 Compared to
Six Months Ended January 31, 1998
For the six months ended January 31, 1999, sales increased $16.7 million, or 5%,
to $334.5 million, including additional sales of $31.9 million attributable to
the Company's recently acquired businesses, compared to $317.8 million for the
six months ended January 31, 1998. Network Communication group sales for the
first half 1999 were $180.9 million, a decrease of $10.9 million, or 6%,
compared to the first half 1998. However, adjusted for the unfavorable effects
of foreign currency translation and for the decline in the price of copper on
communication cable sales, the sales for this group only declined 3%. The
decrease was primarily the net result of reduced demand in the U.S. marketplace
for communication cable and for plenum Category 5 network cable as well as
competitive pricing pressure on Category 5 and 5e network cables, particularly
in the second quarter of fiscal 1999. An improved product mix due to increased
sales of the higher priced Category 5e and 6 network cables partially offset the
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<PAGE>
reduction in communication cable and Category 5 network cable sales. During the
second quarter of fiscal 1999, an industry-wide slowdown in the U.S. network
structured wiring market resulted in reduced demand and competitive pressure on
network cable pricing, particularly for plenum Category 5 network cable.
Specialty Electronics group sales for the first half 1999 increased $27.7
million, to $153.6 million, including additional sales of $30.0 million
attributable to the recently acquired businesses. Excluding acquisitions, sales
for the Specialty Electronics group declined 2%, primarily due to competitive
market conditions for automation and process control cable products in the U.S.
and the United Kingdom. Sales outside of North America for the first half 1999
increased $27.9 million, or 54%, to $79.2 million, including additional sales of
$29.1 million attributable to the recently acquired businesses, compared to
$51.3 million for the first half 1998. Sales outside North America were
unfavorably affected by the sluggish economy in the United Kingdom and the
recent economic turmoil in Russia, Latin America and the Pacific Rim.
First half 1999 gross profit increased $7.3 million, or 8%, to $100.6 million
compared to $93.3 million for the first half 1998. Gross profit for the first
half 1999 included $9.5 million of additional gross profit attributable to the
recently acquired businesses which primarily benefitted the Specialty
Electronics group. Factors which contributed to the decrease in first half 1999
gross profit excluding acquisitions, which primarily occurred during the second
quarter, were: for the Network Communication group, lower sales for Category 5
network cable and lower pricing for Category 5 and 5e network cables, and lower
sales for communication cable, the effects of which were almost entirely offset
by an improved product mix due to increased sales of the higher margin Category
5e and 6 network cable products; and, for the Specialty Electronics group,
continued competitive conditions for automation and process control cable
products and, to a lesser extent, a lower margin on wireless cable products due
to a shift in product mix. The increase in gross profit also reflects the
favorable effect of the reduction in the Canadian exchange rate which resulted
in lower comparative product costs on U.S. denominated sales by the Company's
Canadian businesses. The gross margin percentage for the first half 1999 was
30.1% compared to 29.4% for the first half 1998. The increase in the gross
margin percentage for the first half 1999 compared to the first half 1998
reflects an improved gross margin for the Network Communication group which was
partially offset by a lower margin for the Specialty Electronics group.
SG&A for the first half 1999 increased $2.7 million to $55.2 million, including
$4.7 million of additional SG&A attributable to the recent acquisitions,
compared to $52.5 million for the first half 1998. Excluding acquisitions, the
$2.0 million reduction in SG&A was primarily the result of significantly lower
expenses at NORDX/CDT due to the discontinuance of its DynaTraX (TM) product
line and other restructuring activities implemented in July 1998, lower volume
related sales expenses, and the favorable effect of foreign currency
translation, which almost entirely offset the additional SG&A from acquisitions.
SG&A as a percentage of sales was 16.5% for both the first half 1999 and first
half 1998. Second quarter 1999 research and development expense decreased $0.7
million to $2.9 million compared to $3.6 million for second quarter 1998. The
decrease in research and development expense is primarily the result of the
discontinuance of the DynaTraX (TM) product line.
Income from operations excluding the non-recurring charge increased $5.3
million, or 14%, to $42.5 million compared to the first half 1998. The
operating margin percentage excluding the non-recurring charge was 12.7% for the
first half 1999 compared to 11.7% for the first half 1998. Income from
operations for the first half 1999 including the second quarter 1999 non-
recurring charge of $6.3 million decreased $1.0 million to $36.2 million
compared to $37.2 million for the first half 1998.
Interest expense for the first half 1999 was $6.4 million, an increase of $2.6
million compared to the first half 1998. The increase was primarily the result
of the higher average balance of debt outstanding due to the acquisition of
HEW/CDT at the beginning of the first half 1999 and the purchase of 2.4 million
shares of the Company's common stock during the first half 1999. The effective
tax rate increased to 41.1% in the first half 1999 compared to 37.9% in the
first half 1998. The increase in the effective tax rate for the first half 1999
was primarily due to the fact that approximately $0.9 million of the non-
recurring charge is non-deductible for income tax purposes. Excluding the non-
recurring charge, the increase in the effective tax rate to 39.8% compared to
37.9% for the first half 1998 was primarily the result of a higher German tax
rate applicable to the Company's recently acquired HEW/CDT subsidiary, lower
Canadian research and development tax credits and a change in the income mix
among domestic and foreign statutory entities.
-14-
<PAGE>
Net income excluding the non-recurring charge for the first half 1999 of $21.4
million ($0.72 per diluted share) was equal to first half 1998 net income of
$21.4 million ($0.68 per diluted share). The increase of $5.3 million in first
half 1999 income from operations excluding the non-recurring charge compared to
first half 1998 was offset by the $2.6 million increase in interest expense, a
$1.7 million net unfavorable change in other income/expense, primarily foreign
currency exchange and minority interest, and the $1.0 million increase in tax
expense primarily due to the higher effective tax rate. Reported net income for
the first half 1999 including the non-recurring charge was $17.2 million ($0.58
per diluted share).
Financial Condition
Liquidity and Capital Resources
- -------------------------------
The Company's primary bank credit agreement (the "Credit Agreement") is
comprised of a U.S. revolving facility of $121.3 million, which includes a USD
$50.0 million Deutschmark sub-facility, and a CDN $115.0 million Canadian
revolving facility equivalent to $76.1 million. The Company also maintains a
bank credit facility in the United Kingdom equivalent to $12.3 million (the
"Foreign Facility"). At January 31, 1999, the Company had $174.7 million and
$9.5 million outstanding under the Credit Agreement and Foreign Facility,
respectively.
Effective December 14, 1998, the Company entered into a 364-day, unsecured bank
revolving credit agreement (the "Revolving Facility"). The Revolving Facility
provides for maximum borrowings of $35.0 million. Outstanding borrowings bear
floating interest rates of either LIBOR plus the applicable margin or the base
rate, as defined, at the Company's election. The applicable margin over LIBOR
ranges from .525% to 1.05% and is determined based on the attainment of
specified leverage ratios. A facility fee of between .10% and .20%, based upon
a specific leverage ratio, is payable quarterly on the maximum facility amount.
The Revolving Facility contains customary financial and non-financial covenants,
except as limited by the terms of the existing Credit Agreement. The Revolving
Facility is to be used for working capital and other general corporate purposes
and was used to fund in part the Share Purchase Plan. At January 31, 1999, the
Company had $25.0 million outstanding under the Revolving Facility.
Based on an analysis of current expectations for its business, management
believes that the Company's cash flow from operations, funds available under its
credit agreements, and ability to attract short term and long term capital will
provide it with sufficient liquidity to meet its current liquidity needs.
Working Capital During the first half 1999, operating working capital increased
- ---------------
$5.1 million, excluding increases resulting from the initial recording of the
working capital of acquired businesses. The change in operating working capital
was primarily the net result of a decrease in accounts payable and accrued
liabilities of $14.3 million and an increase in inventories of $1.4 million,
which were partially offset by a decrease in accounts receivable of $11.2
million. The change in operating working capital excludes changes in cash and
cash equivalents and current maturities of long-term debt.
