<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Commission File Number 0-24884
CANNONDALE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-0871823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 TROWBRIDGE DRIVE, BETHEL, CT 06801
(Address of principal executive offices, including zip code)
(203) 749-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), Yes [X] No and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No .
The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of February 2, 1998 was 8,331,948.
1
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CANNONDALE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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Part I Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 27, 1997, 3
June 28, 1997 and December 28, 1996
Condensed Consolidated Statements of Earnings for the three 4
and six months ended December 27, 1997 and December 28, 1996
Condensed Consolidated Statements of Cash Flows for the six 5
months ended December 27, 1997 and December 28, 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information 10
</TABLE>
2
<PAGE> 3
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, 1997 JUNE 28, 1997 DECEMBER 28, 1996
----------------- ------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ............................................... $ 1,469 $ 5,521 $ 2,019
Trade accounts receivable, less allowances of
$8,227, $6,432 and $7,176 ........................ 67,436 61,272 59,417
Inventory .......................................... 39,553 30,105 37,309
Deferred income taxes .............................. 2,639 2,623 2,805
Prepaid expenses and other current assets .......... 3,373 2,386 1,690
--------- --------- ---------
Total current assets ................................. 114,470 101,907 103,240
Property, plant and equipment, net ................... 28,873 23,105 18,675
Other assets ......................................... 3,235 2,272 1,358
--------- --------- ---------
Total assets ......................................... $ 146,578 $ 127,284 $ 123,273
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 15,212 $ 12,330 $ 12,928
Revolving credit advances .......................... 1,129 1,022 2,995
Income taxes payable ............................... 2,660 2,946 1,425
Warranty and other accrued expenses ................ 6,255 6,001 5,667
Payroll and other employee related benefits ........ 1,224 1,850 1,366
Current installments of long-term debt ............. 477 562 1,425
--------- --------- ---------
Total current liabilities ............................ 26,957 24,711 25,806
Long-term debt, less current installments ............ 37,803 20,319 25,199
Deferred income taxes ................................ 327 339 96
Other noncurrent liabilities ......................... 275 294 294
--------- --------- ---------
Total liabilities .................................... 65,362 45,663 51,395
--------- --------- ---------
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued 8,702,126 shares,
Issued and outstanding shares -
8,687,615 and 8,616,241 .......................... 87 87 86
Additional paid-in capital ......................... 57,057 56,860 56,029
Retained earnings .................................. 30,566 26,053 16,189
Less 227,000 shares in treasury at cost ............ (4,774) -- --
Cumulative translation adjustment .................. (1,720) (1,379) (426)
--------- --------- ---------
Total stockholders' equity ........................... 81,216 81,621 71,878
--------- --------- ---------
Total liabilities and stockholders' equity ........... $ 146,578 $ 127,284 $ 123,273
========= ========= =========
</TABLE>
See accompanying notes
3
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996 DECEMBER 27, 1997 DECEMBER 28, 1996
----------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ................................... $ 47,701 $ 41,294 $ 82,010 $ 72,174
Cost of sales ............................... 30,137 25,396 53,089 46,048
-------- -------- -------- --------
Gross profit ................................ 17,564 15,898 28,921 26,126
-------- -------- -------- --------
Expenses:
Selling, general and administrative ...... 9,736 9,451 18,841 17,790
Research and development ................. 1,598 905 2,717 1,662
-------- -------- -------- --------
11,334 10,356 21,558 19,452
-------- -------- -------- --------
Operating income ............................ 6,230 5,542 7,363 6,674
-------- -------- -------- --------
Other income (expense):
Interest expense .......................... (382) (339) (561) (688)
Other income (expense) .................... 132 17 280 (9)
-------- -------- -------- --------
(250) (322) (281) (697)
-------- -------- -------- --------
