-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SrwxJklVl14XuoZygJfW6qv4ixnR2dMRITB52sToVKNF7Ne/tsYt+agTgE4uZmYn +axac/DqHMr7DBNT9NoB5A== 0000950130-99-001469.txt : 19990317 0000950130-99-001469.hdr.sgml : 19990317 ACCESSION NUMBER: 0000950130-99-001469 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLE DESIGN TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000913142 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 363601505 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12561 FILM NUMBER: 99566518 BUSINESS ADDRESS: STREET 1: 661 ANDERSON DR STREET 2: FOSTER PLZ 7 CITY: PITTSBURGH STATE: PA ZIP: 15220 BUSINESS PHONE: 4129372300 MAIL ADDRESS: STREET 1: FOSTER PLAZA 7 STREET 2: 661 ANDERSEN DRIVE CITY: PITTSBURGH STATE: PA ZIP: 15220 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1999 Commission File No. 0-22724 CABLE DESIGN TECHNOLOGIES CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-3601505 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Foster Plaza 7 661 Andersen Drive Pittsburgh, PA 15220 (Address of principal executive offices) (412) 937-2300 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at 03/5/99 ----- ---------------------- Common Stock, $.01 Par Value 28,148,501 CABLE DESIGN TECHNOLOGIES CORPORATION ------------------------------------- TABLE OF CONTENTS ----------------- Page ---- PART I FINANCIAL INFORMATION Item 1 Financial Statements........................................... 3 Review Report of Independent Public Accountants for the Three Months and Six Months Ended January 31, 1999 and 1998 4 Condensed Consolidated Statements of Income - Unaudited for the Three Months and Six Months Ended January 31, 1999 and 1998...................................... 5 Condensed Consolidated Balance Sheets as of January 31, 1999 (Unaudited), and July 31, 1998.......... 6 Condensed Consolidated Statements of Cash Flows - Unaudited for the Six Months Ended January 31, 1999 and 1998................................ 7 Notes to Condensed Consolidated Financial Statements - Unaudited............................... 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 11 PART II OTHER INFORMATION Item 1 Legal Proceedings.............................................. 19 Item 2 Changes in Securities.......................................... 19 Item 3 Defaults upon Senior Securities................................ 19 Item 4 Submission of Matters to a Vote of Security Holders............ 19 Item 5 Other Information.............................................. 20 Item 6 Exhibits and Reports on Form 8-K............................... 20 Signatures ............................................................... 21 PART I. FINANCIAL INFORMATION Item 1. Financial Statements In the opinion of Cable Design Technologies Corporation's (the "Company") management, the unaudited condensed consolidated financial statements included in this filing on Form 10-Q reflect all adjustments which are considered necessary for a fair presentation of financial information for the periods presented. REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP has made a review, based upon procedures adopted by the American Institute of Certified Public Accountants, of the unaudited condensed consolidated financial statements as of and for the three month and six month periods ended January 31, 1999 and 1998, contained in this report. As stated on page 4, Arthur Andersen LLP did not audit and accordingly does not express an opinion on the unaudited consolidated financial statements; however as a result of such review, they are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. -3- Report of Independent Public Accountants ---------------------------------------- To the Board of Directors and Stockholders of Cable Design Technologies Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Cable Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of January 31, 1999, and the related condensed consolidated statements of income for the three month and six month periods ended January 31, 1999 and 1998, and the condensed consolidated statements of cash flows for the six month periods ended January 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Cable Design Technologies Corporation and Subsidiaries as of July 31, 1998, and, in our report dated September 11, 1998, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of July 31, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. Pittsburgh, Pennsylvania, Arthur Andersen LLP February 24, 1999 -4- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES -------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED ------------------------------------------------------- (In thousands, except share and per share data) -----------------------------------------------
Three Months Ended Six Months Ended January 31, January 31, --------------------------- ------------------------ 1999 1998 1999 1998 -------------- ------------ ------------ ----------- Net sales $ 160,896 $ 155,638 $ 334,520 $ 317,782 Cost of sales 114,030 109,924 233,913 224,470 -------------- ------------ ------------ ----------- Gross profit 46,866 45,714 100,607 93,312 Selling, general and administrative expenses 27,011 26,524 55,215 52,513 Research and development expenses 1,430 1,779 2,897 3,617 Non-recurring charge 6,307 - 6,307 - -------------- ------------ ------------ ----------- Income from operations 12,118 17,411 36,188 37,182 Interest expense, net 3,196 1,917 6,418 3,831 Other expense (income) 351 (566) 603 (1,095) -------------- ------------ ------------ ----------- Income before income taxes 8,571 16,060 29,167 34,446 Income tax provision 3,765 6,134 11,997 13,070 -------------- ------------ ------------ ----------- Net income $ 4,806 $ 9,926 $ 17,170 $ 21,376 ============== ============ ============ =========== Per share data: Basic earnings per common share $0.17 $0.35 $0.58 $0.75 Diluted earnings per common share $0.16 $0.32 $0.58 $0.68 ============== ============ ============ =========== Weighted average common shares 28,833,632 28,499,853 29,405,214 28,348,233 ============== ============ ============ =========== Weighted average common and common equivalent shares 29,337,393 31,290,412 29,802,247 31,322,508 ============== ============ ============ ===========