Cash Flow The Company generated $22.7 million of net cash from operating
- ---------
activities during the first half 1999, after providing for the $5.1 million
increase in operating working capital. Net cash provided by financing
activities during the first half 1999 of $33.1 million included $71.7 million
from debt sources and $6.4 million from the exercise of stock options, which
were partially offset by $45.0 million used for the purchase of 2,423,452 shares
of the Company's common stock. Net cash used by investing activities of $59.3
million included $43.6 million for the acquisition of businesses, primarily
HEW/CDT, and $15.6 million for capital projects, including expenditures for
equipment and machinery to expand production capacity, particularly at NORDX/CDT
for communication cable and network cable products, and at various other
locations for high-performance wire and cable products.
Share Purchase Plan On December 1, 1998, the Company's Board of Directors
- -------------------
approved the purchase of up to 1.9 million shares of the Company's common stock
that was acquired by certain key employees upon the exercise of certain
incentive stock options granted primarily in 1988 and 1989 and expiring in 1998
and 1999. The offer to the employees to purchase such stock was made on
December 14, 1998, and 1,596,052 shares were purchased at a total cost of
$33,118,079, or $20.75 per share, the closing price of the Company's common
stock on the date of the
-15-
<PAGE>
purchase. The Company obtained a cash benefit of approximately $12.8 million to
be realized through the reduction of income taxes payable as a result of the
disqualification of the qualified status of the incentive stock options upon the
purchase. Under GAAP, the tax benefit obtained will not be reflected in the
income statement of the Company. In connection with the Company's purchase of
this stock, the employees were offered an incentive payment to induce them to
sell such shares so that the Company would receive the related tax benefit. The
Company shared the tax benefit by making an incentive payment to each employee
equal to 19.6% of the tax deduction obtained as a result of the shares purchased
from such employee. The incentive payments partially compensated the employees
for the difference between the income tax rates for ordinary income and for long
term capital gains, and resulted in a non-recurring charge to operating earnings
of $6.3 million ($4.2 million, net of tax) in the second quarter 1999. The
incentive payments are payable in two equal installments, the first of which was
made in January 1999 and the second is to be made in August 1999. The purchase
price for the shares and the incentive payments made during the second quarter
1999 were paid in cash and funded through borrowings under the Credit Agreement
and the Revolving Facility.
Fluctuation in Copper Price
The cost of copper in inventories (including finished goods) reflects purchases
over various periods of time ranging from one to several months for each of the
Company's individual operating units. For communication cable products,
profitability is generally not significantly affected by volatility of copper
prices as changes in copper prices are generally passed along to customers,
however, differences in the timing of selling price adjustments do occur and may
impact near term results. For other product lines, although selling prices are
not generally adjusted to directly reflect changes in copper prices, the relief
of copper costs from inventory for those operating units having longer inventory
cycles may affect profitability from one period to the next following periods of
significant movement in the cost of copper. The Company does not engage in
activities to hedge the underlying value of its copper inventory.
New Accounting Standards
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") in June 1997. SFAS No. 131 establishes standards for reporting
information about operating segments. SFAS No. 131 is effective for the
Company's fiscal year ending July 31, 1999. Adoption of this standard will not
change the reported results of operations or financial position of the Company,
however compliance with the provisions of this standard will add, expand and/or
modify various disclosures made in conjunction with the financial statements.
The Company plans to provide appropriate financial statement disclosure under
SFAS No. 131 in its Form 10-K for the fiscal year ended July 31, 1999.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments and
requires recognition in the balance sheet of all derivative instruments as
either assets or liabilities, measured at fair value. SFAS No. 133 is effective
for the Company's fiscal year ending July 31, 2000. The Company does not
believe the adoption of SFAS No. 133 will have a material effect on the
Company's results of operations, financial position or cash flows.
Year 2000 Compliance
Readers are cautioned that forward-looking statements contained in the Year 2000
discussion below should be read in conjunction with the Company's disclosures
under the heading "Forward-Looking Statements".
Each of the Company's operating units has established a Year 2000 project leader
and, in the case of the larger units, a project team. In addition, CDT's
corporate headquarters has established a Year 2000 project team. The function
of each unit's project team is to identify and remediate Year 2000 issues at
their respective facilities. The function of the corporate team is to review
and remediate any corporate-wide Year 2000 issues and monitor the status of the
remediation activities of the operating units.
-16-
<PAGE>
Each operating unit has assessed their internal information systems ("IT
systems") and non-IT systems, such as manufacturing equipment and control
devices. Operating units representing approximately 78% of the Company's
consolidated revenues have completed any Year 2000 remediation believed
necessary with respect to their IT systems. The remaining operating units have
either purchased and are in the process of implementing compliant hardware
and/or software or identified compliant hardware and/or software and are in the
process of obtaining such items. All units are expected to complete their
remediation activities by fiscal year-end, July 31, 1999.
The remediation of such IT systems has included the purchase of new hardware and
software or the modification of existing software. In certain cases, new IT
systems were acquired to improve functionality and provide additional system
capabilities, as well as address Year 2000 issues. The cost to maintain or
modify existing IT systems is expensed as incurred, while the cost of new and
functionally improved IT systems are capitalized and amortized over their
estimated useful lives. As of January 31, 1999, the Company has expended $2.8
million with respect to IT systems, which represents approximately 75% of the
total costs expected to be incurred. Based on management's review,
expenditures associated with modifying or replacing existing IT systems to
resolve the Year 2000 issue will not have a material adverse effect on the
Company's results of operations, liquidity or capital resources. The Company
does not anticipate any material issues or delays regarding implementation
schedules for IT system remediations.
Each of the operating units has undertaken an assessment of non-IT systems.
Such reviews are substantially completed. While certain items of equipment have
been found to contain potentially non-compliant components, neither the number
or function of such items are material. Such equipment is either being modified
or replaced. To-date, the Company does not anticipate material Year 2000
compliance issues with respect to non-IT systems, and does not expect
expenditures to remediate non-compliant non-IT systems to have a material
adverse effect on the Company's results of operations, liquidity or capital
resources.
The Company and its operating units are in the process of assessing third party
Year 2000 compliance. As many of the Company's suppliers and customers are
still engaged in executing their Year 2000 programs, the Company cannot fully
evaluate such compliance.
Neither the Company nor its operating units have adopted formal contingency
plans regarding Year 2000 compliance issues, but are in the process of
identifying areas where contingency plans may be appropriate as well as the
potential cost and feasibility of implementing such plans.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, since it is not
possible to anticipate all possible future outcomes, especially in the case of
third parties, there could be "worst-case scenarios" in which one or more
operating units of the Company would be unable to conduct normal operations due
to Year 2000 related matters, such as the inability to take customer orders,
manufacture and ship products, invoice customers or collect payments. In
addition, there is still uncertainty about the broader scope of the Year 2000
issue as it may affect the Company and third parties who are critical to the
Company's operations. For example, lack of readiness by electrical and water
utilities, financial institutions, government agencies or other providers of
general infrastructure could, in some geographic areas, pose significant
impediments to one or more of the Company's operating units to carry on their
normal operations in the area or areas so affected. In the event that the
Company or third parties (including those described above) do not properly
complete their Year 2000 remedial actions or unanticipated Year 2000 events
occur there could be a material adverse effect on the Company's business,
results of operations or financial condition.
Introduction of the Euro Currency
The European Economic Monetary Union's ("EEMU") common currency, the Euro, was
implemented effective January 1, 1999, at which time fixed exchange rates were
established between the legacy currencies of the participating countries and the
Euro. During the transition period, which extends through June 30, 2002,
transactions may be conducted in either the Euro or the legacy currencies. The
Company has subsidiaries in the United Kingdom, Sweden, Denmark and Germany
which have customers and suppliers in participating EEMU countries. The
Company's German subsidiary is the only subsidiary domiciled in a participating
country. These
-17-
<PAGE>
subsidiaries currently have the ability to support transactions in both the Euro
and their respective legacy currencies. Conversion to the Euro as the functional
currency for the Company's German subsidiary will be phased in prior to January
1, 2002, and conversion costs are not expected to be significant. The EEMU's
introduction of the Euro may potentially have economic and business
implications, such as changes in product pricing and currency exchange risks,
for businesses within the EEMU as well as for businesses outside the EEMU that
do business with companies within the EEMU. The nature and extent of such
effects, whether beneficial or adverse, are unknown at this time. However, the
Company does not believe that such effects will have a material impact on its
consolidated results of operations or financial condition, although there can be
no assurance that unanticipated effects will not have an adverse impact on the
Company's future results of operations.