Income before income taxes .................. 5,980 5,220 7,082 5,977
Income tax expense .......................... (2,137) (2,067) (2,569) (2,335)
-------- -------- -------- --------
Net income .................................. $ 3,843 $ 3,153 $ 4,513 $ 3,642
======== ======== ======== ========
Basic income per common share: .............. $ 45 $ 37 $ 52 $ 42
======== ======== ======== ========
Diluted income per common share: ............ $ 43 $ 35 $ 51 $ 41
======== ======== ======== ========
</TABLE>
See accompanying notes
4
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CANNONDALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES ........... $ (9,685) $(11,154)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ............................ (7,635) (3,453)
Proceeds from sale of headquarters facility ..... -- 1,676
-------- --------
Net cash used in investing activities ........... (7,635) (1,777)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ...... 197 64
Payments for the purchase of treasury stock ..... (4,774) --
Net proceeds from (repayments of) borrowings
under short-term revolving credit agreements .. 214 (1,635)
Net proceeds from borrowings under long-term debt
and capital lease agreements ................... 17,437 11,972
-------- --------
Net cash provided by financing activities ....... 13,074 10,401
-------- --------
Effect of exchange rate changes on cash ......... 194 244
-------- --------
Net decrease in cash ............................ (4,052) (2,286)
Cash at beginning of period ..................... 5,521 4,305
-------- --------
Cash at end of period ........................... $ 1,469 $ 2,019
======== ========
</TABLE>
See accompanying notes
5
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CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Cannondale Corporation (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended December 27, 1997
are not necessarily indicative of the results that may be expected for the year
ending June 27, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended June 28, 1997
included in the Company's Annual Report on Form 10-K/A.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
2. INVENTORY
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 JUNE 28, 1997 1996
---- ------------- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Raw materials ..................... $ 22,422 $ 13,394 $ 19,802
Work-in-process ................... 1,964 1,455 2,614
Finished goods .................... 15,771 16,325 16,117
Less reserve for obsolete inventory (604) (1,069) (1,224)
-------- -------- --------
$ 39,553 $ 30,105 $ 37,309
======== ======== ========
</TABLE>
6
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CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. EARNINGS PER SHARE AMOUNTS
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996 DECEMBER 27, 1997 DECEMBER 28, 1996
----------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic and diluted
earnings per share - income available to
common stockholders ................... $3,843 $3,153 $4,513 $3,642
====== ====== ====== ======
DENOMINATOR:
Denominator for basic earnings per
share - weighted-average shares ....... 8,621 8,614 8,653 8,613
Effect of dilutive securities:
Employee stock options .............. 297 298 277 293
------ ------ ------ ------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions ........ 8,918 8,912 8,930 8,906
====== ====== ====== ======
Basic income per common share .......... $ .45 $ .37 $ .52 $ .42
====== ====== ====== ======
Diluted income per common share ........ $ .43 $ .35 $ .51 $ .41
====== ====== ====== ======
</TABLE>
The following table sets forth the options to purchase shares of common stock at
the respective ranges of exercise prices that were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares, and therefore,
the effect would be antidilutive:
<TABLE>
<CAPTION>
OPTIONS RANGE OF EXERCISE PRICES
------ ------------------------
<S> <C> <C>
Three months ended December 27, 1997 ..... 51,850 $22.50 to $22.63
Three months ended December 28, 1996 ..... 5,000 $21.50
Six months ended December 27, 1997 ....... 86,561 $21.31 to $22.63
Six months ended December 28, 1996 ....... 5,000 $21.50
</TABLE>
4. LONG-TERM DEBT
The Company and its lender amended its revolving credit facility to
allow the Company and its subsidiaries to borrow up to $70,000,000 to
accommodate the capital requirements of the Company's program to repurchase up
to 1,000,000 shares of its common stock at an aggregate price not to exceed
$20,000,000. The amendment to the revolving credit facility, dated October 14,
1997, includes adjustments to specified levels of tangible net worth and cash
flow levels that the Company must maintain.