The accompanying notes are an integral part of these statements. -5- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands, except share and per share data) -----------------------------------------------
As of As of January 31, July 31, 1999 1998 ------------- -------- (unaudited) ASSETS - ------ Current Assets: Cash and cash equivalents $ 7,868 $ 11,143 Accounts receivable, net of allowance for uncollectible amounts of $4,540 and $3,995, respectively 113,142 117,265 Inventories 142,420 130,307 Other current assets 25,859 17,830 ---------- --------- Total current assets 289,289 276,545 Property, plant and equipment, net 199,801 160,891 Goodwill, net 74,367 57,656 Other assets 12,268 8,468 ---------- --------- Total assets $575,725 $503,560 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Liabilities: Current liabilities $131,362 $101,869 Long-term debt, excluding current maturities 188,996 136,052 Other non-current liabilities 24,219 20,741 ---------- --------- Total liabilities 344,577 258,662 ---------- --------- Stockholders' Equity: Preferred stock, par value $.01 per share - authorized 1,000,000 shares, no shares issued --- --- Common stock, par value $.01 per share - authorized 100,000,000 shares, 30,694,078 and 30,660,472 shares issued, respectively 307 307 Paid in capital 178,815 165,681 Retained earnings 105,775 88,605 Treasury stock, at cost, 2,623,452 and 200,000 shares, respectively (49,297) (4,291) Currency translation adjustment (4,442) (5,394) Minimum pension liability (10) (10) ---------- --------- Total stockholders' equity 231,148 244,898 ---------- --------- Total liabilities and stockholders' equity $575,725 $503,560 ========== =========
The accompanying notes are an integral part of these statements. -6- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED ----------------------------------------------------------- (Dollars in thousands) ----------------------
Six Months Ended January 31, --------------------- 1999 1998 ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 22,701 $ 22,885 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (15,604) (27,633) Acquisition of businesses, including transaction costs, net of cash acquired (43,646) (10,656) ----------- --------- Net cash used by investing activities (59,250) (38,289) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in revolving note borrowings 65,633 13,564 Funds provided by long-term debt 11,237 285 Funds used to reduce long-term debt (5,153) (3,320) Purchase of treasury stock (45,006) --- Net proceeds from exercise of stock options and related tax benefits 6,416 1,976 Net proceeds from issuance of common stock --- 5 ----------- --------- Net cash provided by financing activities 33,127 12,510 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 147 27 ----------- --------- Net decrease in cash (3,275) (2,867) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,143 9,017 ----------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,868 $ 6,150 =========== ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest, net $ 5,768 $ 4,191 =========== ========= Income taxes $ 8,954 $ 10,414 =========== =========
The accompanying notes are an integral part of these statements. -7- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------------------------------------------------------------- 1. BASIS OF PRESENTATION: --------------------- The condensed consolidated financial statements presented herein are unaudited. Certain information and footnote disclosures normally prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the registrant believes that all adjustments necessary for a fair presentation have been made, interim period results are not necessarily indicative of the results of operations for a full year. As such, these financial statements should be read in conjunction with the financial statements and notes thereto included in the registrant's most recent Form 10-K which was filed for the fiscal year ended July 31, 1998. 2. INVENTORIES ----------- Inventories of the Company consist of the following: January 31, July 31, 1999 1998 -------------- -------- (Dollars in thousands) Raw materials $ 37,024 $ 40,089 Work-in-process 34,767 27,485 Finished goods 70,629 62,733 -------------- -------- $142,420 $130,307 ============== ======== 3. EARNINGS PER SHARE ------------------ Basic earnings per common share are computed based on the weighted average common shares outstanding. Diluted earnings per common share are computed based on the weighted average common shares outstanding plus additional shares assumed to be outstanding to reflect the dilutive effect of common stock equivalents. The following table sets forth the computation of basic and diluted earnings per share: -8-
Three Months Ended Six Months Ended January 31, January 31, 1999 1998 1999 1998 ------------- ----------- ----------- ------------- (Dollars in thousands, except per share data) Net income $ 4,806 $ 9,926 $ 17,170 $ 21,376 ----------- ----------- ----------- ----------- Basic earnings per common share: Weighted average common shares outstanding 28,833,632 28,499,853 29,405,214 28,348,233 Basic earnings per common share $ 0.17 $ 0.35 $ 0.58 $ 0.75 =========== =========== =========== =========== Diluted earnings per common share: Weighted average common shares outstanding 28,833,632 28,499,853 29,405,214 28,348,233 Shares issuable from assumed conversion of dilutive stock options 503,761 2,790,559 397,033 2,974,275 ----------- ----------- ----------- ----------- Weighted average common and common equivalent shares 29,337,393 31,290,412 29,802,247 31,322,508 Diluted earnings per common share $ 0.16 $ 0.32 $ 0.58 $ 0.68 =========== =========== =========== ===========
