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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
[X] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-24884
CANNONDALE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-0871823
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
9 BROOKSIDE PLACE, 06829-0122
GEORGETOWN, CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
Registrant's telephone number, including area code:
(203) 544-9800
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED
- ------------------------------------------------------------------------------------------------
<S> <C>
None N/A
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
Indicate by check mark whether 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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At September 19, 1997, the aggregate market value of the voting stock held
by non-affiliates of registrant was $165,757,032 based on the per share closing
price on such date, and registrant had 8,692,886 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive Proxy Statement relating to the 1997
Annual Meeting of Stockholders are incorporated by reference into Part III, as
set forth herein.
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PART I
ITEM 1. BUSINESS.
GENERAL
Cannondale Corporation ("Cannondale" or the "Company") is a leading
manufacturer of high performance bicycles. The Company's bicycle line has grown
from 21 models in its 1992 model year to 59 models in its 1998 model year, the
significant majority of which are hand assembled and constructed with hand
welded aluminum frames. Cannondale also manufactures and sells bicycle
accessories, which include clothing, shoes and bags, a line of components and
bike trailers, and beginning in 1998, wheelchairs. The Company was incorporated
in Delaware in 1971.
The Company has experienced rapid growth, with net sales increasing from
$54.5 million in fiscal 1991 to $162.5 million in fiscal 1997. The Company
believes that the growth in cycling in general, and mountain biking in
particular, have contributed to its growth. Industry sources estimate that
mountain bikes accounted for 67 percent of all bicycle revenue in the United
States in 1996. Based on data from the Bicycle Wholesale Distributors
Association ("BWDA"), the high performance segment of the bicycle market has
grown more rapidly than the market as a whole in recent years, based primarily
on increases in average selling prices, which the Company believes is due in
large part to innovations such as lighter weight frames and suspension systems.
PRODUCTS
The Company's bicycles are marketed under the Cannondale brand name and
"Handmade in USA" logo. The Company's 1998 bicycle line offers 59 models, the
vast majority of which feature a Cannondale lightweight aluminum frame.
Cannondale's use of aluminum allows it to produce frames that are generally
lighter in weight than steel frames. Cannondale bicycles employ wide diameter
tubing, which provides greater frame rigidity as well as a distinctive look.
Certain Cannondale models also have full or front suspension systems, offering
greater comfort and control than non-suspended bikes.
The Company recently introduced Seated-Sports Technology, its line of
wheelchairs for distribution in 1998. The wheelchairs feature a lightweight
aluminum frame made of large diameter tubing. The Seated-Sports Technology line
uses the same production facilities as the Company's bicycles, therefore, the
capital requirements to manufacture this new product line are minimal. The
Company's wheelchair line will feature models that include road racing,
everyday, hand-cycles, basketball and outdoor-access chairs.
In June 1997, the Company began shipment of the Raven, a new high
performance, full suspension mountain bike. A product of the Company's ongoing
research and development, the Raven's frame is composed of lightweight carbon
fiber skins bonded to an aluminum spine, providing an even lighter frame weight
than its steel and aluminum counterparts.
There are five major categories of bicycles sold in the adult market:
mountain, road racing, hybrid, touring and specialty. Mountain bikes have wide
knobby tires, straight handlebars and are designed to handle off-road
conditions. Road racing bikes are lightweight with thin tires and drop (curved)
handlebars. Hybrid bikes have the straight handlebars and more upright riding
position of mountain bikes, but use thinner tires, making them suited for on-
and off-road use. Touring bikes are similar to road racing bikes in appearance,
but the frames are designed to carry packs and other touring supplies. The
specialty bicycle market encompasses various niche products, including tandem,
multi-sport and cyclocross bikes.
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The 59 bicycle models in Cannondale's 1998 model year are distributed in
the five major bicycle categories as follows:
<TABLE>
<CAPTION>
NUMBER OF
CATEGORY 1998 MODELS
---------------------------------------------------- -----------
<S> <C> <C>
Mountain Bikes:
Full Suspension................................... 11
Front Suspension.................................. 8
Non-Suspended..................................... 7
Road Bikes:
Front Suspension.................................. 2
Non-Suspended..................................... 10
Hybrid.............................................. 8 (four front suspension)
Touring............................................. 4 (one front suspension)
Specialty:
Tandem............................................ 4 (one front suspension)
Multi-Sport....................................... 3 (one front suspension)
Cyclocross........................................ 2 (one front suspension)
</TABLE>
The Company's 1998 line of proprietary HeadShok front suspension forks
features a total of eight models. Each HeadShok model offers the Company an
important point of differentiation from other bicycle manufacturers, virtually
all of whose suspension bikes feature the same brand-name forks produced by one
of two independent suppliers. In the 1998 model year there are two HeadShok fork
models that can be mounted to non-Cannondale frames; prior to 1996, all HeadShok
forks functioned with the bicycle's frame as part of an integrated system.
Like the HeadShok forks, the Company's use of its own CODA brand components
on its bicycles helps distinguish its models from those of its competitors. The
Company currently offers cranksets (chain rings), pedals, hubs, wheels, brakes,
handlebars, handlebar grips and stems, saddles, kickstands and certain other
components under the CODA brand name. In addition to providing value-added
features exclusive to Cannondale's bicycles, CODA components also provide
revenues from aftermarket retail sales.
In addition to its bicycle, suspension fork and component lines, the
Company manufactures and sells bicycle accessories, including bags, shoes,
apparel and other accessories, some of which are manufactured for the Company by
third parties. These products are sold primarily through the same distribution
channels as the Company's bicycles, forks and components.
MARKETING
The goal of the Company's sales and marketing program is to establish
Cannondale as the leading high performance bicycle brand in the specialty
bicycle retail channel. The marketing effort is focused on innovation,
differentiation, performance and quality leadership; publicity generated from
the Company-sponsored professional athletes; and a media campaign designed to
attract consumers to specialty bicycle retailers.
Since 1994, the Volvo/Cannondale mountain bike racing team has made
contributions to the product development effort of the Company and served as a
major focus of the Company's marketing effort. The Company is leveraging the
competitive success of the racing team by using photo images of the athletes in
print media, on point-of-sale literature, banners, product packaging and product
catalogs. The Company also supports racing programs in other cycling areas,
including the New Balance/Cannondale triathlon racing team and the Saeco
professional road cycling team.
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The Company's sponsorship of the Saeco team is designed to increase
Cannondale's visibility and credibility among the high-end consumers dedicated
to road racing. A major force in the Giro d'Italia, Tour de France, CoreStates
and other top professional road cycling events, the Saeco team began to compete
aboard Cannondale bicycles, and in the Company's cycling apparel, in the spring
of 1997.
The Company has historically maintained an active program to generate
publicity regarding its products in a variety of print and broadcast media, both
enthusiast and general interest. The public relations effort has been
supplemented by the Company's advertising program, which is primarily directed
to the enthusiast press, although the Company also advertises in more general
lifestyle publications targeting the upscale adult market with interests in
outdoor and leisure activities.
The Company has also made use of the internet to promote its brand and
image, offering consumers a web site (www.cannondale.com), which is currently
averaging more than one million hits per month.
SALES AND DISTRIBUTION
Cannondale's distribution strategy is to sell its bicycles through
specialty bicycle retailers who it believes have the ability to provide
knowledgeable sales assistance regarding the technical and performance
characteristics of its products and to provide an ongoing commitment to service
its bicycles. In 1998, to increase the sales of its clothing and accessory
lines, the Company will expand its distribution network to include sport-
specialty retailers. The Seated-Sports Technology line primarily will be sold
through the same specialty bicycle retailer network as the Company's bicycles.
The Company does not sell bicycles through mass merchandisers. A key aspect of
the Company's strategy is to align itself with a network of specialty bicycle
retailers that can support the Company's growth objectives. When adding new
retailers, the Company takes into account a number of factors, including the
targeting of certain market areas determined by analyzing various population,
demographic and competitive characteristics.
In the United States and Canada, the Company currently sells bicycles and
accessories directly to approximately 1,300 specialty bicycle retailer locations
and sells accessories through an additional 400 retailer locations. Generally,
the Company's retailers do not have exclusive rights in any territory. For 1998,
in addition to a 37 member field-sales force dedicated to selling bicycles and
launching the Seated-Sports Technology line, the Company has added a new 17
member field-sales force whose focus it is to sell the clothing, accessory, CODA
and HeadShok lines offered by the Company. The Company's 54 member field-sales
force contributes to all aspects of customer service, including; marketing the
Company's products to retailers, providing retailer assistance and assisting in
the Company's accounts receivable management. The account managers also monitor
retail sales at the retailer level, enabling the Company to better respond to
changes in market demand and to adjust production accordingly
Substantially all of Cannondale's domestic bicycle retailers participate in
the Authorized Retailer Program ("ARP"), in which they place orders for the year
and agree to take delivery at predetermined points throughout the year. This
program enables retailers to plan their business around the scheduled deliveries
and provides freight and pricing discounts, as well as payment terms that
generally vary from 30 to 180 days from the date of shipment, depending on the
time of year and other factors. Generally, retailers can place additional orders
during the year and can adjust their original ARP order as their sales warrant.
In addition, the ARP provides the Company with a valuable production planning
tool and helps to balance the production schedule. Historically, the Company has
received a substantial portion of its orders for the year under the ARP during
the first and second fiscal quarters. Orders may be canceled by the retailers
without penalty up to 30 days before shipment.
INTERNATIONAL OPERATIONS
The Company's products are sold in over 60 foreign countries. The Company's
activities in Europe, Japan and Australia are conducted through three
wholly-owned subsidiaries, Cannondale Europe B.V., Cannondale Japan KK and
Cannondale Australia Pty Limited, respectively. Sales in other foreign countries
are made by the Company from the United States, through the use of 44 foreign
distributors, who sell the Company's products to approximately 680 specialty
bicycle retailers overseas. During fiscal 1997, 1996 and 1995,
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Cannondale Europe accounted for 41, 37 and 35 percent, respectively, of
consolidated net sales, Cannondale Japan accounted for 5, 6 and 6 percent
respectively. Cannondale Australia, which was formed in fiscal 1997, accounted
for 1 percent of consolidated net sales in 1997.
Cannondale Europe. Cannondale Europe B.V., based in Oldenzaal, the
Netherlands, was formed in 1989. Cannondale Europe assembles bicycles at its
Netherlands facilities, using frames and components manufactured by the Company
as well as components manufactured by third parties. Cannondale Europe sells
bicycles and accessories directly to approximately 1,300 specialty bicycle
retailers in Austria, Belgium, Denmark, Finland, France, Germany, Italy, the
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom, using
locally based employee account managers supervised from the Oldenzaal
headquarters. Distributors are used in Greece, Hungary, Poland, Portugal,
Turkey, Russia and four republics comprising portions of former Czechoslovakia
and Yugoslavia.
Cannondale Japan. The Company formed Cannondale Japan in fiscal 1992 to
undertake direct sales to Japanese specialty bicycle retailers. Cannondale
Japan, based in Osaka, imports fully assembled bicycles and a full line of
accessories from the Company and various components manufactured by third
parties. Cannondale Japan sells bicycles and accessories directly to
approximately 300 specialty retailers and sells only accessories to an
additional 25 retailers. Cannondale Japan also sells accessories to a Japanese
distributor which in turn sells to approximately 200 additional retailers.
Cannondale Australia. In July 1996, Cannondale Australia Pty Limited
("Cannondale Australia"), a newly formed subsidiary of the Company, purchased
substantially all the assets of Beaushan Trading Pty Limited, an Australian
bicycle distribution company, to undertake direct sales to Australian specialty
bicycle retailers. Cannondale Australia, based in Sydney, imports fully
assembled bicycles and a full line of accessories from the Company and various
components manufactured by third parties. Cannondale Australia sells bicycles
and accessories directly to approximately 110 specialty retailers.
SUPPLIERS
Aluminum tubing, the primary material employed in the Company's
manufacturing operations, is available from a number of domestic suppliers. The
Company currently has a supply agreement for aluminum tubing expiring December
31, 1998, with an option to extend the agreement for up to six months for
certain products subject to a maximum price increase of 4%. The Company believes
that the termination of its current agreement would not have a significant
impact on the availability of aluminum tubing. Cannondale purchases most of its
components from Japanese, Taiwanese and United States OEM suppliers. Purchases
from Japanese component manufacturers are made through Cannondale Japan. The
Company's largest component supplier is Shimano, which was the source of
approximately 19 percent of the Company's total inventory purchases in fiscal
1997. The Company has few long-term agreements with its major component
manufacturers, and has no long-term agreement with Shimano. Although the Company
believes it has established close relationships with the principal suppliers of
these components, the Company's future success will depend upon its ability to
maintain such relationships, which may be terminated by such suppliers on short
notice, or to substitute new suppliers without interruption of supply.
PATENTS AND TRADEMARKS
The Company holds 49 United States patents relating to various products,
processes or designs with expiration dates ranging from 1997 to 2015. The
Company focuses its attention in this area on obtaining patent protection for
the Company's core technologies and seeks broad coverage to protect its position
in the industry. The Company believes that its patented technology is a
reflection of its success in product innovation and that, collectively, its
patents enhance its ability to compete. However, in light of the nature of
innovation in the bicycle industry, the Company does not believe that the loss
of any one of its patents, or the expiration of any of its current patents,
would have a material adverse effect on the Company's business or results of
operations.
The Company holds numerous United States trademarks, covering the
CANNONDALE, CODA and HeadShok names and the names of a variety of products and
components. The CANNONDALE and CODA trademarks are also registered in
Cannondale's significant foreign markets. The Company believes its
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CANNONDALE trademarks have strong brand name recognition in the bicycle and
accessory markets, which the Company believes is a significant competitive
factor.
SEASONALITY
The Company's business is highly seasonal due to consumer spending
patterns, which in turn affect retailer delivery preferences, traditionally
resulting in significantly stronger operating results in the third and fourth
fiscal quarters (January through June). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Selected Quarterly
Financial Data; Seasonality."
COMPETITION
Competition in the high performance segment of the bicycle industry is
based primarily on perceived value, brand image, performance features, product
innovation and price. Competition in foreign markets may also be affected by
duties, tariffs, taxes and the effect of various trade agreements, import
restrictions and exchange rates. The worldwide market for bicycles and
accessories is extremely competitive, and the Company faces competition from a
number of manufacturers in each of its product lines. A number of the Company's
competitors are larger and have greater resources than the Company. The Company
competes on the basis of the breadth and quality of its product line, the
development of an effective specialty retailer network and its brand
recognition.
RESEARCH AND DEVELOPMENT
Cannondale's product development is directed at making bicycles lighter,
stronger, faster and more comfortable. It is the objective of the research and
development group, with the assistance of the Company's race teams, and in
particular the Volvo/Cannondale mountain bike racing team, which provide
significant feedback from the field, to design and deliver innovative products
to further the Company's efforts to position itself as an innovation leader. The
Company's research and development efforts have resulted in design and
production systems that allow the Company to compress the time between concept
and production. The Company believes that its research and development efforts
have benefited from efficiencies realized through the use of computer-aided
design tools and increased integration of the design and production processes.
In addition, the Company's collaboration with the Volvo/Cannondale mountain bike
racing team has led to the development of several competitive new products,
including the electronic active damper, the Free-Ride fork and the Moto 150
downhill fork, as well as refinement of the Company's existing products. These
developments, together with the development of the Raven and the Seated-Sports
Technology line, exemplify the commitment by the Company to continue to invest
in developing design, product and process technologies. The Company invested
$3.6 million, $2.8 million and $1.8 million on research and development during
fiscal years 1997, 1996 and 1995, respectively.
ENVIRONMENTAL MATTERS
The Company is subject to all applicable federal, state and local laws and
regulations relating to the discharge of materials into the environment, or
otherwise relating to the protection of the environment. The Company does not
believe that compliance with these regulations has an adverse effect upon its
business.
A portion of the Company's Bedford, Pennsylvania property acquired in 1992
was the subject of a groundwater monitoring program, stemming from the removal,
prior to Cannondale's acquisition of the property, of certain underground
storage tanks. The Company received a waiver from the Department of
Environmental Protection that provided for the cessation of this program. During
the program, no groundwater contamination was indicated in the sampling results.
In the unanticipated event that the situation surrounding this matter could
change, and conditions requiring remediation were discovered, the costs of such
remediation could have a material adverse effect on the Company's financial
condition.
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EMPLOYEES
As of June 28, 1997, the Company employed a total of 762 full time
employees in the United States, Cannondale Europe employed 128 full time
employees, Cannondale Japan employed 20 full time employees, and Cannondale
Australia employed 6 full time employees.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Please refer to Note 13 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Form 10-K.
ITEM 2. PROPERTIES.
The Company's headquarters are currently located in Georgetown,
Connecticut. In 1997, the Company sold the existing headquarters facility for
approximately $1.7 million, purchased land, and is in the process of
constructing a new corporate headquarters and research and development facility,
located approximately 10 miles from the existing headquarters. The existing
headquarters contain 15,900 square feet on a three-acre site. The facility
houses senior corporate management; financial and accounting staffs; marketing
and sales; design and research and development; management information systems
and purchasing. In connection with the construction of a new corporate
headquarters and research and development facility, the Company will continue to
occupy the existing facility on a month-to-month lease pending its relocation
into the new headquarters. The Company anticipates that it will move to the new
headquarters by the end of 1997. The Company anticipates that the cost of the
new facility (approximately $3.9 million) will be paid for with the proceeds
from the sale of the existing headquarters, proceeds of a loan from the
Connecticut Development Authority ("CDA") and borrowings under the Company's
current credit facilities.
Cannondale has manufacturing facilities in Bedford, Pennsylvania and
Philipsburg, Pennsylvania. The Bedford plant contains 125,000 square feet on 23
acres and is the main production facility for bicycles and clothing, and also
houses customer service. The Philipsburg plant consists of 40,000 square feet on
12 acres and houses the production of accessories, some clothing and bike
sub-assemblies. In connection with the financing of the facilities, the sites
are held in the names of local development agencies and are occupied by the
Company pursuant to installment sales agreements. The Company makes monthly
payments which will fully amortize the financing from the local agencies and
additional financing provided by the Pennsylvania Industrial Development
Authority ("PIDA"). Upon final amortization (2009 for Bedford, 2010 for
Philipsburg), title to the properties will be conveyed to the Company and PIDA's
mortgages on the properties will be released. The Company is currently
constructing an addition to the Bedford facility of up to 40,000 square feet.
The additional space will be used for warehousing and expanded production. The
project is expected to cost approximately $5.4 million, of which approximately
40% will be financed by the same agencies which have previously provided
financing for the Bedford facility.
Cannondale Europe owns a 54,200 square foot facility in Oldenzaal, the
Netherlands, which houses administrative and sales offices, a bicycle assembly
plant and warehouse. Cannondale Europe's property provides additional space for
further expansion. Cannondale Japan and Cannondale Australia lease a total of
5,940 and 2,500 square feet of office and warehouse space, respectively.
The Company believes that its present facilities are in good condition and,
upon completion of the planned construction projects, will be suitable for the
Company's operations and will provide sufficient capacity to meet the Company's
anticipated requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company currently and from time to time is involved in product
liability lawsuits and other litigation incidental to the conduct of its
business. The Company is not a party to any lawsuit or proceeding that, in the
opinion of management, is likely to have a material adverse effect on the
results of operations, cash flow or financial condition of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders of the Company during
the fourth quarter of the Company's 1997 fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning executive
officers and other key members of management of the Company.
<TABLE>
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NAME AGE POSITION
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<S> <C> <C>
Joseph S. Montgomery.......... 56 Chairman, President, Chief Executive Officer, Director
William A. Luca............... 54 Vice President of Finance, Treasurer, Chief Financial
Officer, Director
Richard J. Resch.............. 54 Vice President of Technology Development, Director
Daniel C. Alloway............. 37 Vice President of Sales -- United States, Vice
President of European Operations
Leonard J. Konecny............ 54 Vice President of Purchasing
John P. Moriarty.............. 53 Assistant Treasurer, Director of Accounting
Mario M. Galasso.............. 31 Vice President of Product Development
</TABLE>
Joseph S. Montgomery founded Cannondale in 1971 and has been its Chairman,
President and Chief Executive Officer and a director since its formation. Mr.
Montgomery is the father of James Scott Montgomery, who is also a director of
the Company.
William A. Luca joined Cannondale in January 1994 as Vice President of
Finance, Treasurer and Chief Financial Officer. Prior to joining the Company he
served as a management consultant from 1989 to 1993, including consulting for
the Company between August and December 1993. Mr. Luca was appointed a director
of the Company in August 1994.
Richard J. Resch joined Cannondale in 1988 as Director of Manufacturing. He
subsequently served as Vice President of Operations and from 1991 to the present
has been Vice President for Technology Development. He has been a director of
the Company since February 1990.
Daniel C. Alloway has held a number of positions since joining Cannondale
in 1982, including Vice President of Sales -- United States and Vice President
of European Operations (March 1994 to the present), Managing Director of
Cannondale Europe (1992 to 1994), Director of Sales and Marketing (1990 to 1992)
and National Sales Manager (1987 to 1990).
Leonard J. Konecny joined Cannondale in 1994 as Vice President of
Purchasing. From 1988 to 1994 he was Director of Materials for General Signal
Building Systems (Dual-Lite and Edwards divisions), responsible for the
materials and purchasing functions.
John P. Moriarty joined Cannondale in 1993 as Assistant Treasurer and
Director of Accounting. From 1990 to 1993 he was Controller of Cuno, Inc., a
manufacturer of fluid filtration products. Between 1981 and 1989 he was employed
by Dual-Lite, Inc., as Vice President -- Finance (1983 to 1989) and Controller
(1981 to 1983).
Mario M. Galasso joined Cannondale in 1991 as a Project Engineer. He served
as the Manager of Research and Development from 1994 to 1996. Mr. Galasso
currently serves as the Vice President of Product Development.
Each of the officers of the Company is appointed by and serves at the
pleasure of the Board of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock began trading on the Nasdaq National Market on
November 16, 1994, under the symbol BIKE. The following table sets forth for the
periods indicated the high and low sale prices per share for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First Quarter (7/2/95 to 9/30/95).................................. 19.50 13.25
Second Quarter (10/1/95 to 12/30/95)............................... 17.63 13.50
Third Quarter (12/31/95 to 3/30/96)................................ 18.75 13.75
Fourth Quarter (3/31/96 to 6/29/96)................................ 25.75 17.75
FISCAL 1997
First Quarter (6/30/96 to 9/28/96)................................. 23.75 17.63
Second Quarter (9/29/96 to 12/28/96)............................... 25.75 17.75
Third Quarter (12/29/96 to 3/29/97)................................ 27.25 17.50
Fourth Quarter (3/30/97 to 6/28/97)................................ 22.25 15.00
</TABLE>
As of September 19, 1997, there were approximately 263 stockholders of
record of the Common Stock, excluding beneficial owners holding shares through
nominee names. Based on information available to it, the Company believes it had
more than 5,500 beneficial owners of its Common Stock as of such date.
The Company has not paid any cash dividends on its Common Stock during the
last two fiscal years and does not anticipate paying any cash dividends in the
foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected historical statement of operations data and balance
sheet data have been derived from the Consolidated Financial Statements of the
Company, some of which are presented herein. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the Consolidated Financial
Statements and related Notes appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TEN MONTHS
ENDED JUNE 28, ENDED JUNE 29, ENDED JULY 1, ENDED JULY 2, ENDED JULY 3,
1997 1996 1995 1994 1993(6)
-------------- -------------- ------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $162,496 $145,976 $ 122,081 $ 102,084 $80,835
Cost of sales............................ 101,334 92,804 79,816 72,083 59,429
-------- -------- --------- --------- -------
Gross profit............................. 61,162 53,172 42,265 30,001 21,406
-------- -------- --------- --------- -------
Expenses:
Selling, general and administrative.... 35,707 32,577 27,023 22,290 19,615
Research and development............... 3,576 2,837 1,751 1,317 1,105
Stock option compensation.............. -- -- -- 2,046 --
Agent and distributor termination
costs................................ -- -- -- -- 271
-------- -------- --------- --------- -------
Total operating expenses................. 39,283 35,414 28,774 25,653 20,991
-------- -------- --------- --------- -------
Operating income......................... 21,879 17,758 13,491 4,348 415
-------- -------- --------- --------- -------
Other income (expense):
Interest expense....................... (1,574) (2,224) (3,929) (4,460) (4,177)
Other income........................... 843 414 24 324 828
-------- -------- --------- --------- -------
Total other income (expense)............. (731) (1,810) (3,905) (4,136) (3,349)
-------- -------- --------- --------- -------
Income (loss) before income taxes and
extraordinary item..................... 21,148 15,948 9,586 212 (2,934)
Income tax expense....................... (7,642) (5,802) (1,353) (791) (179)
-------- -------- --------- --------- -------
Income (loss) before extraordinary
item................................... 13,506 10,146 8,233 (579) (3,113)
Extraordinary item, net of income
taxes(1)............................... -- -- (685) -- (464)
-------- -------- --------- --------- -------
Net income (loss)........................ 13,506 10,146 7,548 (579) (3,577)
Accumulated preferred stock
dividends(2)........................... -- -- (400) (1,008) --
-------- -------- --------- --------- -------
Income (loss) applicable to common shares
and equivalents........................ $ 13,506 $ 10,146 $ 7,148 $ (1,587) $(3,577)
======== ======== ========= ========= =======
PER COMMON SHARE:
Income (loss) before extraordinary
item(3)................................ $ 1.51 $ 1.18 $ 1.18 $ (.37) $ (.73)
Net income (loss)........................ $ 1.51 $ 1.18 $ 1.08 $ (.37) $ (.83)
Weighted average common shares and common
equivalent shares outstanding(4)....... 8,916 8,597 6,606 4,246 4,291
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1, JULY 2, JULY 3,
1997 1996 1995(5) 1994 1993
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $ 77,196 $ 62,032 $ 40,304 $ 6,366 $ 6,107
Total assets............................. 127,284 109,945 84,008 67,870 65,245
Subordinated debt........................ -- -- -- 9,179 9,323
Total long-term debt and subordinated
debt, excluding current portion........ 20,319 13,114 23,593 16,174 17,195
Preferred stock.......................... -- -- -- 6,718 6,718
Total stockholders' equity, including
preferred stock........................ 81,621 68,294 36,088 9,640 8,220
</TABLE>
- ---------------
(1) Extraordinary items consist of the costs relating to early extinguishment of
debt, net of applicable tax benefit, if any.
(2) Reflects preferred stock dividends accumulated during the fiscal period. All
cumulative preferred stock dividends were paid in fiscal 1995 at the time of
the redemption of the preferred stock in connection with the Company's
initial public offering.
(3) No cash dividends were declared or paid on the Common Stock during any of
these periods.
(4) Shares underlying options granted during fiscal 1994, despite being
antidilutive, are treated as outstanding for fiscal 1994 and all prior
periods, using the treasury stock method in accordance with Staff Accounting
Bulletin 83 of the Securities and Exchange Commission. Weighted average
number of shares outstanding in fiscal 1995 reflects the issuance of
2,300,000 shares of Common Stock in connection with the Company's initial
public offering. Weighted average number of shares outstanding in 1996
reflects the issuance of 1,366,666 shares of common stock in connection with
a public offering in fiscal 1996.
(5) Certain fiscal 1995 amounts have been reclassified to conform to the fiscal
1997 presentation.
(6) In 1993, the Company changed its fiscal year to the Saturday closest to June
30th.
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................... 62.4 63.6 65.4
----- ----- -----
Gross profit........................................................ 37.6 36.4 34.6
----- ----- -----
Expenses:
Selling, general and administrative............................... 22.0 22.3 22.1
Research and development.......................................... 2.2 1.9 1.4
----- ----- -----
Total operating expenses............................................ 24.2 24.2 23.5
----- ----- -----
Operating income.................................................... 13.4 12.2 11.1
----- ----- -----
Other income (expense):
Interest expense.................................................. (1.0) (1.5) (3.2)
Other income...................................................... 0.5 0.3 --
----- ----- -----
Total other income (expense)........................................ (0.5) (1.2) (3.2)
----- ----- -----
Income before income taxes and extraordinary item................... 12.9 11.0 7.9
Income tax expense.................................................. (4.7) (4.0) (1.1)
----- ----- -----
Income before extraordinary item.................................... 8.2.. 7.0 6.8
Extraordinary item, net of income taxes............................. -- -- (0.6)
----- ----- -----
Net income.......................................................... 8.2% 7.0% 6.2%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL 1997, 1996 AND 1995
Net Sales. Net sales increased to $162.5 million in fiscal 1997, from
$146.0 million in 1996 and $122.1 million in 1995. The increase in net sales
over these periods is primarily due to expansion of the Company's specialty
bicycle retailer network and growth in sales to existing specialty retailers.
Over the last three years, the number of specialty retailer locations has
increased to over 3,700 at the end of fiscal 1997 from approximately 3,400 at
the end of 1995. The increase in sales to existing specialty retailers is
attributable to the increase in the number of bicycle models offered from 50
models in fiscal 1995, to 57 models in 1997, as well as an increase in clothing
sales and proprietary aftermarket componentry sold under the CODA and HeadShok
brand names. The increase in sales in fiscal 1997 was offset by the effect of a
stronger U.S. dollar relative to the Dutch guilder and Japanese yen compared to
the prior-year periods. Net sales reported by Cannondale USA were $85.5 million
in fiscal 1997, $83.2 million in fiscal 1996 and $71.7 million in 1995. Net
sales reported by Cannondale Europe increased to $67.0 million in fiscal 1997,
from $53.6 million in fiscal 1996 and $42.5 million in 1995. The Company
attributes this growth primarily to increased sales to existing foreign
retailers and increased sales in non-bike categories. Net sales of Cannondale
Japan decreased to $7.9 million in fiscal 1997 from $9.2 million in fiscal 1996,
and were the same as the $7.9 million in 1995. The majority of the decrease in
sales by Cannondale Japan during fiscal 1997 is attributable to the strength of
the U.S. dollar compared to the Japanese yen during fiscal 1997. Net sales of
Cannondale Australia were $2.1 million in fiscal 1997. Based on the Company's
relative market share within the domestic and international markets, management
anticipates that international sales will continue to increase as a percentage
of total sales in the future.
Gross Profits. Gross profit as a percentage of net sales has increased to
37.6% in fiscal 1997, from 36.4% in 1996 and 34.6% in 1995. The improved gross
margin reflects a more favorable product mix, with higher-end, higher-margin
full suspension bicycles representing a larger portion of overall sales, growth
in the Company's
10
<PAGE> 12
international markets, cost-reduction programs and the Company's continued
integration of proprietary technology through the use of Cannondale bicycle
frames, CODA components and HeadShok suspension systems.
Operating Expenses. Selling, general and administrative expenses increased
to $35.7 million in fiscal 1997, from $32.6 million in fiscal 1996 and $27.0
million in 1995. Increases in selling, general and administrative expenses are
directly associated with the increased sales, and additional personnel,
advertising and marketing costs required to support the Company's growth. As a
percentage of net sales, selling, general and administrative expenses remained
fairly constant at 22.0%, 22.3% and 22.1% in fiscal 1997, 1996 and 1995,
respectively.
Research and development expenses have increased to $3.6 million in fiscal
1997, from $2.8 million in fiscal 1996 and $1.8 million in 1995, reflecting the
Company's commitment to improvement of its current products and the generation
of new products and manufacturing processes. The increase in spending during
fiscal 1997 was primarily attributable to the expansion of the Company's product
lines: the development of the Raven manufacturing process, the product and
process development of the Seated-Sports Technology line and expansion of the
CODA components product line. In addition, the Company has continued to
integrate the Volvo/Cannondale mountain bike racing team into its research and
development efforts, allowing regular testing of both prototype and finished
production models.
Interest Expense. Interest expense decreased to $1.6 million in fiscal
1997, from $2.2 million in 1996 and $3.9 million in 1995, due to lower borrowing
levels resulting from repayment of debt with the net proceeds of the Company's
initial public offering of Common Stock in November 1994 and a second offering
in September 1995. The decrease in interest expense also reflects the lower
interest rates negotiated as a result of the Company's improved performance and
capitalization. In addition, during fiscal 1997, a portion of the Company's
outstanding borrowings were denominated in Dutch guilders and Japanese yen,
which offered significantly lower borrowing rates than U.S. dollar borrowings.
Other Income (Expense). Other income (expense) primarily consists of
finance charges relating to accounts receivable, which totaled $810,000,
$552,000 and $295,000 for fiscal 1997, 1996 and 1995, respectively. The
remaining balance consists primarily of foreign currency gains (losses) of
$33,000, ($138,000), and ($271,000) for fiscal 1997, 1996 and 1995,
respectively.
Income Tax Expense. Income tax expense increased to $7.6 million in fiscal
1997, from $5.8 million in fiscal 1996, and $1.4 million in 1995, which reflects
the Company's increasing profitability. In fiscal 1995, income tax expense was
affected by a $3.0 million reduction in the valuation allowance previously
provided against the Company's net deferred tax assets. In accordance with FASB
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," net deferred tax assets are not recognized when a company has cumulative
losses in recent years. However, as a result of its continued profitability, the
Company believes it is more likely than not that U.S. operations will generate
sufficient taxable income to realize the benefits of these deferred tax assets.
See Note 5 of Notes to Consolidated Financial Statements.