5. STOCKHOLDERS' EQUITY
On December 19, 1997, the Company adopted a Stockholders' Rights plan
in which rights to purchase shares of Company common stock were distributed as
dividends, one right per share, to record owners of common stock as of the
close of business on December 22, 1997. Upon becoming exercisable, each right
entitles holders to purchase a certain amount of common stock. The rights are
not exercisable, however, until a person or group acquires more than 20% of
common stock or announces a tender offer which would result in the ownership of
more than 20% of the common stock.
At the Company's annual meeting held November 12, 1997, the
stockholders of the Company approved an increase in the number of authorized
shares of common stock, par value $.01 per share, from 18,000,000 to 40,000,000.
7
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased from $41.3 million in the second quarter of
fiscal 1997 to $47.7 million in the second quarter of fiscal 1998, an increase
of $6.4 million or 15.5%. For the first six months, net sales increased 13.6%
from $72.2 million in fiscal 1997 to $82.0 million in fiscal 1998, an increase
of $9.8 million. The increase in sales was a result of the continued worldwide
demand for Cannondale products and a sales mix that favored international
markets.
Gross Profit. Gross profit as a percentage of net sales decreased to 36.8% for
the second quarter of fiscal 1998 compared to 38.5% for the second quarter of
fiscal 1997. The gross profit for the second quarter of 1998 was $17.6 million,
an increase of $1.7 million, or 10.5%, over the gross profit of $15.9 million
for the second quarter of fiscal 1997. For the first six months of fiscal 1998,
gross profit as a percentage of net sales decreased to 35.3% compared to 36.2%
in fiscal 1997. The gross profit for the first six months of fiscal 1998 was
$28.9 million, an increase of $2.8 million, or 10.7%, over the gross profit of
$26.1 million for the for the first six months of fiscal 1997. In both periods,
the lower gross-profit rate primarily reflects the effect of a stronger U.S.
dollar on sales by the Company's foreign subsidiaries as the cost of materials
purchased from the U.S. increased compared to the same period last year. The
impact of the stronger U.S. dollar offset the benefits of a mix that favored
international markets, cost-reduction programs and the Company's continued
integration of proprietary technology through the use of its Cannondale bicycle
frames, CODA components and HeadShok suspension systems.
Operating Expenses. Operating expenses were $11.3 million for the second quarter
of fiscal 1998, an increase of approximately $900,000, or 9.4%, over the second
quarter of fiscal 1997 of $10.4 million. For the first six months of fiscal
1998, operating expenses were $21.6 million, an increase of approximately $2.1
million, or 10.8%, over the first six months of fiscal 1997 of $19.5 million.
For both periods, increased selling, general and administrative expenses, offset
by the effect of a stronger U.S. dollar, were directly associated with increased
sales, additional personnel primarily related to the expanded field-sales force,
and increased investment in international marketing to support the Company's
current and planned growth. As a percentage of net sales, selling, general and
administrative expenses improved to 20.4% compared to 22.9% during the
prior-year quarter.
The increase in research and development expenses reflects the Company's
commitment to the improvement of its current products and the generation of new
products and manufacturing processes. During the second quarter of fiscal 1998,
as a percentage of net sales, the Company increased its investment in research
and development to 3.4% compared to 2.2% during the prior year quarter.
Other income (expense). Adjusted for capitalized interest costs related to the
construction of the Company's new headquarters facility and the expansion of the
manufacturing facility, interest expense for the second quarter of fiscal 1998
was $399,000, an increase of approximately $60,000 from the second quarter of
fiscal 1997. For the first six months of fiscal 1998, interest
<PAGE> 9
expense, adjusted for capitalized interest costs was $649,000, a decrease of
approximately $39,000 from the first six months of fiscal 1997. In both periods,
higher average borrowings were offset by lower interest rates available under
the Company's unsecured multi-currency revolving credit facility.
The increase in other income in the second quarter, and for the first six months
of fiscal 1998 compared to fiscal 1997 primarily represents the receipt of
finance charges payable by dealers.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $9.7 million for the first six months
of fiscal 1998, a decrease of $1.5 million compared to the $11.2 million used
for the first six months of fiscal 1997. The net use of cash is typical for the
first six months of the fiscal year due to seasonal activity, which includes
higher inventory levels in anticipation of third quarter shipments and seasonal
terms offered to dealers through the Company's Authorized Retailer Program. The
reduction in the use of cash from operating activities in fiscal 1998 compared
to the prior year was primarily attributed to a higher rate of cash collections
from dealers and increased net income.