Options to purchase 106,500 and 899,850 shares of common stock were outstanding during the three and six month periods, respectively, ended January 31, 1999 and options to purchase 99,000 shares of common stock were outstanding during the three and six month periods ended January 31, 1998, but were not included in the computation of diluted EPS as the option's exercise price was greater than the average market price of the common stock for the respective periods. 4. OTHER COMPREHENSIVE INCOME -------------------------- The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") in the first quarter of fiscal 1999. SFAS No. 130 established standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as net income and all nonowner changes in stockholders' equity. The Company's comprehensive income differs from net income due to foreign currency translation adjustments. Total comprehensive income was $4.7 million and $7.6 million for the three months and $18.1 million and $19.2 million for the six months ended January 31, 1999 and 1998, respectively. 5. BUSINESS ACQUISITIONS --------------------- On August 3, 1998, the Company acquired an 80% interest in HEW-Kabel Heinz Eilentropp GmbH & Co. KG, and related entities, ("HEW/CDT") located in Wipperfurth, Germany. The acquisition was accounted for using the purchase method under APB Opinion No. 16 and the assets and liabilities assumed were as follows: (Dollars in thousands) Assets acquired, net of cash $ 65,679 Liabilities assumed (22,942) Notes issued (8,566) ------------- Net cash paid $ 34,171 ============= -9- On September 25, 1998, the Company acquired the assets of Network Essentials, Inc., ("Red Hawk") based in Milpitas, California. The acquisition was accounted for using the purchase method under APB Opinion No. 16. The operations and financial position of HEW/CDT and Red Hawk are not material to either the consolidated operations or financial position of the Company, therefore, pro forma financial information is not presented. 6. RECLASSIFICATIONS ----------------- Certain reclassifications have been made to the prior year statements to conform with the current year presentation. -10- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cable Design Technologies is a leading manufacturer of technologically advanced electronic data transmission cable for network, communication, specialty electronics, and automation and process control applications, including complete voice and data wiring solutions, fiber optic connective solutions and other components required to build high performance telecommunication infrastructures. This discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the notes thereto. Results of Operations Overview Sales for the six months ended January 31, 1999 ("first half 1999") increased $16.7 million, or 5%, to $334.5 million compared to $317.8 million for the six months ended January 31, 1998 ("first half 1998"), including $31.9 million of additional sales attributable to recently acquired businesses, primarily HEW/CDT, Orebro/CDT and Red Hawk. Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on communication cable sales, the increase in sales would have been approximately 8%. Income from operations excluding the non-recurring charge increased $5.3 million, or 14%, to $42.5 million for the first half 1999 compared to $37.2 million for the first half 1998. Net income for the first half 1999 excluding the non-recurring charge was $21.4 million ($0.72 per diluted share) compared to net income of $21.4 million ($0.68 per diluted share) for the first half 1998. Reported net income including the non-recurring charge for the first half 1999 was $17.2 million ($0.58 per diluted share). The increase of $5.3 million in first half 1999 income from operations excluding the non-recurring charge, as compared to the same period last year, was offset by a $2.6 million increase in interest expense, a net unfavorable change of $1.7 million in other income/expense, primarily foreign currency exchange and minority interest, and a $1.0 million increase in tax expense. Sales for the three months ended January 31, 1999 ("second quarter 1999") increased $5.3 million, or 3%, to $160.9 million compared to $155.6 million for the three months ended January 31, 1998 ("second quarter 1998"), including $15.3 million of additional sales attributable to the recent acquisitions. Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on communication cable sales, the increase in sales would have been 5%. Income from operations excluding the non-recurring charge for the second quarter 1999 increased $1.0 million, or 6%, to $18.4 million compared to $17.4 million for the second quarter 1998. Net income excluding the non-recurring charge for the second quarter 1999 was $9.0 million ($0.31 per diluted share) compared to $9.9 million ($0.32 per diluted share) for the second quarter 1998. The $1.0 million increase in second quarter 1999 income from operations excluding the non-recurring charge compared to the second quarter 1998 was offset by a $1.3 million increase in interest expense, a $0.9 million net unfavorable change in other income/expense, primarily foreign currency exchange and minority interest, and a $0.3 million decrease in tax expense. Reported net income including non-recurring charge for the second quarter 1999 was $4.8 million ($0.16 per diluted share). During the second quarter 1999, sales of communication cable were lower in the U.S. marketplace. The Company believes that the lower domestic demand for communication cable in the second quarter is in part due to year-end budgetary constraints at the Regional Bell Operating Companies ("RBOCs") and to the mergers of major communication companies which affected the order cycle. North American demand for communication cable is expected to increase during the spring and summer months as a result of the seasonal pick-up in the laying of communication cable as the