Forward-Looking Statements -- Under the Private Securities Litigation Act of
1995
Certain statements in this quarterly report are forward-looking statements,
including, without limitation, statements regarding future financial results and
performance, Year 2000 compliance, introduction of the Euro, increase in
communication cable demand and long-term growth prospects, and the Company's or
management's beliefs, expectations or opinions. These statements are subject to
various risks and uncertainties, many of which are outside the control of the
Company, including the level of market demand for the Company's products,
competitive pressures, the ability to achieve reductions in operating costs and
to continue to integrate acquisitions, price fluctuations of raw materials and
the potential unavailability thereof, foreign currency fluctuations,
technological obsolescence, environmental matters and other specific factors
discussed in this report, the Company's Annual Report on Form 10-K for the year
ended July 31, 1998, and other Securities and Exchange Commission filings. The
information contained herein represents management's best judgement as of the
date hereof based on information currently available; however, the Company does
not intend to update this information to reflect developments or information
obtained after the date hereof and disclaims any legal obligation to the
contrary.
-18-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) Cable Design Technologies Corporation annual meeting of stockholders
was held on December 9, 1998.
(b) Proxies were solicited by Cable Design Technologies Corporation and
there was no solicitation in opposition to the nominees as listed in
the proxy statement. All such nominees were elected pursuant to the
vote of the stockholders as follows:
VOTES
-----
For Withheld
--- --------
Bryan C. Cressey 26,187,606 873,254
Paul M. Olson 26,188,356 872,504
George C. Graeber 26,188,556 872,304
Myron S. Gelbach, Jr. 26,162,583 898,277
Michael F.O. Harris 26,187,911 872,949
Glenn Kalnasy 26,186,781 874,079
Richard C. Tuttle 26,186,276 874,584
A proposal to adopt the Cable Design Technologies Corporation 1998
Employee Stock Purchase Plan was approved by a vote of:
For: 26,846,091
Against: 182,278
Abstain: 32,491
The firm of Arthur Andersen LLP was re-elected to serve as auditors for
the fiscal year ending July 31, 1999, by a vote of:
For: 26,410,314
Against: 8,354
Abstain: 642,192
-19-
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
15.1 Letter of Arthur Andersen LLP regarding unaudited interim
financial statement information.
27.1 Financial data schedule.
99.1 Revolving Line of Credit Letter Agreement dated December 14, 1998,
between CDT and ABN AMRO Bank N.V..
99.2 Master Revolving Line of Credit Promissory Note issued by CDT in
favor of ABN AMRO Bank N.V..
(b) Form 8-Ks
---------
None
-20-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLE DESIGN TECHNOLOGIES CORPORATION
March 16, 1999 /s/ Paul M. Olson
------------------------------------------
Paul M. Olson
President and Chief Executive Officer
March 16, 1999 /s/ Kenneth O. Hale
------------------------------------------
Kenneth O. Hale
Vice President and Chief Financial Officer
-21-
<PAGE>
EXHIBIT 15.1
February 24, 1999
To the Stockholders and Board of Directors of
Cable Design Technologies Corporation:
We are aware that Cable Design Technologies Corporation has incorporated by
reference in its Registration Statements on Form S-3 (Registration No. 333-
00554); Form S-8 (Registration No. 33-73272); Form S-8 (Registration No. 33-
78418); Form S-8 (Registration No. 333-2450); Form S-8 (Registration No. 333-
6743); and Form S-8 (Registration No. 333-17443) its Form 10-Q for the quarter
ended January 31, 1999, which includes our report dated February 24, 1999,
covering the unaudited interim financial statement information contained
therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act), that
report is not considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Condensed Consolidated Balance Sheet and Statement of Income as of
January 31, 1999 and the six month period then ended and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 7,868
<SECURITIES> 0
<RECEIVABLES> 117,682
<ALLOWANCES> 4,540
<INVENTORY> 142,420
<CURRENT-ASSETS> 289,289
<PP&E> 247,075
<DEPRECIATION> 47,274
<TOTAL-ASSETS> 575,725
<CURRENT-LIABILITIES> 131,362
<BONDS> 0
0
0
<COMMON> 307
<OTHER-SE> 230,841
<TOTAL-LIABILITY-AND-EQUITY> 575,725
<SALES> 334,520
<TOTAL-REVENUES> 334,520
<CGS> 233,913
<TOTAL-COSTS> 298,332
<OTHER-EXPENSES> 603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,418
<INCOME-PRETAX> 29,167
<INCOME-TAX> 11,997
<INCOME-CONTINUING> 17,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,170
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
<PAGE>
EXHIBIT 99.1
December 14, 1998
Cable Design Technologies Inc.
Foster Plaza 7
661 Andersen Dr.
Pittsburgh, Pennsylvania 15220
Re: $35,000,000 364-Day Revolving Line of Credit Letter Agreement
Ladies and Gentlemen:
Upon the request of Cable Design Technologies Inc., a Washington
corporation (the "Borrower"), and subject to the following terms and conditions
--------
of this letter (the "Agreement") (this Agreement and all documents, instruments,
---------
and agreements executed or delivered now or hereafter by or for Borrower in
connection herewith or therewith, will be referred to in this Agreement as the
"Loan Documents"), ABN AMRO Bank N.V. ("ABN AMRO" or "Bank") will make a
- --------------- -------- ----
revolving line of credit facility available to the Borrower:
1. The Line of Credit Facility, Advances, Letters of Credit.
a. The Facility. Subject to the terms and conditions of this Agreement,
-- ------------
ABN AMRO hereby establishes a line of credit facility in favor of the
Borrower in the maximum principal amount of THIRTY FIVE MILLION UNITED
STATES DOLLARS (US$35,000,000) (the "Facility").
--------
b. Advances. Until December 12, 1999 (the "Termination Date"), and
-- -------- ----------------
subject to the other terms and conditions hereof, ABN AMRO will make
advances under the Facility (the "Advances" and each an "Advance")
-------- -------
upon the request of Borrower in accordance with the terms hereof,
provided that: (i) the aggregate amount of all Advances outstanding
shall not at any time exceed US$35,000,000, (ii) no Advance shall be
requested or made which, when aggregated with all other Advances then
outstanding, would exceed $35,000,000, and (iii) the minimum principal
amount of any Advance shall be $500,000. Within such limits and
subject to the other provisions of this Agreement, Borrower may
borrow, repay, and reborrow under the Facility in accordance with the
terms and conditions hereof.
c. Advance Requests, Purpose of Facility.
-- -------------------------------------
i. Prior to the Termination Date, Borrower may request an Advance by
providing ABN AMRO a written request therefor (each, an "Advance
-------
Request") in accordance with the terms of the Note (as defined
-------
hereinafter).
ii. Advances by ABN AMRO shall be made by wire transfer to Borrower's
account as ABN AMRO is instructed by Borrower in the applicable
Advance Request.
iii. Advances shall be used by Borrower for working capital and other
general corporate purposes, including intercompany transfers for
the general corporate purposes of its affiliates, and in no event
contrary to law.
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 2
2. The Note, Payment.
a. The Note. Amounts payable under the Facility shall be evidenced by a
-- --------
promissory note of Borrower, dated as of the date hereof (the "Note").