Capital expenditures were $7.6 million for the first six months of fiscal 1998,
compared to $3.5 million in the first six months of fiscal 1997. The increase in
spending primarily reflects the Company's investment in its new administrative
headquarters and research and development facility and the expansion of the
Company's production facility, which was required to support increases in
production volume and to support future growth. During fiscal 1997, the proceeds
from the sale of the Company's former headquarters facility, $1.7 million, were
reinvested in this expansion.
Net cash provided by financing activities for the first six months of fiscal
1998 was $13.1 million, an increase of $2.7 million compared to the $10.4
million for the first six months of fiscal 1997. Net cash provided by financing
activities in the first six months of the fiscal year primarily represents
borrowings under the Company's long-term revolving credit facility to meet its
operating and capital requirements. The increase in proceeds from borrowings
under the long-term debt agreement in fiscal 1998 primarily reflects the effect
of the repurchase of $4.8 million of the Company's common stock. The Company is
authorized to repurchase up to 1,000,000 shares of its common stock at an
aggregate price not to exceed $20 million. In order to accommodate the capital
requirements of the repurchase program, on October 14, 1997, the Company and its
lender amended its revolving credit facility to allow the Company and its
subsidiaries to borrow up to $70 million. The 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, and to accommodate the capital requirements
of the Company's share repurchase program for the foreseeable future.
<PAGE> 10
PART II OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES
As reported on Form 8-K dated December 23, 1997, on December 19, 1997, the Board
of Directors of the Company adopted a Stockholders Rights Plan and declared a
dividend distribution of one common share purchase right for each outstanding
share of common stock, par value $.01 per share, of the Company.
At the Company's annual meeting held November 12, 1997, the stockholders of the
Company approved an increased in the number of authorized shares of common
stock, par value $.01 per share, from 18,000,000 to 40,000,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Stockholders was held on November 12, 1997. The following
matters were acted upon:
a. The election of two Class III Directors to serve for the ensuing three
years. Mr. William A. Luca was elected as a Director with 6,680,808
votes for, 42,250 votes withheld and zero votes abstaining. Mr. Richard
J. Resch was elected as a Director with 6,680,571 votes for, 46,487
votes withheld and zero votes abstaining. Class I Directors, whose term
of office expires in 1998, are Michael Carter, Joseph S. Montgomery and
Michael Stimola. Class II Directors, whose term of office expires in
1999, are Tarek Abdel Meguid, James Scott Montgomery and John H.T.
Wilson.
b. An increase in the number of authorized shares of common stock, par
value $.01 per share, to 40,000,000 shares. Of the votes cast, there
were 5,239,009 for the increase, 1,475,474 against, and 12,575
abstained.
c. The ratification of the selection by the Board of Directors of Ernst &
Young LLP to serve as the Company's independent auditors for the fiscal
year ending June 27, 1998. Of the votes cast, there were 6,711,130
votes for the ratification, 4,268 votes against, and 11,300 votes
abstained.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PAGE
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<S> <C>
(a) Index to Exhibits 12
(b) Reports on Form 8-K
On December 23, 1997, the Registrant filed a report on Form
8-K. The Registrant reported that on December 19, 1997, the
Board of Directors of the Company adopted a Stockholders
Rights Plan and declared a dividend distribution of one common
share purchase right for each outstanding share of common
stock, par value $.01 per share, of the Company.
</TABLE>
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANNONDALE CORPORATION
Date: February 10, 1998 /s/ William A. Luca
-------------------------------
William A. Luca
Vice President of Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and authorized signatory)
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1.10 First Amendment to Credit Agreement, dated October 14, 1997, among the
Company, certain subsidiaries of the Company and NationsBank, N.A., ABN
AMRO Bank N.V., Fleet National Bank, The Chase Manhattan Bank and State
Street Bank and Trust Company.