ground thaws in the northern U.S. and Canada as well as the diminishment of the effects of the RBOC's year end budget constraints and of the communication company mergers. Also, an industry-wide slowdown in the U.S. network structured wiring market during the second fiscal quarter 1999 resulted in lower demand and competitive pressure on pricing for network cable products. The Company believes that the slowdown is in part the result of a redirection of capital spending by many businesses from investment in network systems to -11- resolving their Year 2000 compliance issues. The Company believes other key factors contributing to the slowdown are the uncertainty concerning the minimum required performance specifications of advanced cabling for use with Gigabit Ethernet technology and the fact that performance specifications for advanced cables have not been promulgated by the Telecommunication Industry Association. Network cables generally conforming to the proposed new Category 5e (enhanced Category 5) and Category 6 cable specifications have previously been referred to as Level 6 and Level 7, respectively. Although these factors may continue to influence the U.S. market for network structured wiring products in the near- term, the Company believes the long-term growth prospects for higher performance products in this industry to be positive and over the past 18 months the Company has invested $64.8 million in its manufacturing capabilities to position itself to benefit from opportunities in the higher performance network structured wiring, communication and specialty electronic marketplaces. Three Months Ended January 31, 1999 Compared to Three Months Ended January 31, 1998 Sales for the second quarter 1999 of $160.9 million increased $5.3 million, or 3%, compared to sales of $155.6 million for the second quarter 1998, including additional sales of $15.3 million attributable to the Company's recently acquired businesses. Second quarter 1999 sales for the Network Communication group of $88.7 million, which includes network structured wiring systems products and communication cable, decreased $5.3 million, or 6%, compared to $94.0 million for the second quarter 1998. Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on communication cable sales, the decrease in sales for this group would have been 3%. Factors which contributed to the decrease in sales for this product group compared to the second quarter 1998 were lower sales of Category 5 network cable and communication cable in the U.S. marketplace and the industry-wide slowdown in the U.S. network structured wiring market during the second quarter 1999 which resulted in lower selling prices for certain network cable products, particularly for plenum Category 5 and 5e. However, the lower sales of Category 5 network cable and the lower pricing for the Category 5 and 5e cables were offset by an improvement in product mix due to increased sales of the higher priced Category 5e and 6 network cables for the second quarter 1999. Second quarter 1999 sales for the Specialty Electronics group increased $10.5 million, or 17%, to $72.2 million compared to $61.7 million for the second quarter 1998, including additional sales of $13.9 million attributable to the recently acquired businesses. Excluding acquisitions, Specialty Electronics group sales declined 6% compared to the second quarter 1998 primarily as a result of continued competitive conditions in the marketplace for automation and process control cable products. Sales outside of North America increased $11.8 million, or 45%, to $38.1 million for the second quarter 1999 compared to $26.3 million for the same period last year, including additional sales of $14.0 million attributable to the recently acquired businesses. Sales outside of North America for the second quarter 1999 were unfavorably affected by the continued sluggish economy in the United Kingdom and the recent economic turmoil in Russia, Latin America and the Pacific Rim. Second quarter 1999 gross profit increased $1.2 million, or 3%, to $46.9 million compared to $45.7 million for the second quarter 1998, including the additional gross profit of $4.6 million attributable to the recently acquired businesses which primarily benefitted the Specialty Electronics group. Factors which contributed to the decrease in gross profit excluding acquisitions were: for the Network Communication group, lower sales of Category 5 network cables, lower pricing for Category 5 and 5e network cables, and lower sales of communication cable, which together were partially offset by an improved product mix due to increased sales of higher margin Category 5e and 6 network cables and of structured wiring system component products; and, for the Specialty Electronics group, continued competitive conditions for automation and process control cable products and, to a lesser extent, a lower margin on wireless cable products due to a shift in product mix. The gross margin percentage for the second quarter 1999 decreased slightly to 29.1% compared to 29.4% for the second quarter 1998. Selling, general and administrative expense ("SG&A") for the second quarter 1999 increased $0.5 million, or 2%, to $27.0 million compared to $26.5 million for the second quarter 1998, including $2.4 million of additional SG&A attributable to the recent acquisitions. The reduction in SG&A excluding acquisitions of $1.9 million was primarily the result of significantly lower expenses at NORDX/CDT due to the discontinuance of its DynaTraX (TM) product line and other restructuring activities implemented in July 1998, lower volume related sales expenses, and the favorable effect of foreign currency translation, which together almost entirely offset the additional SG&A from -12- acquisitions. As a percentage of sales, SG&A for the second quarter 1999 was 16.8% compared to 17.0% for the second quarter 1998. Second quarter 1999 research and development expense decreased $0.4 million to $1.4 million