----
The Note is hereby incorporated herein by reference and made a part
hereof; Borrower shall make all payments required by the Note. In no
event shall the interest rate applicable to principal amounts
outstanding under the Note exceed the maximum rate of interest allowed
by applicable law; any payment of interest or in the nature of
interest in excess of such limitation shall be credited as a payment
of principal unless Borrower requests the return of such amount.
b. Payments. All payments made under the Note shall be made in lawful
-- --------
currency of the United States ("Dollars") in immediately available
funds by wire transfer to ABN AMRO Bank N.V., New York, New York
Branch, ABA Routing Number 026009580, for credit to ABN AMRO Bank
N.V., Chicago Branch CPU, Account Number 650-001-1789-41, Reference:
CPU-Cable Design Technologies or to such location as ABN AMRO shall
direct in writing. ABN AMRO is authorized to enter on the books and
records of Bank the date and amount of each Advance, the interest rate
applicable thereto, each payment of principal under the Facility,
together with the amount of interest and other charges accrued
thereon, interest and charges paid, and similar information, which
entries shall be conclusive absent manifest error.
3. Fees. Borrower shall pay to the Bank in immediately available funds: (i)
the Facility Fee described in the Note, payable as set forth therein, and
(ii) a commitment fee in the amount of US$105,000, payable upon the
execution of this Agreement by Borrower. An unutilized amount held by Bank
pursuant to a previously executed commitment letter shall be credited
against the above referenced commitment fee and other fees and costs set
forth herein, to the extent of such amount.
4. Certain Definitions. As used in the Agreement, the following terms shall
have the respective meanings set forth below:
"Business Day", shall mean any day other than a Saturday, a Sunday, or a
------------
day on which banks are required or permitted by law to close in Chicago,
Pittsburgh, New York, or the location of the money market from which funds
for the relevant Advance are sought.
5. Conditions.
a. The making of any Advance hereunder is subject to the satisfaction of
the following conditions precedent: at the time of a request for an
Advance, there shall exist no Event of Default (defined hereinafter)
or circumstance which, with the passage of time or giving of notice or
both, would constitute an Event of Default (any such circumstance
being referred to herein as a "Potential Default") and each of the
-----------------
representations and warranties set forth or incorporated herein shall
be true and correct in all material respects with the same force and
effect as if the representations and warranties had been made on and
as of such time, except to the extent that any representation or
warranty may expressly relate solely to an earlier date.
b. ABN AMRO shall have received from Borrower, in form and substance
satisfactory to ABN AMRO, the following:
i. On or prior to the date of the first Advance, guaranties, in form
and substance satisfactory to ABN AMRO, from Cable Design
Technologies Corporation ("Parent") and all material domestic
------
subsidiaries of Borrower (the Parent and such subsidiaries are
collectively referred to herein as the "Guarantors") of the
----------
obligations of Borrower arising under the Loan Documents.
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 3
ii. Within twenty (20) days of the date of the first Advance, copies
of Borrower's and each Guarantors' Certificate or Articles of
Incorporation, certified by the relevant Secretary of State, and
Bylaws certified to Bank by the appropriate corporate
Secretaries, together with copies of the resolutions of the
Boards of Directors of Borrower and the Guarantors authorizing
the execution, delivery, and performance of this Agreement and
the other Loan Documents by a specified number of authorized
officers whose specimen signatures and such resolutions are
certified by the appropriate corporate Secretary, and a good
standing certificate of Borrower and each Guarantor, certified by
the relevant Secretary of State;
iii. Within ten (10) days of the date of the first Advance, an opinion
of counsel to Borrower and the Guarantors substantially in the
form provided in connection with the Existing Credit Agreement
(defined hereinafter); and
iv. Such additional documents as ABN AMRO may reasonably request.
6. Incorporation of Existing Credit Agreement.
a. Credit Agreement, Definitions. Capitalized terms not otherwise defined
-- -----------------------------
in this Agreement shall have in this Section 6 the respective meanings
ascribed to them by that Credit Agreement, dated as of April 10, 1997,
as amended as of July 31, 1998, among Borrower, Cable Design
Technologies Corporation, Nordx/CDT, Inc., BankBoston, N.A., Paribas,
Paribas Bank of Canada, Bank of America NT & SA, Bank of America
Canada, and the Banks from time to time parties thereto (as such
agreement is amended, modified, or waived from time to time, the
"Existing Credit Agreement").
-------------------------
b. Incorporation. As long as the Facility remains available or any
-- -------------
Advance remains outstanding and except solely to the extent not
permitted by Section 7.12 of the Existing Credit Agreement: (i)
Borrower as of the date hereof hereby restates and makes directly to
ABN AMRO all of the representations and warranties made by Borrower
in the Credit Agreement (except to the extent that any such
representation or warranty may expressly relate solely to an earlier
date, and except to the extent that any Schedule submitted to ABN
AMRO by Borrower on or before the date hereof may modify any such
representation or warranty) and (ii) Borrower hereby makes and
restates directly to ABN AMRO, and promises and covenants to remain
in compliance with, all of the affirmative covenants set forth at
Section 6 of the Existing Credit Agreement and all of the negative
covenants set forth at Section 7 of the Existing Credit Agreement
which are applicable to Borrower, in each instance mutatis mutandis.
Accordingly: (A) except solely to the extent not permitted by Section
7.12 of the Existing Credit Agreement, all such representations,
warranties, and covenants are hereby incorporated herein and made a
part hereof as if all such representations, warranties, and covenants
were fully set forth herein and made directly by Borrower to ABN
AMRO, mutatis mutandis (collectively, the "Incorporated Provisions"),
and (B) Borrower shall provide to ABN AMRO all reports, financial
statements, notices, compliance certificates, and the like required
to be provided to any Agent or Lender under the Existing Credit
Agreement (to the extent not otherwise provided by Borrower directly
to ABN AMRO under the Existing Credit Agreement) as and when required
thereunder. In furtherance of the foregoing, the following
interpretive rules shall apply with respect to the Incorporated
Provisions as incorporated herein: (a) all references in the
Incorporated Provisions to the Agents (or any of them), to the
Lenders (or any of them), or to the Majority Lenders shall be deemed
to refer solely to ABN AMRO hereunder; (b) all references in the
Incorporated Provisions to Lender Debt, Loans, Revolving Loans,
Letters of Credit, or Commitments shall be deemed to refer solely to
the Facility established hereby and Advances hereunder; (c) all
references in the
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 4
Incorporated Provisions to Loan Documents shall be deemed to refer
solely to the Loan Documents as defined herein; (d) all references in
the Incorporated Provisions to any Default or Event of Default shall
be deemed to refer solely to an Event of Default as defined herein;
and (e) references in the Incorporated Provisions to the Credit
Parties shall be deemed to refer solely to the Borrower and each
Guarantor hereunder.
c. Compliance. Upon the time that Borrower shall no longer be subject
-- ----------
to Section 7.12 of the Existing Credit Agreement, Borrower hereby
agrees with ABN AMRO to remain in compliance with all affirmative and
negative covenants applicable to Borrower set forth in Sections 6 or
7 of the Existing Credit Agreement.