27 Financial Data Schedule
</TABLE>
12
<PAGE> 1
EXHIBIT 10.1.10
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of October __,
1997 (this "Amendment"), by and 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 to the Credit Agreement (as
defined below) (individually, a "Subsidiary Borrower", collectively the
"Subsidiary Borrowers" and, together with Cannondale, the "Borrowers"), each of
the banks which is a signatory to the Credit Agreement (individually an
"Existing Bank" and collectively the "Existing Banks"), NATIONSBANK, N.A., a
national banking association organized under the laws of the United States of
America, as administrative agent for the Banks (as defined in the Credit
Agreement) (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"), ABN AMRO BANK N.V., a
Netherlands banking corporation acting through its duly licensed New York Branch
("ABN AMRO"), as documentation agent for the Banks (in such capacity, together
with its successors in such capacity, the "Existing Documentation Agent") and as
syndication agent for the Banks (in such capacity, together with its successors
in such capacity, the "Existing Syndication Agent"), and THE CHASE MANHATTAN
BANK, a bank organized under the laws of New York ("Chase"), and STATE STREET
BANK AND TRUST COMPANY, a trust company organized under the laws of
Massachusetts ("State Street"; Chase and State Street may hereinafter be
referred to individually as a "New Bank" and collectively as the "New Banks").
Background
A. The Borrowers, the Existing Banks, the Administrative Agent, the
Fronting Bank, the Existing Documentation Agent and the Existing Syndication
Agent are parties to that Certain Credit Agreement dated as of June 9, 1997 (The
"Credit Agreement").
B. The parties hereto wish to amend the credit agreement as herein
provided.
C. Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Credit Agreement after giving effect to this Amendment.
Agreement
In consideration of the Background, which is incorporated by
reference, the parties hereto, intending to be legally bound, hereby agree as
follows:
<PAGE> 2
1. Modifications. All the terms and provisions of the Credit Agreement
and the Facility Documents shall remain in full force and effect except as
follows:
(a) The definition of "Banks" contained in the preamble of the
Credit Agreement is deleted and the following is substituted therefor:
"Banks" means NationsBank, N.A., Fleet National Bank, The Chase
Manhattan Bank, and State Street Bank and Trust Company.
(b) Clause (d) of the definition of "Acceptable Acquisition"
contained in Section 1.1 of the Credit Agreement is deleted and the following
clause is substituted therefor:
(d) for which the certificate specified in Section 7.8(l) was
timely delivered.
(c) The definition of "Commitment" contained in Section 1.1 of the
Credit Agreement is deleted and the following is substituted therefor:
"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:
NationsBank, N.A.: $20,000,000
Fleet National Bank: $20,000,000
The Chase Manhattan Bank: $17,500,000
State Street Bank and Trust Company: $12,500,000
-----------
Total: $70,000,000
;provided, however, that the Commitment of each Bank shall be
decreased on a quarterly basis by an amount (each quarter)
equal to its Commitment Percentage multiplied by $1,250,000
commencing on September 9, 1998 and on the ninth day of each
December, March, June and September thereafter and,
accordingly, the total Commitments shall be decreased on a
quarterly basis by an amount equal to $1,250,000 on September
9, 1998 and on the ninth day of each December, March, June and
September thereafter.
2
<PAGE> 3
(d) The definition of "Swingline Facility Amount" contained in
Section 1.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"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 $10,000,000.
(e) The definition of "Swingline Loans" contained in Section
1.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"Swingline Loans" means, the Loans made by the
Swingline Bank pursuant to Section 2.2 hereof, which Swingline
Loans shall in no event exceed $10,000,000 in aggregate
principal amount outstanding at any one time.
(f) The definition of "Termination Date" contained in Section
1.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"Termination Date" means September 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.)