compared to $1.8 million for second quarter 1998. The decrease in research and development expense is primarily the result of NORDX/CDT's discontinuance of its DynaTraX (TM) product line. On December 14, 1998, the Company purchased 1.6 million shares of the Company's common stock acquired by key employees through the exercise of incentive stock options pursuant to a share purchase plan previously adopted by the Board of Directors (the "Share Purchase Plan"). During the second quarter 1999 the Company, as part of the Share Purchase Plan, recorded a $6.3 million ($4.2 million, net of tax) non-recurring charge as a result of incentive payments offered to key employees for the purchase by the Company of such shares. As a result of the purchase of such shares, the Company obtained a cash benefit of approximately $12.8 million to be realized through the reduction of income taxes payable. The incentive payments were made to partially compensate the employees for the difference between the income tax rates for ordinary income and long term capital gains. See "Share Purchase Plan". Income from operations for the second quarter 1999 decreased $5.3 million to $12.1 million compared to $17.4 million for the second quarter 1998, primarily as a result of the non-recurring charge discussed above. Income from operations excluding the non-recurring charge increased $1.0 million, or 6%, to $18.4 million. The operating margin, excluding the non-recurring charge, was 11.5% for the second quarter 1999 compared to 11.2% for the second quarter 1998. The improvement in operating margin was primarily the result of the improvement in both SG&A and research and development expenses as a percentage of sales, which was partially offset by the slightly lower gross margin percentage. Interest expense was $3.2 million for the second quarter 1999, an increase of $1.3 million compared to the second quarter 1998. This increase was primarily due to the higher average balance of debt outstanding due to the acquisition of HEW/CDT at the beginning of fiscal 1999 and the purchase of 1.6 million shares of the Company's common stock pursuant to the Share Purchase Plan. The effective tax rate increased to 43.9% in the second quarter 1999 compared to 38.2% in the second quarter 1998. The increase in the effective tax rate for the second quarter 1999 was primarily due to the fact that approximately $0.9 million of the non-recurring charge is non-deductible for income tax purposes. Excluding the non-recurring charge, the increase in the effective tax rate to 39.5% compared to 38.2% for the second quarter 1998 was primarily the result of a higher German tax rate applicable to the Company's recently acquired HEW/CDT subsidiary, lower Canadian research and development tax credits as a result of the reduction in research and development spending, and a change in the income mix among domestic and foreign statutory entities. Net income for the second quarter 1999 excluding the non-recurring charge decreased $0.9 million, or 9%, to $9.0 million ($0.31 per diluted share) compared to net income of $9.9 million ($0.32 per diluted share) for the second quarter 1998. The $1.0 million increase in income from operations excluding the non-recurring charge was offset by the $1.3 million increase in interest expense, a $0.9 million net unfavorable change in other income/expense, primarily foreign currency exchange and minority interest, and the higher effective tax rate. Reported net income for the second quarter 1999 including the non-recurring charge was $4.8 million ($0.16 per diluted share). Six Months Ended January 31, 1999 Compared to Six Months Ended January 31, 1998 For the six months ended January 31, 1999, sales increased $16.7 million, or 5%, to $334.5 million, including additional sales of $31.9 million attributable to the Company's recently acquired businesses, compared to $317.8 million for the six months ended January 31, 1998. Network Communication group sales for the first half 1999 were $180.9 million, a decrease of $10.9 million, or 6%, compared to the first half 1998. However, adjusted for the unfavorable effects of foreign currency translation and for the decline in the price of copper on communication cable sales, the sales for this group only declined 3%. The decrease was primarily the net result of reduced demand in the U.S. marketplace for communication cable and for plenum Category 5 network cable as well as competitive pricing pressure on Category 5 and 5e network cables, particularly in the second quarter of fiscal 1999. An improved product mix due to increased sales of the higher priced Category 5e and 6 network cables partially offset the -13- reduction in communication cable and Category 5 network cable sales. During the second quarter of fiscal 1999, an industry-wide slowdown in the U.S. network structured wiring market resulted in reduced demand and competitive pressure on network cable pricing, particularly for plenum Category 5 network cable. Specialty Electronics group sales for the first half 1999 increased $27.7 million, to $153.6 million, including additional sales of $30.0 million attributable to the recently acquired businesses. Excluding acquisitions, sales for the Specialty Electronics group declined 2%, primarily due to competitive market conditions for automation and process control cable products in the U.S. and the United Kingdom. Sales outside of North America for the first half 1999 increased $27.9 million, or 54%, to $79.2 million, including additional sales of $29.1 million attributable to the recently acquired businesses, compared to $51.3 million for the first half 1998. Sales outside North America were unfavorably affected by the sluggish economy in the United Kingdom and the recent economic turmoil in Russia, Latin America and the Pacific Rim. First half 1999 gross profit increased $7.3 million, or 8%, to $100.6 million compared to $93.3 million for the first half 1998. Gross profit for the first half 