11
<PAGE> 13
SELECTED QUARTERLY FINANCIAL DATA; SEASONALITY
The following table presents selected unaudited quarterly data for the two
most recent fiscal years. This information has been prepared by the Company on a
basis consistent with the Company's audited consolidated financial statements
and includes all adjustments (consisting of normal recurring accruals) that
management considers necessary for a fair presentation of the results of such
quarters. The operating results for any quarter are not necessarily indicative
of the results for any future period.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------------------------------------------------------------------------------------------
JUNE 28, MARCH 29, DECEMBER 28, SEPTEMBER 28, JUNE 29, MARCH 30, DECEMBER 30, SEPTEMBER 30,
1997 1997 1996 1996 1996 1996 1995 1995
-------- --------- ------------ ------------- -------- --------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 42,093 $48,229 $ 41,294 $30,880 $ 39,008 $45,050 $ 35,069 $26,849
Cost of sales......... 26,588 28,698 25,396 20,652 24,645 27,511 21,889 18,759
-------- ------- -------- ------- -------- ------- -------- -------
Gross profit.......... 15,505 19,531 15,898 10,228 14,363 17,539 13,180 8,090
-------- ------- -------- ------- -------- ------- -------- -------
Expenses:
Selling, general and
administrative.... 8,481 9,436 9,451 8,339 8,693 9,233 8,020 6,631
Research and
development....... 968 946 905 757 687 667 828 656
-------- ------- -------- ------- -------- ------- -------- -------
Total operating
expenses............ 9,449 10,382 10,356 9,096 9,380 9,900 8,848 7,287
-------- ------- -------- ------- -------- ------- -------- -------
Operating income...... 6,056 9,149 5,542 1,132 4,983 7,639 4,332 803
Other income
(expense)........... 219 (253) (322) (375) (22) (651) (637) (499)
-------- ------- -------- ------- -------- ------- -------- -------
Income before income
taxes............... 6,275 8,896 5,220 757 4,961 6,988 3,695 304
Income tax expense.... (1,963) (3,344) (2,067) (268) (1,457) (2,764) (1,471) (110)
-------- ------- -------- ------- -------- ------- -------- -------
Net income............ $ 4,312 $ 5,552 $ 3,153 $ 489 $ 3,504 $ 4,224 $ 2,224 $ 194
======== ======= ======== ======= ======== ======= ======== =======
Income per share...... $ .48 $ .62 $ .35 $ .05 $ .39 $ .48 $ .25 $ .03
</TABLE>
The Company's results fluctuate from quarter to quarter as a result of a
number of factors, including product mix, the timing and number of new retailer
openings, the timing of shipments and new product introductions, and the effect
of adverse weather conditions on consumer purchases. In addition, the Company's
business is highly seasonal due to consumer spending patterns, which in turn
affect dealer delivery preferences, resulting in more shipments and
significantly stronger results in the third and fourth fiscal quarters (January
through June). The third and fourth fiscal quarters together accounted for 56%
and 57% of the Company's total net sales in fiscal 1997 and 1996, respectively.
Although sales orders are received throughout the course of the year, shipments
are concentrated in the third and fourth fiscal quarters. Beginning in fiscal
1996, in an effort to reduce the seasonality of its shipments and to smooth the
production process, the Company, through its ARP, provided incentives for
retailers to take delivery of a higher percentage of their annual bicycle order
in the first fiscal quarter.
The Company's gross margins fluctuate primarily according to product mix,
the cost of materials and the timing of product price adjustments and markdowns.
Although some operating expenses are variable with sales, most expenses are
incurred evenly throughout the year. As a result, the third and fourth fiscal
quarters accounted for 70% and 71% of the operating income for fiscal 1997 and
1996, respectively. It is unlikely that this seasonal pattern will change
significantly in the future. While the Company was successful in reducing the
impact of the seasonality in the first quarters of fiscal 1997 and 1996,
achieving slightly profitable performance, the Company in the past has incurred,
and may in the future incur, operating losses in the first fiscal quarter, as
the business remains highly seasonal.
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital used over the past three
years have been borrowings under its revolving credit facilities, and the net
proceeds of the Company's two public offerings, which totaled approximately
$22.1 million in fiscal 1996 and approximately $8.3 million (after repayment of
the subordinated notes and redemption of the preferred stock, including
accumulated dividends) in fiscal 1995.
In June 1997, the Company entered into an unsecured, multicurrency
revolving credit facility which serves as the Company's principal source of
working capital funding. The Company used the proceeds from the multi-currency
revolving credit facility to refinance its domestic revolving line of credit and
domestic term loan. The credit facility, which extends to June 2000, allows the
Company, Cannondale Europe and Cannondale Japan to borrow up to $50,000,000. The
credit facility includes a provision that permits the Company to borrow up to
$7,500,000 on a short-term basis (less than 30 days). The Company has the option
to borrow at the following rates: (1) a variable rate that is defined as the
higher of the bank's prime rate or the Federal Funds Rate plus 50.0 basis
points; (2) a short-term market rate that is an offered rate per annum quoted by
the bank; or (3) the LIBOR (London Interbank Offered Rate) applicable to the
currency borrowed plus an interest rate margin ("LIBOR margin"). The LIBOR
margin (ranging from 30.0 to 75.0 basis points) is determined quarterly based
upon predetermined performance criteria. The Company is obligated to pay a
facility fee (ranging from 15.0 to 25.0 basis points) on the balance of the
facility based on the same performance criteria as the LIBOR margin. As a result
of the seasonality of the Company's business and payment terms, which typically
vary between 30 and 180 days from the date of shipment (depending on time of
year and other factors), borrowings under the Company's and subsidiaries' credit
facilities typically reach their highest level near the end of the third fiscal
quarter and are typically at their lowest level near the end of the first fiscal
quarter. The Company's credit facility contains restrictive and financial
covenants relating to, among other things, the maintenance of minimum levels of
capitalization, interest coverage and tangible net worth. The Company is
currently in compliance with all restrictive and financial covenants.
Cannondale Europe and Cannondale Japan each maintains a separate credit
facility for short-term borrowings. In June 1997, Cannondale Europe entered into
a new multicurrency credit arrangement, which allows Cannondale Europe to borrow
up to $10,000,000 on a short-term basis. The interest rate on outstanding
borrowings is a market rate, applicable to the borrowed currencies, plus 1.5%
with a minimum rate of 3.5%. The credit arrangement contains no specific
expiration date, and may be terminated by either Cannondale Europe or the
lender, at any time. Cannondale Japan has an unsecured revolving credit facility
for up to 155,000,000 Japanese yen (approximately $1.4 million at June 28,
1997). Approximately $200,000 and $800,000 of principal amount was outstanding
under the Dutch and Japanese facilities, respectively, at June 28, 1997. The
Dutch and Japanese facilities are guaranteed by the Company.
Net cash provided by (used in) operating activities was $4.4 million, ($6.8
million), and ($2.0 million) in fiscal 1997, 1996 and 1995, respectively. The
principal uses of cash in operating activities over the three-year period were
to support the increased investment in accounts receivable and inventories
associated with the Company's growth in sales. Cash provided by operating
activities in fiscal 1997 is primarily attributable to the increased
profitability of the Company and leveling of inventory growth compared to the
prior-year period when the Company initiated a strategy to maintain higher
inventory levels to capitalize on its flexible manufacturing capabilities.
Capital expenditures were $9.8 million, $3.0 million and $2.4 million in
fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, the majority of these
expenditures ($5.6 million) related to the construction of a new corporate
headquarters and research and development facility in Bethel, Connecticut
(anticipated total cost of $3.9 million) and the expansion of the Company's
production facility in Bedford, Pennsylvania (anticipated total cost of $5.4
million). The cost of the corporate headquarters and research and development
facility was partially funded with the proceeds from the sale of the Company's
current headquarters facility ($1.7 million), and from CDA financing of up to
$1.6 million. The Company has also received approval from CDA for financing up
to $337,500 for research and development equipment to be acquired in conjunction
with the new facilities. It is expected that 40% of the total cost of the
Bedford plant addition will be financed through the Pennsylvania Industrial
Development Authority at interest rates of approximately 3.75%. The
13
<PAGE> 15
Company plans to spend the remaining $3.7 million in fiscal 1998 on these
facilities. The balance of capital expenditures principally represents
investments in manufacturing equipment and facilities to support increases in
production volume.
The Company enters into forward contracts to purchase and sell U.S.,
European, and Japanese currencies to reduce exposures to foreign currency risk.
The Company enters into forward foreign currency contracts for a significant
portion of its current and net balance sheet exposures, principally relating to
trade receivables and payables denominated in foreign currencies, and firm sale
and purchase commitments. The forward exchange contracts generally have
maturities that do not exceed 12 months and require the Company to exchange, at
maturity, various currencies for U.S. dollars, Dutch guilders and Japanese yen
at rates agreed to at inception of the contracts. The Company does not hold
foreign currency forward contracts for trading purposes. Deferred gains and
losses resulting from effective hedges of existing assets, liabilities or firm
commitments are included in prepaid expenses and other current assets and are
recognized when the offsetting gains and losses are recognized on the related
transaction. The net losses explicitly deferred at June 28, 1997 and June 29,
1996, respectively, were not significant. Gains and losses on foreign currency
transactions that do not satisfy the accounting requirements of an effective
hedge are reported currently as other income or expense. See Note 10 of Notes to
Consolidated Financial Statements.
In September 1997, the Company's Board of Directors authorized the
repurchase by the Company of up to 1,000,000 shares of its common stock at an
aggregate price not to exceed $20 million. Purchases by the Company may be made
from time to time in the open market or in private transactions. The repurchase
program may be suspended or discontinued at any time. Shares repurchased by the
Company will be available for general corporate purposes, including issuance
upon exercise of stock options. In order to accommodate the capital requirements
of the repurchase program, in September 1997, the Company and the lender have
agreed to amend the Company's revolving credit facility to allow the Company and
its subsidiaries to borrow up to $70,000,000. The proposed amendment to the
revolving credit facility includes adjustments to specified levels of tangible
net worth and cash flow levels that the Company must maintain.
The Company expects that cash flow generated by its operations and
borrowings under the revolving credit facilities will be sufficient to meet its
planned operating and capital requirements for the foreseeable future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by Part II, Item
8, are included in Part IV, as indexed at Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 regarding directors is incorporated by
reference to the information appearing under the caption "Election of Directors"
in the Company's definitive Proxy Statement relating to its 1997 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of its fiscal year. The information required by Item 10
regarding executive officers appears under the caption "Executive Officers of
the Registrant" in Part I.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the
information appearing under the caption "Executive Compensation" in the
Company's definitive Proxy Statement relating to its 1997 Annual
14
<PAGE> 16
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference to the
information appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy Statement
relating to its 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the close of its fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to the
information appearing under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement relating to its 1997
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
Index to Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of June 28, 1997 and June 29, 1996
Consolidated Statements of Earnings for the years ended June 28, 1997,
June 29, 1996 and July 1, 1995
Consolidated Statements of Stockholders' Equity for the years ended June
28, 1997, June 29, 1996 and July 1, 1995
Consolidated Statements of Cash Flows for the years ended June 28, 1997,
June 29, 1996 and July 1, 1995
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULE.
Report of Independent Auditors on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other financial statement schedules are omitted because they are not
applicable, or not required, or because the required information is included in
the Consolidated Financial Statements or Notes thereto.
(A)(3) EXHIBITS.
<TABLE>
<S> <C> <C>
10.1.8 -- $50,000,000 Credit Agreement dated as of June 9, 1997 among the Company, certain
subsidiaries of the Company and NationsBank, N.A. as Administrative Agent,
Fronting Bank and Swingline Bank and ABN Amro Bank N.V., New York Branch, as
Documentation Agent and Syndication Agent.
10.1.9 -- $10,000,000 Umbrella Arrangement Agreement dated May 28, 1997 between Cannondale
Europe, B.V.
11 -- Computation of Earnings Per Share.
21 -- Subsidiaries of the Registrant.
23 -- Consent of Independent Auditors.
27 -- Financial Data Schedule.
</TABLE>
THE COMPANY UNDERTAKES TO PROVIDE A COPY OF ANY OF THE FOREGOING EXHIBITS
TO ANY COMPANY STOCKHOLDER OF RECORD ON OCTOBER 4, 1997. REQUESTS SHOULD BE MADE
IN WRITING TO THE COMPANY AT 9 BROOKSIDE DRIVE, GEORGETOWN, CONNECTICUT 06829,
ATTN: INVESTOR RELATIONS, AND SHOULD BE ACCOMPANIED BY PAYMENT OF $10.00 PER
EXHIBIT, TO COVER THE COMPANY'S EXPENSES IN PROVIDING SUCH EXHIBIT(S).
(B) REPORTS ON FORM 8-K.
None
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CANNONDALE CORPORATION
September 26, 1997 By: /s/ WILLIAM A. LUCA
------------------------------------
William A. Luca
Vice President of Finance,
Treasurer and Chief Financial
Officer,
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ JOSEPH S. MONTGOMERY Chairman, President, Chief September 26, 1997
- ------------------------------------------ Executive Officer and
Joseph S. Montgomery Director (Principal
Executive Officer)
/s/ WILLIAM A. LUCA Vice President of Finance, September 26, 1997
- ------------------------------------------ Treasurer, Chief Financial
William A. Luca Officer, and Director
(Principal Financial
Officer)
Vice President of Technology
- ------------------------------------------ Development and Director
Richard J. Resch
/s/ JOHN P. MORIARTY Assistant Treasurer, Director September 26, 1997
- ------------------------------------------ of Accounting (Principal
John P. Moriarty Accounting Officer)
Director
- ------------------------------------------
John H.T. Wilson
Director
- ------------------------------------------
Tarek Abdel-Meguid
/s/ MICHAEL CARTER Director September 26, 1997
- ------------------------------------------
Michael Carter
/s/ MICHAEL J. STIMOLA Director September 26, 1997
- ------------------------------------------
Michael J. Stimola
/s/ JAMES S. MONTGOMERY Director September 26, 1997
- ------------------------------------------
James S. Montgomery
</TABLE>
16
<PAGE> 18
CANNONDALE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets as of June 28, 1997 and June 29, 1996...................... F-3
Consolidated Statements of Operations for the years ended June 28, 1997, June 29, 1996,
and July 1, 1995..................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended June 28, 1997, June
29, 1996, and July 1, 1995........................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 28, 1997, June 29, 1996,
and July 1, 1995..................................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cannondale Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Cannondale
Corporation and subsidiaries as of June 28, 1997 and June 29, 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years ended June 28, 1997, June 29, 1996 and July 1, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cannondale
Corporation and subsidiaries at June 28, 1997 and June 29, 1996, and the
consolidated results of their operations and their cash flows for the years
ended June 28, 1997, June 29, 1996 and July 1, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
August 11, 1997
F-2
<PAGE> 20
CANNONDALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 5,521 $ 4,305
Trade accounts receivable, less allowances of $6,432 and $5,238...... 61,272 52,027
Inventory............................................................ 30,105 30,526
Deferred income taxes................................................ 2,623 2,041
Prepaid expenses and other current assets............................ 2,386 1,154
-------- --------
Total current assets................................................... 101,907 90,053
Property, plant and equipment.......................................... 23,105 18,527
Other assets........................................................... 2,272 1,365
-------- --------
Total assets........................................................... $127,284 $109,945
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 12,330 $ 12,431
Revolving credit advances............................................ 1,022 4,756
Income taxes payable................................................. 2,946 1,845
Other accrued expenses............................................... 3,916 2,942
Accrued warranty expense............................................. 2,085 2,101
Payroll and other employee related benefits.......................... 1,850 2,266
Current installments of long-term debt............................... 562 1,680
-------- --------
Total current liabilities.............................................. 24,711 28,021
Long-term debt, less current installments.............................. 20,319 13,114
Deferred income taxes.................................................. 339 235
Other noncurrent liabilities........................................... 294 281
-------- --------
Total liabilities...................................................... 45,663 41,651
-------- --------
Stockholders' equity:
Common Stock, $.01 par value:
Authorized shares -- 18,000,000
Issued and outstanding shares -- 8,687,615 and 8,611,715.......... 87 86
Additional paid-in capital........................................... 56,860 55,965
Retained earnings.................................................... 26,053 12,547
Cumulative translation adjustment.................................... (1,379) (304)
-------- --------
Total stockholders' equity........................................ 81,621 68,294
-------- --------
Total liabilities and stockholders' equity................... $127,284 $109,945
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 21
CANNONDALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................ $162,496 $145,976 $122,081
Cost of sales............................................ 101,334 92,804 79,816
-------- -------- --------
Gross profit............................................. 61,162 53,172 42,265
-------- -------- --------
Expenses:
Selling, general and administrative.................... 35,707 32,577 27,023
Research and development............................... 3,576 2,837 1,751
-------- -------- --------
39,283 35,414 28,774
-------- -------- --------
Operating income......................................... 21,879 17,758 13,491
-------- -------- --------
Other income (expense):
Interest expense....................................... (1,574) (2,224) (3,929)
Other income........................................... 843 414 24
-------- -------- --------
(731) (1,810) (3,905)
-------- -------- --------
Income before income taxes and extraordinary item........ 21,148 15,948 9,586
Income tax expense....................................... (7,642) (5,802) (1,353)
-------- -------- --------
Income before extraordinary item......................... 13,506 10,146 8,233
Extraordinary item:
Loss from early extinguishment of debt, net of income
taxes............................................... -- -- (685)
-------- -------- --------
Net income............................................... 13,506 10,146 7,548
Accumulated preferred stock dividends.................... -- -- (400)
-------- -------- --------
Income applicable to common shares and equivalents....... $ 13,506 $ 10,146 $ 7,148
======== ======== ========
Primary income per share:
Income before extraordinary item....................... $ 1.51 $ 1.18 $ 1.18
Extraordinary item..................................... -- -- (.10)
-------- -------- --------
Net income............................................. $ 1.51 $ 1.18 $ 1.08
======== ======== ========
Fully diluted income per share:
Income before extraordinary item....................... $ 1.51 $ 1.17 $ 1.18
Extraordinary item..................................... -- -- (.10)
-------- -------- --------
Net income............................................. $ 1.51 $ 1.17 $ 1.08
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 22
CANNONDALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED CUMULATIVE
----------------- ------------------ PAID-IN EARNINGS TRANSLATION
SHARES VALUE SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT TOTAL
------ ------ --------- ----- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 2, 1994.......... 6,718 $6,718 3,843,349 $38 $ 7,874 $(5,147) $ 157 $ 9,640
Net income..................... -- -- -- -- -- 7,548 -- 7,548
Redemption of fractional shares
in connection with stock
split........................ -- -- (16) -- -- -- -- --
Purchase and retirement of
common shares................ -- -- (3,875) -- (3) -- -- (3)
Issuance of common stock (Net
of $3,078 of offering
costs)....................... -- -- 2,300,000 23 26,799 -- -- 26,822
Exercise of warrants........... -- -- 958,261 10 (10) -- -- --
Redemption of Series A
Preferred Stock.............. (6,718) (6,718) -- -- -- -- -- (6,718)
Dividend payment to preferred
stockholders................. -- -- -- -- (1,408) -- -- (1,408)
Exercise of options............ -- -- 29,462 -- 42 -- -- 42
Foreign currency adjustment.... -- -- -- -- -- -- 165 165
------ ------ --------- --- -------- ------- ------- -------
Balance at July 1, 1995.......... -- -- 7,127,181 71 33,294 2,401 322 36,088
Net income..................... -- -- -- -- -- 10,146 -- 10,146
Issuance of common stock (Net
of $1,490 of offering
costs)....................... -- -- 1,366,666 14 22,071 -- -- 22,085
Exercise of options............ -- -- 117,868 1 600 -- -- 601
Foreign currency adjustment.... -- -- -- -- -- -- (626) (626)
------ ------ --------- --- -------- ------- ------- -------
Balance at June 29, 1996......... -- -- 8,611,715 86 55,965 12,547 (304) 68,294
Net income..................... -- -- -- -- -- 13,506 -- 13,506
Exercise of options............ -- -- 75,900 1 895 -- -- 896
Foreign currency adjustment.... -- -- -- -- -- -- (1,075) (1,075)
------ ------ --------- --- -------- ------- ------- -------
Balance at June 28, 1997......... -- $ -- 8,687,615 $87 $ 56,860 $26,053 $(1,379) $81,621
====== ====== ========= === ======== ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 23
CANNONDALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................................... $ 13,506 $ 10,146 $ 7,548
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Extraordinary item........................................ -- -- 685
Depreciation and amortization............................. 3,211 2,994 2,740
Provision for bad debt, discount, credit and return and
late charge reserves.................................... 5,762 10,114 3,934
Provision for obsolete inventory.......................... 1,484 883 912
Unrealized (gain) loss on foreign currency transactions... 107 (43) 389
Deferred income taxes..................................... (442) (616) (1,361)
Other..................................................... (1) 31 143
Changes in assets and liabilities:
Trade accounts receivable............................... (17,399) (25,136) (12,680)
Inventory............................................... (1,975) (10,402) (4,749)
Prepaid expenses and other assets....................... (2,316) 174 (1,136)
Accounts payable........................................ 138 3,058 37
Warranty and other accrued expenses..................... 805 323 1,926
Income taxes payable and other liabilities.............. 1,470 1,686 (348)
-------- -------- --------
Net cash provided by (used in) operating activities............ 4,350 (6,788) (1,960)
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures........................................... (9,766) (3,023) (2,350)
Proceeds from sale of building................................. 1,676 -- --
-------- -------- --------
Net cash used in investing activities.......................... (8,090) (3,023) (2,350)
-------- -------- --------
FINANCING ACTIVITIES
Redemption of subordinated debt................................ -- -- (10,000)
Net proceeds from the issuance of common stock................. 896 22,686 26,864
Redemption of preferred stock.................................. -- -- (6,718)
Dividend payment to preferred stockholders..................... -- -- (1,408)
Proceeds from issuance of long-term debt....................... 21,383 489 --
Purchase and retirement of common shares....................... -- -- (3)
Net proceeds from (repayments of) borrowings under short-term
revolving credit agreements.................................. (3,555) 478 (1,294)
Net repayments of borrowings under long-term debt and capital
lease agreements............................................. (15,133) (11,291) (2,380)
-------- -------- --------
Net cash provided by financing activities...................... 3,591 12,362 5,061
-------- -------- --------
Effect of exchange rate changes on cash........................ 1,365 (501) 147
-------- -------- --------
Net increase in cash........................................... 1,216 2,050 898
Cash at beginning of period.................................... 4,305 2,255 1,357
-------- -------- --------
Cash at end of period.......................................... $ 5,521 $ 4,305 $ 2,255
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest..................................................... $ 1,781 $ 2,426 $ 3,639
======== ======== ========
Income taxes, net of refunds................................. $ 6,788 $ 4,375 $ 1,940
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 24
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Description of Business
Cannondale Corporation ("Cannondale U.S.") manufactures and distributes
bicycles and bicycling accessories and equipment. International operations are
conducted through the Company's wholly-owned subsidiaries: Cannondale Europe
B.V. ("Cannondale Europe"), Cannondale Japan KK ("Cannondale Japan") and
Cannondale Australia Pty Limited ("Cannondale Australia").
Business and Credit Concentrations
The Company's customer base is composed of specialty bicycle retailers who
are located principally throughout the United States and Europe. There is no
single geographic area of concentration in the United States or Europe. No
single customer accounted for more than 5% of the Company's sales during the
years ended June 28, 1997, June 29, 1996 or July 1, 1995. As a result of the
seasonality of the Company's business, the payment terms offered to its
customers generally range from 30 to 180 days depending on the time of year and
other factors.
The Company's raw materials are readily available and the Company is not
completely dependent on a single supplier. The Company has, however, preferences
with respect to continuing its relationships with certain selected vendors, and
a material portion of the Company's inventory purchases is from a single
supplier.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Cannondale U.S. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales, net of estimated returns and allowances, are recognized when
products are shipped. Provisions for returns and allowances are determined
principally on the basis of past experience.
Product Warranties
The Company provides original owners of its bicycles with either a one
year, five year or lifetime warranty for the bicycle frame, depending on model
type and a one-year warranty for suspensions and components. During the warranty
period, the Company will repair or replace a defective part or assembly at no
cost to the owner. Provisions for estimated warranty expense are recognized at
the time of sale, determined principally on the basis of past experience.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Plant and equipment under
capitalized lease obligations are recorded at the present value of minimum lease
payments.
Depreciation of plant and equipment is calculated on the straight-line
method over 22 to 40 years for buildings and improvements and 3 to 10 years for
equipment. Amortization of assets recorded under capitalized lease obligations
is recognized over the lesser of the useful lives or lease terms and such amount
is included in depreciation and amortization expense.
F-7
<PAGE> 25
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related asset's useful life. For the year
ended June 28, 1997, the Company capitalized interest costs of $133,000 related
to the construction of the Company's new headquarters facility and the expansion
of the manufacturing facility. Total interest incurred before the recognition of
the capitalized amount was $1,707,000 for fiscal 1997.
The Company constructs machinery and equipment to be used in the
manufacturing process. Costs capitalized include direct salaries and benefits of
personnel, and purchased material. For the years ended June 28, 1997 and June
29, 1996, respectively, approximately $293,000 and $257,000 of such costs were
capitalized and are included within property, plant and equipment.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." It
requires an asset and liability approach for financial accounting and reporting
for deferred income taxes. Taxes are recognized for all temporary differences
between the tax and financial reporting bases of the Company's assets and
liabilities based on the enacted tax laws and statutory tax rates applicable to
the periods in which differences are expected to affect taxable income.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S dollars at current exchange rates. Revenues, costs and
expenses are translated at the average exchange rates applicable for the period.
Translation adjustments resulting from changes in exchange rates are reported as
a separate component of stockholders' equity.
During the year ended June 29, 1996, management reevaluated the
appropriateness of continuing the designation of the U.S. dollar as Cannondale
Europe's functional currency. Due to significant changes in the economic facts
and circumstances of Cannondale Europe, it was determined that the Dutch guilder
most accurately portrays the economic results of Cannondale Europe. Accordingly,
effective March 31, 1996, the Company designated the Dutch guilder as the
functional currency of Cannondale Europe. At June 29, 1996, the assets and
liabilities of Cannondale Europe were translated at year-end exchange rates,
while revenues and expenses were translated at average rates of exchange in
effect during the three-month period ended June 29, 1996. Prior to the change in
Cannondale Europe's functional currency, remeasurement adjustments related to
its operations were included in net income. Subsequently, cumulative translation
adjustments relating to Cannondale Europe have been recorded as a separate
component of stockholders' equity.
Foreign Currency Forward Contracts
The Company enters into forward contracts to purchase and sell U.S.,
European, and Japanese currencies to reduce exposures to foreign currency risk.
The Company does not hold foreign currency forward contracts for trading
purposes. Gains and losses resulting from effective hedges of existing assets,
liabilities or firm commitments are deferred and recognized when the offsetting
gains and losses are recognized on the related transaction. Gains and losses on
foreign currency transactions that do not satisfy the accounting requirements of
an effective hedge are reported currently as other income or expense.
Stock-Based Compensation
The Company grants stock options to officers, directors, employees and
advisors with an exercise price determined by the Board of Directors at the time
of grant. The Company accounts for stock option grants, except for those granted
to advisors of the Company, in accordance with Accounting Principles Board
F-8
<PAGE> 26
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Standard ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
which requires that compensation expense be recognized for the difference
between the quoted market price of the stock at the grant date less the amount
that the employee is required to pay. As prescribed under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company has disclosed in Note 6,
the pro-forma effects on net income and earnings per share of recording
compensation expense for the fair value of stock options granted subsequent to
July 1, 1995. It is the opinion of management that the existing model to
estimate the fair value of employee options according to SFAS 123, and the
assumptions used to calculate the impact may not be representative of the
effects on future years and does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform to the
current year's presentation.
Earnings Per Share Amounts
Earnings per share of common stock are computed using the weighted average
number of shares of common stock and common stock equivalents outstanding for
each period. The weighted average number of shares of common stock used in the
computation of earnings per share was 8,916,321, 8,596,910, and 6,605,599 for
the years ended June 28, 1997, June 29, 1996 and July 1, 1995, respectively.
Common stock equivalents include warrants to purchase common stock and stock
options. For fiscal 1995, in computing the earnings per common share, dividends
applicable to Series A preferred stock decrease the earnings applicable to
common shares and common stock equivalents.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which is required to be adopted by the Company for
the period ended December 27, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share of $.05, $.05
and $.06 per share for the years ended June 28, 1997, June 29, 1996 and July 1,
1995, respectively. The impact of SFAS No. 128 on the calculation of fully
diluted earnings per share is not expected to be material.
Intangible Assets
Included in other assets are intangible assets, which represent the cost of
patents, goodwill and deferred financing charges. Intangible assets were
$1,260,000 and $1,782,000 at June 28, 1997 and June 29, 1996, respectively.
Accumulated amortization on intangible assets amounted to $234,000 and $752,000
at June 28, 1997 and June 29, 1996, respectively. Amortization is provided using
the straight-line method over the estimated useful lives of the assets, not
exceeding 17 years.
Advertising Expenses
Advertising expenses are charged to income during the year that they are
incurred. Selling, general and administrative expenses of the Company include
advertising and promotion costs of $3,867,000, $2,780,000 and $2,464,000 for the
years ended June 28, 1997, June 29, 1996 and July 1, 1995, respectively
F-9
<PAGE> 27
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORY
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
Raw materials............................................ $ 13,394 $ 14,664
Work-in process.......................................... 1,455 1,772
Finished goods........................................... 16,325 15,505
-------- --------
31,174 31,941
Less reserve for obsolete inventory...................... (1,069) (1,415)
-------- --------
$ 30,105 $ 30,526
======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
Land................................................... $ 1,324 $ 1,252
Buildings and improvements............................. 8,700 10,070
Factory and office equipment........................... 24,388 21,804
Construction in progress............................... 6,493 889
-------- --------
40,905 34,015
Less accumulated depreciation and amortization......... (17,800) (15,488)
-------- --------
$ 23,105 $ 18,527
======== ========
</TABLE>
Purchases of equipment through capitalized lease obligations and notes were
$28,000, $291,000, and $244,000 in fiscal 1997, 1996, and 1995, respectively.
4. DEBT
Short-term revolving credit advances (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
Cannondale U.S............................................ $ -- $1,731
Cannondale Europe......................................... 193 1,931
Cannondale Japan.......................................... 829 1,094
------ ------
$1,022 $4,756
====== ======
</TABLE>
In June 1997, Cannondale Europe entered into a new multicurrency credit
arrangement, which allows Cannondale Europe to borrow up to $10,000,000 on a
short-term basis. The interest rate on outstanding borrowings is a market rate,
applicable to the borrowed currencies, plus 1.5% with a minimum rate of 3.5%.
The credit arrangement contains no specific expiration date, and may be
terminated by either the borrower or the lender, at any time.
Cannondale Japan has an unsecured revolving credit facility for up to
155,000,000 Japanese yen (approximately $1,353,000 at June 28, 1997). The
interest rate on the outstanding borrowings was 2.875% at June 28, 1997 and June
29, 1996. The credit facility contains no specific expiration date, and may be
terminated by either the borrower or the lender, at any time.
F-10
<PAGE> 28
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1996, the Company entered into an unsecured multicurrency demand
credit facility with a maximum principal amount of $2,000,000. Borrowings under
the demand credit facility were made in U.S. dollars and Japanese yen
(190,000,000 yen at June 29, 1996). The interest rate on the outstanding demand
credit facility was LIBOR (London Interbank Offered Rate) plus 1/2%. LIBOR for
the Japanese yen borrowings was 0.563% at June 29, 1996.
In December 1995, Cannondale Europe entered into a financing agreement that
provided a base credit limit of 15,000,000 Dutch guilders (approximately
$8,776,000 at June 29, 1996) and a seasonal credit of an additional 10,000,000
Dutch guilders (approximately $5,851,000 at June 29, 1996) that was effective
from December 1 to June 1 each year. The credit facility was secured by
outstanding balances of eligible accounts receivable and inventory. The interest
rate on the outstanding revolving line of credit balance was 2.0% in excess of
the prime rate of DNB (De Nederlandsche Bank) with a minimum rate of 5.0% (the
prime rate was 2.5% at June 29, 1996). The credit facility extended for an
indefinite period of time, with either party having an option to terminate the
agreement at any time.
The weighted average interest rate on the Company's revolving lines of
credit was 4.48% and 4.60% at June 28, 1997 and June 29, 1996, respectively.
Long-Term Debt (in thousands):
<TABLE>
<CAPTION>
JUNE JUNE
28, 29,
1997 1996
------- -------
<S> <C> <C>
Revolving credit facility................................ $17,278 $ --
Domestic revolving line of credit........................ -- 8,595
Domestic term loan....................................... -- 1,470
Pennsylvania Industrial Development Authority bonds,
interest rates ranging from 2.0% to 4.5%............... 1,605 1,755
Algemene Bank Nederland N.V. ............................ 937 1,184
Rush Township Construction Loan, interest at 3%.......... 422 453
Daiichi Kangyo Bank term loan, interest at 3.25%......... 290 455
Notes secured by equipment and capitalized leases........ 349 882
------- -------
20,881 14,794
Less current portion..................................... (562) (1,680)
------- -------
$20,319 $13,114
======= =======
</TABLE>
In June 1997, the Company entered into an unsecured, multicurrency
revolving credit facility. The agreement, which extends to June 2000, allows the
Company and its subsidiaries to borrow up to $50,000,000. The agreement includes
a provision that permits the Company to borrow up to $7,500,000 on a short-term
basis (less than 30 days). At June 28, 1997 the outstanding borrowings consisted
of U.S. dollars ($6,413,000), Dutch guilders (17,000,000) and Japanese yen
(250,705,000). The agreement requires the maintenance of specified levels of
capitalization, interest coverage and tangible net worth.
The Company has the option to borrow at the following rates: (1) a variable
rate (8.50% at June 28, 1997) that is defined as the higher of the bank's prime
rate or the Federal Funds Rate plus 50.0 basis points; (2) a short-term market
rate (6.275% at June 28, 1997) that is an offered rate per annum quoted by the
bank; or (3) the LIBOR (3.25% and .56% for Dutch guilder and Japanese yen
borrowings at June 28, 1997, respectively) applicable to the currency borrowed
plus an interest rate margin ("LIBOR margin"). The LIBOR margin (ranging from
30.0 to 75.0 basis points) is determined quarterly based upon predetermined
performance criteria. The Company is obligated to pay a facility fee (ranging
from 15.0 to 25.0 basis points) on the balance of the facility based on the same
performance criteria as the LIBOR margin. At June 28, 1997, the LIBOR margin and
the facility fee were 42.5 basis points and 20.0 basis points, respectively. At
June 28,
F-11
<PAGE> 29
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, the weighted average interest rate for borrowings under this facility was
4.54%. The Company used the proceeds to refinance the combined credit facility
described below.