7. Representations, Warranties, and Covenants. Borrower hereby represents,
warrants, and covenants to Bank as follows:
(i) Borrower is and shall remain a corporation (A) that is wholly-owned by
Parent, and (B) in good standing under the laws of Washington, and Borrower
has and shall maintain the lawful power to engage in the business it
presently conducts and is and shall remain duly licensed and qualified, and
in good standing, in each jurisdiction where the nature of the business
transacted by it makes any such licensing or qualification necessary; (ii)
the execution, delivery, and performance hereof have been duly authorized
by all necessary corporate action, require no governmental approval, and
neither now nor hereafter shall contravene, conflict with, nor result in a
breach of any law, regulation, order, judgment, charter, certificate or
articles of incorporation, bylaws, or other organizational documents, or
any document, instrument or agreement governing or binding upon Borrower,
any Guarantor, or any of their property; (iii) as of the date hereof, there
exit no Liens (as such term is defined in the Existing Credit Agreement) on
any material property of the Borrower or any Guarantor (including on any
shares of stock or other ownership interests of Parent or any of its
subsidiaries), except as described on Schedule A hereto, (iv) the
obligations of Borrower and the Guarantors under the Loan Documents rank
and, subject to the proviso directly below, shall rank at least pari passu
in priority of payment with all other material Indebtedness (as such term
is defined in the Existing Credit Agreement) of any of Borrower and any
Guarantors, provided, however, that Borrower and Guarantors shall not be
required to provide Liens (in this clause, as such term is defined in the
Credit Agreement) to ABN AMRO to secure the obligations arising under the
Loan Documents to the extent not permitted by the Existing Credit Agreement
and, provided further, that Borrower shall, at the time any Lien is granted
to secure the obligations under the Existing Credit Agreement, endeavor,
but not be bound, to cause the Existing Credit Agreement to be
appropriately modified to permit such Liens to be granted to ABN AMRO, (v)
any U.S. party that becomes a Guarantor under (and as defined by) the
Existing Credit Agreement after the date hereof shall execute and deliver
to ABN AMRO a guaranty agreement substantially similar to that referred to
in Section 5.b.i. hereof, and (vi) Borrower, Parent, and their respective
subsidiaries have reviewed the areas within their business and operations
which could be adversely affected by, and have developed or shall develop a
program to address on a timely basis, the risk that computer applications
used by Borrower, Parent, and their respective subsidiaries may be unable
to recognize and perform properly date-sensitive functions involving
certain dates prior to, and any date on or after, December 31, 1999 (the
"Year 2000 Problem"), and Borrower, Parent, and their respective
-----------------
subsidiaries have made or shall make related appropriate inquiry of
material suppliers and vendors and, based on such review and program,
Borrower believes that the Year 2000 Problem will not have a material
adverse effect on Borrower, Parent, or any of their respective material
subsidiaries taken as a whole, and Borrower or its Parent is required to
publicly report on the Year 2000 Problem as it affects Borrower, Parent,
and their respective subsidiaries taken as a whole and shall continue to do
so.
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 5
8. Events of Default.
a. If any Event of Default (hereinafter defined) shall occur, Bank may
(and, upon the occurrence of any Event of Default described in Clause
b.iii. below, Bank shall) (i) declare all obligations, indebtedness,
and liabilities arising under or in connection with any of the Loan
Documents of Borrower to Bank of whatever nature, whether contingent
or absolute, matured or unmatured (the "Obligations") to be forthwith
-----------
due and payable without presentment, demand, protest, or any other
notice or demand of any kind, all of which are hereby expressly waived
by Borrower, (ii) refuse to make any Advance, and (iii) require
Borrower to, and Borrower thereupon shall, make payment, without
presentment, demand, protest, or any other notice or demand of any
kind, all of which are hereby expressly waived by Borrower, of all
Obligations; and, Bank may do all other things provided for by law or
equity or by any agreement between Borrower and Bank to enforce its
rights hereunder and under any other Obligation of Borrower to Bank
and to collect all amounts owing to Bank by Borrower.
b. Each of the following shall be an "Event of Default" hereunder:
----------------
i. the non-payment when due of any of the principal amount of the
Obligations; or the non-payment for more than three (3) Business
Days after the date when due of any other amount of the
Obligations; or, Borrower or any Guarantor shall fail to comply
with, or there shall occur a breach of, any other agreement,
term, covenant, or condition of this Agreement or any other Loan
Document (including any of the Incorporated Provisions) and such
failure to comply therewith or breach thereof shall continue for
thirty (30) days after notice thereof has been provided by ABN
AMRO to Borrower, except that no such grace period shall apply to
a failure to comply with, or a breach of, any of Sections 6.1,
6.3, 6.6 through 6.10, 6.13, 6.15, and Section 7 (as such
enumerated provisions are incorporated herein in the form of
Incorporated Provisions) of the Existing Credit Agreement (to the
extent that Section 7.12 of the Existing Credit Agreement permits
the incorporation of such Sections herein); or any representation
or warranty made by Borrower or any other Guarantor in this
Agreement or any other Loan Document (including any
representation or warranty incorporated herein as an Incorporated
Provision) shall prove to be incorrect, false, or misleading in
any material respect when made or when deemed made;
ii. The payment of any indebtedness of Borrower or of any obligation
of any Guarantor, in either case arising under the Existing
Credit Agreement or any document, instrument, guaranty, or
agreement relating thereto, shall be accelerated by the holders
thereof prior to the stated maturity thereof;
iii. the failure of the Borrower or any Guarantor to generally pay its
debts (other than with respect to such debt as is addressed in
Clause (ii) directly above) as they become due; or, the admission
in writing by Borrower or any Guarantor of its inability to pay
its debts as they come due generally; or, Borrower's or any
Guarantor's insolvency, liquidation, winding up, reorganization,
arrangement, adjustment, protection from creditors, relief, or
composition of its debts, under any laws relating to bankruptcy,
insolvency or reorganization; or, the seeking of the entry of an
order for relief or the appointment of a receiver, trustee or
other similar official for the Borrower or any Guarantor or for
any substantial part of any of their respective property in a
bankruptcy or similar proceeding; or, the taking of any action by
the Borrower or any Guarantor to authorize any of the foregoing.
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 6
9. General Provisions. (a) Bank and Borrower shall execute and deliver or
cause to be executed and delivered such further instruments or documents
and do or cause to be done such further acts as may be reasonably necessary
or proper to carry out more effectively the provisions and purposes of this
Agreement; (b) all notices, requests, and demands hereunder shall be
provided in a commercially reasonable manner including by telecopier; and
shall be deemed to have been given at the date and time when received at
the address or telecopier number, as the case may be, set forth below
adjacent to the respective signature of Borrower or Bank, and Bank shall be
entitled to rely on the authority of any individual, reasonably believed by
ABN AMRO to be authorized by Borrower, transmitting or executing a telecopy
facsimile purportedly on behalf of Borrower; (c) as used herein, the
singular shall include the plural and vice versa, the words "hereby,"
------
"hereof," "herein," "hereunder," and words of similar import shall refer to
------ ------ ---------
this Agreement as a whole, and the word "including" is not a term of
limitation and means "including without limitation"; (d) Borrower shall pay
----------------------------
and indemnify Bank for, and hold it harmless from and against, any and all
obligations, liabilities, losses, damages, costs, expenses (including
costs, disbursements, and reasonable legal fees of counsel to Bank),
penalties, judgments, suits, actions, claims, and disbursements imposed on,
asserted against, or incurred by Bank (i) relating to the preparation,
negotiation, execution, administration, or enforcement of or collection
under this Agreement or any other Loan Document, including in any
bankruptcy proceeding; (ii) relating to any amendment, modification,
waiver, or consent thereunder or hereunder or relating to any telecopy
transmission purporting to be by or from Borrower; (iii) in any way
relating to or arising out of any Loan Document or any action taken or
omitted to be taken by Bank hereunder or thereunder; (iv) arising directly
or indirectly from the activities of Borrower or any subsidiary or
affiliate of Borrower or any officers, directors, employees, or agents of
Borrower, any predecessor, subsidiary, or affiliate of Borrower, or any
third party with whom Borrower has or has had a contractual relationship;
or (v) arising directly or indirectly from the violation or asserted
violation of any environmental protection, health, labor, import, export,
or safety law or regulation of any jurisdiction and regardless whether any
such claims are asserted by any governmental entity or any other person or
entity, except to the extent that any of the foregoing in this Clause (d)
is caused by the gross negligence or willful misconduct of Bank; (e) this
Agreement shall be binding upon and inure to the benefit of Bank and
Borrower, and their respective successors and assigns, except that Borrower
may not assign or delegate any of its rights or obligations hereunder
without the prior written consent of Bank; (f) Borrower hereby authorizes
Bank, from time to time without notice to Borrower, to provide any
information pertaining to the financial condition, business operations, or
creditworthiness of Borrower to or at the direction of any governmental
authority as required by such authority, to the subsidiaries and affiliates
of Bank, and to any of its or their directors, officers, employees,
auditors, and professional advisors who need such information in connection
with the Loan Documents, to any person or entity which in the ordinary
course of its business makes credit reference inquiries, to any person or
entity which may succeed to or participate in all or part of Bank's
interest hereunder, and as may be necessary or advisable for the
preservation of Bank's rights hereunder; (g) this Agreement shall be
subject to the internal laws of the Commonwealth of Pennsylvania without
regard to conflict of laws principles; (h) all covenants, agreements,
representations, and warranties made or incorporated herein are material
and shall be deemed to have been relied upon by Bank and shall survive the
execution hereof and all covenants and agreements of Borrower relating to
the payment of costs, expenses, or indemnification shall survive payment in
full of the Obligations; (i) section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect
the construction of this Agreement or the interpretation hereof in any
respect; (j) no modification or waiver with respect to this Agreement or
any document related hereto shall be effective unless it is in a writing
executed by Borrower and Bank, and a waiver by Bank on any one occasion
shall not be a waiver of the same or any other right or remedy of Bank on
any future occasion, and the rights and remedies of Bank as provided herein
or in any other documents related hereto are cumulative and not exclusive
of any of the other rights or remedies provided therein or by law or equity
and all such rights and remedies may be exercised in any order, singularly
or in any combination or successively; (k) any reference herein to this
Agreement or any other Loan Document shall be deemed to refer to any and
all amendments, modifications, extensions, renewals, and the like thereof;
(l) if any provision of any Loan Document shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such provision
shall
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 7
as to such jurisdiction be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or of the remaining
provisions hereof in any jurisdiction; (m) this Agreement may be executed
in any number of separate counterparts, each of which when so executed and
delivered shall be an original, and all such counterparts shall together
constitute one and the same instrument; and (n) telecopy transmission to
Bank of signature pages of this Agreement and any of the other Loan
Documents purporting to be signed on behalf of Borrower shall constitute
effective and binding execution and delivery hereof and of such Loan
Documents by Borrower. The rights of the Bank under this Section are in
addition to other rights and remedies which the Bank may have.