1999 included $9.5 million of additional gross profit attributable to the recently acquired businesses which primarily benefitted the Specialty Electronics group. Factors which contributed to the decrease in first half 1999 gross profit excluding acquisitions, which primarily occurred during the second quarter, were: for the Network Communication group, lower sales for Category 5 network cable and lower pricing for Category 5 and 5e network cables, and lower sales for communication cable, the effects of which were almost entirely offset by an improved product mix due to increased sales of the higher margin Category 5e and 6 network cable products; and, for the Specialty Electronics group, continued competitive conditions for automation and process control cable products and, to a lesser extent, a lower margin on wireless cable products due to a shift in product mix. The increase in gross profit also reflects the favorable effect of the reduction in the Canadian exchange rate which resulted in lower comparative product costs on U.S. denominated sales by the Company's Canadian businesses. The gross margin percentage for the first half 1999 was 30.1% compared to 29.4% for the first half 1998. The increase in the gross margin percentage for the first half 1999 compared to the first half 1998 reflects an improved gross margin for the Network Communication group which was partially offset by a lower margin for the Specialty Electronics group. SG&A for the first half 1999 increased $2.7 million to $55.2 million, including $4.7 million of additional SG&A attributable to the recent acquisitions, compared to $52.5 million for the first half 1998. Excluding acquisitions, the $2.0 million reduction in SG&A was primarily the result of significantly lower expenses at NORDX/CDT due to the discontinuance of its DynaTraX (TM) product line and other restructuring activities implemented in July 1998, lower volume related sales expenses, and the favorable effect of foreign currency translation, which almost entirely offset the additional SG&A from acquisitions. SG&A as a percentage of sales was 16.5% for both the first half 1999 and first half 1998. Second quarter 1999 research and development expense decreased $0.7 million to $2.9 million compared to $3.6 million for second quarter 1998. The decrease in research and development expense is primarily the result of the discontinuance of the DynaTraX (TM) product line. Income from operations excluding the non-recurring charge increased $5.3 million, or 14%, to $42.5 million compared to the first half 1998. The operating margin percentage excluding the non-recurring charge was 12.7% for the first half 1999 compared to 11.7% for the first half 1998. Income from operations for the first half 1999 including the second quarter 1999 non- recurring charge of $6.3 million decreased $1.0 million to $36.2 million compared to $37.2 million for the first half 1998. Interest expense for the first half 1999 was $6.4 million, an increase of $2.6 million compared to the first half 1998. The increase was primarily the result of the higher average balance of debt outstanding due to the acquisition of HEW/CDT at the beginning of the first half 1999 and the purchase of 2.4 million shares of the Company's common stock during the first half 1999. The effective tax rate increased to 41.1% in the first half 1999 compared to 37.9% in the first half 1998. The increase in the effective tax rate for the first half 1999 was primarily due to the fact that approximately $0.9 million of the non- recurring charge is non-deductible for income tax purposes. Excluding the non- recurring charge, the increase in the effective tax rate to 39.8% compared to 37.9% for the first half 1998 was primarily the result of a higher German tax rate applicable to the Company's recently acquired HEW/CDT subsidiary, lower Canadian research and development tax credits and a change in the income mix among domestic and foreign statutory entities. -14- Net income excluding the non-recurring charge for the first half 1999 of $21.4 million ($0.72 per diluted share) was equal to first half 1998 net income of $21.4 million ($0.68 per diluted share). The increase of $5.3 million in first half 1999 income from operations excluding the non-recurring charge compared to first half 1998 was offset by the $2.6 million increase in interest expense, a $1.7 million net unfavorable change in other income/expense, primarily foreign currency exchange and minority interest, and the $1.0 million increase in tax expense primarily due to the higher effective tax rate. Reported net income for the first half 1999 including the non-recurring charge was $17.2 million ($0.58 per diluted share). Financial Condition Liquidity and Capital Resources - ------------------------------- The Company's primary bank credit agreement (the "Credit Agreement") is comprised of a U.S. revolving facility of $121.3 million, which includes a USD $50.0 million Deutschmark sub-facility, and a CDN $115.0 million Canadian revolving facility equivalent to $76.1 million. The Company also maintains a bank credit facility in the United Kingdom equivalent to $12.3 million (the "Foreign Facility"). At January 31, 1999, the Company had $174.7 million and $9.5 million outstanding under the Credit Agreement and Foreign Facility, respectively. Effective December 14, 1998, the Company entered into a 364-day, unsecured bank revolving credit agreement (the "Revolving Facility"). The Revolving Facility provides for maximum borrowings of $35.0 million. Outstanding borrowings bear floating interest rates of either LIBOR plus the applicable margin or the base rate, as defined, at the Company's election. The applicable margin over LIBOR ranges from .525% to 1.05% and is determined based on the attainment of specified leverage ratios. A facility fee of between .10% and .20%, based upon a specific leverage ratio, is payable quarterly on the maximum facility amount. The Revolving Facility