(g) Section 2.4 of the Credit Agreement is deleted and the
following is substituted therefor:
Section 2.4 Purpose. The Borrowers shall use the
proceeds of the Loans for working capital, repurchases of
Cannondale's publicly traded common stock and general
corporate purposes. Such proceeds shall not be used for the
purpose, whether immediate, incidental or ultimate, of buying
or carrying "margin stock" except in compliance with
Regulation U.
(h) Section 9.2 to the Credit Agreement is deleted and the
following is substituted therefor:
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
3
<PAGE> 4
Borrowers at the end of the 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); provided however, that at such time (and thereafter) as
Cannondale has spent $12,000,000 (from and after September 1,
1997) for the repurchase of its publicly traded shares of
common stock, 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 (i) $58,000,000, plus (ii) the Fiscal Quarter Net Worth
Increase Amounts of the Borrowers for the Fiscal Quarters
ending on or about March 31, 1998 and June 30, 1998, plus
(iii) the sum of the Fiscal Year Net Worth Increase Amounts of
the Borrowers for each Fiscal Year (commencing with the 1999
Fiscal Year of the Borrowers ending approximately June 30,
1999).
(i) Section 9.3 to the Credit Agreement is deleted and the
following is substituted therefor:
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; provided
however, that at such time (and thereafter until June 30,
1998) as Cannondale has spent $12,000,000 (from and after
September 1, 1997) for the repurchase of its publicly traded
shares of common stock, such ratio of Consolidated Funded Debt
to Total Capitalization shall be increased to not greater than
0.55 to 1.0; and provided, further, however, that on June 30,
1998, such ratio of Consolidated Funded Debt to Total
Capitalization shall revert back to not greater than 0.5 to
1.0.
(j) The following Section 9.4 is added to the Credit Agreement
following Section 9.3:
Section 9.4 Debt Service Coverage Ratio. The
Borrowers shall maintain at all times, as certified at the end
of each Fiscal Quarter of the Borrowers, a ratio of Funded
Debt to EBITDA (for the four Fiscal Quarters then ended) of
not greater than 3.0 to 1.0.
4
<PAGE> 5
2. Acknowledgment.
(a) Each of the New Banks (i) confirms that it has received a
copy of the Credit Agreement and the Facility Documents, together with copies of
the financial statements referred to therein and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment; (ii) agrees that it will, independently
and without reliance upon the Agents or any of the Existing Banks and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoints and authorizes the Administrative Agent to
take such action as agents on its behalf and to exercise such powers under the
Credit Agreement and the Facility Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank.
(b) On and as of the date upon which each of the New Banks
delivers the amounts referred to in Section 4(d) of this Amendment, each New
Bank shall become a "Bank" under, and for all purposes of, the Credit Agreement
and the Facility Documents. On and as of the effectiveness of this Agreement,
and provided that all Obligations to ABN AMRO of the Borrowers have been paid in
full, ABN AMRO shall cease to be a "Bank" under, and for all purposes of, and
shall have no further duties, rights, or obligations arising out of or relating
to the Credit Agreement and the Facility Documents.
3. Assumption of Roles of Documentation Agent and Syndication
Agent.
(a) The Existing Documentation Agent hereby resigns as
Documentation Agent and NationsBank, N.A. (the "New Documentation Agent") hereby
agrees to be designated the Documentation Agent under the Credit Agreement. The
New Documentation Agent shall become the "Documentation Agent" under, and for
all purposes of, the Credit Agreement and the Facility Documents.
(b) The Existing Syndication Agent hereby resigns as
Syndication Agent and Fleet National Bank (the "New Syndication Agent") hereby
agrees to be designated the Syndication Agent under the Credit Agreement.
Neither the designation of Fleet as, nor the title of, Syndication Agent shall
impose on Fleet any duties or obligations greater than those of any other Bank,
and it is understood that the Syndication Agent, in its capacity as such, has
and shall have no duties or liabilities.