In July 1993, the Company entered into a domestic financing agreement, as
amended, secured by virtually all tangible and intangible assets of the Company.
It provided for a multicurrency revolving line of credit ($3,525,000 and
8,665,000 Dutch guilders at June 29, 1996) and a term loan ("the combined credit
facility"). The combined credit facility, which extended through December 31,
1997, provided up to $35,000,000. The interest rate on the outstanding combined
credit facility was the prime rate with an option to borrow at LIBOR plus 1.50%
at June 29, 1996. LIBOR for the U.S. dollar and Dutch guilder borrowings was
5.457% and 2.75% on June 29, 1996. The prime rate on June 29, 1996 was 8.25%.
The Company was obligated to pay a line of credit fee of 25 basis points on the
unused revolving line of credit, and various prepayment fees if the facility was
to be terminated before December 31, 1996.
The Pennsylvania Industrial Development Authority bonds are secured by the
Company's Bedford, Pennsylvania facility. The loans extend through 2009, and are
payable in equal monthly payments.
The Algemene Bank of Nederland N.V. loan is secured by Cannondale Europe's
factory in Oldenzaal, Netherlands. The interest rate during 1996, was a fixed
rate of 10.25%, and as amended in October 1996, it is a variable market rate
determined quarterly with a maximum of 7.55%. The interest rate was 5.9% at June
28, 1997. The loan extends to May 2004 and is payable quarterly in Dutch
guilders with equal principal payments plus interest, and the balance of
1,100,000 Dutch guilders (approximately $562,000 at June 28, 1997) due at the
expiration of the agreement.
The Rush Township Construction Loan is secured by the Company's
Philipsburg, Pennsylvania facility. The loan extends through 2003, and is
payable in equal monthly installments.
The Daiichi Kangyo Bank term loan is unsecured. The loan extends through
1999, and is payable in quarterly installments.
Capitalized lease obligations extend through 2000, and represent the
present value of future minimum lease payments, discounted at rates ranging from
7.5% to 9.54%, payable in monthly installments.
Maturities of long-term debt, including payments under capitalized lease
obligations are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................. $ 578
1999............................................................. 515
2000............................................................. 17,607
2001............................................................. 289
2002............................................................. 279
Thereafter....................................................... 1,631
-------
20,899
Amounts representing interest on capital lease obligations....... (18)
-------
$20,881
=======
</TABLE>
Subordinated Debt
In June 1992, the Company issued $10,000,000 of 8% subordinated notes due
June 1997 and warrants, exercisable at $.01 per share at the sole option of the
holders, into 341,821 shares (increased to 507,113 shares on July 2, 1994 -- see
Note 8) of the Company's common stock in exchange for $10,000,000. The warrants
to purchase the 341,821 shares were valued at $1,964,000 at their date of
issuance. The corresponding original debt amount of $8,036,000 was increased
through charges to interest expense based on the interest method to yield
approximately 11.5% to its face amount through maturity. Interest at 8%,
commencing from June 3,
F-12
<PAGE> 30
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993, was payable semi-annually in arrears. In November 1994, the subordinated
debt with a carrying amount of $9,273,000 was retired in conjunction with the
initial public offering. This early retirement of debt resulted in an
extraordinary charge of $1,141,000, comprised of the unamortized discount and
related deferred charges, net of an income tax benefit of $456,000.
5. INCOME TAXES
Income before income taxes and extraordinary item by geographic location is
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
United States............................ $ 7,770 $ 5,925 $ 5,072
Foreign.................................. 13,378 10,023 4,514
-------- -------- --------
$ 21,148 $ 15,948 $ 9,586
======== ======== ========
</TABLE>
The income tax provision consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $2,884 $2,281 $ 1,052
Foreign................................ 4,698 3,551 1,162
State.................................. 502 586 500
------ ------ --------
Total Current.................. 8,084 6,418 2,714
------ ------ --------
Deferred:
Federal................................ (408) (384) (1,590)
Foreign................................ 36 (189) 422
State.................................. (70) (43) (193)
------ ------ --------
Total Deferred...................... (442) (616) (1,361)
------ ------ --------
Total.......................... $7,642 $5,802 $ 1,353
====== ====== ========
</TABLE>
The provision for income taxes on income before income taxes and
extraordinary item differs from the amount computed by applying the U.S. federal
income tax rate (34%) because of the effects of the following items:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory rate............... 34.0% 34.0% 34.0%
State income taxes, net of federal
benefit................................ 1.6 2.4 2.9
Higher effective income taxes of other
countries.............................. 0.9 1.6 6.6
Change in valuation allowance of deferred
tax assets............................. -- (1.5) (31.6)
Other.................................... (0.4) (0.1) 2.2
---- ---- -----
36.1% 36.4% 14.1%
==== ==== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The
F-13
<PAGE> 31
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
significant components of the Company's deferred tax assets and liabilities at
June 28, 1997 and June 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory reserves............. $1,549 $ 1,224
Stock option compensation.............................. 371 583
Accrued liabilities.................................... 845 939
Other.................................................. 394 266
------ --------
Total deferred assets.................................. 3,159 3,012
------ --------
Deferred tax liabilities:
Tax over book depreciation............................. (658) (771)
Other.................................................. (217) (435)
------ --------
Total deferred liabilities............................. (875) (1,206)
------ --------
Net deferred tax assets.................................. $2,284 $ 1,806
====== ========
</TABLE>
SFAS No. 109 generally provides that net deferred tax assets are not
recognized when a company has cumulative losses in recent years. Accordingly, a
valuation allowance was established in prior years for the excess of deferred
tax assets over deferred tax liabilities. For the fiscal year ended June 29,
1996, the Company reduced its valuation allowance by $232,000 due to the
reevaluation of the recoverability of deferred tax assets.
The Company has not provided for possible U.S. taxes of approximately
$888,000 on the undistributed earnings of foreign subsidiaries ($16,413,000) at
June 28, 1997 that are considered to be reinvested indefinitely.
6. STOCK OPTIONS
At June 28, 1997, the Company has four fixed option plans, which are
described below. The Company applies APB Opinion 25 and related Interpretations
in accounting for its employee stock option plans. Under APB 25, the Company
does not recognize compensation expense since the exercise price of the options
granted is equal to the market value of the Company's common stock on the date
of grant.
SFAS No. 123 requires that the Company disclose the pro-forma impact on net
income and earnings per share as if compensation expense associated with
employee stock options had been calculated under the fair value method for
employee stock options granted subsequent to July 1, 1995. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for the years
ended June 28, 1997 and June 29, 1996: an expected volatility of .45 and .50, an
expected term 4.66 and 4.09 years, risk-free interest rates of 6.05% and 5.89%
and no expected dividend yield.
For purposes of pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro-forma information is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29,
1997 1996
------------- -------------
<S> <C> <C>
Pro Forma Net Income............................... $11,986 $ 9,399
Pro Forma Primary-Earnings Per Share............... $ 1.38 $ 1.14
Pro Forma Fully-Diluted Earnings Per Share......... $ 1.38 $ 1.14
</TABLE>
F-14
<PAGE> 32
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The SFAS No. 123 pro-forma effect will be not be fully reflected until
2001.
The Company has four fixed option plans: the 1994 Stock Option Plan (the
"1994 Plan"), the 1994 Management Stock Option Plan (the "Management Plan"), the
1995 Stock Option Plan (the "1995 Plan") and the 1996 Stock Option Plan (the
"1996 Plan"). Under the terms of the plans, the Committee administering the
plans may grant options to purchase shares of the Company's common stock to
officers, directors, employees and advisors for up to 1,947,500 shares. The
vesting of options granted under the plans is at the discretion of the Board of
Directors. Other than options granted under the 1994 Plan to purchase 373,743
shares of common stock at an exercise price of $.34, substantially all of which
vested on July 2, 1994, and options granted to new non-employee directors (1,000
on the date of election or appointment), which vest immediately, options vest
over a three to five year period. Under the plans, the Company may, at its
discretion, repurchase the stock at the time of termination of service of an
employee at fair market value. The 1994 Plan, the Management Plan, the 1995 Plan
and the 1996 Plan terminate December 31, 2003, December 31, 2004, December 31,
2005 and December 31, 2006, respectively.
A summary of the status of the Company's stock option plans as of June 28,
1997, June 29, 1996 and July 1, 1995, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 1,035,495 $11.71 641,605 $ 6.34 373,743 $ 0.34
Granted..................... 454,196 $19.21 543,769 $15.79 330,674 $12.96
Exercised................... (75,900) $ 7.44 (117,868) $ 0.85 (29,462) $ 0.34
Terminated.................. (60,587) $16.45 (32,011) $13.37 (33,350) $ 9.98
--------- ------ --------- ------ ------- ------
Outstanding at end of
year...................... 1,353,204 $14.25 1,035,495 $11.71 641,605 $ 6.34
========= ====== ========= ====== ======= ======
Options exercisable at end
of year................... 509,756 $ 9.20 318,231 $ 4.33 336,531 $ 0.34
Weighted average fair value
of options granted during
the year.................. $8.51 $7.27 $--
</TABLE>
The following table summarizes information about fixed stock options
outstanding at June 28, 1997.
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------------------
--------------------------------------------------------- NUMBER OF
NUMBER OF OPTIONS WEIGHTED-AVERAGE WEIGHTED- OPTIONS WEIGHTED-
RANGE OF EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISE EXERCISABLE AT AVERAGE EXERCISE
PRICES JUNE 28, 1997 CONTRACTUAL LIFE PRICE JUNE 28, 1997 PRICE
- ------------------- ----------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.34 to $ 0.34... 186,338 6.94 $ 0.34 186,338 $ 0.34
$12.50 to $15.00... 423,315 7.76 13.72 226,394 13.44
$15.25 to $18.75... 656,701 9.06 17.59 97,024 16.35
$19.75 to $22.63... 86,850 9.37 21.47 -- --
--------- ---- ------ ------- ------
$ 0.34 to $22.63... 1,353,204 8.38 $14.25 509,756 $ 9.20
========= =======
</TABLE>
7. PROFIT SHARING PLAN
The Company has a qualified, defined contribution savings plan covering all
full-time U.S. employees who have attained the age of 18 with more than three
months of service. Contributions to the plan, which are
F-15
<PAGE> 33
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discretionary, are determined annually by the Board of Directors. There were no
contributions in fiscal 1997, 1996 or 1995.
8. STOCKHOLDERS' EQUITY
In June 1992, the Company issued warrants, with antidilutive provisions, to
purchase 341,821 shares at $.01 per share, subject to future adjustments, of the
Company's common stock in connection with a borrowing from three limited
partnerships managed by Morgan Stanley & Co. The holders of the warrants were
entitled to exercise the warrants in whole or in part at any time after 10 days
prior written notice to the Company up to June 3, 1997, the expiration date. On
July 2, 1993, warrants to purchase 130,618 shares of the Company's common stock,
with terms identical to the above warrants, were issued as additional
consideration in connection with the borrowings. The value of such additional
warrants (approximately $540,000) was credited to additional paid-in capital and
included in other assets, and was charged to interest expense over the remaining
term of the related borrowing. The number of common shares for which such
warrants were exercisable, including the effects of the antidilutive provisions
resulting from the granting of stock options during fiscal 1994, increased to
507,113 on July 2, 1994. Of this amount, 506,722 were exercised in conjunction
with the initial public offering and the balance was surrendered in payment of
the exercise price.
On July 2, 1993, the Company entered into an agreement with Morgan Stanley
& Co. to exchange four short-term notes for 6,718 shares of Series A redeemable
convertible preferred stock and warrants, with antidilutive protection, to
purchase an aggregate of 330,708 shares of common stock of the Company at $.01
per share. The number of common shares for which the warrants were exercisable,
including the effects of the antidilutive provisions resulting from the granting
of stock options during fiscal 1994, increased to 451,887. Of this amount,
451,539 were exercised in conjunction with the initial public offering and the
balance was surrendered in payment of the exercise price.
During August 1994, the Company increased its authorized shares to
2,000,000 (from 20,000) and 18,000,000 (from 1,000,000) for preferred and common
stock, respectively.
The holders of the Series A Preferred Stock were entitled to cumulative
quarterly dividends (payable as declared) at the annual rate of $150 per share
and a liquidation preference over holders of common stock of $1,000 per share
plus accumulated dividends. Accumulated dividends in the amount of $1,408,000
were paid to the holders of Series A preferred stock in conjunction with the
initial public offering. Additionally, such shares, which contained voting
rights, as defined, were convertible, at the option of the holder, into shares
of the Company's common stock at fair market value at the date of conversion.
The Company redeemed the Series A Preferred Stock, at the liquidation preference
amount described above, with the proceeds from the initial public offering of
common stock.
In September 1994, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"), which is intended to allow qualified employees to purchase
common stock of the Company at a discount to the market value of such common
stock. A total of 348,750 shares of Common Stock have been reserved for issuance
under the Purchase Plan. As of June 28, 1997, no shares were issued under the
Purchase Plan.
In November 1994, the Company sold 2,300,000 shares of common stock through
a public offering at a price of $13.00 per share. The net proceeds of
approximately $26.8 million, after deducting the underwriters' discount and
offering expenses, were used to retire $10,000,000 of subordinated debt, to pay
$380,000 of accrued interest on the subordinated debt, and to redeem all 6,718
shares outstanding of the Series A redeemable convertible preferred stock,
including the payment of accumulated dividends on such stock, for $8,126,000.
The balance of the proceeds was used to reduce outstanding borrowings under the
Company's domestic line of credit. Had the offering occurred on July 3, 1994,
primary earnings per share for the year ended July 1, 1995 would have been
$1.07.
F-16
<PAGE> 34
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1995, the Company completed a public offering of 1,300,000
shares of common stock at a price of $17.25 per share. The net proceeds were
approximately $21.0 million after deducting the underwriting discount and
offering expenses. Additionally, in October 1995, the Company issued 66,666
shares of common stock, upon the partial exercise of the over-allotment option
granted to the underwriters in connection with the September 1995 public
offering. The net proceeds to the Company from the additional shares issued, at
the public offering price of $17.25 per share, were approximately $1.1 million
after deducting the underwriting discount and expenses. The net proceeds of the
offering were used to reduce outstanding borrowings under the Company's domestic
revolving credit facility. Had the offering occurred on July 2, 1995, primary
earnings per share for the year ended June 29, 1996 would have been $1.17.
At June 28, 1997, there were 2,073,020 shares of common stock reserved for
the exercise of options and employee stock purchases.
9. OPERATING LEASES
The Company and its subsidiaries lease software, computer, and other office
and factory equipment under long-term operating leases with varying terms. The
aggregate future minimum lease payments under noncancellable operating leases
with initial or remaining lease terms of greater than one year are as follows
(in thousands):
<TABLE>
<S> <C>
1998................................................ $1,558
1999................................................ 1,129
2000................................................ 429
2001................................................ 193
2002 and after...................................... --
------
$3,309
======
</TABLE>
Rent expense amounted to $2,273,000, $1,203,000 and $1,023,000 in 1997,
1996 and 1995, respectively.
10. FOREIGN EXCHANGE RISK MANAGEMENT
At June 28, 1997 and June 29, 1996, the Company had approximately $7.7
million and $5.9 million, respectively, of forward exchange contracts
outstanding to exchange European, Japanese and U.S. currencies to reduce
exposures to foreign currency risk. The Company enters into forward foreign
currency contracts for a significant portion of its current and net balance
sheet exposures, principally relating to trade receivables and payables
denominated in foreign currencies, and firm sale and purchase commitments. The
forward exchange contracts generally have maturities that do not exceed 12
months and require the Company to exchange, at maturity, various currencies for
U.S. dollars, Dutch guilders and Japanese yen at rates agreed to at inception of
the contracts. At June 28, 1997, the net loss explicitly deferred from hedging
firm sale and purchase commitments was not significant and will be recognized in
earnings during fiscal 1998. Deferred gains and losses are included in prepaid
expenses and other current assets, and are recognized in earnings when the
future sales and purchases occur.
The Company's credit risk in these transactions is the cost of replacing
these contracts, at current market rates, in the event of default by a
counterparty, which is typically a major international financial institution.
Additionally, market risk exists during the period between the date of the
contract and its designation as an effective hedge for financial reporting
purposes. The Company believes that its exposure to credit risk and market risk
in these transactions is not significant in relation to earnings.
At June 28, 1997, the Company had outstanding borrowings of 251 million
Japanese yen (approximately $2,191,000 at June 28, 1997) and 17 million Dutch
guilders (approximately $8,674,000 at June 28, 1997) to
F-17
<PAGE> 35
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hedge the Company's net investments in its foreign subsidiaries. Gains and
losses on hedges of net investments are recognized in a separate component of
stockholders' equity.
11. OTHER INCOME
For the years ended June 28, 1997, June 29, 1996 and July 1, 1995, net
foreign currency gains and (losses) included in other income aggregated
approximately $33,000, ($138,000) and ($271,000), respectively. The balance
consists principally of finance charges related to accounts receivable.
12. FINANCIAL INSTRUMENTS
On June 28, 1997, the carrying value of financial instruments such as cash,
trade receivables and payables approximated their fair values, based on the
short-term maturities of these instruments. The carrying amounts of the
Company's borrowings under its variable rate short- and long-term credit
agreements approximate their fair value. The carrying value of the Company's
other long-term debt, which approximates its fair value, is estimated based on
expected future cash flows, discounted at current rates for the same or similar
issues. The carrying value of the Company's foreign currency forward contracts,
which approximates their fair value, is the amount at which the contracts could
be settled based on quotes provided by major financial institutions.
13. GEOGRAPHIC DATA
Summarized data by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Net Sales:
United States............................... $ 115,931 $ 106,035 $ 88,888
Europe and Other............................ 90,884 78,449 64,791
Intercompany................................ (44,319) (38,508) (31,598)
--------- --------- --------
$ 162,496 $ 145,976 $122,081
========= ========= ========
Operating Income:
United States............................... $ 8,337 $ 6,650 $ 7,688
Europe and Other............................ 13,876 11,199 5,563
Intercompany................................ (334) (91) 240
--------- --------- --------
$ 21,879 $ 17,758 $ 13,491
========= ========= ========
Identifiable Assets:
United States............................... $ 107,754 $ 93,627 $ 70,918
Europe and Other............................ 40,959 30,090 21,760
Intercompany................................ (21,429) (13,772) (8,670)
--------- --------- --------
$ 127,284 $ 109,945 $ 84,008
========= ========= ========
</TABLE>
Included in "Europe and Other" are data for geographic areas other than
Europe which, in the aggregate, are not material.
At June 28, 1997, the net assets of Cannondale Europe, Cannondale Japan and
Cannondale Australia were $13,324,000, $1,415,000 and $704,000, respectively.
F-18
<PAGE> 36
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS
During 1997, the Company began construction of a new headquarters facility
and expansion of its manufacturing facility. The Company contracted an entity
controlled by a director of the Company to act as the general contractor for the
construction of both projects. As of June 28, 1997, the Company has paid the
entity approximately $4.4 million for the construction of both facilities, and
is obligated to pay the entity approximately $4.9 million more for the
completion of the facilities.
In connection with the construction of the new headquarters facility, the
Company sold the existing headquarters to an entity controlled by the Company's
Chairman, President and Chief Executive Officer and another director of the
Company for $1,676,000, an amount which approximated the net book value and fair
value of the existing headquarters facility at the date of sale. Pending the
Company's relocation to the new headquarters facility, the Company will continue
to occupy the current facility on a month-to-month net lease of $16,000 per
month.
15. SUBSEQUENT EVENT
In September 1997, the Company's Board of Directors authorized the
repurchase by the Company of up to 1,000,000 shares of its common stock at an
aggregate market price not to exceed $20 million. Purchases by the Company may
be made from time to time in the open market or in private transactions. The
repurchase program may be suspended or discontinued at any time. Shares
repurchased by the Company will be available for general corporate purposes,
including the issuance upon exercise of stock options.
In order to accommodate the capital requirements of the repurchase program,
in September 1997, the Company and the lender have agreed to amend the Company's
revolving credit facility to allow the Company and its subsidiaries to borrow up
to $70,000,000. The proposed amendment to the revolving credit facility includes
adjustments to specified levels of tangible net worth and cash flow levels that
the Company must maintain.
F-19
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Cannondale Corporation and Subsidiaries
We have audited the consolidated financial statements of Cannondale
Corporation as of June 28, 1997 and June 29, 1996, and for the years ended June
28, 1997, June 29, 1996 and July 1, 1995, and have issued our report thereon
dated August 11, 1997 (included elsewhere in this Annual Report). Our audits
also included the financial statement schedule listed in Item 14(a)(2) of this
Annual Report. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
August 11, 1997
<PAGE> 38
SCHEDULE II
CANNONDALE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------------ ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS, RETURNS,
DISCOUNTS AND LATE CHARGES
Year ended July 1, 1995................. $ 2,639 $4,244 $ 3 $ (3,193)(1) $ 3,693
======= ====== ==== ======== =======
Year ended June 29, 1996................ $ 3,693 $9,944 $ 45 $ (8,444)(1) $ 5,238
======= ====== ==== ======== =======
Year ended June 28, 1997................ $ 5,238 $5,545 $(34) $ (4,317)(1) $ 6,432
======= ====== ==== ======== =======
RESERVE FOR OBSOLETE INVENTORY
Year ended July 1, 1995................. $ 803 $ 912 $ 9 $ (468)(2) $ 1,256
======= ====== ==== ======== =======
Year ended June 29, 1996................ $ 1,256 $ 977 $ 11 $ (829)(2) $ 1,415
======= ====== ==== ======== =======
Year ended June 28, 1997................ $ 1,415 $1,484 $(43) $ (1,787)(2) $ 1,069
======= ====== ==== ======== =======
</TABLE>
- ---------------
(1) Discounts, late charges and uncollectible accounts written off, net of
recoveries.
(2) Inventory disposed.
<PAGE> 39
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ------------
10.1.8 -- $50,000,000 Credit Agreement dated as of June 9, 1997
among the Company, certain subsidiaries of the
Company and NationsBank, N.A. as Administrative Agent,
Fronting Bank and Swingline Bank and ABN Amro
Bank N.V., New York Branch, as Documentation Agent
and Syndication Agent.
10.1.9 -- $10,000,000 Umbrella Arrangement Agreement dated
May 28, 1997 between Cannondale Europe, B.V.
11 -- Computation of Earnings Per Share.
21 -- Subsidiaries of the Registrant.
23 -- Consent of Independent Auditors.
27 -- Financial Data Schedule.
<PAGE> 1
Exhibit 10.1.8
CREDIT AGREEMENT
dated as of June 9, 1997
by and among
CANNONDALE CORPORATION,
CERTAIN SUBSIDIARIES OF CANNONDALE CORPORATION,
the Banks signatory hereto
and
NATIONSBANK, N.A.,
as Administrative Agent, Fronting Bank and Swingline Bank
and
ABN AMRO BANK N.V.
NEW YORK BRANCH,
as Documentation Agent and Syndication Agent
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
ARTICLE
<S> <C>
1. DEFINITIONS; ACCOUNTING TERMS..................................................................... 1
1.1 Definitions.............................................................................. 1
1.2 Accounting Terms......................................................................... 15
1.3 Rules of Interpretation.................................................................. 15
2. THE CREDIT........................................................................................ 15
2.1 The Loans................................................................................ 15
2.2 The Swingline Loans...................................................................... 16
2.3 The Notes................................................................................ 18
2.4 Purpose.................................................................................. 18
2.5 Borrowing Procedures..................................................................... 18
2.6 Prepayments and Conversions.............................................................. 19
2.7 Interest Periods; Renewals............................................................... 19
2.8 Changes of Commitments................................................................... 20
2.9 Certain Notices.......................................................................... 20
2.10 Minimum Amounts.......................................................................... 20
2.11 Interest................................................................................. 21
2.12 Fees..................................................................................... 21
2.13 Payments Generally....................................................................... 22
3. LETTERS OF CREDIT................................................................................. 23
3.1 Letters of Credit........................................................................ 23
3.2 Cash Collateral Account.................................................................. 27
4. YIELD PROTECTION; ILLEGALITY; ETC................................................................. 27
4.1 Additional Costs......................................................................... 27
4.2 Limitation on Types of Loans............................................................. 29
4.3 Illegality............................................................................... 30
4.4 Certain Conversions Pursuant to Sections 4.1 and 4.3..................................... 30
4.5 Certain Compensation..................................................................... 31
4.6 Taxes.................................................................................... 32
5. CONDITIONS PRECEDENT.............................................................................. 33
5.1 Documentary Conditions Precedent......................................................... 33
5.2 Additional Conditions Precedent.......................................................... 35
5.3 Deemed Representations................................................................... 36
6. REPRESENTATIONS AND WARRANTIES.................................................................... 36
6.1 Incorporation, Good Standing and Due Qualification....................................... 36
6.2 Corporate Power and Authority; No Conflicts.............................................. 36
6.3 Legally Enforceable Agreements........................................................... 37
6.4 Litigation............................................................................... 37
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
6.5 Financial Statements..................................................................... 37
6.6 Ownership and Liens...................................................................... 37
6.7 Taxes.................................................................................... 38
6.8 ERISA.................................................................................... 38
6.9 Subsidiaries and Ownership of Stock...................................................... 38
6.10 Credit Arrangements...................................................................... 38
6.11 Operation of Business.................................................................... 39
6.12 Hazardous Materials...................................................................... 39
6.13 No Default on Outstanding Judgments or Orders............................................ 41
6.14 No Defaults on Other Agreements.......................................................... 41
6.15 Labor Disputes and Acts of God........................................................... 41
6.16 Governmental Regulation.................................................................. 41
6.17 Full Disclosure.......................................................................... 42
6.18 Insurance................................................................................ 42
6.19 Intellectual Property.................................................................... 42
7. AFFIRMATIVE COVENANTS............................................................................. 42
7.1 Maintenance of Existence................................................................. 42
7.2 Conduct of Business...................................................................... 43
7.3 Maintenance of Properties................................................................ 43
7.4 Maintenance of Records................................................................... 43
7.5 Maintenance of Insurance................................................................. 43
7.6 Compliance with Laws..................................................................... 43
7.7 Right of Inspection...................................................................... 43
7.8 Reporting Requirements................................................................... 44
7.9 Payment of Taxes and Other Potential Charges and Priority Claims......................... 47
7.10 End of Fiscal Year; End of Fiscal Quarter................................................ 48
8. NEGATIVE COVENANTS................................................................................ 48
8.1 Debt..................................................................................... 48
8.2 Guaranties, Etc.......................................................................... 49
8.3 Liens.................................................................................... 49
8.4 Leases................................................................................... 51
8.5 Investments.............................................................................. 51
8.6 Dividends................................................................................ 52
8.7 Sale of Assets........................................................................... 52
8.8 Stock of Subsidiaries, Etc............................................................... 53
8.9 Transactions with Affiliates............................................................. 53
8.10 Mergers, Etc............................................................................. 53
9. FINANCIAL COVENANTS............................................................................... 53
9.1 Minimum Interest Coverage Ratio.......................................................... 53
9.2 Minimum Tangible Net Worth............................................................... 54
9.3 Leverage Ratio........................................................................... 54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
10. EVENTS OF DEFAULT................................................................................. 54
10.1 Events of Default........................................................................ 54
10.2 Remedies................................................................................. 56
11. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS........................................................ 57
11.1 Guarantied Obligations................................................................... 57
11.2 Performance under this Agreement......................................................... 57
11.3 Waivers.................................................................................. 57
11.4 Releases................................................................................. 59
11.5 Marshaling............................................................................... 59
11.6 Liability................................................................................ 60
11.7 Unconditional Obligation................................................................. 60
11.8 Election to Perform Obligations.......................................................... 60
11.9 No Election.............................................................................. 60
11.10 Severability............................................................................. 60
11.11 Other Enforcement Rights................................................................. 61
11.12 Delay or Omission; No Waiver............................................................. 61
11.13 Restoration of Rights and Remedies....................................................... 61
11.14 Cumulative Remedies...................................................................... 61
11.15 Survival................................................................................. 62
11.16 No Setoff, Counterclaim or Withholding; Gross-Up......................................... 62
11.17 Payment in Applicable Currency........................................................... 62
12. THE ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS AND BORROWERS................................... 62
12.1 Appointment, Powers and Immunities of Administrative Agent............................... 62
12.2 Reliance by Administrative Agent......................................................... 63
12.3 Defaults................................................................................. 63
12.4 Rights of Administrative Agent as a Bank................................................. 64
12.5 Indemnification of Administrative Agent.................................................. 64
12.6 Documents................................................................................ 64
12.7 Non-Reliance on Administrative Agent and Other Banks..................................... 65
12.8 Failure of Administrative Agent to Act................................................... 65
12.9 Resignation or Removal of Administrative Agent........................................... 65
12.10 Amendments Concerning Agency Function.................................................... 66
12.11 Liability of Administrative Agent........................................................ 66
12.12 Transfer of Agency Function.............................................................. 66
12.13 Non-Receipt of Funds by the Administrative Agent......................................... 66
12.14 Withholding Taxes........................................................................ 67
12.15 Several Obligations and Rights of Banks.................................................. 67
12.16 Pro Rata Treatment of Loans, Etc......................................................... 67
12.17 Sharing of Payments Among Banks.......................................................... 67
13. MISCELLANEOUS..................................................................................... 68
13.1 Amendments and Waivers................................................................... 68
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
13.2 Usury.................................................................................... 69
13.3 Expenses................................................................................. 69
13.4 Survival................................................................................. 69
13.5 Assignment; Participations............................................................... 69
13.6 Notices.................................................................................. 70
13.7 Setoff................................................................................... 70
13.8 Indemnification; Exoneration............................................................. 71
13.9 JURISDICTION; IMMUNITIES................................................................. 71
13.10 Table of Contents; Headings.............................................................. 72
13.11 Severability............................................................................. 72
13.12 Counterparts............................................................................. 72
13.13 Integration.............................................................................. 72
13.14 GOVERNING LAW............................................................................ 73
13.15 Confidentiality.......................................................................... 73
13.16 Treatment of Certain Information......................................................... 73
13.17 Judgment Currency........................................................................ 73
13.18 Independence of Covenants................................................................ 74
13.19 Time of the Essence...................................................................... 74
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A-1 Revolving Note
Exhibit A-2 Swingline Note
Exhibit B Authorization Letter
Exhibit C Environmental Indemnification
Exhibit D Letter of Credit Application
Exhibit E Pledge Agreement
Exhibit F Opinion of Counsel for Borrowers
Exhibit G Opinion of Local Counsel for Borrowers
Exhibit H Notice of Borrowing
Exhibit I Financial Covenants Compliance Report
Exhibit J Confidentiality Agreement
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 6.9 Subsidiaries of Borrower
Schedule 6.10 Credit Arrangements
Schedule 6.11 Operation of Business
Schedule 6.12 Hazardous Materials
Schedule 6.18 Insurance
Schedule 8.3 Liens
</TABLE>
iv
<PAGE> 6
CREDIT AGREEMENT dated as of June 9, 1997 among Cannondale
Corporation, a corporation organized under the laws of the State of Delaware
("Cannondale"), each of the Subsidiaries of Cannondale which is a signatory
hereto (individually, a "Subsidiary Borrower", collectively the "Subsidiary
Borrowers" and, together with Cannondale, the "Borrowers"), each of the banks
which is a signatory hereto (individually a "Bank" and collectively the
"Banks"), NationsBank, N.A., a national banking association organized under the
laws of the United States of America, as administrative agent for the Banks (in
such capacity, together with its successors in such capacity, the
"Administrative Agent") and as Fronting Bank (in such capacity, together with
its successors in such capacity, the "Fronting Bank") and ABN AMRO Bank N.V., a
Netherlands banking corporation acting through its duly licensed New York
Branch, as documentation agent for the Banks (in such capacity, together with
its successors in such capacity, the "Documentation Agent") and as syndication
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Syndication Agent").
The Borrowers have requested that the Banks make loans to and
issue letters of credit on behalf of one or more of the Borrowers. The repayment
of the loans and the repayment of the reimbursement obligations of the
Subsidiary Borrowers will be guaranteed by Cannondale. Each Borrower
acknowledges that it will receive direct economic and financial benefits from
the Debt incurred under this Agreement and the incurrence of such Debt is in the
best interests of such Borrower. Cannondale acknowledges that the Banks would
not provide the financing hereunder but for Cannondale's guaranty of the
Subsidiary Borrowers' obligations hereunder.
Accordingly, the Borrowers, the Banks, the Administrative
Agent, the Documentation Agent, the Syndication Agent and the Fronting Bank
agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1. Definitions. As used in this Agreement the
following terms have the following meanings (terms defined in the singular to
have a correlative meaning when used in the plural and vice versa):
"Acceptable Acquisition" means any Acquisition (a) which has
been either (i) approved by the Board of Directors of the corporation which is
the subject of such Acquisition or (ii) recommended by such Board to the
shareholders of such corporation, (b) which does not result in any Borrower, or
any Subsidiary of any Borrower, engaging in any line or type of business other
than the businesses in which the Borrowers and their Subsidiaries are presently
engaged as of the Closing Date and other sporting or recreational lines or types
of businesses; (c) the aggregate purchase price of which Acquisition, together
with the aggregate purchase price of all Acceptable Acquisitions previously or
concurrently consummated, does not exceed $10,000,000, and (d) for which the
certificate specified in Section 7.8(m) was timely delivered.
<PAGE> 7
2
"Acquisition" means any transaction pursuant to which any
Borrower or any of its Subsidiaries (a) acquires equity securities (or warrants,
options or other rights to acquire such securities) of any corporation other
than such Borrower or any corporation which is not then a Subsidiary of such
Borrower, pursuant to a solicitation of tenders therefor, or in one or more
negotiated block, market or other transactions not involving a tender offer, or
a combination of any of the foregoing, or (b) makes any corporation a Subsidiary
of such Borrower, or causes any such corporation to be merged into such Borrower
or any of its Subsidiaries, in any case pursuant to a merger, purchase of assets
or any reorganization providing for the delivery or issuance to the holders of
such corporation's then outstanding securities, in exchange for such securities,
of cash or securities of such Borrower or any of its Subsidiaries, or a
combination thereof, or (c) purchases all or substantially all of the business
or assets of any corporation.