contains customary financial and non-financial covenants, except as limited by the terms of the existing Credit Agreement. The Revolving Facility is to be used for working capital and other general corporate purposes and was used to fund in part the Share Purchase Plan. At January 31, 1999, the Company had $25.0 million outstanding under the Revolving Facility. Based on an analysis of current expectations for its business, management believes that the Company's cash flow from operations, funds available under its credit agreements, and ability to attract short term and long term capital will provide it with sufficient liquidity to meet its current liquidity needs. Working Capital During the first half 1999, operating working capital increased - --------------- $5.1 million, excluding increases resulting from the initial recording of the working capital of acquired businesses. The change in operating working capital was primarily the net result of a decrease in accounts payable and accrued liabilities of $14.3 million and an increase in inventories of $1.4 million, which were partially offset by a decrease in accounts receivable of $11.2 million. The change in operating working capital excludes changes in cash and cash equivalents and current maturities of long-term debt. Cash Flow The Company generated $22.7 million of net cash from operating - --------- activities during the first half 1999, after providing for the $5.1 million increase in operating working capital. Net cash provided by financing activities during the first half 1999 of $33.1 million included $71.7 million from debt sources and $6.4 million from the exercise of stock options, which were partially offset by $45.0 million used for the purchase of 2,423,452 shares of the Company's common stock. Net cash used by investing activities of $59.3 million included $43.6 million for the acquisition of businesses, primarily HEW/CDT, and $15.6 million for capital projects, including expenditures for equipment and machinery to expand production capacity, particularly at NORDX/CDT for communication cable and network cable products, and at various other locations for high-performance wire and cable products. Share Purchase Plan On December 1, 1998, the Company's Board of Directors - ------------------- approved the purchase of up to 1.9 million shares of the Company's common stock that was acquired by certain key employees upon the exercise of certain incentive stock options granted primarily in 1988 and 1989 and expiring in 1998 and 1999. The offer to the employees to purchase such stock was made on December 14, 1998, and 1,596,052 shares were purchased at a total cost of $33,118,079, or $20.75 per share, the closing price of the Company's common stock on the date of the -15- purchase. The Company obtained a cash benefit of approximately $12.8 million to be realized through the reduction of income taxes payable as a result of the disqualification of the qualified status of the incentive stock options upon the purchase. Under GAAP, the tax benefit obtained will not be reflected in the income statement of the Company. In connection with the Company's purchase of this stock, the employees were offered an incentive payment to induce them to sell such shares so that the Company would receive the related tax benefit. The Company shared the tax benefit by making an incentive payment to each employee equal to 19.6% of the tax deduction obtained as a result of the shares purchased from such employee. The incentive payments partially compensated the employees for the difference between the income tax rates for ordinary income and for long term capital gains, and resulted in a non-recurring charge to operating earnings of $6.3 million ($4.2 million, net of tax) in the second quarter 1999. The incentive payments are payable in two equal installments, the first of which was made in January 1999 and the second is to be made in August 1999. The purchase price for the shares and the incentive payments made during the second quarter 1999 were paid in cash and funded through borrowings under the Credit Agreement and the Revolving Facility. Fluctuation in Copper Price The cost of copper in inventories (including finished goods) reflects purchases over various periods of time ranging from one to several months for each of the Company's individual operating units. For communication cable products, profitability is generally not significantly affected by volatility of copper prices as changes in copper prices are generally passed along to customers, however, differences in the timing of selling price adjustments do occur and may impact near term results. For other product lines, although selling prices are not generally adjusted to directly reflect changes in copper prices, the relief of copper costs from inventory for those operating units having longer inventory cycles may affect profitability from one period to the next following periods of significant movement in the cost of copper. The Company does not engage in activities to hedge the underlying value of its copper inventory. New Accounting Standards The FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") in June 1997. SFAS No. 131 establishes standards for reporting information about operating segments. SFAS No. 131 is effective for the Company's fiscal year ending July 31, 1999. Adoption of this standard will not change the reported results of operations or financial position of the Company, however compliance with the provisions of this standard will add, expand and/or modify various disclosures made in conjunction with the financial statements. The Company plans to provide appropriate financial statement disclosure under SFAS No. 131 in its Form 10-K for the fiscal year ended July 31, 1999. In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes accounting and reporting standards for derivative instruments and requires recognition in the balance sheet of all derivative instruments as either assets