10. Consent to Jurisdiction; Waiver of Jury Trial.
a. Consent to Jurisdiction. Each of Borrower and ABN AMRO hereby
-- -----------------------
irrevocably submits to the jurisdiction of any Pennsylvania state or
federal court sitting in Pittsburgh, Pennsylvania, in any action or
proceeding arising out of or relating to this Agreement or any other
Loan Document, and each of Borrower and Bank hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard
and determined in such Pennsylvania state or federal court. Each of
Borrower and ABN AMRO hereby irrevocably waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of any such action or proceeding. Each of Borrower and ABN
AMRO hereby agree that service of copies of a summons and complaint
and any other process in any action or proceeding may be made by
mailing or delivering a copy of such process to such party at its
address set forth herein. Each of Borrower and ABN AMRO agree that a
final judgment in any action or proceeding shall be conclusive and may
be enforced in other jurisdictions (or political subdivisions thereof)
by suit on the judgment or in any other manner provided by Law.
b. Non-exclusive Jurisdiction. Nothing in this Agreement shall affect
-- --------------------------
the right of either party hereto to serve legal process in any other
manner permitted by law or affect the right of either party hereto to
bring any action or proceeding against the other or any of its
property in the courts of any other jurisdictions.
c. Waiver of Jury Trial. EXCEPT AS PROHIBITED BY LAW, EACH PARTY HEREBY
-- --------------------
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE
OTHER DOCUMENTS OR TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN; each
party hereby acknowledges and agrees that the foregoing waiver is a
material inducement to its execution of this Agreement and the other
Loan Documents.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
Cable Design Technologies Inc.
December 14, 1998
Page 8
If Borrower is in agreement with the foregoing terms and conditions, please
complete and sign below this Agreement and return it to our attention.
ABN AMRO BANK N.V.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
with a copy to:
ABN AMRO Bank N.V. ABN AMRO Bank N.V.
208 S. LaSalle Street, Suite 1500 One PPG Place, Suite 2950
Chicago, IL 60604-1003 Pittsburgh, PA 15222-5401
Attn: Loan Administration Attn: Christopher S. Helmeci
Phone: 312-992-5151 Phone: 412-566-2250
Fax: 312-992-5156 Fax: 412-566-2266
For Financial Information:
ABN AMRO Bank N.V.
208 S. LaSalle Street
Chicago, IL 60604
Attn: Kenneth Keck
Phone: 312-992-5134
Fax: 312-992-5111
ACCEPTED AND AGREED
-------------------
All of the foregoing representations and warranties of Cable Design
Technologies Inc., are hereby made and all of the foregoing terms and conditions
are hereby agreed to and accepted as of this 14th day of December, 1998, with
the intent to be legally bound hereby.
CABLE DESIGN TECHNOLOGIES INC.
By: (SEAL)
Name:
Title:
Cable Design Technologies Inc.
Foster Plaza 7
661 Andersen Dr.
Pittsburgh, Pennsylvania 15220
Telecopier No: 412 937 9690
<PAGE>
EXHIBIT 99.2
MASTER REVOLVING
LINE OF CREDIT
PROMISSORY NOTE
US$35,000,000 December 14, 1998
FOR VALUE RECEIVED, and intending to be legally bound hereby, CABLE DESIGN
TECHNOLOGIES INC., a Washington corporation (the "Borrower"), hereby promises to
pay to the order of ABN AMRO BANK N.V. (which, together with its endorsees,
successors and assigns, is referred to herein as the "Bank"), at its office
located at One PPG Place, Suite 2950, Pittsburgh, Pennsylvania 15222-5400 (or at
such other place of payment designated by the holder hereof to the Borrower),
the lesser of (i) the principal sum of THIRTY FIVE MILLION UNITED STATES DOLLARS
(US$35,000,000) or (ii) the aggregate unpaid principal balance of all advances
made by Bank to or for the benefit of Borrower (each, an "Advance") pursuant to
that letter agreement, dated as of the date hereof, between Borrower and Bank
(as amended, modified, extended, supplemented, or the like from time to time,
the "Agreement"), in lawful money of the United States of America ("US") in
immediately available funds, payable at the earlier of December 12, 1999 (the
"Termination Date"), or as otherwise set forth in the Agreement. Capitalized
terms, not otherwise defined herein, shall have the respective meanings ascribed
to them by the Agreement.
Borrower hereby further promises to pay to the order of Bank, at the place
of payment, interest on the unpaid principal amount of each Advance from the
date such Advance is made until the maturity thereof (whether at stated
maturity, by acceleration, or otherwise), at one or another of the following
interest rate options (each an "Interest Rate Option") which Borrower shall
select in accordance with the terms hereof: (a) upon the selection of a Base
Rate option (the "Base Rate Option"), a fluctuating rate of interest per annum
equal to the Base Rate of Bank (as hereinafter defined), or (b) upon the
selection of a LIBOR option (the "LIBOR Option"), the Applicable Margin (as
hereinafter defined) plus LIBOR (as hereinafter defined). For each new Advance,
and with respect to each outstanding Advance for which an applicable Interest
Period is expiring, Borrower shall select either a Base Rate Option or a LIBOR
Option to be applicable to such Advance; such selection shall be communicated to
Bank by irrevocable notice (in writing by telex, telecopier, telegram, cable, or
delivery) (A) which, in the case of a LIBOR Option selection, shall be provided
to Bank by 11:00 a.m. (Pittsburgh time) three (3) Business Days prior to the
date on which the relevant new Advance is proposed to be made or three (3)
Business Days prior to the last day of the then current Interest Period
applicable to such outstanding Advance, and (B) which, in the case of a Base
Rate Option selection, shall be provided to Bank no later than 11:00 a.m.
Pittsburgh time on the Business Day on which such requested new Advance is
proposed to be made or on which an Interest Period for such outstanding Advance
is to expire. If no Interest Rate Option is timely selected at the end of any
Interest Period for an Advance, Borrower shall be deemed to have selected a Base
Rate Option for such Advance. In no event shall the interest rate(s) applicable
to principal outstanding hereunder exceed the maximum rate of interest allowed
by applicable law, as amended from time to time; any payment of interest or in
the nature of interest in excess of such limitation shall be credited as a
payment of principal unless Borrower requests the return of such amount.