"Affiliate" means any Person: (a) which directly or indirectly
controls, or is controlled by, or is under common control with, a Borrower or
any of its Subsidiaries; (b) which directly or indirectly beneficially owns or
holds 5% or more of any class of voting stock of a Borrower or any such
Subsidiary; (c) 5% or more of the voting stock of which is directly or
indirectly beneficially owned or held by a Borrower or such Subsidiary; or (d)
which is a partnership in which a Borrower or any of its Subsidiaries is a
general partner. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agents" means the Administrative Agent, the Documentation
Agent and the Syndication Agent.
"Agreement" means this Credit Agreement, as amended or
supplemented from time to time.
"Alternative Currency" means Guilders, Yen or such other
currency other than Dollars that the Banks may in their sole discretion make
available to one or more Borrowers from time to time.
"Alternative Currency Equivalent" means, with respect to an
amount of Dollars on any date in relation to any specified Alternative Currency,
the amount of such specified Alternative Currency that may be purchased with
such amount of Dollars at the Spot Exchange Rate with respect to Dollars on such
date.
"Alternative Currency Loan" means any Loan denominated in an
Alternative Currency.
"Authorization Letter" means the letter agreement executed by
the Borrowers in the form of Exhibit B.
<PAGE> 8
3
"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York, New York, and whenever such day
relates to a Eurocurrency Loan or notice with respect to any Eurocurrency Loan,
a day on which dealings in Dollar or the applicable Alternative Currency
deposits are also carried out in the London interbank market.
"Borrowing" means a Loan or group of Loans of a single type as
to which a single Interest Period is in effect.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Cash and Cash Equivalents" means, with respect to any Person,
the aggregate amount of the following, to the extent owned by such Person or any
of its Subsidiaries free and clear of all Liens, encumbrances and rights of
others: (i) cash on hand; (ii) Dollar demand deposits maintained in the United
States with any commercial bank and Dollar time deposits maintained in the
United States with, or certificates of deposit having a maturity of one year or
less issued by, any commercial bank which has its head office in the United
States and which has a combined capital and surplus of at least $100,000,000;
(iii) direct obligations of, or unconditionally guaranteed by, the United States
and having a maturity of one year or less; and (iv) readily marketable
commercial paper having a maturity of one year or less, issued by any
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia and rated by Standard & Poor's
Corporation or Moody's Investors Service, Inc. (or, if neither such organization
shall rate such commercial paper at any time, rated by any nationally recognized
rating organization in the United States) with the highest rating assigned by
such organization.
"Closing Date" means the date this Agreement has been executed
by the Borrowers, the Banks, the Administrative Agent, the Documentation Agent,
the Syndication Agent and the Fronting Bank.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment" means, with respect to each Bank, the obligation
of such Bank to make its Loans and participate in Letters of Credit under this
Agreement in the following aggregate principal amount, as such amount may be
reduced or otherwise modified from time to time:
<PAGE> 9
4
<TABLE>
<S> <C>
NationsBank, N.A.: $17,500,000;
ABN AMRO Bank, N.V.: $17,500,000;
Fleet National Bank: $15,000,000;
Total: $50,000,000.
</TABLE>
"Commitment Percentage" means, as to any Bank, the percentage
equivalent of a fraction, the numerator of which is the Commitment of such Bank
and the denominator of which is the aggregate Commitments of all Banks.
"Consolidated Average Funded Debt to EBITDA Ratio" means, with
respect to any Person, the ratio of (a) the average of the Consolidated Funded
Debt of such Person outstanding on the last day of each of the last four Fiscal
Quarters to (b) the EBITDA of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, measured on a
trailing four quarters basis.
"Consolidated Funded Debt" means Funded Debt of a Person and
its Consolidated Subsidiaries, as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Coverage Ratio" means the Interest
Coverage Ratio of a Person and its Consolidated Subsidiaries, as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means Net Income of a Person and its
Consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Subsidiary" means any Subsidiary of a Person
whose accounts are or are required to be consolidated with the accounts of such
Person in accordance with GAAP.
"Consolidated Tangible Net Worth" means Tangible Net Worth of
a Person and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Assets" means, at any time, all items
which would be classified as assets on a consolidated balance sheet of a Person
and its Consolidated Subsidiaries, as determined on a consolidated basis in
accordance with GAAP.
"Debt" means, with respect to any Person: (a) indebtedness of
such Person for borrowed money and, without duplication, all obligations
evidenced by bonds, debentures, notes or similar instruments; (b) indebtedness
for the deferred purchase price of property or services; (c) Unfunded Benefit
Liabilities of such Person (determined, if
<PAGE> 10
5
such Person is not the Borrower, in a manner analogous to that of determining
Unfunded Benefit Liabilities of the Borrower); (d) the face amount of any
outstanding letters of credit issued for the account of such Person; (e)
obligations arising under acceptance facilities; (f) guaranties, endorsements
(other than for collection in the ordinary course of business) and other
contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person, or otherwise to assure a creditor against loss;
(g) obligations secured by any Lien on property of such Person; (h) net
liabilities of such Person under interest rate cap agreements, interest rate
swap agreements, foreign currency exchange agreements and other hedging
agreements or arrangements (calculated on a basis satisfactory to the
Administrative Agent and in accordance with accepted practice); and (i)
obligations of such Person as lessee under Capital Leases.
"Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
"Default Rate" means, with respect to the principal of any
Loan and, to the extent permitted by law, any other amount payable by the
Borrower under this Agreement, any Note or any other Facility Document that is
not paid when due (whether at stated maturity, by acceleration or otherwise), a
rate per annum during the period from and including the due date, to, but
excluding the date on which such amount is paid in full equal to 2% above the
Variable Rate as in effect from time to time plus the Margin (if any) (provided
that, if the amount so in default is principal of a Eurocurrency Loan and the
due date thereof is a day other than the last day of the Interest Period
therefor, the "Default Rate" for such principal shall be, for the period from
and including the due date and to but excluding the last day of the Interest
Period therefor, 2% above the interest rate for such Loan as provided in Section
2.11 hereof and, thereafter, the rate provided for above in this definition).
"Denomination Date" means (a) in relation to any Borrowing in
an Alternative Currency, the date that is three Banking Days prior to the date
such Borrowing is made and in the case of a renewal of, or conversion to, such a
Loan, the date that is three Banking Days prior to the date of such renewal or
conversion, and (b) in relation to any Letter of Credit payable in an
Alternative Currency, the date such Letter of Credit is issued.
"Dollar Equivalent" means, with respect to an amount of any
Alternative Currency on any date, the amount of Dollars that may be purchased
with such amount of such Alternative Currency at the Spot Exchange Rate with
respect to such Alternative Currency on such date.
"Dollars" and the sign "$" mean lawful money of the United
States of America.
<PAGE> 11
6
"EBITDA" means, for any Person, for any period, earnings
before Interest Expense, taxes, depreciation, amortization and extraordinary
items for such Person determined in accordance with GAAP.
"Eligible Assignee" means (i) a Bank; (ii) an affiliate of a
Bank; and (iii) any other Person approved by the Administrative Agent and,
unless an Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 13.5, Cannondale, such
approval not to be unreasonably withheld or delayed by Cannondale and such
approval to be deemed given by Cannondale if no objection is received by the
assigning Bank and the Administrative Agent from Cannondale within two Banking
Days after notice of such proposed assignment has been provided by the assigning
Bank to Cannondale; provided, however, that neither the Borrowers nor any
affiliate of the Borrowers shall qualify as an Eligible Assignee.
"Environmental Indemnification" means the environmental
indemnification agreement of the Borrowers in the form of Exhibit C hereto.
"Environmental Laws" means any and all domestic, foreign,
federal, state and local statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, licenses, agreements with Governmental
Authorities or other governmental restrictions relating to the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or industrial, toxic or hazardous substances or
wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including any rules and regulations
promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business
which is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Borrower is a member, or (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which a Borrower is a member.
"Eurocurrency Loan" means any Loan when and to the extent the
interest rate therefor is determined on the basis of the definition "Fixed Base
Rate."
"Event of Default" shall have the meaning assigned to such
term in Section 10.1 hereof.
<PAGE> 12
7
"Facility Documents" means this Agreement, the Notes, the
Authorization Letter, the Pledge Agreement, and documents relating to Letters of
Credit and each of the documents, certificates or other instruments referred to
in Article 5 hereof as well as any other documents, instrument or certificate to
be delivered by any Borrower in connection with this Agreement or in connection
with the documents, certificates or instruments referred to in Article 5,
including documents delivered in connection with any Borrowing.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of 1%) (expressed on a
365/366 day basis of calculation, if the rate on Variable Rate Loans is so
calculated) equal to the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York for such day (or for any day that is not a Banking Day, for the
immediately preceding Banking Day).
"Fiscal Quarter" means, for any Person, any fiscal quarter,
determined in a manner consistent with past practices of such Person.
"Fiscal Quarter Net Worth Increase Amounts" means, with
respect to each Fiscal Quarter, the greater of (a) Zero Dollars ($0) or (b) the
sum of (i) 50% of Consolidated Net Income for such Fiscal Quarter of a Person,
plus (ii) seventy-five percent (75%) of the net proceeds to such Person realized
during such Fiscal Quarter from the issuance or sale by such Person of any
shares of its common stock.
"Fiscal Year" means, for any Person, any fiscal year,
determined in a manner consistent with past practices of such Person.
"Fiscal Year Net Worth Increase Amounts" means, with respect
to each Fiscal Year, the greater of (a) Zero Dollars ($0) or (b) the sum of (i)
50% of Consolidated Net Income for such Fiscal Year of a Person, plus (ii)
seventy-five percent (75%) of the net proceeds to such Person realized during
such Fiscal Year from the issuance or sale by such Person of any shares of its
common stock.
"Fixed Base Rate" means, for any Eurocurrency Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100th of 1%) appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in Dollars or deposits
in an Alternative Currency, as applicable, at approximately 11:00 a.m. (London
time) two (2) Banking Days prior to the first day of such Interest Period for a
term comparable to such Interest Period. If for any reason such rate is not
available, the term "Fixed Base Rate" shall mean, for any Eurocurrency Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars or deposits in an Alternative
Currency, as applicable, at approximately 11:00 a.m. (London time) two Banking
Days prior to the first day of such
<PAGE> 13
8
Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates (rounded upwards,
if necessary, to the nearest 1/100 of 1%).
"Fixed Rate" means, for any Eurocurrency Loan for any Interest
Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Administrative Agent to be equal to the quotient
of (i) the Fixed Base Rate for such Loan for such Interest Period, divided by
(ii) one minus the Reserve Requirement for such Loan for such Interest Period.
"Fronting Bank" means NationsBank, N.A., a national banking
association organized under the laws of the United States of America, acting in
its capacity as the issuer of the Letters of Credit hereunder.
"Funded Debt" means, with respect to any Person, all Debt of
such Person for money borrowed, including any such indebtedness which may be
incurred pursuant to the provisions of any revolving credit agreement or other
similar agreement.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect on the date hereof, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 6.5.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantied Obligations" shall have the meaning assigned to
such term in Section 11.1 hereof.
"Guilders" means the lawful money of the Netherlands.
"Interest Coverage Ratio" means, for any Person, as at any
date, the ratio of (a) EBITDA of such Person for the immediately preceding four
full Fiscal Quarters of such Person (including the Fiscal Quarter ending on such
date if such date is the last day of a Fiscal Quarter) to (b) Interest Expense
of such Person for such period.
"Interest Expense" shall mean, with respect to any Person, for
any period, the sum, for such Person in accordance with GAAP, of (a) all
interest on Debt that is accrued as an expense during such period (including,
without limitation, imputed interest on Capital Lease obligations), plus (b) all
amounts paid, accrued or amortized as an expense during such period in respect
of interest rate protection agreements, minus (c) all amounts received or
accrued as income during such period in respect of interest rate protection
agreements.
<PAGE> 14
9
"Interest Period" means, with respect to any Eurocurrency
Loan, the period commencing on the date such Loan is made, converted from
another type of Loan or renewed, as the case may be, and ending, as the Borrower
may select pursuant to Section 2.7, on the numerically corresponding day in the
first, second, third, or sixth calendar month thereafter, provided that each
such Interest Period which commences on the last Banking Day of a calendar month
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Banking Day of the
appropriate calendar month.
"Judgment Currency" shall have the meaning assigned to such
term in Section 13.17 hereof.
"Judgment Currency Conversion Date" shall have the meaning
assigned to such term in Section 13.17 hereof.
"L/C Related Documents" shall have the meaning assigned to
such term in Section 3.1(f).
"L/C Sublimit" shall have the meaning assigned to such term in
Section 3.1(a).
"Lending Office" means, for each Bank and for each type of
Loan, the lending office of such Bank (or of an affiliate of such Bank)
designated as such for such type of Loan on its signature page hereof or such
other office of such Bank (or of an affiliate of such Bank) as such Bank may
from time to time specify to the Administrative Agent and the Borrowers as the
office by which its Loans of such type are to be made and maintained.
"Letter(s) of Credit" means any standby Letter of Credit
issued by the Fronting Bank for the account of a Borrower pursuant to Section
3.1 for the purpose of supporting performance, payment deposit, or surety
obligations of such Borrower, in any case if required by law or governmental
rule or regulation or if in the ordinary course of business of such Borrower.
"Letters of Credit Usage" means with respect to the Borrowers,
as at any date of determination, the sum of (i) the maximum aggregate amount
which is or at any time thereafter may become available (including any amounts
drawn but not yet honored) under all Letters of Credit then outstanding and (ii)
the aggregate amount of all drawings under Letters of Credit honored by the
Agent and not theretofore reimbursed by a Borrower. Letters of Credit Usage of
each Bank shall be determined as if the Banks had bought the participations
referred to in Section 3.1(a) with respect to all then outstanding Letters of
Credit. In determining Letters of Credit Usage, any Letters of Credit
<PAGE> 15
10
denominated in an Alternative Currency, shall be converted to the Dollar
Equivalent (as of the Denomination Date for such Letter of Credit).
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, negative pledge, charge,
conditional sale, title retention agreement, financing lease or other
encumbrance or similar right of others, or any agreement to give or refrain from
giving any of the foregoing.
"Loans" means the Revolving Loans and the Swingline Loans.
"Margin" means, for each type of Loan, the number of basis
points for such type of Loan set forth below opposite the range of the
Consolidated Average Funded Debt to EBITDA Ratio in the schedule below as
determined as of the last day of the immediately preceding Fiscal Quarter, with
adjustments to become effective on the date of receipt by the Administrative
Agent of the most recent financial statements of the Borrowers required to be
furnished to the Banks under Section 7.8:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Margin
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Consolidated Average Funded Debt Variable Rate Loans Eurocurrency Loans
to EBITDA Ratio
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Less than 0.50 0 basis points 30.0 basis points
- -------------------------------------------------------------------------------------------
Greater than or equal to 0.50, but 0 basis points 32.5 basis points
less than 0.90
- -------------------------------------------------------------------------------------------
Greater than or equal to 0.90, but 0 basis points 42.5 basis points
less than 1.20
- -------------------------------------------------------------------------------------------
Greater than or equal to 1.20, but 0 basis points 52.5 basis points
less than 1.50
- -------------------------------------------------------------------------------------------
Greater than or equal to 1.50 0 basis points 75.0 basis points
- -------------------------------------------------------------------------------------------
</TABLE>
"Material Subsidiary" means (i) each of the Subsidiary
Borrowers, and (ii) any other direct or indirect subsidiary of Cannondale which
on or after the date hereof has total assets equal to or greater than ten
percent (10%) of Cannondale's Consolidated Total Assets.
<PAGE> 16
11
"Multiemployer Plan" means a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by any Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Income" of any Person for any period means the net income
(loss) of such Person for such period determined in accordance with GAAP.
"Notes" means the Revolving Notes and the Swingline Notes.
"Notice of Borrowing" shall have the meaning assigned to such
term in Section 2.5 hereof.
"Obligation Currency" shall have the meaning assigned to such
term in Section 13.17 hereof.
"Obligations" means the unpaid principal of and interest on
(including interest accruing on or after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) the Notes and all other obligations and liabilities
of any Borrower to the Administrative Agent or any Bank, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any Note, any Letter of Credit, any other Facility Document and any
other document made, delivered or given in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or any Bank) or otherwise.
"Outstanding Amount" means, as of any date of determination,
the sum of (a) the aggregate amount of Revolving Loans outstanding, plus (b) the
aggregate amount of Swingline Loans outstanding, plus (c) the Letters of Credit
Usage.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA, other than a
Multiemployer Plan.
<PAGE> 17
12
"Pledge Agreement" means the pledge agreement in the form of
Exhibit E to be delivered by Cannondale under the terms of this Agreement.
"Prime Rate" means that per annum rate of interest from time
to time announced by the Reference Bank at its Principal Office as its prime
rate, which rate may not be the lowest rate of interest charged by the Reference
Bank to its customers.
"Principal Office" means the principal office of the
Administrative Agent, presently located at 100 North Tryon Street, Charlotte,
North Carolina 28255.
"Reference Bank" means NationsBank, N.A. (or its applicable
Lending Office, as the case may be).
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented from time
to time.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented from time
to time.
"Regulatory Change" means, with respect to any Bank, any
change after the date of this Agreement in United States federal, state,
municipal or foreign laws or regulations (including without limitation
Regulation D) or the adoption or making after such date of any interpretations,
directives or requests applying to a class of banks including such Bank of or
under any United States, federal, state, municipal or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Required Banks" means, at any time, Banks having in the
aggregate at least 51% of (i) the aggregate amount of the Commitments, or (ii)
if the Commitments have been terminated, the Outstandings Amount (determined as
if the Swingline Loans outstanding had been repaid with the proceeds of Variable
Rate Loans). For purposes of determining the Required Banks, any amounts
denominated in an Alternative Currency shall be translated into Dollars at the
Spot Exchange Rate in effect at such time.
"Reserve Requirement" means, for any Interest Period for any
Eurocurrency Loan, the average maximum rate at which reserves (including without
limitation any marginal, special, supplemental or emergency reserves) are
required to be maintained during such Interest Period under regulations issued
from time to time by the Board of Governors of the Federal Reserve System (or
any successor) by member banks of the Federal Reserve System against, in the
case of Eurocurrency Loans, "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks by reason of any Regulatory Change against (i) any category of
liabilities which includes deposits by reference to which the Fixed Base Rate
<PAGE> 18
13
for Eurocurrency Loans is to be determined as provided in the definition of
"Fixed Base Rate" in this Section 1.1 or (ii) any category of extensions of
credit or other assets which include Eurocurrency Loans. The Fixed Rate shall be
adjusted automatically on and as of the effective date of any change in the
Reserve Requirement.
"Revolving Loans" has the meaning given such term in Section
2.1.
"Revolving Notes" means the promissory notes of each of the
Borrowers in the forms of Exhibit A-1 hereto evidencing the Loans made to such
Borrower by a Bank hereunder.
"Spot Exchange Rate" means, on any date of determination
thereof, (a) with respect to any Alternative Currency, the spot rate at which
Dollars are offered for such Alternative Currency on such day by the principal
London branch of the Reference Bank at approximately 11:00 a.m. (London time)
and (b) with respect to Dollars in relation to any specified Alternative
Currency, the spot rate at which such specified Alternative Currency is offered
on such date by the principal London branch of the Reference Bank for Dollars at
approximately 11:00 a.m. (London time). For purposes of determining the Spot
Exchange Rate in connection with an Alternative Currency Borrowing, such Spot
Exchange Rate shall be determined as of the Denomination Date for such Borrowing
with respect to transactions in the applicable Alternative Currency that will
settle on the date of such Borrowing.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which at least a majority of the securities or
other ownership interests having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by such Person.
"Swingline Bank" means NationsBank, N.A., a national banking
association organized under the laws of the United States of America, acting in
its capacity as lender of the Swingline Loans hereunder.
"Swingline Facility Amount" shall mean the independent
obligation of the Swingline Bank to make Swingline Loans pursuant to Section 2.2
hereof in an aggregate amount at any one time outstanding up to but not
exceeding $7,500,000.
"Swingline Loans" means the Loans made by the Swingline Bank
pursuant to Section 2.2 hereof, which Swingline Loans shall in no event exceed
$7,500,000 aggregate principal amount outstanding at any one time.
"Swingline Notes" means the promissory notes of each of the
Borrowers in the form of Exhibit A-2 hereto evidencing the Swingline Loans made
to such Borrower by the Swingline Bank hereunder.
<PAGE> 19
14
"Swingline Rate" shall mean an as offered rate per annum
quoted by the Swingline Bank (determined in such Bank's discretion) and agreed
to by the applicable Borrower for a term mutually agreeable to such Swingline
Bank and such Borrower. Promptly after the Borrower and the Swingline Bank so
mutually agree on the Swingline Rate and the term therefor, the Swingline Bank
shall send to the Borrower a written confirmation of such Swingline Rate, the
term thereof, and the principal amount of the Swingline Loan subject thereto,
which confirmation shall be conclusive and binding for all purposes. No failure
or delay in sending such a confirmation shall impair in any way the obligations
of any Borrower with respect to such Swingline Loan.
"Tangible Net Worth" means, at any date of determination
thereof, the excess of total assets of a Person over total liabilities of such
Person, excluding, however, from the determination of total assets: goodwill,
trademarks, patents, organizational costs, unamortized debt discounts and
expenses and other like intangible assets as defined by GAAP, all determined in
accordance with GAAP.
"Termination Date" means June 9, 2000; provided that if such
date is not a Banking Day, the Termination Date shall be the next succeeding
Banking Day (or, if such next succeeding Banking Day falls in the next calendar
month, the next preceding Banking Day).
"Total Capitalization" means, at any date of determination
thereof, the capitalization (stockholders' equity plus long-term debt (less
current installments)) of the Borrowers and their Consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
"Unconditional Guaranty" shall have the meaning assigned to
such term in Section 11.1 herein.
"Unfunded Benefit Liabilities" means, with respect to any
Plan, the amount (if any) by which the present value of all benefit liabilities
(within the meaning of Section 4001(a)(16) of ERISA) under the Plan exceeds the
fair market value of all Plan assets allocable to such benefit liabilities, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate under Title IV of ERISA.
"Variable Rate" means, for any day, the higher of (a) the
Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such
day. Any change in the Variable Rate due to a change in the Federal Funds Rate
or the Prime Rate shall be effective on the effective date of such change in the
Federal Funds Rate or the Prime Rate.
"Variable Rate Loan" means any Loan when and to the extent the
interest rate for such Loan is determined in relation to the Variable Rate.
<PAGE> 20
15
"Yen" means the lawful money of Japan.
Section 1.2. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be delivered hereunder shall be prepared in
accordance with GAAP.
Section 1.3. Rules of Interpretation.
(a) A reference to any document or agreement shall
include such document or agreement as amended, modified or supplemented from
time to time in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural
includes the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) The words "include", "includes" and "including"
are not limiting.
(f) All terms not specifically defined herein or by
GAAP, which terms are defined in the Uniform Commercial Code as in effect in the
State of New York, have the meanings assigned to them therein.
(g) Reference to a particular "Section" refers to
that section of this Agreement unless otherwise indicated.
(h) The words "herein", "hereof", "hereunder" and
words of like import shall refer to this Agreement as a whole and not to any
particular section or subdivision of this Agreement.
ARTICLE 2. THE CREDIT.
Section 2.1. The Loans.
(a) Subject to the terms and conditions of this
Agreement, each of the Banks, severally and not jointly, agrees to make
revolving credit loans (the "Revolving Loans") to each Borrower (as specified in
the notice of each Borrowing
<PAGE> 21
16
pursuant to Section 2.9) from time to time from and including the date hereof to
and including the Banking Day next preceding the Termination Date, in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount of the Commitment of such Bank to the Borrowers; provided the
Revolving Loans of such Bank outstanding plus the Letters of Credit Usage
outstanding of such Bank shall not at any time exceed its Commitment and
provided further that the Outstandings Amount shall not at any time exceed the
aggregate amount of the Commitments of the Banks. The Revolving Loans shall be
due and payable on the Termination Date. The Revolving Loans may be outstanding
as Variable Rate Loans or Eurocurrency Loans (each a "type" of Loan).
Eurocurrency Loans may be denominated in Dollars or in one or more Alternative
Currencies but Variable Rate Loans shall be denominated only in Dollars. Each
type of Loans of each Bank shall be made and maintained at such Bank's
applicable Lending Office for such type of Loan.
(b) Any Eurocurrency Loan may be made in the
Alternative Currency specified in the notice of each Borrowing pursuant to
Section 2.9 in the Alternative Currency amount specified in such notice, and the
Administrative Agent shall determine the Dollar Equivalent as of the
Denomination Date for such Borrowing (which determination shall be conclusive
absent manifest error). For purposes of determining the amount outstanding under
any Bank's Commitment, each Eurocurrency Loan denominated in an Alternative
Currency shall be the Dollar Equivalent for such Eurocurrency Loan as of the
Denomination Date.
Section 2.2. The Swingline Loans.
(a) Subject to the terms and conditions of this
Agreement, the Swingline Bank agrees to make Swingline Loans (the "Swingline
Loans") to Cannondale from time to time from and including the date hereof to
and including the Banking Day next preceding the Termination Date, in an
aggregate principal amount at any one time outstanding up to but not exceeding
the Swingline Facility Amount; provided that the Outstandings Amount shall not
at any time exceed the aggregate amount of the Commitments of the Banks. Each
Loan under this Section 2.2 shall be made by the Swingline Bank. The Swingline
Loans shall be at the Swingline Rate, shall have a term of no more than 30 days
and shall be denominated only in Dollars. Subject to the terms hereof,
Cannondale may borrow, repay or prepay and reborrow Swingline Loans hereunder
prior to the Termination Date.
(b) Anything contained in this Agreement to the
contrary notwithstanding, (A) unless Cannondale shall have notified the
Swingline Bank prior to 11:00 a.m. (New York City local time) on the Banking Day
immediately before the date on or before which a Swingline Loan is due that
Cannondale intends to repay such Swingline Loan other than with the proceeds of
Variable Rate Loans, Cannondale shall be deemed to have timely given a Notice of
Borrowing pursuant to Section 2.9 requesting the Banks to make Variable Rate
Loans on the date on which such Swingline Loan is due in an amount
<PAGE> 22
17
equal to the amount of outstanding principal and interest of such Swingline Loan
(provided that such notice shall also be deemed to have been automatically given
upon the occurrence of a Default or Event of Default under Section 10.1 or upon
the exercise of remedies provided in Section 10.2); and (B) the Banks shall make
Variable Rate Loans on the date on which such Swingline Loan is due (including
upon an Event of Default and acceleration of such Loans) ratably in accordance
with their Commitment Percentage (determined before giving effect to any
termination or reduction of Commitments after any such Swingline Loans were
made), the proceeds of which shall be applied directly to reimburse the
Swingline Bank for the amount of outstanding principal and interest of such
Swingline Loan notwithstanding (i) that the amount of such Borrowing may not
comply with any minimum amount for advances of Variable Rate Loans otherwise
required hereunder, (ii) whether any conditions specified in Articles 5 are then
satisfied, (iii) whether a Default or an Event of Default then exists, (iv) the
failure of any such Notice of Borrowing or deemed Notice of Borrowing for
Variable Rate Loans to be made by the time otherwise required hereunder, (v)
whether the date of such Borrowing is a date on which Variable Rate Loans are
otherwise permitted to be made hereunder, and (vi) any termination or reduction
in the Commitments after any such Swingline Loans were made. If, for any reason,
the Swingline Bank does not receive proceeds of Variable Rate Loans on the date
on which a Swingline Loan is due in an amount equal to the outstanding principal
and interest of such Swingline Loan, Cannondale shall reimburse the Swingline
Bank on the Banking Day immediately following the date of such nonpayment, in an
amount in Dollars in same day funds equal to the excess of the amount due over
the proceeds of such Variable Rate Loans, if any, which are so received, plus
accrued interest on such excess amount at a rate per annum equal to the Variable
Rate; provided that if a Default or Event of Default shall exist and Cannondale
is not, by reason thereof, eligible to borrow Variable Rate Loans, then interest
shall accrue on such amount paid by the Swingline Bank at the Default Rate. Each
Bank irrevocably agrees that if Cannondale fails to repay a Swingline Loan to
the Swingline Bank when due (including upon an Event of Default and acceleration
of such Loans), whether or not such failure is a result of the commencement of a
proceeding of the type referred to in Section 10.1(e) with respect to
Cannondale, then each Bank shall be deemed to have purchased participations in
the Swingline Loans in proportion to their respective Commitments (determined
before giving effect to any termination or reduction of Commitments after any
such Swingline Loans were made); provided that (x) all interest payable on the
Swingline Loans shall be for the account of the Swingline Bank until the date as
of which the respective participation is required to be purchased and, to the
extent attributable to the purchased participation, shall be payable to the
participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Bank
shall be required to pay the Swingline Bank interest on the principal amount of
participation purchased for each day from and including the day upon which the
Variable Rate Loan Borrowing would otherwise have occurred to but excluding the
date of payment for such participation, at the rate otherwise applicable to
Variable Rate Loans hereunder.
<PAGE> 23
18
Section 2.3. The Notes.
(a) The Revolving Loans of each Bank to each Borrower shall be
evidenced by promissory notes in favor of such Bank in the form of Exhibit A-1,
dated the Closing Date, duly completed and executed by the applicable Borrower.
Each Bank shall, and is hereby authorized by each of the Borrowers to, endorse
on the schedule attached to each Note held by such Bank, or otherwise record in
such Bank's internal records, an appropriate notation evidencing the date, type,
amount and currency of each Revolving Loan evidenced by such Note and the date,
amount and currency of each repayment or prepayment of principal; provided that
the failure of any Bank to make such notation or any error therein shall not
affect the obligations of the applicable Borrower to repay the Revolving Loans
made by such Bank.
(b) The Swingline Loans of the Swingline Bank to each Borrower
shall be evidenced by promissory notes in favor of the Swingline Bank in the
form of Exhibit A-2, dated the Closing Date, duly completed and executed by the
applicable Borrower. The Swingline Bank shall, and is hereby authorized by each
of the Borrowers to, endorse on the schedule attached to each Swingline Note, or
otherwise record in such Bank's internal records, an appropriate notation
evidencing the date, amount and term of each Swingline Loan evidenced by such
Note and the date and amount of each repayment or prepayment of principal;
provided that the failure of the Swingline Bank to make such notation or any
error therein shall not affect the obligations of the applicable Borrower to
repay the Swingline Loans made by such Swingline Bank.
Section 2.4. Purpose. The Borrowers shall use the proceeds of the Loans
for working capital, refinancing of existing credit arrangements and general
corporate purposes. Such proceeds shall not be used for the purpose, whether
immediate, incidental or ultimate, of buying or carrying "margin stock" within
the meaning of Regulation U.
Section 2.5. Borrowing Procedures. The applicable Borrower shall give
the Administrative Agent notice (a "Notice of Borrowing") of each Borrowing to
be made under Section 2.1 or Section 2.2 as provided in Section 2.9. Not later
than 2:00 p.m. New York City local time on the date of such Borrowing pursuant
to Section 2.1, each Bank shall, through its Lending Office and subject to the
conditions of this Agreement, make available to the Administrative Agent, at the
Principal Office for the account of the Lending Office, the amount of the Loan
to be made by such Bank on such day in the currency in which such Loan is to be
made and in immediately available funds for the account of the applicable
Borrower. The amount so received by the Administrative Agent shall, subject to
the conditions of this Agreement, be made available to the applicable Borrower,
in immediately available funds, by the Administrative Agent crediting an account
of such Borrower designated by such Borrower and maintained by such Borrower
with the Administrative Agent at the Principal Office.
<PAGE> 24
19
Section 2.6. Prepayments and Conversions.
(a) Optional Prepayments. Each Borrower shall have the right
to make prepayments of principal, to convert one type of Loans into another type
of Loans or to convert Eurocurrency Loans denominated in one currency to
Eurocurrency Loans denominated in another currency, at any time or from time to
time; provided that: (a) such Borrower shall give the Administrative Agent
notice of each such prepayment or conversion as provided in Section 2.9; and (b)
Eurocurrency Loans may be prepaid or converted only on the last day of an
Interest Period for such Eurocurrency Loans.
(b) Mandatory Prepayments. If any time prior to the
Termination Date, the aggregate amount of all Loans shall exceed the difference
of (i) the aggregate amount of the Commitments minus (ii) the aggregate amount
of Letter of Credit Usage outstanding at such time, the Borrowers shall repay
the Banks forthwith such amounts as may be necessary to eliminate such excess
(and if the Loans cannot be repaid to eliminate such excess due to the amount of
outstanding Letters of Credit, Cannondale shall deposit with the Administrative
Agent sufficient cash collateral to cover such excess), and the failure of the
Borrowers to make and the Banks to receive such payment shall constitute an
Event of Default hereunder. For the purposes of this Section 2.6(b), the amount
outstanding under any Eurocurrency Loan denominated in an Alternative Currency
at any time shall be the Dollar Equivalent thereof as of the Denomination Date.
Section 2.7. Interest Periods; Renewals.
(a) In the case of each Eurocurrency Loan, the Borrower
thereunder shall select an Interest Period of any duration in accordance with
the definition of Interest Period in Section 1.1, subject to the following
limitations: (i) no Interest Period may extend beyond the Termination Date; (ii)
notwithstanding clause (i) above, no Interest Period shall have a duration less
than 30 days, and if any such proposed Interest Period would otherwise be for a
shorter period, such Interest Period shall not be available; (iii) if an
Interest Period would end on a day which is not a Banking Day, such Interest
Period shall be extended to the next Banking Day, unless such Banking Day would
fall in the next calendar month in which event such Interest Period shall end on
the immediately preceding Banking Day; and (iv) no more than six Interest
Periods may be outstanding at any one time. For purposes of this Section 2.7(a),
borrowings having different Interest Periods or denominated in different
currencies, regardless of whether they commence on the same date, shall be
considered separate borrowings.