4. Conditions to Effectiveness. This Amendment shall not be
effective until such date as the Administrative Agent shall have received the
following, all in form, scope and content acceptable to the Administrative Agent
and Lenders in their sole discretion:
5
<PAGE> 6
(a) This Amendment, duly executed by the parties hereto;
(b) New revolving promissory notes duly executed by the
Borrowers and delivered to the Banks in accordance with Section 2.3(a) of the
Credit Agreement, in exchange for the existing revolving promissory notes to be
surrendered to the Agent by each of the Existing Banks;
(c) A new swingline note duly executed by the Borrowers and
delivered to the Swingline Bank in accordance with Section 2.3(b) of the Credit
Agreement, in exchange for the existing revolving swingline note to be
surrendered to the Agent by the Swingline Bank;
(d) From each New Bank, for the account of the Existing Banks,
an amount equal to such New Bank's Commitment Percentage of the outstanding
Loans;
(e) Confirmation from ABN AMRO that all Obligations of the
Borrowers to ABN AMRO have been paid in full; and
(f) Such other agreements and adjustments as the
Administrative Agent shall reasonably require.
5. Reaffirmation By The Borrowers. Each of the Borrowers acknowledges
and agrees, and reaffirms, both prior to and after taking into account this
Amendment, that each is legally, validly and enforceably indebted to the
Existing Banks and the New Banks under the Notes without defense, counterclaim
or offset, and that each is legally, validly and enforceably liable to the
Existing Banks and the New Banks for all costs and expenses of collection and
reasonable attorneys' fees as and to the extent provided in this Amendment, the
Credit Agreement, the Notes and the Facility Documents. Each of the Borrowers
hereby restates and agrees to be bound by all covenants contained in the Credit
Agreement and the Facility Documents, as amended hereby, and hereby reaffirms
that all of the representations and warranties contained in the Credit Agreement
and the Facility Documents, as amended, remain true and correct in all material
respects with the exception that the representations and warranties regarding
the financial statements described therein are deemed true as of the date made.
Each of the Borrowers represents that except as set forth in the Credit
Agreement and the Facility Documents, there are not pending, nor to each
Borrower's knowledge threatened, legal proceedings to which any of the Borrowers
is a party, which materially or adversely affect the transactions contemplated
by this Amendment or the ability of any of the Borrowers to conduct its business
on a consolidated basis. Cannondale Corporation and Cannondale Europe B.V. each
acknowledge and represent that the resolutions of each dated May 28, 1997, and
June 9, 1997, respectively, remain in full force and effect and have not been
amended, modified, rescinded or otherwise abrogated.
6
<PAGE> 7
6. Reaffirmation re: Collateral. Cannondale reaffirms the liens,
security interests and pledges granted to NationsBank, N.A., as Administrative
Agent, for the benefit of the Banks pursuant to the Facility Documents to secure
the obligations of each Borrower thereunder.
7. Other Representations By The Borrowers. Each of the Borrowers
represents and confirms that (a) no Default or Event of Default has occurred and
is continuing and neither the Agents nor the Existing Banks nor the New Banks
has given its consent to or waived any Default or Event of Default and (b) the
Credit Agreement and the other Facility Documents, as amended, are in full force
and effect and enforceable against the Borrowers in accordance with the terms
thereof. Each of the Borrowers represents and confirms that as of the date
hereof, each has no claim or defense (and the Borrowers each hereby waive every
claim and defense as of the date hereof) against the Agents, or the Existing
Banks or the New Banks arising out of or relating to the Credit Agreement and
the other Facility Documents, as amended, or the making, administration or
enforcement of the Loans and the remedies provided for under the Facility
Documents.
8. No Waiver By The Banks. Each of the Borrowers acknowledges that (a)
by the execution by each of this Amendment, neither the Existing Banks nor the
New Banks are waiving any Default, whether now existing or hereafter occurring,
disclosed or undisclosed, by the Borrowers under the Facility Documents and (b)
the Existing Banks and the New Banks reserve all rights and remedies available
to them under the Facilities Documents and otherwise.
9. Miscellaneous.
(a) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
(b) This Amendment and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with, the
laws of the State of New York.