A Base Rate Option applicable to an existing Advance may at any time be
converted to a LIBOR Option for such Advance upon the selection of an Interest
Period therefor and the giving of appropriate prior irrevocable notice (in
writing by telex, telecopier, telegram, cable, or delivery) of such conversion
by Borrower to Bank by 11:00 a.m. (Pittsburgh time) three (3) Business Days
prior to the date of conversion, subject to the terms hereof. Unless the
applicable breakfunding fees (referred to in the 17th paragraph hereof) are
paid, a LIBOR Option applicable to an existing Advance may be converted to a
Base Rate Option only on the last Business Day of the Interest Period applicable
to such Advance subject to appropriate prior notice thereof by Borrower to Bank
in accordance with the terms hereof.
The making of Advances, the conversion of a Base Rate Option to a LIBOR
Option with respect to an Advance, and the continuation of the LIBOR Option upon
the last day of an Interest Period for an Advance may occur only on a Business
Day (as hereinafter defined).
<PAGE>
Interest on each Base Rate Option Advance shall be due and payable in
arrears on the last Business Day of each January, April, July, and October
hereafter and at maturity and after maturity on demand. Interest on each LIBOR
Option Advance shall be due and payable in arrears on the last day of each
Interest Period for such Advance (except that, with respect to Advances having
an Interest Period of six months, interest shall be paid as if a three month
Interest Period were applicable thereto), commencing on the first such date to
occur after the date hereof, and at maturity, after maturity on demand, and on
the date of any payment of any such Advance on the amount paid. The outstanding
principal amount of a LIBOR Option Advance may be prepaid, in whole or in part,
at the end of an Interest Period applicable thereto; without the prior written
consent of Bank, no Advance subject to the LIBOR Option may be prepaid prior to
the date of the maturity thereof (at stated maturity, by acceleration, or
otherwise), except on the last Business Day of the Interest Period therefor (and
only upon three (3) Business Days prior irrevocable notice (in writing by telex,
telecopier, telegram, cable, or delivery) from Borrower to Bank thereof);
provided, however, that all pre-payments of a LIBOR Option Advance shall be in a
minimum principal amount of US$500,000 and a multiple of US$500,000, or such
lesser principal balance of the LIBOR Option Advance outstanding. The
outstanding principal amount of a Base Rate Option Advance may be pre-paid, in
whole or in part, at any time; provided, however, that pre-payments of the
outstanding principal amount of any Base Rate Option Advance shall be in a
minimum principal amount of $500,000 or such lesser principal balance of the
Advance outstanding. At no time shall more than four (4) Advances to which the
LIBOR Option applies be outstanding at any one time.
Borrower hereby further promises to pay to the order of the Bank, on
demand, at the place of payment, interest on the unpaid principal amount of each
Advance after maturity thereof (whether at stated maturity, by acceleration, or
otherwise), at a rate per annum equal to the higher (redetermined daily) of (i)
two percent (2%) per annum in excess of the interest rate in effect just prior
to maturity, or (ii) the sum of two percent (2%) per annum and the Base Rate of
the Bank from time to time in effect.
Borrower hereby further promises to pay to Bank a nonrefundable facility
fee, (as described herein the "Facility Fee") for the period from and including
the date hereof to the earlier of indefeasible and final payment in full of this
Promissory Note or the Termination Date, equal to the product of (a) the
Facility Fee Rate (as hereinafter defined) and (b) the average daily amount of
the Facility (regardless of usage) during the period for which such Facility Fee
is calculated (computed on the basis of a year of 360 days for the actual number
of days elapsed), payable quarterly in arrears on the last Business Day of each
January, April, July, and October and on the Termination Date. Such payments
shall commence on January 31, 1999, and such first payment shall be for the
period from the date hereof through January 31, 1999.
Bank is hereby authorized by Borrower to record on its books and records,
the principal amount and borrowing date of each Advance made hereunder, the
interest rate, Interest Period, and interest payment dates applicable thereto,
the maturity date thereof and all payments of principal and interest made
thereon. The books and records of Bank shall be conclusive and binding upon the
Borrower, absent manifest error.
All payments due hereunder shall be made by the Borrower to the holder
hereof no later than 11:00 a.m. Pittsburgh time at the place of payment, in US
dollars and in funds immediately available and freely transferable at the place
of payment, free and clear of, and without deduction for, any present or future
taxes, levies, withholding, or similar deductions of any nature whatsoever
("Deductions"). Payments received after such time shall be deemed received by
the holder hereof on the next succeeding Business Day at such place of payment.
In the event that the Borrower is compelled for any reason to make any
Deductions, it shall pay to the holder hereof such amounts (after giving effect
to all Deductions on all additional payments to be made hereunder) as will
result in the receipt by the holder hereof of the amount such holder would have
received had no such Deductions been required to be made. If any payment shall
fall due hereunder on a day that is not a Business Day, payment shall be
2
<PAGE>
made on the next succeeding Business Day and interest thereon shall be payable
for such extended time, provided, however, that with respect to any payment of
interest based upon the LIBOR Option, if such succeeding Business Day shall fall
into a new calendar month, payment shall be made on the next preceding Business
Day. The Bank's determination of LIBOR and the Base Rate as provided herein
shall be conclusive, absent manifest error.
"Applicable Margin" shall herein mean, for any day with respect to an
Advance subject to the LIBOR Option, the applicable basis points per annum set
forth below in the Pricing Grid under the caption "Applicable LIBOR Margin" and
corresponding to the Leverage Ratio then existing at the time of determination,
provided that the Applicable Margin shall be adjusted (retroactively if
necessary) as of the first day of the month following the date on which the Bank
is to receive the financial statements required to be delivered to Bank pursuant
to the incorporation into the Agreement of Sections 6.1(a), 6.1(b), and 6.1(e)
of the Existing Credit Agreement, and provided further that the Applicable
Margin commencing as of the date hereof shall be determined on the basis of
those financial statements prepared or to be prepared as of October 31, 1998.
PRICING GRID
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(basis points per annum)
- --------------------------------------------------------------------------------------------------------
Leverage Ratio Facility Fee Applicable
Rate LIBOR Margin
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than 3.0x & less than or equal 20.0 105.0
to 3.5x
- --------------------------------------------------------------------------------------------------------
Greater than 2.7x & less than or equal 20.0 92.5
to 3.0x
- --------------------------------------------------------------------------------------------------------
Greater than 2.0x & less than or equal 15.0 85.0
to 2.7x
- --------------------------------------------------------------------------------------------------------
Greater than 1.25x & less than or equal 15.0 72.5
to 2.0x
- --------------------------------------------------------------------------------------------------------
Greater than 0.75x & less than or equal 15.0 60.0
to 1.25x
- --------------------------------------------------------------------------------------------------------
Less than or equal to 0.75x 10.0 52.5
- --------------------------------------------------------------------------------------------------------
</TABLE>
"Base Rate" shall herein mean that fluctuating rate of interest equal to
the higher (redetermined daily) of (i) the per annum rate of interest announced
by the Bank from time to time at its principal office in Chicago as its prime
rate for US dollar loans (with any change in such prime rate to become effective
as of the start of business on the date on which such prime rate change shall be
made), or (ii) the per annum rate of interest at which overnight federal funds
are from time to time offered to the Bank by any bank in the interbank market in
an amount equal to the principal amount outstanding of such Advance, plus one-
half of one percent (0.5%) per annum. Interest shall accrue on any Advance
hereunder that will be outstanding for less than a one month Interest Period at
a rate equal to the Base Rate. Interest will be calculated on the basis of the
actual number of days elapsed over a year of 365 days.
"Facility Fee Rate" shall herein mean for any day the applicable basis
points per annum set forth on the Pricing Grid above under the caption "Facility
Fee Rate" and corresponding to the Leverage Ratio then existing at the time of
determination, provided that the Facility Fee Rate shall be adjusted
(retroactively if necessary) as of the first day of the month following the date
on which the Bank is to receive the financial statements required to be
delivered to Bank pursuant to the incorporation into the Agreement of Sections
6.1(a), 6.1(b), and 6.1(e) of the Existing Credit Agreement, and provided
further that the Facility Fee Rate commencing as of the date hereof shall be
determined on the basis of those financial statements prepared or to be prepared
as of October 31, 1998.