(b) Upon notice to the Administrative Agent as provided in
Section 2.9, each Borrower may renew any Eurocurrency Loan on the last day of
the Interest Period therefor as the same type of Loans with an Interest Period
of the same or different duration in accordance with the limitations provided
above. If such Borrower shall fail to give notice to the Administrative Agent of
such a renewal, (i) in the case of a Eurocurrency Loan denominated in Dollars,
such Eurocurrency Loan shall automatically
<PAGE> 25
20
become a Variable Rate Loan on the last day of the current Interest Period and
(ii) in the case of a Eurocurrency Loan denominated in an Alternative Currency,
such Eurocurrency Loan shall automatically become a Eurocurrency Loan
denominated in the same Alternative Currency having an Interest Period of one
month.
Section 2.8. Changes of Commitments. The Borrowers shall have the right
to reduce or terminate the amount of unused Commitments or the Swingline
Facility Amount at any time or from time to time, provided that: (a) the
Borrowers shall give notice of each such reduction or termination to the
Administrative Agent and the Swingline Bank as provided in Section 2.9; and (b)
each partial reduction shall be in an aggregate amount at least equal to
$5,000,000; provided that if any such reduction would cause the aggregate
Commitments to be reduced below the amount of $5,000,000, the Banks shall have
the right either to reduce the Commitments to such amount or to terminate the
Commitments, in whole. The Commitments, once reduced or terminated, may not be
reinstated.
Section 2.9. Certain Notices. Notices by the Borrowers to the
Administrative Agent of each Borrowing pursuant to Section 2.5, and each
prepayment or conversion pursuant to Section 2.6 and each renewal pursuant to
Section 2.7(b), and each reduction or termination of the Commitments pursuant to
Section 2.8 shall be irrevocable and shall be effective only if received by the
Administrative Agent not later than 11:00 a.m. New York City time, and (a) in
the case of borrowings and prepayments of, conversions into and (in the case of
Eurocurrency Loans) renewals of (i) Variable Rate Loans, given one Banking Day
prior thereto; (ii) Eurocurrency Loans, given three Banking Days prior thereto;
and (iii) Swingline Loans, given on the day thereof; (b) in the case of
reductions or termination of the Commitments, given three Banking Days prior
thereto. Each such notice shall specify the Loans to be borrowed, prepaid,
converted or renewed and the amount (subject to Section 2.10) and type of the
Loans to be borrowed, or converted, or prepaid or renewed (and, in the case of a
conversion, the type of Loans to result from such conversion and, in the case of
a Eurocurrency Loan, the Interest Period therefor) and the date of the Borrowing
or prepayment, or conversion or renewal (which shall be a Banking Day). Each
such notice of reduction or termination shall specify the amount of the
Commitments to be reduced or terminated. The Administrative Agent shall promptly
notify the Banks of the contents of each such notice.
Section 2.10. Minimum Amounts. Except for Borrowings which exhaust the
full remaining amount of the Commitments, prepayments or conversions which
result in the prepayment or conversion of all Loans of a particular type or
conversions made pursuant to Section 4.4, each Borrowing, prepayment, conversion
and renewal of principal of Loans of a particular type and of a particular
currency shall be in an amount at least equal to $3,500,000 (or the Dollar
equivalent thereof) in the aggregate for Borrowings other than in Yen, and the
Dollar equivalent of $1,500,000 in the aggregate for Borrowings in Yen, and in
increments of $500,000 for all Banks (borrowings, prepayments, conversions or
renewals of or into Loans of different types or, in the case of Eurocurrency
Loans, having different Interest Periods at the same time hereunder to be deemed
separate
<PAGE> 26
21
borrowings, prepayments, conversions and renewals for the purposes of the
foregoing, one for each type of Interest Period). Anything in this Agreement to
the contrary notwithstanding, the aggregate principal amount of Eurocurrency
Loans of each type having concurrent Interest Periods shall be at least equal to
$1,000,000 in the aggregate for each Bank.
Section 2.11. Interest.
(a) Interest shall accrue on the outstanding and unpaid
principal amount of each Loan for the period from and including the date of such
Loan to but excluding the date such Loan is due at the following rates per
annum: (i) for a Variable Rate Loan, at a variable rate per annum equal to the
Variable Rate plus any Margin, (ii) for a Eurocurrency Loan, at a fixed rate
equal to the Fixed Rate plus the Margin, and (iii) for a Swingline Loan, at a
rate per annum equal to the applicable Swingline Rate. If the principal amount
of any Loan and any other amount payable by any Borrower hereunder, under the
Notes or under any other Facility Documents shall not be paid when due (at
stated maturity, by acceleration or otherwise), interest shall accrue on such
amount to the fullest extent permitted by law from and including such due date
to but excluding the date such amount is paid in full at the Default Rate.
(b) The interest rate on each Variable Rate Loan shall change
when the Variable Rate changes and interest on each such Loan shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Interest on each Eurocurrency Loan and each Swingline Loan shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Promptly after the determination of any interest rate provided for
herein or any change therein, the Administrative Agent shall notify the
applicable Borrower and the Banks.
(c) Accrued interest shall be due and payable in the relevant
currency in arrears upon any payment of principal or conversion and (i) for each
Variable Rate Loan, on the last business day of each fiscal quarter, commencing
the first such date after such Variable Rate Loan; (ii) for each Eurocurrency
Loan, on the last day of the Interest Period therefor and, in the case of an
Interest Period greater than three months, at three-month intervals after the
first day of such Interest Period; and (iii) for each Swingline Loan, on the
date on which such Swingline Loan is due; provided that interest accruing at the
Default Rate shall be due and payable from time to time on demand of the
Administrative Agent.
Section 2.12. Fees.
(a) The Borrowers shall pay to the Administrative Agent for
the account of each Bank a facility fee on the daily average used and unused
Commitment of such Bank, for the period from and including the date hereof to
the earlier of the date the Commitments are terminated or the Termination Date,
at the rate per annum set forth
<PAGE> 27
22
opposite the applicable range of the Consolidated Average Funded Debt to EBITDA
Ratio in the schedule below as determined as of the last day of the immediately
preceding Fiscal Quarter (with adjustments to become effective on the date of
receipt by the Administrative Agent of the most recent financial statements of
the Borrowers required to be furnished to the Banks under Section 7.8), which
facility fee shall be calculated in each case on the basis of a year of 360 days
for the actual number of days elapsed. The accrued facility fee shall be due and
payable in arrears upon any reduction or termination of the Commitment and on
the last business day of each fiscal quarter, commencing on the first such date
after the Closing Date:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Consolidated Average Funded Debt
to EBITDA Ratio Facility Fee
--------------------------------------------------------------
<S> <C>
Less than 0.50 15 basis points
--------------------------------------------------------------
Greater than or equal to 0.50, but
less than .90 17.5 basis points
--------------------------------------------------------------
Greater than or equal to .90, but less
than 1.20 20 basis points
--------------------------------------------------------------
Greater than or equal to 1.20, but
less than 1.50 22.5 basis points
--------------------------------------------------------------
Greater than or equal to 1.50 25 basis points
--------------------------------------------------------------
</TABLE>
(b) The Borrowers shall pay to the Administrative Agent an
agency fee of Ten Thousand Dollars ($10,000) per year or part thereof payable on
the Closing Date and each anniversary of the Closing Date, which agency fees
shall be deemed fully earned when paid and shall be non-refundable.
Section 2.13. Payments Generally. All payments under this Agreement,
the Notes and the other Facility Documents shall be made in immediately
available funds in Dollars (except that payments on Eurocurrency Loans
denominated in an Alternative Currency shall be made in such Alternative
Currency) without offset, deduction or withholding of any kind. All payments
shall be made not later than 11:00 a.m. (New York, New York, time) on the
relevant dates specified above (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Banking Day) to
an account of the Administrative Agent maintained at the Principal Office for
the account of the applicable Lending Office of each Bank. The Administrative
Agent, or any Bank for whose account any such payment is to be made, may (but
shall not be obligated to) debit the amount of any such payment which is not
made by such time to any ordinary deposit account of the applicable Borrower
with the Administrative Agent or such Bank, as
<PAGE> 28
23
the case may be, and any Bank so doing shall promptly notify the Administrative
Agent. The applicable Borrower shall, at the time of making each payment under
this Agreement, any Note or any other Facility Document, specify to the
Administrative Agent the principal or other amount payable by such Borrower
under this Agreement, such Note or such other Facility Document to which such
payment is to be applied (and in the event that it fails to so specify, or if a
Default or Event of Default has occurred and is continuing, the Administrative
Agent may apply such payment as it may elect in its sole discretion but subject
to Section 12.16). If the due date of any payment under this Agreement, any Note
or any other Facility Document would otherwise fall on a day which is not a
Banking Day, such date shall be extended to the next succeeding Banking Day and
interest shall be payable for any principal so extended for the period of such
extension. Each payment received by the Administrative Agent hereunder, under
any Note or under any other Facility Document for the account of a Bank shall be
paid promptly to such Bank, in immediately available funds, for the account of
such Bank's applicable Lending Office.
ARTICLE 3. LETTERS OF CREDIT
Section 3.1. Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, in
addition to requesting that the Banks make the Revolving Loans and that the
Swingline Banks make the Swingline Loans, any Borrower may request, in
accordance with the provisions of this Section 3.1(a), that the Fronting Bank
issue Letters of Credit for the account of such Borrower; provided that (i) no
Borrower shall request that the Fronting Bank issue any Letter of Credit if,
after giving effect to such issuance, the Outstandings Amount would exceed the
aggregate of all Commitments, (ii) in no event shall the Fronting Bank issue (A)
any Letter of Credit having an expiration date later than the tenth Banking Day
prior to the Termination Date, or (B) any Letter of Credit having an expiration
date more than one year after its date of issuance, and (iii) no Borrower shall
request that the Fronting Bank issue any Letter of Credit if, after giving
effect to such issuance, the aggregate amount of outstanding Letters of Credit
Obligations would exceed $10,000,000 (the "L/C Sublimit"). The issuance of any
Letter of Credit in accordance with the provisions of this Section 3.1(a) shall
require the satisfaction of each condition set forth in Article 4. All Letters
of Credit may be denominated in Dollars or in an Alternative Currency, as
requested by the Borrower.
Immediately upon the issuance of each Letter of Credit, each
Bank shall be deemed to, and hereby agrees to, have irrevocably agreed to
participate with the Fronting Bank in such Letter of Credit and any drawing
thereunder in an amount equal to such Bank's ratable share (determined in
accordance with such Bank's Commitment) of the maximum amount which is or at any
time may become available to be drawn thereunder.
<PAGE> 29
24
Each Letter of Credit may provide that the Fronting Bank, with
the written consent of the Required Banks, may (but shall not be required to)
pay all or any part of the maximum amount which may at any time be available for
drawing thereunder to the beneficiary thereof upon the occurrence of an Event of
Default and the acceleration of the maturity of the Loans. If payment is not due
to the beneficiary of an outstanding Letter of Credit, upon the occurrence of an
Event of Default the applicable Borrower shall deposit immediately available
funds in an amount equal to the face amount of such Letter of Credit in an
account or fund a cash collateral account, in the applicable currency, with the
Fronting Bank to secure payment to the beneficiary under such Letter of Credit.
Any funds so deposited or standing to the credit of such account shall be paid
to the beneficiary of such Letter of Credit if conditions to such payment are
satisfied or returned to the Fronting Bank for distribution to the Banks (or, if
all Loans shall have been repaid in full in cash in the applicable currency, to
the applicable Borrower) if no payment to the beneficiary has been made and the
final date available for drawings under such Letter of Credit has passed. Each
payment or distribution of funds by the Fronting Bank as provided in this
paragraph shall be treated for all purposes of this Agreement as a drawing duly
honored by the Fronting Bank under the related Letter of Credit and each deposit
by the Borrower as provided in this paragraph shall be treated for all purposes
of this Agreement as a reimbursement by Borrower for a portion of such drawing
equal to the amount of such deposit.
(b) Whenever a Borrower desires the issuance of a Letter of
Credit, it shall deliver to the Fronting Bank at the Principal Office a written
notice no later than 11:00 a.m. (New York City local time) at least ten (10)
Banking Days prior to the proposed date of issuance. Such notice shall consist
of the form of application and agreement for letters of credit customarily used
by the Fronting Bank, a copy of the current form of which is attached hereto as
Exhibit D, as such document may be amended from time to time. Promptly after
receipt of a notice of desired issuance of a Letter of Credit, (i) if the
conditions set forth in Section 3.1(a) have been satisfied, the Fronting Bank
shall notify each Bank of the proposed issuance and the amount of each such
other Bank's respective participation therein, determined in accordance with
Section 3.1(a); and (ii) if such conditions have not been satisfied, the
Fronting Bank shall notify the applicable Borrower.
(c) In the event of any request for a drawing under any Letter
of Credit by the beneficiary thereof, the Fronting Bank shall give telephonic
notice (promptly confirmed in writing) to the applicable Borrower (x) confirming
receipt of such request and (y) of the date on or before which the Fronting Bank
intends to honor such drawing, and the applicable Borrower shall reimburse the
Fronting Bank on the day on which such drawing is honored under the applicable
Letter of Credit in an amount in Dollars in same day funds equal to: (i) the
amount of such drawing if such drawing is in Dollars or (ii) the Dollar
Equivalent on the date of such drawing of the amount required to be paid in the
Alternative Currency pursuant to the terms of the applicable Letter of Credit if
such drawing is in an Alternative Currency (the "Contract Amount"); provided
that, and
<PAGE> 30
25
anything contained in this Agreement to the contrary notwithstanding, (A) unless
the applicable Borrower shall have notified the Fronting Bank prior to 11:00
a.m. (New York City local time) on the Banking Day immediately before the date
on or before which the Fronting Bank has indicated that it intends to honor such
drawing that the applicable Borrower intends to reimburse the Fronting Bank for
the amount of such drawing with funds other than the proceeds of Variable Rate
Loans, such Borrower shall be deemed to have timely given a Notice of Borrowing
pursuant to Section 2.9 requesting the Banks to make Variable Rate Loans on the
date on which such drawing is honored in an amount equal to (x) the amount of
such drawing if such drawing is denominated in Dollars or (y) the Contract
Amount if such drawing is not denominated in Dollars, and (B) subsequent to
satisfaction or waiver of the conditions specified in Article 5, the Banks shall
make Variable Rate Loans on the date on which such drawing is honored, the
proceeds of which shall be applied directly to reimburse the Fronting Bank for
the amount of such drawing; and provided further that if, for any reason, the
Fronting Bank does not receive proceeds of Variable Rate Loans on the date on
which such drawing is honored in an amount equal to the amount of such drawing
(or the Contract Amount for any drawing not denominated in Dollars), the
applicable Borrower shall reimburse the Fronting Bank on the Banking Day
immediately following the date of such drawing, in an amount in Dollars in same
day funds equal to the excess of the amount of such drawing (or the Contract
Amount for any drawing not denominated in Dollars) over the proceeds of such
Variable Rate Loans, if any, which are so received, plus accrued interest on
such excess amount at a rate per annum equal to the Variable Rate; provided that
if a Default or Event of Default shall exist and such Borrower is not, by reason
thereof, eligible to borrow Variable Rate Loans, then interest shall accrue on
such amount paid by the Fronting Bank at the Default Rate.
(d) If a Borrower shall fail to reimburse the Fronting Bank as
provided in Section 3.1(c) in an amount equal to the amount of any drawing under
a Letter of Credit issued by the Fronting Bank and honored by the Fronting Bank
in compliance with the terms of such Letter of Credit and for any reason
Variable Rate Loans are not advanced to the applicable Borrower as contemplated
by Section 3.1(c), the Fronting Bank shall promptly notify each Bank of the
unreimbursed amount of such drawing and of such Bank's pro rata participation
therein. Each Bank shall make available to the Fronting Bank an amount equal to
its pro rata participation in same day funds, at the office of the Fronting Bank
specified in such notice, immediately upon demand of the Fronting Bank. If any
Bank fails to make available to the Fronting Bank the amount of such Bank's pro
rata participation in such Letter of Credit as provided in this Section 3.1(d),
the Fronting Bank shall be entitled to recover such amount on demand from such
Bank together with interest at the Variable Rate. The Fronting Bank shall
distribute to each Bank which has paid all amounts payable by it under this
Section 3.1(d) with respect to any Letter of Credit issued by the Fronting Bank
such Bank's pro rata share of all payments received by the Fronting Bank from
the applicable Borrower in reimbursement of drawings honored by the Fronting
Bank under such Letter of Credit when such payments are received.
<PAGE> 31
26
(e) (i) Each Borrower agrees to pay the Administrative Agent,
for the ratable benefit of each of the Banks, a non-refundable letter of credit
fee with respect to each Letter of Credit, payable in the applicable currency,
computed at the rate per annum equal to the Margin, calculated on the basis of a
year of 360 days for the actual days elapsed, of the face amount of such Letter
of Credit for the stated duration thereof. Such fees shall be payable in advance
on the date of issuance of such Letter of Credit and shall be nonrefundable.
(ii) Each Borrower agrees to pay the Fronting Bank, for
its own account, a non-refundable letter of credit fee with respect to each
Letter of Credit, payable in Dollars, computed at the rate per annum equal to
1/8 of one percent, calculated on the basis of a year of 360 days for the actual
days elapsed, of the face amount of such Letter of Credit for the stated
duration thereof. Such fees shall be payable in advance on the date of issuance
of such Letter of Credit and shall be nonrefundable.
(iii) Each Borrower further agrees to pay the Fronting
Bank, for its own account, its normal and customary administration, amendment,
transfer, payment and negotiation fees charged in connection with its issuance
and administration of letters of credit.
(f) The obligations of each Borrower to reimburse the Fronting
Bank for drawings made under the Letters of Credit issued by the Fronting Bank
for such Borrower and the obligations of the Banks under Section 3.1(d) shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances and irrespective of any of the
following:
(i) any lack of validity or enforceability of this
Agreement, any Letter of Credit or any other agreement or instrument relating
thereto (this Agreement and all of the other foregoing being, collectively, the
"L/C Related Documents");
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the obligations of the Borrowers in
respect of any L/C Related Document or any other amendment or waiver of or any
consent to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or
other right that the Borrowers may have at any time against any beneficiary or
any transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Fronting Bank or any
other Person, whether in connection with the transactions contemplated by the
L/C Related Documents or any unrelated transaction;
<PAGE> 32
27
(iv) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Fronting Bank under a Letter of Credit
against presentation of a draft or certificate that does not strictly comply
with the terms and conditions of such Letter of Credit; or
(vi) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including, without limitation,
any other circumstance that might otherwise constitute a defense available to,
or a discharge of, any of the Borrowers.
(g) The face amount of each Letter of Credit shall not be less
than an amount agreed upon between the Fronting Bank and the Borrower from time
to time.
(h) In the event of any conflict between the terms of any
application and agreement for a letter of credit hereunder and the terms of this
Agreement, the terms of this Agreement shall control.
Section 3.2. Cash Collateral Account. If the Commitments are duly
terminated and all amounts owing under this Agreement, the Notes and the Letters
of Credit become due and payable pursuant to Article 10, each Borrower shall
deposit with the Administrative Agent, on the date such obligations become due
and payable, an amount in cash equal to its Letters of Credit Usage as of such
date and the Letter of Credit fees in accordance with Section 3.1(e). Such
amount shall be deposited in a cash collateral account to be established by the
Administrative Agent, for the benefit of the Banks, and shall constitute
collateral security for the Letters of Credit Usage and other amounts owing by
such Borrower hereunder. All amounts in such cash collateral account shall be
maintained pursuant to a cash collateral account agreement which shall grant to
the Administrative Agent exclusive dominion and control (including exclusive
rights of withdrawal) over all such amounts and shall be otherwise satisfactory
in form and substance to the Administrative Agent.
ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC.
Section 4.1. Additional Costs.
(a) The Borrowers shall pay directly to each Bank from time to
time on demand such amounts as such Bank may determine to be necessary to
compensate it for any costs which such Bank determines are attributable to its
making or maintaining any Eurocurrency Loans or Letters of Credit Usage under
this Agreement or the Notes or
<PAGE> 33
28
its obligation to make any such Loans or issue or participate in Letters of
Credit hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any such Loans or Letters of Credit Usage or such
obligations (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any Regulatory Change which:
(i) subjects such Bank (or its applicable Lending Office) to any tax, duty or
other charge or changes the basis of taxation of any amounts payable to such
Bank under this Agreement or the Notes in respect of any of such Loans or
Letters of Credit Usage (other than taxes imposed on the overall net income of
such Bank or of its Lending Office for any of such Loans or Letters of Credit
Usage by the jurisdiction in which such Bank has its principal office or such
Lending Office); or (ii) imposes or modifies any reserve, special deposit,
deposit insurance or assessment, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Bank (including any of such Loans or
Letters of Credit Usage or any deposits referred to in the definition of "Fixed
Base Rate" in Section 1.1); or (iii) imposes any other condition affecting this
Agreement or the Notes or the Letters of Credit (or any of such extensions of
credit or liabilities). Each Bank will notify the Borrowers of any event
occurring after the date of this Agreement which will entitle such Bank to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation. If any
Bank requests compensation from the Borrower under this Section 4.1(a), or under
Section 4.1(c), the Borrower may, by notice to such Bank (with a copy to the
Administrative Agent), require that such Bank's Loans of the type with respect
to which such compensation is requested be converted in accordance with Section
4.4.
(b) Without limiting the effect of the foregoing provisions of
this Section 4.1, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank which includes deposits by reference to which the interest rate on
Eurocurrency Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes Eurocurrency
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Bank so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Bank to make or renew, and to convert Loans of any other type into,
Loans of such type hereunder shall be suspended until the date such Regulatory
Change ceases to be in effect (and all Loans of such type held by such Bank then
outstanding shall be converted in accordance with Section 4.4).
(c) Without limiting the effect of the foregoing provisions of
this Section 4.1 (but without duplication), the Borrower shall pay directly to
each Bank from time to time on request such amounts as such Bank may determine
to be necessary to compensate such Bank for any costs which it determines are
attributable to the maintenance by it or any of its affiliates pursuant to any
law or regulation of any jurisdiction or any interpretation, directive or
request (whether or not having the force of law and
<PAGE> 34
29
whether in effect on the date of this Agreement or thereafter) of any court or
governmental or monetary authority of capital in respect of its Loans hereunder
or its obligation to make Loans hereunder or its Letters of Credit Usage
hereunder or its obligations to issue or participate in Letters of Credit or
drawings thereunder (such compensation to include, without limitation, an amount
equal to any reduction in return on assets or equity of such Bank to a level
below that which it could have achieved but for such law, regulation,
interpretation, directive or request). Each Bank will notify the Borrower if it
is entitled to compensation pursuant to this Section 4.1(c) as promptly as
practicable after it determines to request such compensation.
(d) Determinations and allocations by a Bank for purposes of
this Section 4.1 of the effect of any Regulatory Change pursuant to subsections
(a) or (b), or of the effect of capital maintained pursuant to subsection (c),
on its costs of making or maintaining Loans or Letters of Credit Usage or its
obligation to make Loans or issue or participate in Letters of Credit, or on
amounts receivable by, or the rate of return to, it in respect of Loans or
Letters of Credit Usage or such obligation, and of the additional amounts
required to compensate such Bank under this Section 4.1, shall be conclusive,
provided that such determinations and allocations are made on a reasonable
basis. Each Bank will notify the Borrower of such determinations, allocations
and additional amounts, the basis therefor and the calculations thereof, as
promptly as practicable after it determines to request such compensation.
Section 4.2. Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if:
(a) the Administrative Agent determines (which determination
shall be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Fixed Base Rate" in Section 1.1 are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for any type of Eurocurrency Loans as provided
in this Agreement; or
(b) the Required Banks determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant rates of
interest referred to in the definition of "Fixed Base Rate" in Section 1.1 upon
the basis of which the rate of interest for any type of Eurocurrency Loans is to
be determined do not adequately cover the cost to the Banks of making or
maintaining such Loans; or
(c) in the case of Eurocurrency Loans denominated in an
Alternative Currency, any Bank shall determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant Alternative
Currency is not available in the relevant amounts or for the relevant period, or
that a change in national or international controls has occurred which would, in
the opinion of such Bank, make it impracticable for such Bank to make, fund or
maintain its Eurocurrency Loans to be made
<PAGE> 35
30
in such Alternative Currency or for such Borrower to pay the principal of or
interest on such Eurocurrency Loans as provided in this Agreement;
then the Administrative Agent shall give the Borrowers and each Bank prompt
notice thereof, and so long as such condition remains in effect, the Banks shall
be under no obligation to make or renew Loans of such type or to convert Loans
of any other type into Loans of such type and the Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Loans of the
affected type, either prepay such Loans or convert such Loans into another type
of Loans in accordance with Section 2.6.
Section 4.3. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make, maintain or renew Eurocurrency
Loans in any currency hereunder or convert Variable Rate Loans or Eurocurrency
Loans in a different currency to Eurocurrency Loans in such currency, then such
Bank shall promptly notify the Borrower thereunder (with a copy to the
Administrative Agent) and such Bank's obligation to make or renew affected
Eurocurrency Loans and to convert Variable Rate Loans or unaffected Eurocurrency
Loans into affected Eurocurrency Loans hereunder shall be suspended until such
time as such Bank may again make, renew, or convert and maintain such affected
Eurocurrency Loans and such Bank's outstanding affected Eurocurrency Loans, as
the case may be, shall be converted in accordance with Section 4.4.
Section 4.4. Certain Conversions Pursuant to Sections 4.1 and 4.3. If
the Loans of any Bank of a particular type (Loans of such type being herein
called "Affected Loans" and such type being herein called the "Affected Type")
are to be converted pursuant to Section 4.1 or 4.3, such Bank's Affected Loans
shall be automatically converted into Variable Rate Loans on the last day(s) of
the then current Interest Period(s) for the Affected Loans (or, in the case of a
conversion required by Section 4.1(b) or 4.3, on such earlier date as such Bank
may specify to the Borrower with a copy to the Administrative Agent) and, unless
and until such Bank gives notice as provided below that the circumstances
specified in Section 4.1 or 4.3 which gave rise to such conversion no longer
exist:
(a) to the extent that such Bank's Affected Loans have been so
converted, all payments and prepayments of principal which would otherwise be
applied to such Bank's Affected Loans shall be applied instead to its Variable
Rate Loans;
(b) all Loans which would otherwise be made or renewed by such
Bank as Loans of the Affected Type shall be made instead as Variable Rate Loans
and all Loans of such Bank which would otherwise be converted into Loans of the
Affected Type shall be converted instead into (or shall remain as) Variable Rate
Loans; and
(c) if Loans of other Banks of the Affected Type are
subsequently converted into Loans of another type (other than Variable Rate
Loans), such
<PAGE> 36
31
Bank's Variable Rate Loans shall be automatically converted on the conversion
date into Loans of such other type to the extent necessary so that, after giving
effect thereto, all Loans held by such Bank and the Banks whose Loans are so
converted are held pro rata (as to principal amounts, types and Interest
Periods) in accordance with their respective Commitments.
If such Bank gives notice to the Borrower (with a copy to the
Administrative Agent) that the circumstances specified in Section 4.1 or 4.3
which gave rise to the conversion of such Bank's Affected Loans pursuant to this
Section 4.4 no longer exist (which such Bank agrees to do promptly upon such
circumstances ceasing to exist) at a time when Loans of the Affected Type are
outstanding, such Bank's Variable Rate Loans shall be automatically converted,
on the first day(s) of the next succeeding Interest Period(s) for such
outstanding Loans of the Affected Type to the extent necessary so that, after
giving effect thereto, all Loans held by the Banks holding Loans of the Affected
Type and by such Bank are held pro rata (as to principal amounts, types and
Interest Periods) in accordance with their respective Commitments.
Section 4.5. Certain Compensation. Each Borrower shall pay to the
Administrative Agent for the account of each Bank, upon the request of such Bank
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Bank) to compensate it for any loss, cost or
expense which such Bank determines is attributable to:
(a) any payment, prepayment, conversion or renewal of a
Eurocurrency Loan or a Swingline Loan made by such Bank or the Swingline Bank,
as applicable, at the direction of Borrower or as otherwise permitted herein,
which payment, prepayment, conversion or renewal is on a date other than the
last day of an Interest Period for such Loan (whether by reason of acceleration
or otherwise); or
(b) any failure by the Borrower to borrow, convert into or
renew a Eurocurrency Loan or a Swingline Loan to be made, converted into or
renewed by such Bank or the Swingline Bank, as applicable, on the date specified
therefor in the relevant notice under Section 2.5, 2.6 or 2.7, as the case may
be.
Without limiting the foregoing, such compensation shall include an
amount equal to the excess, if any, of: (i) the amount of interest which
otherwise would have accrued on the principal amount so paid, prepaid, converted
or renewed or not borrowed, converted or renewed for the period from and
including the date of such payment, prepayment or conversion or failure to
borrow, convert or renew to but excluding the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, convert
or renew, to but excluding the last day of the Interest Period for such Loan
which would have commenced on the date specified therefor in the relevant
notice) at the applicable rate of interest for such Loan provided for herein;
over (ii) the amount of interest (as reasonably determined by such Bank) such
Bank would have bid in the London
<PAGE> 37
32
interbank market for deposits in the relevant currencies of leading banks for
amounts comparable to such principal amount and maturities comparable to such
period. A determination of any Bank as to the amounts payable pursuant to this
Section 4.5 shall be conclusive absent manifest error.
Section 4.6. Taxes. Each Borrower covenants and agrees that:
(a) All payments on account of the principal of and interest
on its Loans and the Notes, and all other amounts payable by such Borrower
hereunder, under any Note or under any other Facility Document, including
without limitation amounts payable with respect to any Letter of Credit or under
Section 4.6(b), shall be made without any set-off or counterclaim and free and
clear of and without reduction by reason of, all present and future income,
stamp, registration and other taxes and levies, imposts, deductions, charges,
compulsory loans and withholdings whatsoever (other than taxes imposed on the
overall net income of any Bank, or of its applicable Lending Office, by the
jurisdiction in which such Bank's principal office or its applicable Lending
Office is located), and all interest, penalties or similar amounts with respect
thereto, now or hereafter imposed, assessed, levied or collected by any country
or any political subdivision or taxing authority thereof or therein or by any
federation or association of or with which any country may be a member or
associated or by any jurisdiction from which any payment hereunder or under any
Note is made or any taxing authority thereof or therein, on or in respect of
this Agreement, the Loans, any Note, any other Facility Document, the recording,
registration, notarization or other formalization of any thereof, the
enforcement thereof or the introduction thereof in any judicial proceedings, or
on or in respect of any payments of principal, interest, premiums, charges, fees
or other amounts made on, under or in respect of any thereof (hereinafter called
"Taxes"), all of which will be paid by such Borrower, for its own account, prior
to the date on which penalties attach thereto;
(b) Such Borrower shall indemnify each Bank against, and
reimburse each Bank on demand for, any Taxes and any loss, liability, claim or
expense, including interest, penalties and reasonable legal fees (net of any
refunds or tax credits for such Taxes which such Bank shall actually receive or
utilize), which such Bank may incur at any time arising out of or in connection
with any failure of such Borrower to make any payments of Taxes when due;
(c) In the event that such Borrower is required by applicable
law, decree or regulation to deduct or withhold Taxes from any amounts payable
to any Bank on, under or in respect of this Agreement, the Loans, any Note or
any other Facility Document, such Borrower shall pay to such Bank such
additional amount(s) as may be required, after the deduction or withholding of
Taxes, to enable such Bank to receive from such Borrower an amount equal to the
amount stated to be payable by such Borrower to such Bank under this Agreement,
its Note held by such Bank or under any other Facility Document;
<PAGE> 38
33
(d) Such Borrower shall furnish to each Bank the official tax
receipts in respect of each payment of Taxes required under this Section 4.6
within 30 days after the date such payment is due pursuant to applicable law,
and such Borrower shall promptly furnish to each Bank at its request any other
information, documents and receipts that such Bank may, in its reasonable
discretion from time to time, require to establish to its satisfaction that full
and timely payment has been made of all Taxes required to be paid under this
Section 4.6; and
(e) In the event that the payments by such Borrower hereunder
which are subject to the payment of Taxes subsequently become exempt from or not
subject to Taxes, such Borrower will, upon the reasonable request of any Bank,
furnish to such Bank either a certificate from each appropriate taxing authority
or an opinion of counsel reasonably acceptable to such Bank, in either case
stating that payments hereunder are exempt from or not subject to Taxes.
ARTICLE 5. CONDITIONS PRECEDENT.