(c) This Amendment shall be deemed a, and included in the
definition of, Facility Document under the Credit Agreement for all purposes.
(d) The Credit Agreement, as amended hereby, remains in full
force and effect in accordance with its terms.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Amendment
on the date first written above.
BORROWERS:
CANNONDALE CORPORATION
By /s/ JOSEPH S. MONTGOMERY
--------------------------------------
Name: Joseph S. Montgomery
Title: President
CANNONDALE EUROPE B.V.
By /s/ JORG HILFIKER
--------------------------------------
Name: Jorg Hilfiker
Title: Managing Director
CANNONDALE JAPAN KK
By /s/ JEFFREY G. TURK
--------------------------------------
Name: Jeffrey G. Turk
Title: President
ADMINISTRATIVE AGENT:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
--------------------------------------
Name: Susan Timmerman
Title: Vice President
8
<PAGE> 9
EXISTING DOCUMENTATION AGENT:
ABN AMRO BANK N.V. NEW YORK BRANCH
By /s/ DAVID J. KRAUT
/s/ CAMERON D.GATEMAN
--------------------------------------
Name: David J. Kraut Cameron D. Gateman
Title: Assistant Vice President
Vice President
NEW DOCUMENTATION AGENT:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
--------------------------------------
Name: Susan Timmerman
Title: Vice President
EXISTING SYNDICATION AGENT:
ABN AMRO BANK N.V. NEW YORK BRANCH
By /s/ DAVID J. KRAUT
/s/ CAMERON D.GATEMAN
--------------------------------------
Name: David J. Kraut Cameron D. Gateman
Title: Assistant Vice President
Vice President
NEW SYNDICATION AGENT:
FLEET NATIONAL BANK
By /s/ MARGARET D. HARWOOD
--------------------------------------
Name: Margaret D. Harwood
Title: Vice President
9
<PAGE> 10
FRONTING BANK:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
--------------------------------------
Name: Susan Timmerman
Title: Vice President
EXISTING BANKS:
NATIONSBANK, N.A.
By /s/ SUSAN TIMMERMAN
--------------------------------------
Name: Susan Timmerman
Title: Vice President
FLEET NATIONAL BANK
By /s/ MARGARET D. HARWOOD
--------------------------------------
Name: Margaret D. Harwood
Title: Vice President
ABN AMRO BANK N.V. NEW YORK BRANCH
By /s/ DAVID J. KRAUT
/s/ CAMERON D.GATEMAN
--------------------------------------
Name: David J. Kraut Cameron D. Gateman
Title: Assistant Vice President
Vice President
10
<PAGE> 11
NEW BANKS:
THE CHASE MANHATTAN BANK
By /s/ FRED LODER
--------------------------------------
Name: Fred Loder
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By /s/ ARLENE M. DOHERTY
--------------------------------------
Name: Arlene M. Doherty
Title: Vice President
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> DEC-27-1997
<CASH> 1,469
<SECURITIES> 0
<RECEIVABLES> 75,663
<ALLOWANCES> 8,227
<INVENTORY> 39,553
<CURRENT-ASSETS> 114,470
<PP&E> 48,370
<DEPRECIATION> 19,497
<TOTAL-ASSETS> 146,578
<CURRENT-LIABILITIES> 26,957
<BONDS> 37,803
0
0
<COMMON> 87
<OTHER-SE> 81,129
<TOTAL-LIABILITY-AND-EQUITY> 146,578
<SALES> 82,010
<TOTAL-REVENUES> 82,010
<CGS> 53,089
<TOTAL-COSTS> 53,089
<OTHER-EXPENSES> 21,558
<LOSS-PROVISION> 3,322
<INTEREST-EXPENSE> 561
<INCOME-PRETAX> 7,082
<INCOME-TAX> 2,569
<INCOME-CONTINUING> 4,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,513
<EPS-PRIMARY> .52<F1>
<EPS-DILUTED> .51
<FN>
<F1>Represents basic income per common share.
</FN>
</TABLE>