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<PAGE>
"Interest Period" shall herein mean successive one-month, three-month, or
six-month periods (as selected from time to time by the Borrower by irrevocable
notice (in writing by telex, telecopier, telegram, cable, or delivery) provided
to the Bank by 11:00 a.m. (Pittsburgh time) three (3) Business Days prior to the
first day of each respective Interest Period) commencing on the date of a new
Advance subject to the LIBOR Option or commencing on the date on which a Base
Rate Option applicable to an Advance is converted to a LIBOR Option or
commencing on the date on which the LIBOR Option is continued for an Advance for
which the previous Interest Period is expiring; provided that: (i) each such
one-month, three-month, or six-month period occurring after the initial such
period shall commence on the day on which the next preceding period expires;
(ii) no Interest Period for any Advance shall be selected that would expire
after the Termination Date; and (iii) if for any reason the Borrower shall fail
to timely select an Interest Period for an Advance to which the LIBOR Option is
to apply, then it shall be deemed to have selected a one-month Interest Period,
subject to clause (ii).
"Leverage Ratio" shall be used herein as defined in the Existing Credit
Agreement.
"LIBOR" shall herein mean with respect to an Advance to which the LIBOR
Option applies for any Interest Period, the per annum rate of interest
determined by Bank by dividing (the resulting quotient rounded upward to the
nearest 1/16th of 1% per annum) (i) the rate of interest per annum at which US
dollar deposits of an amount comparable to the amount of such Advance and for a
period equal to the relevant Interest Period are offered generally to the Bank
in the London interbank market at 11:00 a.m. (London time) two Business Days
prior to the commencement of such Interest Period, with such rate to remain
fixed for such Interest Period, by (ii) a number equal to 1.00 minus the Reserve
Percentage (as hereinafter defined). LIBOR shall be adjusted with respect to
any Advance subject to the LIBOR Option as of the effective date of any change
in the Reserve Percentage.
"Reserve Percentage" shall herein mean the maximum percentage (expressed as
a decimal rounded upward to the nearest 1/100th of 1%), as determined by Bank,
which is in effect during any relevant period: (i) as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) (the "Board") for
determining the reserve requirements (including supplemental, marginal, and
emergency reserve requirements and without benefit of or credit for proration,
exceptions, or offsets which may be available to Bank from time to time under
Regulation D of the Board) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" by Regulation D of the Board); and
(ii) to be maintained by Bank as required for reserve liquidity, special
deposit, or a similar purpose by any governmental or monetary authority of any
country or political subdivision thereof (including any central bank), against
(A) any category of liabilities that includes deposits by reference to which
LIBOR is to be determined, or (B) any category of extension credit or other
assets that includes any Advance to which the LIBOR Option applies.
If, for any reason (including as a result of any Event of Default), any
Advance subject to the LIBOR Option is paid or prepaid in whole or in part on a
day other than the last day of the Interest Period therefor or if any request
for an Advance subject to the LIBOR Option, or for the continuation of or
conversion to the LIBOR Option with respect to an Advance, is revoked or denied
(expressly, by later inconsistent notices, or otherwise), the Borrower shall
indemnify the Bank against any loss, cost, or expense (including loss of margin,
loss or expense incurred in liquidating or redeploying deposits from third
parties or incurred in terminating or unwinding any contracts or incurred in
connection with funds acquired or to be acquired to fund or maintain Advances)
incurred or sustained by Bank as a consequence.
If the Bank shall have determined, in good faith (which determination shall
be conclusive, absent manifest error), prior to the commencement of any Interest
Period that (a) US Dollar deposits of sufficient amount and maturity for funding
any Advance are not available to the Bank in the London interbank market in the
ordinary course of business, or (b) by reason of circumstances affecting the
relevant market, adequate and fair means do not exist for ascertaining the rate
of interest to be applicable to an
4
<PAGE>
Advance, the Bank will promptly notify the Borrower thereof and no such Advance
will be made or, if already made, such Advance shall be immediately due and
payable on the last Business Day of the then existing Interest Period applicable
thereto, all without further demand, presentment, protest or notice of any kind,
all of which are hereby waived by the Borrower for all purposes hereof. If,
after the date hereof, the introduction of, or any change in, any applicable
law, treaty, rule, regulation or guideline or in the interpretation or
administration thereof by any governmental authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over the Bank or
its lending office, shall, in the opinion of counsel to the Bank, make it
unlawful for the Bank to make or maintain any LIBOR Option Advance, then the
Bank shall promptly notify the Borrower thereof and no such Advance will be made
or, if already made, such Advance shall be immediately due and payable on the
last Business Day of the then existing Interest Period applicable thereto or on
such earlier date as required by law, all without further demand, presentment,
protest or notice of any kind, all of which are hereby waived by the Borrower.
If any law, rule, or regulation or any action of any judicial,
administrative, or other governmental authority of any jurisdiction or political
subdivision thereof (whether or not having the force of law) adopted or taken
after the date hereof:
(i) subjects Bank to any tax or changes the basis of taxation with respect
to this Promissory Note (except for taxes on the overall net income of
Bank), or (ii) imposes, modifies, or deems applicable (A) any reserve,
special deposit, or similar requirement against credits or commitments to
extend credit extended by, or assets (funded or contingent) of, deposits
with or for the account of, or other acquisitions of funds by, Bank or any
affiliate of Bank involved in any Advance under this Promissory Note (any
"Bank Affiliate"), or (B) any capital adequacy or similar requirement (x)
against assets (funded or contingent) of, or credits or commitments to
extend credit extended by, Bank or any Bank Affiliate, or (y) otherwise
applicable to the obligations arising in connection with this Promissory
Note,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon Bank
or any Bank Affiliate with respect to this Promissory Note (or, in the case of
any capital adequacy or similar requirement, to have the effect of reducing the
rate of return on Bank's or its holding company's capital, taking into
consideration Bank's and its holding company's customary policies with respect
to capital adequacy) by an amount which Bank in its sole discretion deems to be
material, Bank shall from time to time notify Borrower in writing of the amount
determined in good faith (using any averaging and attribution methods employed
in good faith) by Bank (which determination shall be conclusive absent manifest
error) to be necessary to compensate Bank or any Bank Affiliate (or its holding
company) for such increase in cost, reduction of income, or additional expense;
and, such amount shall be due and payable by Borrower to Bank ten (10) Business
Days after such notice is given. Such written notice shall contain a
description of the matters giving rise to Bank's charge under this paragraph,
including such calculations as are necessary under the circumstances and in
sufficient detail to allow Borrower to reasonably understand the nature and
basis for such charge and the calculation of the amount thereof. In no event,
however, shall Borrower be required to pay any amount otherwise required by this
paragraph if such amount relates to a period which ended more than ninety (90)
days prior to receipt by Borrower of such notice from Bank.
This Promissory Note is the Note referred to in, and is entitled to the
benefits of, the Agreement and the other Loan Documents referred to therein.
Reference is made to the Agreement for a description of the relative rights and
obligations of Borrower and Bank, including rights and obligations of
prepayment, collateral (if any) securing payment hereof, events of default, and
rights of acceleration of maturity in the event of default.
5
<PAGE>
No delay on the part of the holder hereof in exercising any of its options,
powers, or rights, or partial or single exercise thereof, shall constitute a
waiver thereof. The options, powers, and rights specified herein of the holder
hereof are in addition to those otherwise created or permitted by law, the
Agreement, and the other Loan Documents. There are no claims, set-offs, or
deductions of any nature as of the date hereof that could be made or asserted by
Borrower against Bank or against any amount due or to become due under this
Promissory Note; all such claims, set-offs, or deductions are hereby waived.
Telecopy transmission to Bank of the signature page of this Promissory Note
purporting to be signed on behalf of Borrower shall constitute effective and
binding execution and delivery hereof by Borrower. This Promissory Note shall
be governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to conflict of laws principles.
IN WITNESS WHEREOF and intending to be legally bound hereby, the Borrower
has executed this Promissory Note as of the date hereof by its duly authorized
officer with the intention that it constitute a sealed instrument.
CABLE DESIGN TECHNOLOGIES INC.
By: (SEAL)
Name:
Title:
6