Section 5.1. Documentary Conditions Precedent. The obligations of the
Banks to make the Loans constituting the initial Borrowing and of the Fronting
Bank to issue the Letters of Credit are subject to the condition precedent that
the Administrative Agent shall have received on or before the date of such Loans
each of the following, in form and substance satisfactory to the Administrative
Agent and its counsel:
(a) the Revolving Notes duly executed by the respective
Borrowers
(b) the Swingline Notes duly executed by the respective
Borrowers
(c) the Authorization Letter duly executed by the Borrowers;
(d) the Pledge Agreement duly executed by Cannondale together
with certificates representing the Pledged Shares referred to therein
accompanied by undated stock powers executed in blank;
(e) a favorable opinion of Levett, Rockwood & Sanders,
Professional Corporation, counsel for the Borrowers, dated the Closing Date, in
substantially the form of Exhibit F and as to such other matters as the
Administrative Agent or any Bank may reasonably request;
(f) a certificate of the Secretary or Assistant Secretary of
each of the Borrowers, dated the Closing Date, (i) attesting to all corporate
action taken by each of
<PAGE> 39
34
the Borrowers, including resolutions of its Board of Directors authorizing the
execution, delivery and performance of the Facility Documents to which it is a
party and each other document to be delivered pursuant to this Agreement and
certifying true copies of the articles of incorporation, by-laws and other
organizational documents of each of the Borrowers and (ii) certifying the names
and true signatures of the officers of each of the Borrowers authorized to sign
the Facility Documents to which it is a party and the other documents to be
delivered by such Borrowers under this Agreement and (iii) verifying that the
charter and by-laws (or other analogous documents) of such Borrower attached
thereto are true, complete and correct as of the date thereof;
(g) certificates to the good standing or subsistence (or other
analogous certificates) and certified copies of all charter documents with
respect to each of the Borrowers certified by the Secretary of State (or other
appropriate Governmental Authority) of its jurisdiction of incorporation and
every other jurisdiction in which it does business;
(h) the Environmental Indemnification duly signed by the
Borrowers;
(i) a certificate of the chief financial officer of Cannondale
setting forth (i) computations demonstrating compliance with the covenants
contained in Article 9 as determined as of the last day of the immediately
preceding Fiscal Quarter and (ii) the computation of the Consolidated Average
Funded Debt to IBITDA Ratio as determined as of the last day of the immediately
preceding Fiscal Quarter (for Margin and facility fee purposes);
(j) Federal Reserve Form U-1 provided for in Regulation U
issued by the Board of Governors of the Federal Reserve System, the statements
made in which shall be such, in the opinion of the Administrative Agent, as to
permit the transactions contemplated hereby in accordance with said Regulation
U;
(k) payment by the Borrowers to the Agents of all expenses and
fees incurred by the Agents in connection with the negotiation, execution and
delivery of the Facility Documents and the syndication of the Loans, including
legal fees not exceeding $40,000;
(l) absence of any change in market conditions which, in the
Administrative Agent's opinion, would materially impair a financial
institution's ability to fund Loans of this type;
(m) a payoff letter and releases from Fleet National Bank in
form and substance satisfactory to the Administrative Agent (including payment
in full of Debt referenced in said payoff letter with the proceeds of the
initial Borrowing); and
<PAGE> 40
35
(n) a letter from ABN AMRO Bank N.V. in form and substance
satisfactory to the Administrative Agent to the effect that all security
interests securing obligations of any Borrower to ABN AMRO Bank N.V. and its
affiliates have been released (other than mortgage Liens described on Schedule
8.3(a) hereto) and all agreements granting such security interests have been
terminated or amended.
Section 5.2. Additional Conditions Precedent. The obligations of the
Banks to make any Loans pursuant to a Borrowing which increase the amount
outstanding hereunder (including the initial Borrowing) and of the Fronting Bank
to issue any Letters of Credit shall be subject to the further conditions
precedent that on the date of such Loans or the issuance of such Letters of
Credit:
(a) the following statements shall be true:
(i) the representations and warranties contained in
Article 6 herein and in each of the other Facility Documents are true and
correct on and as of the date of such Loans or the issuance of such Letters of
Credit as though made on and as of such date;
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Loans or the issuance of such Letters of
Credit; and
(iii) there has been no material adverse change in the
business, management, operations, properties, prospects or condition (financial
or otherwise) of the Borrowers or their respective Subsidiaries since the
Closing Date;
(b) the relevant Borrower shall have delivered to the
Administrative Agent or the Fronting Agent, as the case may be, a Notice of
Borrowing substantially in the form of Exhibit H;
(c) in the case of the initial Borrowing by each Subsidiary
Borrower, a favorable opinion of foreign local counsel for such Subsidiary
Borrower, dated as of the date of such Loan or issuance of such Letters of
Credit, in form and substance satisfactory to the Administrative Agent;
(d) for each loan to or issuance of Letters of Credit on
behalf of Cannondale Japan KK, the Administrative Agent shall have received a
certificate of the Secretary or Assistant Secretary of Cannondale Japan KK,
dated as of or prior to the date of such Loan or issuance of such Letter of
Credit, attesting to all necessary corporate action taken by Cannondale Japan
KK, including resolutions of its Board of Directors authorizing such Borrowing
or request for issuance of such Letters of Credit.
<PAGE> 41
36
(e) the Administrative Agent shall have received such
independent appraisals, audits and valuations of assets satisfactory to the
Administrative Agent as the Administrative Agent may reasonably request; and
(f) the Administrative Agent shall have received such
approvals, opinions or documents as the Administrative Agent or any Bank may
reasonably request.
Section 5.3. Deemed Representations. Each Notice of Borrowing or
request for the issuance of a Letter of Credit hereunder and acceptance by any
Borrower of the proceeds of such Borrowing or the benefit of such Letter of
Credit shall constitute a representation and warranty that the statements
contained in Section 5.2 are true and correct both on the date of such notice
and, unless such Borrower otherwise notifies the Administrative Agent prior to
such Borrowing or issuance, as of the date of such Borrowing or issuance.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants that:
Section 6.1. Incorporation, Good Standing and Due Qualification. Each
Borrower and each of its respective Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its assets and to transact the business in which it is now engaged or proposed
to be engaged, and is duly qualified as a foreign corporation and in good
standing under the laws of each other jurisdiction in which such qualification
is required.
Section 6.2. Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by each Borrower of the Facility Documents
to which it is a party have been duly authorized by all necessary corporate
action and do not and will not: (a) require any consent or approval of its
stockholders; (b) contravene its charter or by-laws; (c) violate any provision
of, or require any filing, registration, consent or approval under, any law,
rule, regulation (including, without limitation, Regulation U), order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to such Borrower or any of its Subsidiaries or Affiliates; (d)
result in a breach of or constitute a default or require any consent under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which such Borrower is a party or by which it or its properties
may be bound or affected; (e) result in, or require, the creation or imposition
of any Lien, upon or with respect to any of the properties now owned or
hereafter acquired by such Borrower; or (f) cause such Borrower (or any
Subsidiary or Affiliate, as the case may be) to be in default under any such
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
<PAGE> 42
37
Section 6.3. Legally Enforceable Agreements. Each Facility Document to
which any Borrower is a party is, or when delivered under this Agreement will
be, a legal, valid and binding obligation of such Borrower enforceable against
such Borrower in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally.
Section 6.4. Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of any Borrower, threatened, against or affecting
the Borrowers or any of their respective Subsidiaries before any court,
governmental agency or arbitrator, which may, in any one case or in the
aggregate, materially adversely affect the financial condition, operations,
properties or business of any Borrower or any such Subsidiary or of the ability
of any Borrower to perform its obligations under the Facility Documents to which
it is a party.
Section 6.5. Financial Statements. The consolidated balance sheet of
Cannondale and its Consolidated Subsidiaries as at June 29, 1996, and the
related consolidated statements of operations, cash flows and stockholders'
equity of Cannondale and its Consolidated Subsidiaries for the Fiscal Year then
ended, and the accompanying footnotes, together with the opinion thereon, of
Ernst & Young LLP, independent certified public accountants, and the interim
consolidated balance sheet of Cannondale and its Consolidated Subsidiaries as at
March 29, 1997, and the related consolidated statements of operations, cash
flows and stockholders' equity for the nine month period then ended, copies of
which have been furnished to each of the Banks, fairly present the financial
condition of Cannondale and its Consolidated Subsidiaries as at such dates and
the results of the operations of Cannondale and its Consolidated Subsidiaries
for the periods covered by such statements, all in accordance with GAAP
consistently applied (subject to year end adjustments in the case of the interim
financial statements). There are no liabilities of Cannondale or any of its
Consolidated Subsidiaries, fixed or contingent, which are material but are not
reflected in the financial statements or in the notes thereto and which, in
accordance with GAAP, are required to be so reflected, other than liabilities
arising in the ordinary course of business since June 29, 1996. No information,
exhibit or report furnished by the Borrowers to the Administrative Agent or any
Bank in connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein not materially misleading. Since June
29, 1996, there has been no material adverse change in the condition (financial
or otherwise), business, operations or prospects of any Borrower or any of its
Subsidiaries.
Section 6.6. Ownership and Liens. Each of the Borrowers and each of
their respective Subsidiaries has title to, or valid leasehold interests in, all
of its properties and assets, real and personal, including the properties and
assets, and leasehold interests reflected in the financial statements referred
to in Section 6.5 (other than any properties or
<PAGE> 43
38
assets disposed of in the ordinary course of business), and none of the
properties and assets owned by the Borrowers or any of their respective
Subsidiaries and none of its leasehold interests is subject to any Lien, except
as disclosed in such financial statements or as may be permitted hereunder.
Section 6.7. Taxes. Each of the Borrowers and each of their respective
Subsidiaries has filed all tax returns (federal, state and local) required to be
filed and has paid all taxes, assessments and governmental charges and levies
thereon to be due, including interest and penalties, other than those being
contested in good faith and by appropriate proceedings and as to which
appropriate reserves are being maintained in accordance with GAAP. The federal
income tax liability of Cannondale has been audited by the Internal Revenue
Service and has been finally determined and satisfied for all taxable years up
to and including the taxable year ended 1994.
Section 6.8. ERISA. Each Plan, and, to the best knowledge of the
Borrowers, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other applicable Federal or
state law, and no event or condition is occurring or exists concerning which the
Borrower would be under an obligation to furnish a report to the Banks in
accordance with Section 7.8(h) hereof. As of the most recent valuation date for
each Plan, each Plan was "fully funded", which for purposes of this Section 6.8
shall mean that the fair market value of the assets of the Plan is not less than
the present value of the accrued benefits of all participants in the Plan,
computed on a Plan termination basis. To the best knowledge of the Borrowers, no
Plan has ceased being fully funded as of the date these representations are made
with respect to any Loan under this Agreement.
Section 6.9. Subsidiaries and Ownership of Stock. Schedule 6.9 is a
complete and accurate list of the Subsidiaries of each Borrower, showing the
jurisdiction of incorporation or organization of each Subsidiary and showing the
percentage of such Borrower's ownership of the outstanding stock or other
interest of each such Subsidiary. All of the outstanding capital stock or other
interest of each such Subsidiary has been validly issued, is fully paid and
nonassessable and is owned by such Borrower free and clear of all Liens.
Section 6.10. Credit Arrangements. Schedule 6.10 is a complete and
correct list of all credit agreements, indentures, purchase agreements,
guaranties, Capital Leases and other investments, agreements and arrangements
presently in effect providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit or for
acceptance financing) in excess of $500,000 in respect of which any Borrower or
any of its Subsidiaries is in any manner directly or contingently obligated; and
the maximum principal or face amounts of the credit in question, outstanding and
which can be outstanding, are correctly stated, and all Liens of any nature
<PAGE> 44
39
given or agreed to be given as security therefor are correctly described or
indicated in such Schedule.
Section 6.11. Operation of Business. Each of the Borrowers and each of
their respective Subsidiaries possesses all material licenses, permits,
franchises, patents, copyrights, trademarks and trade names, or rights thereto,
to conduct its business substantially as now conducted and as presently proposed
to be conducted, and neither such Borrower nor any of its Subsidiaries is in
violation of any valid rights of others with respect to any of the foregoing
and, except as set forth in Schedule 6.11, neither such Borrower nor any of its
Subsidiaries has received any notice or other written communications alleging
that any such party has violated any rights of others with respect to any of the
foregoing.
Section 6.12. Hazardous Materials. Each of the Borrowers and each of
their respective Subsidiaries have obtained all permits, licenses and other
authorizations which are required under all Environmental Laws, except to the
extent failure to have any such permit, license or authorization would not have
a material adverse effect on the consolidated financial condition, operations,
business or prospects of such Borrower and its Consolidated Subsidiaries. Each
Borrower and its Subsidiaries are in compliance with the material terms and
conditions of all such permits, licenses and authorizations, and are also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply would
not have a material adverse effect on the consolidated financial condition,
operations, business or prospects of such Borrower and its Consolidated
Subsidiaries.
In addition, except as set forth in Schedule 6.12 hereto:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
failure by any Borrower or any of its Subsidiaries to have any permit, license
or authorization required in connection with the conduct of the business of such
Borrower or any of its Subsidiaries or with respect to any generation,
treatment, storage, recycling, transportation, release or disposal, or any
release as defined in 42 U.S.C. 9601(22) ("Release"), of any substance regulated
under Environmental Laws ("Hazardous Materials") generated by such Borrower or
any of its Subsidiaries.
(b) None of each Borrower and its respective Subsidiaries has
manufactured, treated, moved, stored, used, released, discharged or disposed of
any Hazardous Material, other than as a generator, on any property now or
previously owned or
<PAGE> 45
40
leased by such Borrower or any of its Subsidiaries to an extent that it has, or
may reasonably be expected to have, a material adverse effect on the
consolidated financial condition, operations, business or prospects taken as a
whole of such Borrower and its Consolidated Subsidiaries; and
(i) no PCB is or has been present at any property now or
previously owned or leased by any Borrower of any of its Subsidiaries;
(ii) no asbestos is or has been present at any property
now or previously owned or leased by any Borrower or any of its Subsidiaries;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously owned or
leased by any Borrower of any of its Subsidiaries;
(iv) no Hazardous Materials have been Released, in a
reportable quantity, where such a quantity has been established by statute,
ordinance, rule, regulation or order, at, on or under any property now or
previously owned by any Borrower or any of its Subsidiaries.
(c) None of any Borrower and its Subsidiaries has transported
or arranged for the transportation of any Hazardous Material to any location
which is listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), listed for possible inclusion on the National Priorities List by the
Environmental Protection Agency in the Comprehensive Environmental Response and
Liability Information System as provided by 40 C.F.R. 300.5 ("CERCLIS") or on
any similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against
such Borrower or any of its Subsidiaries for clean-up costs, remedial work,
damages to natural resources or for personal injury claims, including, but not
limited to, claims under CERCLA.
(d) No Hazardous Material generated by any Borrower or any of
its Subsidiaries has been recycled, treated, stored, disposed of or Released by
such Borrower or any of its Subsidiaries at any location other than those listed
in Schedule 6.12 hereto.
(e) No oral or written notification of a Release of a
Hazardous material has been filed by or on behalf of any Borrower or any of its
Subsidiaries and no property now or previously owned or leased by such Borrower
or any of its Subsidiaries is listed or proposed for listing on the National
Priorities List promulgated pursuant to CERCLA, on CERCLIS or on any similar
state list of sites requiring investigation or clean-up.
<PAGE> 46
41
(f) There are no Liens arising under or pursuant to any
Environmental Laws on any of the real property or properties owned or leased by
any Borrower or any of its Subsidiaries, and no government actions have been
taken or are in process which could subject any of such properties to such Liens
and neither such Borrower nor any of its Subsidiaries would be required to place
any notice or restriction relating to the presence of Hazardous Materials at any
property owned by it in any deed to such property.
(g) There have been no environmental investigations, studies,
audits, test, reviews or other analyses conducted by or which are in the
possession of any Borrower or any of its Subsidiaries in relation to any
property or facility now or previously owned or leased by such Borrower or any
of its Subsidiaries which have not been made available to the Banks.
Section 6.13. No Default on Outstanding Judgments or Orders. Each of
the Borrowers and each of their respective Subsidiaries has satisfied all
judgments and neither such Borrower nor any of its Subsidiaries is in default
with respect to any judgment, writ, injunction, decree, rule or regulation of
any court, arbitrator or federal, state, municipal or other governmental
authority, commission, board, bureau, agency or instrumentality, domestic or
foreign.
Section 6.14. No Defaults on Other Agreements. None of the Borrowers
and their respective Subsidiaries is a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which could have a material adverse effect on
the business, properties, assets, operations or conditions, financial or
otherwise, of such Borrower or any of its Subsidiaries, or the ability of such
Borrower to carry out its obligations under the Facility Documents to which it
is a party. None of the Borrowers nor any of their respective Subsidiaries is in
default in any material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument material to its business to which it is a party.
Section 6.15. Labor Disputes and Acts of God. Neither the business nor
the properties of any Borrower or of any of its Subsidiaries are affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), materially and adversely
affecting such business or properties or the operation of such Borrower or such
Subsidiary.
Section 6.16. Governmental Regulation. None of the Borrowers and their
respective Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate
Commerce Act, the Federal Power Act or any statute or regulation limiting its
ability to incur indebtedness for money borrowed as contemplated hereby.
<PAGE> 47
42
Section 6.17. Full Disclosure. All information heretofore furnished by
any Borrower to the Administrative Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Borrowers to the Administrative
Agent or any Bank will be, true and accurate in all material respects on the
date as of which such information is stated or certified. The Borrowers have
disclosed to the Banks in writing any and all facts, other than general economic
conditions, which materially and adversely affect or may affect (to the extent
the Borrowers can now reasonably foresee) the business, operations or financial
condition of the Borrowers and their respective Subsidiaries, taken as a whole,
or the ability of any Borrower or any of its Subsidiaries to perform their
respective obligations under this Agreement or any Note.
Section 6.18. Insurance. The Borrowers maintain through financially
sound and reputable insurers not related to or affiliated with the Borrowers
insurance with respect to its properties and business and against at least such
liabilities, casualties and contingencies and in at least such types and amounts
as is customary in the case of corporations engaged in the same or a similar
business or having similar properties similarly situated. Schedule 6.18 sets
forth a complete and correct list and brief description of all insurance
currently maintained by or on respect of each Borrower, setting forth the
identity of the insurance carrier, the type of coverage, the amount of coverage
and the deductible. There are no claims, actions, suits, proceedings against,
arising under or based upon any of such insurance policies except as set forth
in Schedule 6.18. Schedule 6.18 identifies each insurance policy providing for a
retrospective premium adjustment or other change in compensation payable to the
insurer on the basis of claim or loss experience, and describes any liability
any Borrower has in respect of such matters.
Section 6.19. Intellectual Property. To the best of the Borrowers'
knowledge, the Borrowers own, or is licensed or otherwise has the right to use,
all the material patents, trademarks, service marks, names (trade, service,
fictitious or otherwise), copyrights, technology (including but not limited to
computer programs and software), processes, data bases and other rights, free
from burdensome restrictions, necessary to own and operate its properties and
carry on its business as presently conducted and presently planned to be
conducted without conflict with the rights of others.
ARTICLE 7. AFFIRMATIVE COVENANTS.
So long as any Obligation shall remain unpaid, any Letter of Credit
shall remain outstanding or any Bank shall have any Commitment under this
Agreement, each Borrower shall:
Section 7.1. Maintenance of Existence. Preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its corporate existence and
good standing
<PAGE> 48
43
in the jurisdiction of its incorporation, and qualify and remain qualified, and
cause each of its Subsidiaries to qualify and remain qualified, as a foreign
corporation in each jurisdiction in which such qualification is required.
Section 7.2. Conduct of Business. Continue, and cause each of its
Subsidiaries to continue, to engage in an efficient and economical manner in a
business of the same general type as conducted by it on the date of this
Agreement or in sporting or recreational lines of business.
Section 7.3. Maintenance of Properties. Maintain, keep and preserve,
and cause each of its Subsidiaries to maintain, keep and preserve, all of its
properties (tangible and intangible) necessary or useful in the proper conduct
of its business in good working order and condition, ordinary wear and tear
excepted.
Section 7.4. Maintenance of Records. Keep financial statements in
accordance with GAAP, and keep, and cause each of its Subsidiaries to keep,
other adequate records and books of account in accordance with sound accounting
practices.
Section 7.5. Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility
from coverage thereof.
Section 7.6. Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property.
Section 7.7. Right of Inspection. At any reasonable time and from time
to time, upon one business day's prior notice, permit the Administrative Agent
or any Bank or any agent or representative thereof, to examine and make copies
and abstracts from the records and books of account of, and visit the properties
of, the Borrower and any of its Subsidiaries, and to discuss the affairs,
finances and accounts of the Borrower and any such Subsidiary with any of their
respective officers and directors and the Borrower's independent accountants,
and to conduct an audit of the Borrower. If the Borrower reasonably believes
that any material interests of the Borrower or any of its Subsidiaries relating
to any non-public, confidential or proprietary information which could become
available to the Administrative Agent or any Bank during the course of such
inspections or such discussions are not adequately protected by any then
existing confidentiality agreements entered into by the Administrative Agent and
the Banks with respect to the Borrower and its Subsidiaries, then any such visit
and examination or discussions shall be performed in
<PAGE> 49
44
compliance with reasonable and customary security procedures mutually agreeable
to the Administrative Agent and the Banks, as applicable, and the Borrowers.
Section 7.8. Reporting Requirements. Furnish directly to each of the
Banks:
(a) as soon as available and in any event within 90 days after
the end of each Fiscal Year of the Borrowers, a consolidated and consolidating
balance sheet of the Borrowers and their Consolidated Subsidiaries as of the end
of such Fiscal Year and consolidated and consolidating statements of operations,
cash flows and stockholders' equity of the Borrowers and their Consolidated
Subsidiaries for such Fiscal Year, all in reasonable detail and stating in
comparative form the respective consolidated and consolidating figures for the
corresponding date and period in the prior Fiscal Year and, in the case of such
consolidated statements, prepared in accordance with GAAP and accompanied by an
opinion thereon acceptable to the Administrative Agent and each of the Banks by
Ernst & Young LLP or other independent accountants of national standing selected
by the Borrowers;
(b) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each Fiscal Year of the
Borrowers, a consolidated and consolidating balance sheet of the Borrowers and
their Consolidated Subsidiaries as of the end of such Fiscal Quarter and
consolidated and consolidating statements of operations, cash flows and
stockholders' equity, of the Borrowers and their Consolidated Subsidiaries for
the period commencing at the end of the previous Fiscal Year and ending with the
end of such quarter, all in reasonable detail and stating in comparative form
the respective consolidated and consolidating figures for the corresponding date
and period in the previous Fiscal Year and prepared (in the case of the
consolidated statements) in accordance with GAAP and certified by the chief
financial officer of the Borrowers (subject to year-end adjustments);
(c) promptly upon receipt thereof, copies of any reports,
inclusive of any management letters, submitted to the Borrowers or any of their
respective Subsidiaries by independent certified public accountants in
connection with examination of the financial statements of the Borrowers or any
such Subsidiary made by such accountants;
(d) simultaneously with the delivery of the financial
statements referred to above, a certificate substantially in the form of Exhibit
I of the chief financial officer of the Borrowers (i) certifying that to the
best of his knowledge no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof and the action which is proposed to be
taken with respect thereto, (ii) with computations demonstrating compliance with
the covenants contained in Articles 8 and 9 and (iii) with computations of the
Consolidated Average Funded Debt to EBITDA Ratio (for Margin and facility fee
purposes);
<PAGE> 50
45
(e) simultaneously with the delivery of the annual financial
statements referred to in Section 7.8(a), a certificate of the independent
public accountants who audited such statements to the effect that, in making the
examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
(f) promptly after the commencement thereof, notice of all
actions, suits, and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting any Borrower or any of their respective Subsidiaries which, if
determined adversely to such Borrower or such Subsidiary, could have a material
adverse effect on the financial condition, properties, or operations of such
Borrower or such Subsidiary;
(g) as soon as possible and in any event within 5 days after
the occurrence of each Default or Event of Default a written notice setting
forth the details of such Default or Event of Default and the action which is
proposed to be taken by the Borrower with respect thereto;
(h) as soon as possible, and in any event within ten days
after any Borrower knows or has reason to know that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan have
occurred or exist, a statement signed by a senior financial officer of the
Borrowers setting forth details respecting such event or condition and the
action, if any, which the Borrower or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Borrower or an ERISA Affiliate with respect to such event
or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA, with respect to a Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA including,
without limitation, the failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall
be a reportable event regardless of the issuance of any waivers in accordance
with Section 412(d) of the Code) and any request for a waiver under Section
412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a
notice of intent to terminate any Plan or any action taken by the Borrower or an
ERISA Affiliate to terminate any Plan;
<PAGE> 51
46
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been taken by PBGC with
respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Borrower or any ERISA Affiliate that results in
liability under Section 4201 or 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a purchaser default) or the receipt
of any Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that
it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA
or that it intends to terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against any Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
(vi) the adoption of an amendment to any Plan that
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA would result
in the loss of tax-exempt status of the trust of which such Plan is a part if
any Borrower or an ERISA Affiliate fails to timely provide security to the Plan
in accordance with the provisions of said Sections;
(vii) any event or circumstance exists which may
reasonably be expected to constitute grounds for any Borrower or any ERISA
Affiliate to incur liability under Title IV of ERISA or under Sections
412(c)(11) or 412(n) of the Code with respect to any Plan; and
(viii) the Unfunded Benefit Liabilities of one or more
Plans increase after the date of this Agreement in an amount which is material
in relation to the financial condition of the Borrowers;
(i) promptly after the request of any Bank, copies of each
annual report filed pursuant to Section 104 of ERISA with respect to each Plan
(including, to the extent required by Section 104 of ERISA, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information referred to in Section 103) and each
annual report filed with respect to each Plan under Section 4065 of ERISA;
provided, however, that in the case of a Multiemployer Plan, such annual reports
shall be furnished only if they are available to the Borrower or an ERISA
Affiliate;
(j) promptly after the furnishing thereof, copies of any
statement or report furnished to any other party pursuant to the terms of any
indenture, loan or credit
<PAGE> 52
47
or similar agreement and not otherwise required to be furnished to the Banks
pursuant to any other clause of this Section 7.8;
(k) promptly after the sending or filing thereof, copies of
all proxy statements, financial statements and reports which any Borrower or any
of its Subsidiaries sends to its stockholders (other than to the Borrower or a
Subsidiary), and copies of all regular, periodic and special reports, and all
registration statements, which any Borrower or any such Subsidiary files with
the Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange;
(l) at least ten (10) days prior to consummation of each
Acceptable Acquisition, a certificate of the chief financial officer of
Cannondale to the effect that, on a historical pro forma basis after giving
effect to the Acceptable Acquisition as of and for the twelve month period
ending on the last day of the most recently completed fiscal quarter, (i) the
Borrowers are in compliance with the terms of this Agreement, (ii) no Default or
Event of Default exists, and (iii) the Borrowers are in compliance with the
financial covenants contained in Article 9. In addition, such certificate shall
demonstrate compliance with such financial covenants contained in Article 9 by
setting forth the calculations thereof.
(m) on a monthly basis as soon as available and in any event
within fifteen (15) days after the end of each calendar month, the summary aging
report with respect to the accounts receivables of the Borrowers and their
Subsidiaries, certified by the chief financial officer or the chief accounting
officer of the Borrowers.
(n) such other information respecting the condition or
operations, financial or otherwise, of any Borrower or any of its Subsidiaries
as the Administrative Agent or any Bank may from time to time reasonably
request.
Section 7.9. Payment of Taxes and Other Potential Charges and Priority
Claims. Pay or discharge
(a) on or prior to the date on which penalties attach thereto,
all taxes, assessments and other governmental charges imposed upon it or any of
its properties;
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
which, if unpaid, might result in the creation of a Lien upon any such property;
and
(c) on or prior to the date when due, all other lawful claims
which, if unpaid, might result in the creation of a Lien upon any such property
or which, if
<PAGE> 53
48
unpaid, might give rise to a claim entitled to priority over general creditors
of the Borrower in a case under Title 11 (Bankruptcy) of the United States Code,
as amended;
provided, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced, such Borrower need not pay or discharge
any such tax, assessment, charge or claim so long as (x) the validity thereof is
contested in good faith and by appropriate proceedings diligently conducted, and
(y) such reserves or other appropriate provisions as may be required by GAAP
shall have been made therefor.
Section 7.10. End of Fiscal Year; End of Fiscal Quarter. Cause each of
its, and each of its Subsidiaries': (a) fiscal years and fourth fiscal quarter
to end on the same day on or within seven calendar days of June 30, and (b)
first three fiscal quarters to end on the same day on or within seven calendar
days of September 30, December 31 and March 31, determined in a manner
consistent with past practices of such Borrower and its Subsidiaries.
ARTICLE 8. NEGATIVE COVENANTS.
So long as any Obligation shall remain unpaid, any Letter of Credit
shall remain outstanding or any Bank shall have any Commitment under this
Agreement, each Borrower shall not:
Section 8.1. Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist any Debt,
except:
(a) Debt of such Borrower under this Agreement or the Notes;
(b) Debt described in Schedule 6.10, including renewals,
extensions or refinancings thereof, provided that the outstanding principal
amount thereof does not increase;
(c) Debt of such Borrower subordinated on terms satisfactory
to the Banks to the Borrower's obligations under this Agreement and the Notes;
(d) Debt in respect of letters of credit issued for the
account of the Borrower or any such Subsidiary in an aggregate face amount
outstanding at any time of up to $5,000,000;
(e) Debt of such Borrower or any such Subsidiary (other than
Debt permitted by Section 8.1(b)) secured by (i) mortgage Liens permitted by
Section 8.3(j) and (ii) purchase money Liens permitted by Section 8.3(k),
provided that such Debt under this clause (e), together with all other Debt of
all Borrowers and their
<PAGE> 54
49
Subsidiaries under this clause(e), does not exceed an aggregate principal amount
outstanding at any time of $10,000,000;
(f) Debt of such Borrower or any such Subsidiary arising out
of intercompany loans permitted by Section 8.5(e); and
(g) Additional Debt of such Borrower and its Subsidiaries
(other than Debt permitted by Sections 8.1(a) to 8.1(f) inclusive), provided
that such additional Debt under this clause (g), together with all other Debt of
all Borrowers and their Subsidiaries under this clause (g), does not exceed an
aggregate principal amount outstanding at any time of $8,000,000, and provided
further that the aggregate of all Debt under this clause (g), plus all Debt of
all Borrowers and their Subsidiaries permitted by Section 8.1(e), does not
exceed an aggregate principal amount outstanding at any time of $15,000,000.
Section 8.2. Guaranties, Etc. Assume, guarantee, endorse or otherwise
be or become directly or contingently responsible or liable, or permit any of
its Subsidiaries to assume, guarantee, endorse or otherwise be or become
directly or indirectly responsible or liable (including, but not limited to, an
agreement to purchase any obligation, stock, assets, goods or services or to
supply or advance any funds, asset, goods or services, or an agreement to
maintain or cause such Person to maintain a minimum working capital or net worth
or otherwise to assure the creditors of any Person against loss) for the
obligations of any Person, except for (a) guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, and (b) guaranties of Debt permitted by Sections
8.1(d) to 8.1(g) inclusive, including Cannondale's guarantee to ABN AMRO Bank
N.V. New York Branch of the unsecured obligations of Subsidiaries of Cannondale
to ABN AMRO Bank N.V. and its affiliates as permitted by such sections (which
guarantee to ABN AMRO Bank N.V. New York Branch, together with Cannondale's
guarantee to ABN AMRO Bank N.V. New York Branch of Debt permitted by Section
8.1(b), shall not exceed an aggregate principal amount at any time outstanding
of $10 million).
Section 8.3. Liens. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien,
upon or with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens outstanding on the date hereof and described in
Schedule 8.3(a);
(b) Liens in favor of the Administrative Agent on behalf of
the Banks securing the Loans hereunder;
(c) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or if due and payable if they are being
contested in
<PAGE> 55
50
good faith by appropriate proceedings and for which appropriate reserves are
maintained in accordance with GAAP;
(d) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 30 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established;
(e) Liens under workmen's compensation, unemployment
insurance, social security or similar legislation (other than ERISA);
(f) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(g) judgment and other similar Liens arising in connection
with court proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(h) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any such Subsidiary of the
property or assets encumbered thereby in the normal course of its business or
materially impair the value of the property subject thereto;
(i) Liens securing obligations of such a Subsidiary to the
Borrower or another such Subsidiary;
(j) mortgage Liens on real property (and fixed improvements
thereon) now owned or hereafter acquired; provided that:
(i) any property subject to any of the foregoing is
acquired or used by such Borrower or any such Subsidiary in the ordinary course
of its business;
(ii) the obligation secured by any Lien so created,
assumed or existing shall not exceed 100% of the lesser of cost or fair market
value as of the time of creation or incurrence of such Lien on the property
covered thereby;
<PAGE> 56
51
(iii) each such Lien shall attach only to
the real property so acquired or held and fixed improvements thereon; and
(iv) the obligations secured by such Lien
are permitted by the provisions of Section 8.1.
(k) purchase money Liens on any property hereafter
acquired or the assumption of any Lien on property existing at the time of such
acquisition, or a Lien incurred in connection with any conditional sale or other
title retention agreement or a Capital Lease; provided that:
(i) any property subject to any of the
foregoing is acquired by such Borrower or any such Subsidiary in the ordinary
course of its business and the Lien on any such property is created
contemporaneously with such acquisition;
(ii) the obligation secured by any Lien so
created, assumed or existing shall not exceed 100% of the lesser of cost or fair
market value as of the time of acquisition of the property covered thereby to
such Borrower or such Subsidiary acquiring the same;
(iii) each such Lien shall attach only to
the property so acquired and fixed improvements thereon; and
(iv) the obligations secured by such Lien
are permitted by the provisions of Section 8.1.
Section 8.4. Leases. Create, incur, assume or suffer to exist,
or permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any obligation as lessee for the rental or hire of any real or personal
property, except: (a) leases existing on the date of this Agreement and any
extensions or renewals thereof; (b) leases (other than Capital Leases) which do
not in the aggregate require such Borrower and its Subsidiaries on a
consolidated basis to make payments (including taxes, insurance, maintenance and
similar expense which such Borrower or any Subsidiary is required to pay under
the terms of any lease) in any Fiscal Year of such Borrower in excess of
$3,000,000; (c) leases between such Borrower and any such Subsidiary or between
any such Subsidiaries; (d) Capital Leases permitted by Section 8.3(k).
Section 8.5. Investments. Make, or permit any of its
Subsidiaries to make, any loan or advance to any Person or purchase or otherwise
acquire, or permit any such Subsidiary to purchase or otherwise acquire, any
capital stock, assets, obligations or other securities of, make any capital
contribution to, or otherwise invest in, or acquire any interest in, any Person,
except for : (a) Cash and Cash Equivalents; (b) stock, obligations or securities
received in settlement of debts (created in the ordinary course of business)
owing to such Borrower or any such Subsidiary; (c) any Acceptable Acquisition;
(d) joint
<PAGE> 57
52
ventures with third-parties (including dealer loans) that, together
with joint ventures (including dealer loans) entered into by all other
Borrowers, do not exceed an aggregate amount of $5,000,000 during the term
hereof (other than joint ventures (including dealer loans) existing at the
Closing Date); (e) intercompany loans made by Cannondale to any Subsidiary or
Affiliate, including any Subsidiary Borrower, that do not exceed an aggregate
principal amount of $5,000,000 outstanding at any one time (exclusive of such
intercompany loans existing at the date hereof and reflected in financial
statements or otherwise disclosed in writing to the Administrative Agent and the
Banks prior to the date hereof); and (f) loans to employees of such Borrower or
any Subsidiary that, together with all such loans to employees made by all
Borrowers and their Subsidiaries, do not exceed an aggregate principal amount of
$1,500,000 outstanding at any one time.
Section 8.6. Dividends. Declare or pay any dividends,
purchase, redeem, retire or otherwise acquire for value any of its capital stock
now or hereafter outstanding, or make any distribution of assets to its
stockholders as such whether in cash, assets or in obligations of such Borrower,
or allocate or otherwise set apart any sum for the payment of any dividend or
distribution on, or for the purchase, redemption or retirement of any shares of
its capital stock, or make any other distribution by reduction of capital or
otherwise in respect of any shares of its capital stock or permit any of its
Subsidiaries to purchase or otherwise acquire for value any stock of such
Borrower or another such Subsidiary, provided, however, that: (a) each Borrower
may declare and deliver dividends and make distributions payable solely in
common stock of such Borrower; (b) each Borrower may purchase or otherwise
acquire shares of its capital stock by exchange for or out of the cash proceeds
actually received by such Borrower from a substantially concurrent issue of new
shares of its capital stock; and (c) each Borrower may declare and pay dividends
or make distributions to its stockholders or purchase, redeem, retire or
otherwise acquire for value shares of its capital stock provided that (i) on a
pro forma historical basis, after giving effect to all such dividends and
distributions and all such share repurchases, redemptions and other acquisitions
for value, the Borrowers shall be in compliance with the covenants set forth in
Article 9 herein, and (ii) at least fifteen (15) days prior to any such
declaration and payment of dividends, any such making of distributions, and any
such share repurchase, redemption or acquisition for value, Cannondale shall
furnish directly to each of the Banks a certificate of its chief financial
officer to the effect that, on a pro forma historical basis, after giving effect
to all such dividends and distributions and all such share repurchases,
redemptions and other acquisitions for value, the Borrowers shall be in
compliance with the financial covenants contained in Article 9, which
certificate shall also demonstrate compliance with such financial covenants by
setting forth the calculations thereof; provided further, however, that no such
dividends shall be declared or paid, no such distributions shall be made, and no
such shares of capital stock shall be purchased, redeemed, retired or otherwise
acquired for value if any Default or Event of Default shall have occurred and be
continuing or shall result therefrom.
Section 8.7. Sale of Assets. Sell, lease, assign, transfer or
otherwise dispose of, or permit any of its Subsidiaries to sell, lease, assign,
transfer or otherwise
<PAGE> 58
53
dispose of, any of its now owned or hereafter acquired assets (including,
without limitation, shares of stock and indebtedness of such Subsidiaries,
receivables and leasehold interests); except: (a) for inventory disposed of in
the ordinary course of business; (b) the sale or other disposition of assets no
longer used or useful in the conduct of its business; (c) that any such
Subsidiary may sell, lease, assign, or otherwise transfer its assets to a
Borrower, and (d) the assignment or other transfer by Cannondale of certain
intangible assets to a domestic Subsidiary of Cannondale to be formed, organized
or established after the Closing Date (which Subsidiary shall be deemed a
Material Subsidiary for all purposes herein and shall provide the irrevocable
and unconditional guarantee set forth in Article 11).
Section 8.8. Stock of Subsidiaries, Etc. Sell or otherwise
dispose of any shares of capital stock of any of Material Subsidiary, or permit
any such Material Subsidiary to issue any additional shares of its capital
stock, except directors' qualifying shares.
Section 8.9. Transactions with Affiliates. Enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any Affiliate or permit any of
its Subsidiaries to enter into any transaction, including, without limitation,
the purchase, sale or exchange of property or the rendering of any service, with
any Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to such Borrower or such Subsidiary than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
Section 8.10. Mergers, Etc. Merge or consolidate with any
Person unless such Borrower is the surviving corporation and, on a pro forma
basis after giving effect to such merger or consolidation, no Default or Event
of Default would exist hereunder, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to, any Person;
provided, however, that no such merger, consolidation, sale, assignment, lease
or other disposition shall occur or be made if any Default or Event of Default
shall have occurred and be continuing or shall result therefrom.
ARTICLE 9. FINANCIAL COVENANTS.
So long as any Obligations shall remain unpaid, any Letter of
Credit shall remain outstanding or any Bank shall have a Commitment under this
Agreement:
Section 9.1. Minimum Interest Coverage Ratio. The Borrowers
shall maintain a Consolidated Interest Coverage Ratio, measured quarterly for
the twelve month period then ended (a rolling twelve month calculation measured
as of the end of each successive quarter), of not less than 3.00 to 1.0 at any
time.
<PAGE> 59
54
Section 9.2. Minimum Tangible Net Worth. The Borrowers shall
maintain at all times a Consolidated Tangible Net Worth, as certified at the end
of each Fiscal Quarter of the Borrowers, of not less than the sum of (x) eighty
percent (80%) of the Consolidated Tangible Net Worth of the Borrowers at the end
of their most recent Fiscal Quarter ending March 29, 1997 (one hundred percent
(100%) of the Consolidated Tangible Net Worth of the Borrowers at such date
being $76,594,000), plus (y) the Fiscal Quarter Net Worth Increase Amounts of
the Borrowers for the Fiscal Quarter ending June 30, 1997, plus (z) the sum of
the Fiscal Year Net Worth Increase Amounts of the Borrowers for each Fiscal Year
(commencing with the 1998 Fiscal Year of the Borrowers ending approximately June
30, 1998).
Section 9.3. Leverage Ratio. The Borrowers shall maintain at
all times a ratio of Consolidated Funded Debt to Total Capitalization of not
greater than 0.50 to 1.0.
ARTICLE 10. EVENTS OF DEFAULT.
Section 10.1. Events of Default. Any of the following events
shall be an "Event of Default":
(a) any Borrower shall: (i) fail to pay the principal
of any Note as and when due and payable; or (ii) fail to pay interest on any
Note or any fee or other amount due hereunder as and when due and payable and
such failure to pay such interest, fee or other amount shall continue for three
(3) or more days;
(b) any representation or warranty made or deemed
made by any Borrower in this Agreement or in any other Facility Document or
which is contained in any certificate, document, opinion, financial or other
statement furnished at any time under or in connection with any Facility
Document shall prove to have been incorrect in any material respect on or as of
the date made or deemed made;
(c) any Borrower shall: (i) fail to perform or
observe any term, covenant or agreement contained in Section 2.3 or Articles 8
or 9; or (ii) fail to perform or observe any term, covenant or agreement on its
part to be performed or observed (other than the obligations specifically
referred to in clause (i) or elsewhere in this Section 10.1) in any Facility
Document and such failure shall continue for 30 consecutive days;
(d) (i) any Borrower or any of its Subsidiaries shall
fail to pay any indebtedness in an aggregate amount in excess of $500,000,
including but not limited to indebtedness for borrowed money (other than the
payment obligations described in (a) above), of such Borrower or such
Subsidiary, as the case may be, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (ii) any Borrower or any of its Subsidiaries shall fail
<PAGE> 60
55
to perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any such
indebtedness, when required to be performed or observed, if the effect of such
failure to perform or observe is to accelerate, or to permit the acceleration
of, after the giving of notice or passage of time, or both, the maturity of such
indebtedness (unless such failure to perform or observe shall be timely waived
by the holder of such indebtedness); or (iii) any such indebtedness shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
(e) any Borrower or any of its Subsidiaries: (i)
shall generally not, or be unable to, or shall admit in writing its inability
to, pay its debts as such debts become due; or (ii) shall make an assignment for
the benefit of creditors, petition or apply to any tribunal for the appointment
of a custodian, receiver or trustee for it or a substantial part of its assets;
or (iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 60 days or more; or shall be the subject of any
proceeding under which its assets may be subject to seizure, forfeiture or
divestiture (other than a proceeding in respect of a Lien permitted under
Section 8.3 (b)); or (v) by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or trustee for all
or any substantial part of its property; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a period
of 60 days or more;
(f) one or more judgments, decrees or orders for the
payment of money in excess of $1,000,000 in the aggregate (i) shall be rendered
against any Borrower or any of its Subsidiaries, (ii) shall not be appealed or
shall remain unstayed on appeal or shall become a final judgment, and (iii)
either (x) enforcement proceedings shall have been commenced by any creditor
upon such judgment decree or order, or (y) such judgments, decrees or orders
shall continue unsatisfied and in effect for a period of 30 consecutive days
without being vacated, discharged, satisfied or stayed or bonded pending appeal
without an insurance company (satisfactory to the Administrative Agent in its
reasonable discretion) having agreed to fund such judgment, decree or order in a
manner satisfactory to the Administrative Agent;
(g) any event or condition shall occur or exist with
respect to any Plan or Multiemployer Plan concerning which any Borrower is under
an obligation to furnish a report to the Banks in accordance with Section 7.8(h)
hereof and as a result of such event or condition, together with all other such
events or conditions, such Borrower or any ERISA Affiliate has incurred or in
the opinion of any Bank is reasonably likely to incur a liability to a Plan, a
Multiemployer Plan, the PBGC, or a Section 4042 Trustee (or
<PAGE> 61
56
any combination of the foregoing) which is material in relation to the financial
position of such Borrower;
(h) the Unfunded Benefit Liabilities of one or more
Plans have increased after the date of this Agreement in an amount which is
material;
(i) (A) any Person or two or more Persons acting in
concert shall have acquired beneficial ownership (within the meaning of Rules
13d-3 of the Securities and Exchange commission under the Securities Exchange
Act of 1934) of 50% or more of the outstanding shares of voting stock of
Cannondale (other than any Person or two or more Persons acting in concert who
had beneficial ownership (within the meaning of said Rule 13d-3) of 25% or more
of the outstanding shares of voting stock of Cannondale on the date of this
Agreement); or (B) during any period of up to 12 consecutive months, commencing
before or after the date of this Agreement, individuals who at the beginning of
such period were directors of Cannondale (together with any new director whose
election by Cannondale's Board of Directors or whose nomination for election by
Cannondale's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
directors of Cannondale; or
(j) the Pledge Agreement shall at any time after its
execution and delivery and for any reason cease: (A) to create a valid and
perfected first priority security interest in and to the property purported to
be subject to such agreement; or (B) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by any party thereto, or such party shall deny it has further
liability or obligation thereunder or an event of default shall have occurred
thereunder.
Section 10.2. Remedies. If any Event of Default shall
occur and be continuing, the Administrative Agent shall, upon request of the
Required Banks, by notice to the Borrowers (a) declare the Commitments to be
terminated, whereupon the same shall forthwith terminate and so shall the
obligations of the Fronting Bank to issue any Letter of Credit, (b) declare the
outstanding principal of any or all of the Notes, all interest thereon and all
other amounts payable under this Agreement, the Notes and the other Facility
Documents to be forthwith due and payable, whereupon such Notes, all such
principal, interest and all such other amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrowers, (c) enforce any and
all rights and interests created and existing under any of the Facility
Documents, and/or (d) direct the Borrowers to pay to the Administrative Agent an
amount, to be held as cash security in the cash collateral account held by the
Administrative Agent under Section 3.2, equal to the Letter of Credit Usage then
outstanding; provided that, in the case of an Event of Default referred to in
Section 10.1(e) or Section 10.1(i) above, the Commitments and the obligation to
issue Letters of
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Credit shall be immediately terminated, and the Notes, all interest thereon and
all other amounts payable under this Agreement, the Notes and the other Facility
Documents shall be immediately due and payable without notice, presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrowers.
ARTICLE 11. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS.
Section 11.1. Guarantied Obligations. Cannondale, other than
in its capacity as the primary obligor under the Note to which it is party, in
consideration of the execution and delivery of this Agreement by the Banks and
the Administrative Agent, hereby irrevocably and unconditionally guarantees to
the Administrative Agent and the Banks, and hereby agrees to cause each domestic
direct and indirect Subsidiary of Cannondale formed, organized, established or
acquired on or after the Closing Date to irrevocably and unconditionally
guarantee to the Administrative Agent and the Banks, as and for Cannondale's and
such Subsidiary's own debt, until final payment has been made, the due and
punctual payment and performance in full in cash in the applicable currency of
the Obligations (all such obligations so guarantied are herein collectively
referred to as the "Guarantied Obligations"), in each case when and as the same
shall become due and payable, whether at maturity, pursuant to mandatory or
optional prepayment, by acceleration or otherwise, all in accordance with the
terms and provisions hereof and thereof, it being the intent of such guarantors
that the guaranty set forth in this Section 11.1 (the "Unconditional Guaranty")
shall be a guaranty of payment and not a guaranty of collection.
Section 11.2. Performance under this Agreement. In the event
any Subsidiary Borrower fails to make, on or before the due date thereof, any
payment of the Guarantied Obligations, Cannondale shall cause forthwith to be
paid the moneys, or to be performed, kept, observed, or fulfilled each of such
Guarantied Obligations, in respect of which such failure has occurred.
Section 11.3. Waivers. To the fullest extent permitted by law,
Cannondale does hereby waive:
(a) notice of acceptance of the Unconditional
Guaranty;
(b) notice of any borrowings under this Agreement, or
the creation, existence or acquisition of any of the Guarantied Obligations,
subject to Cannondale's right to make inquiry of the Administrative Agent to
ascertain the amount of the Guarantied Obligations at any reasonable time;
(c) notice of the amount of the Guarantied
Obligations, subject to Cannondale's right to make inquiry of the Administrative
Agent to ascertain the amount of the Guarantied Obligations at any reasonable
time;
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(d) notice of adverse change in the financial
condition of any Subsidiary Borrower or any other fact that might increase
Cannondale's risk hereunder;
(e) notice of presentment for payment, demand,
protest, and notice thereof as to the Notes or any other instrument;
(f) notice of any Default or Event of Default;
(g) all other notices and demands to which Cannondale
might otherwise be entitled (except if such notice or demand is specifically
otherwise required to be given to Cannondale hereunder or under the other
Facility Documents);
(h) the right by statute or otherwise to require any
or each Bank or the Administrative Agent to institute suit against any
Subsidiary Borrower or to exhaust the rights and remedies of any or each Bank or
the Administrative Agent against any Borrower, Cannondale being bound to the
payment of each and all Guarantied Obligations, whether now existing or
hereafter accruing, as fully as if such Guarantied Obligations were directly
owing to each Bank by Cannondale;
(i) any defense arising by reason of any disability
or other defense of any Subsidiary Borrower or by reason of the cessation from
any cause whatsoever of the liability of any Subsidiary Borrower in respect
thereof; and
(j) any stay (except in connection with a pending
appeal), valuation, appraisal, redemption or extension law now or at any time
hereafter in force which, but for this waiver, might be applicable to any sale
of Property of Cannondale made under any judgment, order or decree based on this
Agreement, and Cannondale covenants that it will not at any time insist upon or
plead, or in any manner claim or take the benefit or advantage of such law.
Until all of the Guarantied Obligations shall have been paid
in full, Cannondale shall not have any right of subrogation, reimbursement, or
indemnity whatsoever in respect thereof and any right of recourse to or with
respect to any assets or Property of any Subsidiary Borrower. Nothing shall
discharge or satisfy the obligations of Cannondale hereunder except upon the
full and final performance and indefeasible payment of the Guarantied
Obligations in cash in the applicable currency and the termination of all
Commitments, upon which, if paid by Cannondale, each Bank agrees to transfer and
assign its interest in the Notes to Cannondale without recourse, representation
or warranty of any kind (other than that such Bank owns such Notes and that such
Notes are free of Liens created by such holder). All of the Guarantied
Obligations shall in the manner and subject to the limitations provided herein
for the acceleration of, the Notes and the Letters of Credit Usage, forthwith
become due and payable without notice.
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Section 11.4. Releases. Cannondale consents and agrees that,
without notice to or by, or the consent of, Cannondale and without affecting or
impairing the obligations of Cannondale hereunder, each Bank or the
Administrative Agent, in the manner provided herein, by action or inaction, may:
(a) compromise or settle, extend the period of
duration or the time for the payment, or discharge the performance of, or may
refuse to, or otherwise not, enforce, or may, by action or inaction, release all
or any one or more parties to, any one or more of the Notes or the other
Facility Documents;
(b) grant other indulgences to any Subsidiary
Borrower in respect thereof;
(c) amend or modify in any manner and at any time (or
from time to time) any one or more of the Notes, the Letters of Credit and the
other Facility Documents in accordance with Section 13.1 or otherwise;
(d) release or substitute any one or more of the
endorsers or guarantors of the Guarantied Obligations whether parties hereto or
not;
(e) exchange, enforce, waive, or release, by action
or inaction, any security for the Guarantied Obligations (including, without
limitation, any of the collateral therefor) or any other guaranty of any of the
Notes or the Letter of Credit Usage; and
(f) take any other action or fail to take any other
action, which, in the absence of this Section 11.4, would otherwise constitute
an equitable or legal discharge of Cannondale's obligations under the
Unconditional Guaranty.
Section 11.5. Marshaling. Cannondale consents and agrees that:
(a) the Administrative Agent shall be under no
obligation to marshal any assets in favor of Cannondale or against or in payment
of any or all of the Guarantied Obligations; and
(b) to the extent Cannondale or any Subsidiary
Borrower makes a payment or payments to any Bank, which payment or payments or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required, for any of the foregoing reasons or for
any other reason, to be repaid or paid over to a custodian, trustee, receiver,
or any other party under any bankruptcy law, common law, or equitable cause,
then to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied thereby shall be revived and continued in full force
and effect as if said payment or payments had not been made and Cannondale shall
be primarily liable for such obligation.
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Section 11.6. Liability. Cannondale agrees that its liability
in respect of this Article 11 shall not be contingent upon the exercise or
enforcement by any Bank or the Administrative Agent of whatever remedies such
Bank or the Administrative Agent may have against any Subsidiary Borrower or the
enforcement of any Lien or realization upon any security such Bank or the
Administrative Agent may at any time possess.
Section 11.7. Unconditional Obligation. The Unconditional
Guaranty set forth in this Article 11 is an absolute, unconditional, continuing
and irrevocable guaranty of payment and performance and shall remain in full
force and effect until the full and final payment of the Guarantied Obligations
and termination of the Commitments without respect to future changes in
conditions, including change of law or any invalidity or irregularity with
respect to the issuance or assumption of any obligations (including, without
limitation, the Notes and the Letter of Credit Usage) of or by any Subsidiary
Borrower or any other Guarantor, or with respect to the execution and delivery
of any agreement (including, without limitation, the Notes and the other
Facility Documents) of any Borrower or any other Guarantor.
Section 11.8. Election to Perform Obligations. Any election by
Cannondale to pay or otherwise perform any of the obligations of any Subsidiary
Borrower under the Notes or under any of the other Facility Documents, whether
pursuant to this Article 11 or otherwise, shall not release such Subsidiary
Borrower from such obligations or any of its other obligations under the Notes
or under any of the other Facility Documents.
Section 11.9. No Election. The Administrative Agent and the
Banks shall have the right to seek recourse against Cannondale to the fullest
extent provided for herein for Cannondale's obligations under this Agreement
(including, without limitation, this Article 11) in respect of the Notes and the
Letters of Credit. No election to proceed in one form of action or proceeding,
or against any party, or on any obligation, shall constitute a waiver of the
Administrative Agent's or such Bank's right to proceed in any other form of
action or proceeding or against other parties unless such holder has expressly
waived such right in writing. Specifically, but without limiting the generality
of the foregoing, no action or proceeding by any Bank or the Administrative
Agent against any Subsidiary Borrower under any document or instrument
evidencing obligations of such Borrower to such Bank or the Administrative Agent
shall serve to diminish the liability of Cannondale under this Agreement
(including, without limitation, this Article 11) except to the extent that such
Bank finally and unconditionally shall have realized payment by such action or
proceeding, notwithstanding the effect of any such action or proceeding upon
Cannondale's right of subrogation against such Subsidiary Borrower.
Section 11.10. Severability. Subject to Article 10 hereof and
applicable law, each of the rights and remedies granted under this Article 11 to
the Administrative Agent and each Bank may be exercised by the Administrative
Agent or any such Bank
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without notice by the Administrative Agent or any such Bank, as applicable, to,
or the consent of, the Administrative Agent or the other Banks or any other
action by the Administrative Agent or such Bank, provided that Cannondale will
give each Bank immediate notice of any exercise of rights and remedies by the
Administrative Agent or any Bank under this Article 11.
Section 11.11. Other Enforcement Rights. The Administrative
Agent and each Bank may proceed, as provided in Article 11 hereof, to protect
and enforce the Unconditional Guaranty by suit or suits or proceedings in
equity, at law or in bankruptcy, and whether for the specific performance of any
covenant or agreement contained herein (including, without limitation, in this
Article 11) or in execution or aid of any power herein granted; or for the
recovery of judgment for the obligations hereby guarantied or for the
enforcement of any other proper, legal or equitable remedy available under
applicable law. Each Bank shall have, to the fullest extent permitted by law and
this Agreement, a right of set-off against, any and all credits and any and all
other Property of Cannondale, now or at any time whatsoever with, or in the
possession of, such holder, or anyone acting for such holder, as security for
any and all obligations of Cannondale hereunder and such Lien shall be deemed
permitted for all purposes under Article 8 hereof.
Section 11.12. Delay or Omission; No Waiver. No course of
dealing on the part of any Bank or the Administrative Agent and no delay or
failure on the part of any such Person to exercise any right hereunder
(including, without limitation, this Article 11) shall impair such right or
operate as a waiver of such right or otherwise prejudice such Person's rights,
powers and remedies hereunder. Every right and remedy given by the Unconditional
Guaranty or by law to any Bank or the Administrative Agent may be exercised from
time to time as often as may be deemed expedient by such Person.
Section 11.13. Restoration of Rights and Remedies. If any Bank
or the Administrative Agent shall have instituted any proceeding to enforce any
right or remedy under the Unconditional Guaranty, under any Note held by such
Bank, or under the Pledge Agreement, and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to such Bank or the Administrative Agent, then and in every such case
each such Bank, the Administrative Agent and each Borrower shall, except as may
be limited or affected by any determination in such proceeding, be restored
severally and respectively to its respective former positions hereunder and
thereunder, and thereafter, subject as aforesaid, the rights and remedies of
such Bank or the Administrative Agent shall continue as though no such
proceeding had been instituted.
Section 11.14. Cumulative Remedies. No remedy under this
Agreement (including, without limitation, this Article 11), the Notes, the
Letters of Credit or any of the other Facility Documents is intended to be
exclusive of any other remedy, but each and every remedy shall be cumulative and
in addition to any and every other remedy given hereunder this Agreement
(including, without limitation, this Article 11), under the Notes, the Letters
of Credit or under any of the other Facility Documents.
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Section 11.15. Survival. So long as the Guarantied Obligations
shall not have been fully and finally performed and indefeasibly paid, the
obligations of Cannondale under this Article 11 shall survive the transfer and
payment of any Note or Letter of Credit Obligation and the payment in full of
all the Notes and Letter of Credit Usage and the expiration and termination of
the Commitments.
Section 11.16. No Setoff, Counterclaim or Withholding;
Gross-Up. Each payment by Cannondale shall be made without setoff or
counterclaim and without withholding for or on account of any present or future
Taxes imposed by any Governmental Authority. If any such withholding is so
required, Cannondale shall make the withholding and pay the amount withheld to
the appropriate Governmental Authority before penalties attach thereto or
interest accrues thereon.
Section 11.17. Payment in Applicable Currency. Any payment of
a Guarantied Obligation required to be made pursuant to this Agreement shall be
made in the currency in which such Guarantied Obligation is required to be made
pursuant to this Agreement, any Note or any other Facility Document.
ARTICLE 12. THE ADMINISTRATIVE AGENT;
RELATIONS AMONG BANKS AND BORROWERS.
Section 12.1. Appointment, Powers and Immunities of
Administrative Agent. Each Bank hereby irrevocably (but subject to removal by
the Required Banks pursuant to Section 12.9) appoints and authorizes the
Administrative Agent to act as its agent hereunder and under any other Facility
Document with such powers as are specifically delegated to the Administrative
Agent by the terms of this Agreement and any other Facility Document, together
with such other powers as are reasonably incidental thereto. The Administrative
Agent (which term, when used in this sentence and the next sentence and in
Section 12.5 and the first sentence of Section 12.7 hereof, shall include its
affiliates and its own and its affiliates' officers, directors, employees and
agents) shall have no duties or responsibilities except those expressly set
forth in this Agreement and any other Facility Document, and shall not by reason
of this Agreement be a trustee or fiduciary for any Bank. The Administrative
Agent shall not be responsible to the Banks for any recitals, statements,
representations or warranties made by any Borrower or any officer or official of
any Borrower or any other Person contained in this Agreement or any other
Facility Document, or in any certificate or other document or instrument
referred to or provided for in, or received by any of them under, this Agreement
or any other Facility Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Facility Document or any other document or instrument referred to or
provided for herein or therein, for the perfection or priority of any collateral
security for the Loans or for any failure by any Borrower to perform any of its
obligations hereunder or thereunder (and shall have no duty to ascertain,
inquire into or
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verify the performance or observance of any such obligations or the satisfaction
of any conditions). The Administrative Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Neither
the Administrative Agent nor any of its directors, officers, employees or agents
shall be liable or responsible for any action taken or omitted to be taken by it
or them hereunder or under any other Facility Document or in connection herewith
or therewith, except for its or their own gross negligence or willful
misconduct. The Borrowers shall pay any fee agreed to by the Borrowers and the
Administrative Agent with respect to the Administrative Agent's services
hereunder.
Section 12.2. Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely upon any certification, notice or
other communication (including any thereof by telephone, telex, telegram or
cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat each Bank as
the holder of the Loans made by it for all purposes hereof unless and until a
notice of the assignment or transfer thereof satisfactory to the Administrative
Agent signed by such Bank shall have been furnished to the Administrative Agent
but the Administrative Agent shall not be required to deal with any Person who
has acquired a participation in any Loan from a Bank. As to any matters not
expressly provided for by this Agreement or any other Facility Document, the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks and any action taken
or failure to act pursuant thereto shall be binding on all of the Banks and any
other holder of all or any portion of any Loan.
Section 12.3. Defaults. The Administrative Agent shall not be
deemed to have knowledge of the occurrence of a Default or Event of Default
(other than the non-payment of principal of or interest on the Loans to the
extent the same is required to be paid to the Administrative Agent for the
account of the Banks) unless the Administrative Agent has received notice from a
Bank or the Borrower specifying such Default or Event of Default and stating
that such notice is a "Notice of Default." In the event that the Administrative
Agent receives such a notice of the occurrence of a Default or Event of Default,
the Administrative Agent shall give prompt notice thereof to the Banks (and
shall give each Bank prompt notice of each such non-payment). The Administrative
Agent shall (subject to Section 12.8) take such action with respect to such
Default or Event of Default which is continuing as shall be directed by the
Required Banks; provided that, unless and until the Administrative Agent shall
have received such directions, the Administrative Agent may take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks; and
provided further that the Administrative Agent shall not be required to take any
such action which it determines to be contrary to law.
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Section 12.4. Rights of Administrative Agent as a Bank. With
respect to its Commitment and the Loans made by it, the Administrative Agent in
its capacity as a Bank hereunder shall have the same rights and powers hereunder
as any other Bank and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include the Administrative Agent in its capacity as a Bank.
The Administrative Agent and its affiliates may (without having to account
therefor to any Bank) accept deposits from, lend money to (on a secured or
unsecured basis), and generally engage in any kind of banking, trust or other
business with, the Borrower (and any of its affiliates) as if it were not acting
as the Administrative Agent, and the Administrative Agent may accept fees and
other consideration from the Borrowers for services in connection with this
Agreement or otherwise without having to account for the same to the Banks.
Although the Administrative Agent and its affiliates may in the course of such
relationships and relationships with other Persons acquire information about the
Borrower, its Affiliates and such other Persons, the Administrative Agent shall
have no duty to disclose such information to the Banks.
Section 12.5. Indemnification of Administrative Agent. The
Banks agree to indemnify the Administrative Agent (to the extent not reimbursed
under Section 13.3 or under any other applicable provision of any Facility
Document, but without limiting the obligations of the Borrowers under Section
13.3 or such provisions), ratably in accordance with their respective Commitment
Percentages, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of this
Agreement, any other Facility Document or any other documents contemplated by or
referred to herein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Borrowers are
obligated to pay under Section 13.3 or under the applicable provisions of any
other Facility Document but excluding, unless a Default or Event of Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents or instruments or any
other action taken or omitted to be taken by the Administrative Agent under any
Facility Document; provided that no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified. The agreements contained in this
Section shall survive payment in full of the Loans and all other amounts payable
under this Agreement and expiration and termination of the Commitments and the
Facility Documents.
Section 12.6. Documents. The Administrative Agent will forward
to each Bank, promptly after the Administrative Agent's receipt thereof, a copy
of each report, notice or other document required by this Agreement or any other
Facility Document to be delivered to the Administrative Agent for such Bank.
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Section 12.7. Non-Reliance on Administrative Agent and Other
Banks. Each Bank agrees that it has, independently and without reliance on the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Borrowers and their respective Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any other Facility Document. The Administrative Agent shall not be required to
keep itself informed as to the performance or observance by the Borrowers of
this Agreement or any other Facility Document or any other document referred to
or provided for herein or therein or to inspect the properties or books of the
Borrowers or any Subsidiary. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrowers or any
Subsidiary (or any of their Affiliates) which may come into the possession of
the Administrative Agent or any of its affiliates. The Administrative Agent
shall not be required to file this Agreement, any other Facility Document or any
document or instrument referred to herein or therein, for record or give notice
of this Agreement, any other Facility Document or any document or instrument
referred to herein or therein, to anyone.
Section 12.8. Failure of Administrative Agent to Act. Except
for action expressly required of the Administrative Agent hereunder, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall have received further assurances
(which may include cash collateral) of the indemnification obligations of the
Banks under Section 12.5 in respect of any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Section 12.9. Resignation or Removal of Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving
written notice thereof to the Banks and the Borrowers, and the Administrative
Agent may be removed at any time with or without cause by the Required Banks;
provided that the Borrowers and the other Banks shall be promptly notified
thereof. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Banks and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Required Banks'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Banks, appoint a successor Administrative Agent,
which shall be a bank which has an office in New York, New York. The Required
Banks or the retiring Administrative Agent, as the case may be, shall upon the
appointment of a successor Administrative Agent promptly so notify the
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Borrowers and the other Banks. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After any retiring Administrative Agent's resignation
or removal hereunder as Administrative Agent, the provisions of this Article 12
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Administrative Agent.
Section 12.10. Amendments Concerning Agency Function. The
Administrative Agent shall not be bound by any waiver, amendment, supplement or
modification of this Agreement or any other Facility Document which affects its
duties hereunder or thereunder unless it shall have given its prior consent
thereto.
Section 12.11. Liability of Administrative Agent. The
Administrative Agent shall not have any liabilities or responsibilities to the
Borrowers on account of the failure of any Bank to perform its obligations
hereunder or to any Bank on account of the failure of the Borrowers to perform
its obligations hereunder or under any other Facility Document.
Section 12.12. Transfer of Agency Function. Without the
consent of the Borrowers or any Bank, the Administrative Agent may at any time
or from time to time transfer its functions as Administrative Agent hereunder to
any of its offices wherever located, provided that the Administrative Agent
shall promptly notify the Borrowers and the Banks thereof.
Section 12.13. Non-Receipt of Funds by the Administrative
Agent. Unless the Administrative Agent shall have been notified by a Bank or a
Borrower (either one as appropriate being the "Payor") prior to the date on
which such Bank is to make payment hereunder to the Administrative Agent of the
proceeds of a Loan or such Borrower is to make payment to the Administrative
Agent, as the case may be (either such payment being a "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Administrative Agent, the Administrative Agent
may assume that the Required Payment has been made and may, in reliance upon
such assumption (but shall not be required to), make the amount thereof
available to the intended recipient on such date and, if the Payor has not in
fact made the Required Payment to the Administrative Agent, the recipient of
such payment (and, if such recipient is a Borrower and the Payor Bank fails to
pay the amount thereof to the Administrative Agent forthwith upon demand, such
Borrower) shall, on demand, repay to the Administrative Agent the amount made
available to it together with interest thereon for the period from the date such
amount was so made available by the Administrative Agent until the date the
Administrative Agent recovers such amount at a rate per annum equal to the
average daily Federal Funds Rate for such period.
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Section 12.14. Withholding Taxes. Each Bank represents that it
is entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to the Administrative Agent such forms,
certifications, statements and other documents as the Administrative Agent may
request from time to time to evidence such Bank's exemption from the withholding
of any tax imposed by any jurisdiction or to enable the Administrative Agent to
comply with any applicable laws or regulations relating thereto. Without
limiting the effect of the foregoing, if any Bank is not created or organized
under the laws of the United States of America or any state thereof, in the
event that the payment of interest by the Borrowers is treated for U.S. income
tax purposes as derived in whole or in part from sources from within the U.S.,
such Bank will furnish to the Administrative Agent Form 4224 or Form 1001 of the
Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. The
Administrative Agent shall not be obligated to make any payments hereunder to
such Bank in respect of any Loan or such Bank's Commitment until such Bank shall
have furnished to the Administrative Agent the requested form, certification,
statement or document.
Section 12.15. Several Obligations and Rights of Banks. The
failure of any Bank to make any Loan to be made by it on the date specified
therefor shall not relieve any other Bank of its obligation to make its Loan on
such date, but no Bank shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank. The amounts payable at any time
hereunder to each Bank shall be a separate and independent debt, and each Bank
shall be entitled to protect and enforce its rights arising out of this
Agreement, and it shall not be necessary for any other Bank to be joined as an
additional party in any proceeding for such purpose.
Section 12.16. Pro Rata Treatment of Loans, Etc. Except to the
extent otherwise provided: (a) each Borrowing under Section 2.5 shall be made
from the Banks, each reduction or termination of the amount of the Commitments
under Section 2.8 shall be applied to the Commitments of the Banks, and each
payment of facility fees accruing under Section 2.12 shall be made for the
account of the Banks, pro rata according to the amounts of their respective used
and unused Commitments; (b) each conversion under Section 2.6 of Loans of a
particular type (but not conversions provided for by Section 4.4), shall be made
pro rata among the Banks holding Loans of such type according to the respective
principal amounts of such Loans by such Banks; (c) each prepayment and payment
of principal of or interest on Loans of a particular type and a particular
Interest Period shall be made to the Administrative Agent for the account of the
Banks holding Loans of such type and Interest Period pro rata in accordance with
the respective unpaid principal amounts of such Loans of such Interest Period
held by such Banks.
Section 12.17. Sharing of Payments Among Banks. If a Bank
shall obtain payment of any principal of or interest on any Loan made by it
through the exercise of any
<PAGE> 73
68
right of setoff, banker's lien, counterclaim, or by any other means (including
any payment obtained from or charged against any Third Party), it shall promptly
purchase from the other Banks participations in (or, if and to the extent
specified by such Bank, direct interests in) the Loans made by the other Banks
in such amounts, and make such other adjustments from time to time as shall be
equitable to the end that all the Banks shall share the benefit of such payment
(net of any expenses which may be incurred by such Bank in obtaining or
preserving such benefit) pro rata in accordance with the unpaid principal and
interest on the Loans held by each of them. To such end the Banks shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored. The
Borrowers agree that any Bank so purchasing a participation (or direct interest)
in the Loans made by other Banks may exercise all rights of setoff, banker's
lien, counterclaim or similar rights with respect to such participation (or
direct interest). Nothing contained herein shall require any Bank to exercise
any such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness of
the Borrowers.
ARTICLE 13. MISCELLANEOUS.
Section 13.1. Amendments and Waivers. Except as otherwise
expressly provided in this Agreement, any provision of this Agreement may be
amended or modified only by an instrument in writing signed by the Borrowers,
the Administrative Agent and the Required Banks, or by the Borrowers and the
Administrative Agent acting with the consent of the Required Banks and any
provision of this Agreement may be waived by the Required Banks or by the
Administrative Agent acting with the consent of the Required Banks; provided
that no amendment, modification or waiver shall in any manner, unless by an
instrument signed by all of the Banks or by the Administrative Agent acting with
the consent of all of the Banks: (a) increase or extend the term, or extend the
time or waive any requirement for the reduction or termination, of the
Commitments, (b) increase the Swingline Facility Amount or the L/C Sublimit, (c)
extend the date fixed for the payment of principal of or interest on any Loan or
any fee payable hereunder, (d) extend the date fixed for payment and
reimbursement of Obligations with respect to Letters of Credit, (e) reduce the
amount of any payment of principal of any Loan or the rate at which interest is
payable thereon or any fee payable hereunder, (f) reduce the amount of any
Obligations with respect to Letters of Credit, (g) release in whole or in part
the Unconditional Guaranty, (h) release all or any substantial part of the
Pledged Collateral (as defined in the Pledge Agreement), (i) alter the terms of
Sections 2.6(b), 12.16, 12.17, 13.5 or this Section 13.1, (j) amend the
definition of the term "Required Banks" or (k) waive any of the conditions
precedent set forth in Article 5 hereof and provided, further, that any
amendment of Section 2.12(b) and Article 12 hereof or any amendment which
increases the obligations of the Administrative Agent hereunder shall require
the consent of the Administrative Agent. No failure on the part of the
Administrative Agent or any Bank to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof
<PAGE> 74
69
or preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 13.2. Usury. Anything herein to the contrary
notwithstanding, the obligations of the Borrowers under this Agreement and the
Notes shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to a Bank limiting rates of interest which may be charged or
collected by such Bank.
Section 13.3. Expenses. The Borrowers shall reimburse the
Administrative Agent and the Banks on demand for all reasonable costs, expenses,
and charges (including, without limitation, fees and charges of external legal
counsel for the Administrative Agent and each Bank and costs allocated by their
respective internal legal departments) incurred by the Administrative Agent or
the Banks in connection with the preparation, performance, enforcement (whether
through negotiations, legal proceedings or otherwise), modification or amendment
of this Agreement or the Notes, the syndication of the Loans, and the
administration of this credit facility.
Section 13.4. Survival. The obligations of the Borrowers under
Sections 4.1, 4.5, 4.6, 13.3 and 13.8 shall survive the repayment of the Loans
and the expiration and termination of the Commitments and the Facility
Documents.
Section 13.5. Assignment; Participations.
(a) This Agreement shall be binding upon, and shall
inure to the benefit of, the Borrowers, the Administrative Agent, the Banks and
their respective successors and assigns, except that the Borrowers may not
assign or transfer their rights or obligations hereunder. Each Bank may assign,
or sell participations in, all or any part of any Loan or Commitment to another
bank or other entity, in which event (i) in the case of an assignment, upon
notice thereof by the Bank to the Borrowers with a copy to the Administrative
Agent, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it were a Bank hereunder, and the assignor shall, to the extent of
such assignment (unless otherwise provided therein), relinquish its rights and
be released from its obligations hereunder; and (ii) in the case of a
participation, the participant shall have no rights under the Facility Documents
and all amounts payable by the Borrowers under Article 3 shall be determined as
if such Bank had not sold such participation and such Bank's obligations
hereunder shall remain unchanged, such Bank being solely responsible for the
performance of such obligations. Each such assignment shall be to an Eligible
Assignee and shall be in an amount equal to $5,000,000 or an integral multiple
of $1,000,000 in excess thereof. The agreement executed by such Bank in favor of
the participant shall not give the participant the right to require such Bank to
take or omit to take any action hereunder (such Bank retaining the sole right to
enforce the Obligations of the Borrowers relating to the
<PAGE> 75
70
Loans and the Notes and to approve any amendment, modification, waiver or
provision of this Agreement) except action directly relating to (i) the
extension of a payment date with respect to any portion of the principal of or
interest on any amount outstanding hereunder allocated to such participant, (ii)
the reduction of the principal amount outstanding hereunder or (iii) the
reduction of the rate of interest payable on such amount or any amount of fees
payable hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to receive under its agreement with such Bank. Such Bank
may furnish any information concerning the Borrowers in the possession of such
Bank from time to time to assignees and participants (including prospective
assignees and participants); provided that such Bank shall require any such
prospective assignee or such participant (prospective or otherwise) to agree in
writing to maintain the confidentiality of such information. Upon the
consummation of any assignment pursuant to this Section, the assignor, the
Administrative Agent and the Borrowers shall make appropriate arrangements so
that, if required, the new Notes are issued to the assignor or assignee in
replacement of the Note(s) assigned. In connection with any assignment pursuant
to this paragraph (a), the assigning Bank shall pay the Administrative Agent an
administrative fee for processing such assignment in the amount of $2,500.
(b) In addition to the assignments and participations
permitted under paragraph (a) above, any Bank may assign and pledge all or any
portion of its Loans and Note(s) to (i) any affiliate of such Bank or (ii) any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Bank from its obligations hereunder.
Section 13.6. Notices. Unless the party to be notified
otherwise notifies the other party in writing as provided in this Section, and
except as otherwise provided in this Agreement, notices shall be delivered in
person or sent by overnight courier, facsimile, ordinary mail, cable or telex
addressed to such party at its "Address for Notices" on the signature page of
this Agreement. Notices shall be effective: (a) on the day on which delivered to
such party in person, (b) on the first Banking Day after the day on which sent
to such party by overnight courier, (c) if given by mail, 48 hours after deposit
in the mails with first-class postage prepaid, addressed as aforesaid, and (d)
if given by facsimile, cable or telex, when the facsimile, cable or telex is
transmitted to the facsimile, cable or telex number as aforesaid; provided that
notices to the Administrative Agent and the Banks shall be effective upon
receipt.
Section 13.7. Setoff. The Borrowers agree that, in addition to
(and without limitation of) any right of setoff, banker's lien or counterclaim a
Bank may otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of the Borrower at any of such Bank's offices, in Dollars or in
any other currency, against any amount payable by the Borrowers to such Bank
under this Agreement or such Bank's Note(s) which is not paid when due
(regardless of whether such balances are then due to the Borrower), in which
<PAGE> 76
71
case it shall promptly notify the Borrowers and the Administrative Agent
thereof; provided that such Bank's failure to give such notice shall not affect
the validity thereof. Payments by the Borrowers hereunder shall be made without
setoff or counterclaim.
Section 13.8. Indemnification; Exoneration. In consideration
of the execution and delivery of this Agreement by the Administrative Agent and
the Banks, each Borrower, jointly and severally, will defend, indemnify,
exonerate and hold harmless each Bank, the Fronting Bank, the Swingline Bank,
the Administrative Agent, the Documentation Agent, the Syndication Agent and
their affiliates and each of their respective officers, directors, stockholders,
affiliates, trustees, employee and agents, and each other Person, if any,
controlling such Bank or any of its affiliates (herein collectively called the
"Indemnitees") from and against any and all actions, causes of action, suits,
losses, liabilities and damages, and expenses in connection therewith, including
without limitation reasonable counsel fees and disbursements incurred in the
investigation and defense of claims and actions (herein collectively called the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
result of, or arising out of or relating to the execution, delivery, performance
or enforcement of this Agreement, the Notes, or any other Facility Document, or
any instrument or document contemplated hereby or thereby by any of the
Indemnitees, or the actual or proposed use of the proceeds of the Loans or by
any act, event or transaction related or attendant thereto or contemplated
hereby or thereby, or any action or inaction by any Indemnitee under or in
connection therewith, or the falseness of any representation or warranty made by
or on behalf of a Borrower, except for any Indemnified Liabilities that are
finally judicially determined to have resulted from the any Indemnitee's gross
negligence or willful misconduct, and if and to the extent that the foregoing
may be unenforceable for any reason, each Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law. The obligations of each
Borrower under this Section 13.8 shall be in addition to any liability that such
Borrower may otherwise have and shall survive the payment or prepayment in full
or transfer of any Note, the termination of the Banks' Commitments and
obligations hereunder and the enforcement of any provision hereof or thereof.
SECTION 13.9. JURISDICTION; IMMUNITIES.
(a) EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW
YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE NOTES, AND SUCH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR FEDERAL COURT. EACH BORROWER IRREVOCABLY CONSENTS TO THE SERVICE
OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
OF SUCH PROCESS BY REGISTERED OR
<PAGE> 77
72
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER AT ITS ADDRESS SPECIFIED IN
SECTION 13.6. THE BORROWERS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWERS
FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN
ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE
BORROWERS FURTHER AGREE THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE
ADMINISTRATIVE AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN NEW YORK. THE BORROWERS, THE ADMINISTRATIVE AGENT AND
EACH BANK EACH WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL.
(b) Nothing in this Section 13.9 shall affect the
right of the Administrative Agent or any Bank to serve legal process in any
other manner permitted by law or affect the right of the Administrative Agent or
any Bank to bring any action or proceeding against the Borrowers or their
property in the courts of any other jurisdictions.
(c) To the extent that any Borrower has or hereafter
may acquire any immunity from jurisdiction of any court or from any legal
process (whether from service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, such Borrower hereby irrevocably waives such immunity in
respect of its obligations under this Agreement and the Notes.
Section 13.10. Table of Contents; Headings. Any table of
contents and the headings and captions hereunder are for convenience only and
shall not affect the interpretation or construction of this Agreement.
Section 13.11. Severability. The provisions of this Agreement
are intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, 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 the remaining provisions
hereof in any jurisdiction.
Section 13.12. Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and any party hereto may execute this Agreement by signing
any such counterpart.
Section 13.13. Integration. The Facility Documents set forth
the entire agreement among the parties hereto relating to the transactions
contemplated thereby and
<PAGE> 78
73
supersede any prior oral or written statements or agreements with respect to
such transactions.
SECTION 13.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK.
Section 13.15. Confidentiality. Each Bank and the
Administrative Agent agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to use reasonable
precautions to keep confidential, in accordance with safe and sound banking
practices, any financial information (other than financial information included
in documents filed with the Securities and Exchange Commission), business plans
and any other non-public information supplied to it by the Borrowers pursuant to
this Agreement which is identified by the Borrowers as being confidential at the
time the same is delivered to the Banks or the Administrative Agent, provided
that nothing herein shall limit the disclosure of any such information (i) to
the extent required by statute, rule, regulation or judicial process, (ii) to
counsel for any of the Banks or the Administrative Agent, (iii) to bank
examiners, auditors or accountants, (iv) in connection with any litigation to
which any one or more of the Banks is a party, (v) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the respective Bank a Confidentiality Agreement in substantially the form of
Exhibit J hereto, or (vi) to affiliates, directors, officers, employees and
representatives of the Banks or the Administrative Agent; provided, further,
that in no event shall any Bank or the Administrative Agent be obligated or
required to return any materials furnished by the Borrowers. Each Bank and the
Administrative Agent, as applicable, shall notify the Borrowers of the
disclosure of any such information pursuant to clauses (i), (iv) and (v) of the
preceding sentence prior to such disclosure, if reasonably practicable, or if
not, as soon thereafter as is reasonably practicable.
Section 13.16. Treatment of Certain Information. The Borrowers
(a) acknowledge that services may be offered or provided to them (in connection
with this Agreement or otherwise) by each Bank or by one or more of their
respective subsidiaries or affiliates and (b) acknowledge that information
delivered to each Bank by the Borrowers may be provided to each such subsidiary
and affiliate.
Section 13.17. Judgment Currency.
(a) The obligations of Cannondale and the Subsidiary
Borrowers under this Agreement, the Notes, the Letters of Credit and the other
Facility Documents to make payments in Dollars or in any Alternative Currency
(the "Obligation Currency") shall not be discharged or satisfied by any tender
or recovery pursuant to any judgment expressed in or converted into any currency
other than the Obligation Currency, except to
<PAGE> 79
74
the extent that such tender or recovery results in the effective receipt by the
Administrative Agent or a Bank of the full amount of the Obligation Currency
expressed to be payable to them under this Agreement, the Notes, the Letters of
Credit and the other Facility Documents. If for the purpose of obtaining or
enforcing judgment against Cannondale or any Subsidiary Borrower in any court or
in any jurisdiction, it becomes necessary to convert into or from any currency
other than the Obligation Currency (such other currency being hereinafter
referred to as the "Judgment Currency") an amount due in the Obligation
Currency, the conversion shall be made, at the Alternative Currency Equivalent
or Dollar Equivalent, in the case of any Alternative Currency or Dollars, and,
in the case of other currencies, the rate of exchange (as quoted by the
Administrative Agent or if the Administrative Agent does not quote a rate of
exchange on such currency, by a known dealer in such currency designated by the
Administrative Agent) determined, in each case, as on the day immediately
preceding the day on which the judgment is given (such Banking Day being
hereinafter referred to as the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange
prevailing between the Judgment Currency Conversion Date and the date of actual
payment of the amount due, each Obligor covenants and agrees to pay such
additional amounts, if any (but in any event not a lesser amount), as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the Alternative
Currency Equivalent or Dollar Equivalent or rate of exchange for this Section
13.17, such amount shall include any premium and costs payable in connection
with the purchase of the Obligation Currency.
Section 13.18 Independence of Covenants. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or Event of Default if such
action is taken or condition exists.
Section 13.19 Time of the Essence. Time and punctuality shall
be of the essence with respect to this instrument, but no delay or failure of
the Administrative Agent or any Bank to enforce any of the provisions herein
contained and no conduct or statement of the Administrative Agent or any Bank
shall waive or affect any of the Administrative Agent's or any Bank's rights
hereunder.
<PAGE> 80
75
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
BORROWERS:
CANNONDALE CORPORATION
By /s/ WILLIAM F. SCHMALKUCHE
-----------------------------------
Name: William F. Schmalkuche
Title: Assistant Treasurer
Address for Notices:
9 Brookside Place
Georgetown, CT 06829
Facsimile No.: (203) 544-9906
CANNONDALE EUROPE B.V.
By /s/ JORG HILFIKER
-----------------------------------
Name: Jorg Hilfiker
Title: Managing Director
Address for Notices:
---------------------------------------
---------------------------------------
Facsimile No.:
-------------------------
CANNONDALE JAPAN KK
By /s/ TAKAHARU NAKANO
------------------------------------
Name: Takaharu Nakano
Title: President
<PAGE> 81
76
Address for Notices:
------------------------------------------
------------------------------------------
Facsimile No.:
----------------------------
ADMINISTRATIVE AGENT:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
---------------------------------------
Name: Susan Timmerman
Title: Senior Vice President
DOCUMENTATION AGENT:
ABN AMRO BANK N.V. NEW YORK BRANCH
By /s/ NANCY W. LANZONI
---------------------------------------
Name: Nancy W. Lanzoni
Title: Group Vice President
By /s/ THOMAS T. ROGERS
---------------------------------------
Name: Thomas T. Rogers
Title: Assistant Vice President
SYNDICATION AGENT:
ABN AMRO BANK N.V. NEW YORK BRANCH
By /s/ NANCY W. LANZONI
---------------------------------------
Name: Nancy W. Lanzoni
Title: Group Vice President
<PAGE> 82
77
By /s/ THOMAS T. ROGERS
----------------------------------------
Name: Thomas T. Rogers
Title: Assistant Vice President
FRONTING BANK:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
----------------------------------------
Name: Susan Timmerman
Title: Senior Vice President
BANKS:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
----------------------------------------
Name: Susan Timmerman
Title: Senior Vice President
Address for Notices:
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 593-1083
ABN AMRO BANK N.V. NEW YORK BRANCH
By /s/ NANCY W. LANZONI
----------------------------------------
Name: Nancy W. Lanzoni
Title: Group Vice President
<PAGE> 83
78
By/s/ THOMAS T. ROGERS
-------------------------------------------
Name: Thomas T. Rogers
Title: Assistant Vice President
Address for Notices:
Administrative Operations Contact
Attention: Pamela Del Decchio
Assistant Vice President
500 Park Avenue, 2nd Floor
New York, NY 10022
Facsimile No.: (212) 832-7468
FLEET NATIONAL BANK
By /s/ MARGARET D. HARWOOD
-------------------------------------------
Name: Margaret D. Harwood
Title: Vice President
Address for Notices:
850 Main Street
Bridgeport, CT 06604
Facsimile No.: (203) 579-3339
<PAGE> 1
Exhibit 10.1.9
May 28, 1997
Cannondale Corporation
9 Brookside Place
Georgetown, CT 06829-0122
Attention: Mr. William F. Schmalkuche
Manager of Finance
Dear Mr. Luca:
With reference to our discussions on this subject, we are pleased to advise you
that we hold available to Cannondale Corporation (the "Company") and to those
branches, subsidiaries and affiliates of the Company approved by you in
accordance with this letter (the Company and all such approved branches,
subsidiaries and affiliates being called herein the "Borrowers" and each a
"Borrower"), until further notice, an overall credit arrangement (hereinafter
the "Arrangement") on the following terms and conditions:
LIMIT: Ten Million U.S. dollars ($10,000,000) or the equivalent thereof in other
currencies as specified below. This is the aggregate maximum principal amount at
any one time outstanding for all Borrowers.
VALIDITY: The Arrangement shall continue to be valid until canceled either by
you or by us.
DESIGNATION OF BORROWER: Whenever you wish a subfacility to be made available to
one of your branches, subsidiaries or affiliates, you will deliver to us a
Designation of Borrower and Guarantee in the form of Exhibit A hereto. On
receipt of such Designation, we will contact the appropriate lending branch or
branches, make a preliminary determination of whether they are in a position to
provide the subfacilities requested and, if they are, arrange appropriate direct
contact between the Borrower and the lending branch.
UTILIZATION, AVAILABILITY AND COMPLIANCE WITH LAW: It is intended that the
Arrangement be used for short term credit facilities, with terms of twelve
months or less. Loans and/or other credit facilities may be made available to
the Company and to other Borrowers by our office and/or by other specified
branches, agencies, subsidiaries or affiliates of our bank ("lending branches"
and each a "lending branch"). Credit facilities made available to individual
Borrowers are herein referred to as "subfacilities". The nature, terms and
conditions of the specific types of subfacilities which may be extended by a
particular lending branch to a particular Borrower, whether overdraft
facilities, letters of credit, discounting facilities, bankers acceptance
financing, foreign exchange contracts or any of the many other short term
facilities which the ABN AMRO Group is able to offer to its clients, must be
mutually agreed to between the respective Borrower and lending branch. No
commitment by us or any other lending branch to make available any specific
subfacility is hereby intended. In addition, and notwithstanding any such mutual
agreement, the availability of any subfacility from any lending branch is at all
times subject to local availability of funds (domestic or foreign) and to
compliance by the lending branch with all laws, regulations and governmental
policies applicable to that lending branch (in each case as determined by the
lending branch). Moreover, each subfacility is subject to all applicable
exchange control restrictions and it will be the responsibility of each Borrower
to obtain any necessary or appropriate foreign exchange license. We urge each
Borrower to consult the lending branch in this regard, however, as they may well
be able to give advice and assistance. The Company shall inform both us and (if
different) the respective lending branch, in writing, of the names of the
individual signatories authorized to make borrowing requests on behalf of a
specific Borrower. For the sake of good order, we remind you that we do not
anticipate receiving from you any request to utilize the Arrangement until the
"Existing Revolver" (as defined below) shall have become effective in accordance
with its terms.
PAGE 1
<PAGE> 2
PRICING: Pricing of each subfacility shall be mutually agreed to by the
respective Borrower and lending branch. If you so instruct in the relevant
Designation of Borrower, your approval of the pricing structure agreed to
between Borrower and lending branch will be sent to you for approval before the
subfacility is extended to the Borrower.
FOREIGN EXCHANGE FLUCTUATIONS: The Arrangement and individual subfacilities may
be used in any one or more freely transferable and convertible currencies. In
the event that, by reason of foreign exchange fluctuations, the aggregate
liabilities of the Borrowers to the lending branches shall exceed the maximum
principal amount specified above (as calculated by us, based on our spot rates
from time to time for the relevant currencies) we will so inform you and you
will arrange to reduce the aggregate liabilities of the Borrowers to the lending
branches to or below the limit specified above. You agree that you will
accomplish that reduction as quickly as possible and in any event within ten
days of receipt of the respective notice from us.
DOCUMENTATION: Each lending branch will determine the documentation that it
requires from each Borrower with which it deals. Each Borrower will provide to
each lending branch with which it deals such financial statements as the
respective lending branch may reasonably require. We ask the Company to provide
us with appropriate evidence of its corporate authority to enter into the
transactions hereby contemplated, of the authority of the individual officers
who have acted and will act on behalf of the Company and of the authenticity of
the signatures of those officers. If you wish us to provide forms covering these
matters, we will do so at your request or, in the alternative, we will be happy
to evaluate your own standard forms.
EXISTING REVOLVER; COMPLIANCE WITH COVENANTS: You and we are presently
participating in negotiations pursuant to which it is anticipated that you and
we will both (together with others) enter into a $50,000,000 Senior Unsecured
Revolving Credit Facility Agreement (hereinafter called the "Existing
Revolver"), with NationsBank N.A. as Agent. Without in anyway limiting the
uncommitted nature of the Arrangement and each subfacility, you agree that, so
long as the Arrangement remains available or any amount is outstanding
thereunder, you will comply with each of the covenants contained in Articles 7
and 8 of the Existing Revolver, as in effect from time to time. Such covenants
shall be deemed to be incorporated herein, and you agree that if a breach of any
covenant contained in such sections occurs, we may, by written notice to you,
demand, and you will make, immediate payment of all amounts outstanding under
the Arrangement, whether matured or unmatured. In the event that the Arrangement
shall remain in effect after the termination of the Existing Revolver or the
termination of our Bank's participation in the Existing Revolver, then "Existing
Revolver" shall be deemed to refer to such Agreement as in effect immediately
prior to such termination.
CROSS DEFAULT TO EXISTING REVOLVER: Without in any way limiting the uncommitted
nature of the Arrangement and each subfacility, and in addition to such other
agreements as may be made between us, you agree that if any Cross Default (as
defined below) occurs, then we may, by written notice to you, demand, and you
will make, immediate payment of all amounts outstanding under the Arrangement,
whether matured or unmatured. If any amount under the Existing Revolver is
declared to be due prior to its stated maturity or is otherwise not paid when
due (whether by acceleration or otherwise), or if any event or condition shall
exist under the Existing Revolver the effect of which (after giving effect to
any relevant grace period) is to authorize or enable the banks party to the
Existing Revolver to declare any amount due thereunder to be due prior to its
stated maturity, then a "Cross Default" shall be said to have occurred.
DOCUMENTATION BETWEEN OUR OFFICE AND EACH LENDING BRANCH: Whenever a Borrower
makes use of a subfacility, our office in New York will have issued an
instrument in favor of the lending branch which will evidence our office's
acceptance of the credit risk of extensions of credit under the respective
subfacility. We will refer to such instruments herein as "Risk Allocation
Letters", although the actual title, and the characteristics, of each instrument
may vary, depending on the nature of the subfacility and the legal status of the
lending branch. Without limiting the foregoing, the term "Risk Allocation
Letter", for purposes of this agreement, may refer to a standby letter of credit
or a bank guarantee. Each Risk Allocation Letter will be in an amount sufficient
(as determined by the Bank) to assure the lending branch of our full assumption
of credit responsibility. Depending on the
PAGE 2
<PAGE> 3
characteristics of a particular Risk Allocation Letter, we may need additional
documentation from you; before issuing a standby letter of credit, for example,
we must receive from you a specific application/reimbursement agreement.
GOVERNING LAW: The Arrangement and the obligations of the Company shall be
governed by and constructed in accordance with the laws of the State of New
York. Each subfacility shall be governed and construed in accordance with the
laws of the jurisdiction in which the relevant lending branch is located.
NOTICES: All communications and notices regarding the Arrangement should be sent
to the respective parties hereto at the addresses indicated below:
The Company:
Cannondale Corporation
9 Brookside Place
Georgetown, CT 06829-0122
Attn: William F. Schmalkuche Tel: (203) 544-3319
Manager of Finance Fax: (203) 852-9081
The Bank:
ABN AMRO Bank N.V.
New York Branch
500 Park Avenue
New York, NY 10022
Attn: Thomas Rogers Tel: (212) 446-4122
Fax: (212) 832-7129
Please evidence your acceptance of the foregoing terms and conditions of the
Arrangement by signing and returning to us the enclosed duplicate copy of this
letter, whereupon this letter shall become a binding agreement between us.
Very truly yours,
ABN AMRO Bank N.V.
New York Branch
/s/ NANCY W. LANZONI /s/ THOMAS T. ROGERS
------------------------ ----------------------------
Nancy Lanzoni Thomas T. Rogers
Group Vice President Assistant Vice President
ACCEPTED AND AGREED:
Cannondale Corporation
By: /s/ WILLIAM A. LUCA
--------------------
William A. Luca Vice President and Chief Financial Officer
(Authorized Signatory)
Date Accepted: May 30, 1997
------------
PAGE 3
<PAGE> 4
Exhibit A
DESIGNATION OF BORROWER AND GUARANTEE
ABN AMRO Bank N.V.
500 Park Avenue
New York, New York 10022
Gentlemen:
We refer to the Umbrella Arrangement Agreement, dated May 28, 1997 (the
"Umbrella Agreement") between you and us. Terms defined in the Umbrella
Agreement which are used herein shall, unless otherwise defined herein, have the
same meaning provided therefore in the Umbrella Agreement.
We hereby designate:
Cannondale Europe, B.V.
[name
Postbus 5100 Hanzepoort 27
and address
7570 GC Oldenzaal Netherlands
of Borrower]
a corporation organized and existing under the laws of the Netherlands or any
successor in interest thereof a Borrower in accordance with the Umbrella
Agreement. In consideration of you or any one or more lending branches extending
subfacilities to the Borrower hereby designated, the undersigned hereby
absolutely and unconditionally guarantees to you, to each respective lending
branch and to your and their respective successors and assigns, the full and
prompt payment when due by its terms of any and all obligations of the Borrower
hereby designated towards you or such lending branches, now existing and/or
hereafter to be incurred, and such interest as may accrue thereon, irrespective
of the validity, regularity or enforceability of the obligations of the Borrower
hereby designated provided, however, that the liability of the undersigned
hereunder at any one time shall in no event exceed the aggregate principal sum
of
$10,000,000.00
specify subfacility limit
and such interest as may accrue thereon, together with any and all expenses
(including reasonable attorney's fees) which may be incurred by you, on your
behalf, or by or on behalf of any lending branch in collecting such indebtedness
and/or enforcing any rights hereunder. If, at any time, you or any lending
branch shall inform us that an amount due to you from the Borrower hereby
designated has not been paid, the undersigned undertakes to pay such amount (or
its equivalent in
<PAGE> 5
the currency contemplated by the Umbrella Agreement) to you at your first
request at the office of the respective lending branch without the necessity of
any suit or proceeding on your part or on the part of any lending branch of any
kind or nature whatsoever and the undersigned agrees to accept as prima facie
evidence for the amount payable by the undersigned the balance which shall
appear due to you or the respective lending branch from the Borrower hereby
designated according to the respective lending branch's books and records.
The undersigned hereby waives notice of acceptance of the guarantee contained
herein, and also presentment, protest and notice of protest or dishonor of any
evidences of indebtedness hereby guaranteed, and consents that in your
discretion (or that of the relevant lending branch) at the time of payment of
all or part of such indebtedness may be extended or renewed, and that any
collateral held therefore may be released, exchanged or otherwise disposed of at
the discretion of the lending branch, at any time, without affecting the
liability of the undersigned.
The guarantee contained herein, which is binding upon the undersigned's
successors and assigns, is a guarantee of payment not of collection and shall be
construed in accordance with the laws of the State of New York. It is a
continuing guarantee which will remain in force until the tenth day after actual
receipt by you of a written notice of revocation executed on behalf of the
undersigned. Such revocation shall be effective the tenth day after receipt of
such notice by you at your address shown above or at such other address as you
shall have designated in writing to the undersigned, but it shall be ineffective
with regard to any accommodation granted to the Borrower hereby designated at
any time prior to the tenth day after receipt by you of such notice.
Very truly yours,
Cannondale Corporation
By:/s/ WILLIAM A LUCA
---------------------------------------
Vice President and Chief Financial Officer
(Authorized Signatory)
Date: May 30, 1997
------------
<PAGE> 1
EXHIBIT 11
CANNONDALE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE COMPUTATION:
Weighted average shares outstanding........................ 8,638 8,216 5,888
Net effect of options -- based on the treasury stock
method................................................... 278 381 360
Net effect of warrants -- based on the treasury stock
method................................................... -- -- 358
-------- -------- ------
Weighted average number of common shares and equivalents
outstanding during the period............................ 8,916 8,597 6,606
======== ======== ======
Income before extraordinary item........................... $ 13,506 $ 10,146 $8,233
Accumulated preferred stock dividends...................... -- -- (400)
-------- -------- ------
Income applicable to common shares before extraordinary
item..................................................... 13,506 10,146 7,833
Extraordinary loss, net of income taxes.................... -- -- (685)
-------- -------- ------
Income applicable to common shares and equivalent.......... $ 13,506 $ 10,146 $7,148
======== ======== ======
Income per share before extraordinary item................. $ 1.51 $ 1.18 $ 1.18
Extraordinary loss, net of income taxes.................... -- -- (0.10)
-------- -------- ------
Net income per share....................................... $ 1.51 $ 1.18 $ 1.08
======== ======== ======
FULLY DILUTED EARNINGS PER SHARE COMPUTATION(1):
Weighted average shares outstanding........................ 8,638 8,216 5,888
Net effect of options -- based on the treasury stock
method................................................... 278 448 370
Net effect of warrants -- based on the treasury stock
method................................................... -- -- 358
-------- -------- ------
Weighted average number of common shares and equivalents
outstanding during the period............................ 8,916 8,664 6,616
======== ======== ======
Income before extraordinary item........................... $ 13,506 $ 10,146 $8,233
Accumulated preferred stock dividends...................... -- -- (400)
-------- -------- ------
Income applicable to common shares before extraordinary
item..................................................... 13,506 10,146 7,833
Extraordinary loss, net of income taxes.................... -- -- (685)
-------- -------- ------
Income applicable to common shares and equivalent.......... $ 13,506 $ 10,146 $7,148
======== ======== ======
Income per share before extraordinary item................. $ 1.51 $ 1.17 $ 1.18
Extraordinary loss, net of income taxes.................... -- -- (0.10)
-------- -------- ------
Net income per share....................................... $ 1.51 $ 1.17 $ 1.08
======== ======== ======
</TABLE>
- ---------------
(1) No effect has been given to the Series A Preferred Stock (Redeemed in
November 1994) as its effect would be antidilutive
<PAGE> 1
EXHIBIT 21
LIST OF OPERATING SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF COMPANY ORGANIZATION
- ------------------------------------------------------------------------------- ---------------
<S> <C>
Cannondale Europe B.V. ........................................................ Netherlands
Cannondale Japan KK............................................................ Japan
Cannondale Australia Pty Limited............................................... Australia
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-16807) pertaining to the 1996 Stock Option Plan and
Registration Statement (Form S-8 No. 33-80073) pertaining to the 1995 Stock
Option Plan and Registration Statement (Form S-8 No. 33-87328) pertaining to the
1994 Stock Option Plan and the 1994 Management Stock Option Plan of Cannondale
Corporation of our reports dated August 11, 1997, with respect to the
consolidated financial statements and schedule of Cannondale Corporation
included in the Annual Report (Form 10-K) for the year ended June 28, 1997.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
September 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 5,521
<SECURITIES> 0
<RECEIVABLES> 67,704
<ALLOWANCES> 6,432
<INVENTORY> 30,105
<CURRENT-ASSETS> 101,907
<PP&E> 40,905
<DEPRECIATION> 17,800
<TOTAL-ASSETS> 127,284
<CURRENT-LIABILITIES> 24,711
<BONDS> 20,319
0
0
<COMMON> 87
<OTHER-SE> 81,534
<TOTAL-LIABILITY-AND-EQUITY> 127,284
<SALES> 162,496
<TOTAL-REVENUES> 162,496
<CGS> 101,334
<TOTAL-COSTS> 101,334
<OTHER-EXPENSES> 39,283
<LOSS-PROVISION> 5,762
<INTEREST-EXPENSE> 1,574
<INCOME-PRETAX> 21,148
<INCOME-TAX> 7,642
<INCOME-CONTINUING> 13,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,506
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