or liabilities, measured at fair value. SFAS No. 133 is effective for the Company's fiscal year ending July 31, 2000. The Company does not believe the adoption of SFAS No. 133 will have a material effect on the Company's results of operations, financial position or cash flows. Year 2000 Compliance Readers are cautioned that forward-looking statements contained in the Year 2000 discussion below should be read in conjunction with the Company's disclosures under the heading "Forward-Looking Statements". Each of the Company's operating units has established a Year 2000 project leader and, in the case of the larger units, a project team. In addition, CDT's corporate headquarters has established a Year 2000 project team. The function of each unit's project team is to identify and remediate Year 2000 issues at their respective facilities. The function of the corporate team is to review and remediate any corporate-wide Year 2000 issues and monitor the status of the remediation activities of the operating units. -16- Each operating unit has assessed their internal information systems ("IT systems") and non-IT systems, such as manufacturing equipment and control devices. Operating units representing approximately 78% of the Company's consolidated revenues have completed any Year 2000 remediation believed necessary with respect to their IT systems. The remaining operating units have either purchased and are in the process of implementing compliant hardware and/or software or identified compliant hardware and/or software and are in the process of obtaining such items. All units are expected to complete their remediation activities by fiscal year-end, July 31, 1999. The remediation of such IT systems has included the purchase of new hardware and software or the modification of existing software. In certain cases, new IT systems were acquired to improve functionality and provide additional system capabilities, as well as address Year 2000 issues. The cost to maintain or modify existing IT systems is expensed as incurred, while the cost of new and functionally improved IT systems are capitalized and amortized over their estimated useful lives. As of January 31, 1999, the Company has expended $2.8 million with respect to IT systems, which represents approximately 75% of the total costs expected to be incurred. Based on management's review, expenditures associated with modifying or replacing existing IT systems to resolve the Year 2000 issue will not have a material adverse effect on the Company's results of operations, liquidity or capital resources. The Company does not anticipate any material issues or delays regarding implementation schedules for IT system remediations. Each of the operating units has undertaken an assessment of non-IT systems. Such reviews are substantially completed. While certain items of equipment have been found to contain potentially non-compliant components, neither the number or function of such items are material. Such equipment is either being modified or replaced. To-date, the Company does not anticipate material Year 2000 compliance issues with respect to non-IT systems, and does not expect expenditures to remediate non-compliant non-IT systems to have a material adverse effect on the Company's results of operations, liquidity or capital resources. The Company and its operating units are in the process of assessing third party Year 2000 compliance. As many of the Company's suppliers and customers are still engaged in executing their Year 2000 programs, the Company cannot fully evaluate such compliance. Neither the Company nor its operating units have adopted formal contingency plans regarding Year 2000 compliance issues, but are in the process of identifying areas where contingency plans may be appropriate as well as the potential cost and feasibility of implementing such plans. Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. However, since it is not possible to anticipate all possible future outcomes, especially in the case of third parties, there could be "worst-case scenarios" in which one or more operating units of the Company would be unable to conduct normal operations due to Year 2000 related matters, such as the inability to take customer orders, manufacture and ship products, invoice customers or collect payments. In addition, there is still uncertainty about the broader scope of the Year 2000 issue as it may affect the Company and third parties who are critical to the Company's operations. For example, lack of readiness by electrical and water utilities, financial institutions, government agencies or other providers of general infrastructure could, in some geographic areas, pose significant impediments to one or more of the Company's operating units to carry on their normal operations in the area or areas so affected. In the event that the Company or third parties (including those described above) do not properly complete their Year 2000 remedial actions or unanticipated Year 2000 events occur there could be a material adverse effect on the Company's business, results of operations or financial condition. Introduction of the Euro Currency The European Economic Monetary Union's ("EEMU") common currency, the Euro, was implemented effective January 1, 1999, at which time fixed exchange rates were established between the legacy currencies of the participating countries and the Euro. During the transition period, which extends through June 30, 2002, transactions may be conducted in either the Euro or the legacy currencies. The Company has subsidiaries in the United Kingdom, Sweden, Denmark and Germany which have customers and suppliers in participating EEMU countries. The Company's German subsidiary is the only subsidiary domiciled in a participating country. These -17- subsidiaries currently have the ability to support transactions in both the Euro and their respective legacy currencies. Conversion to the Euro as the functional currency for the Company's German subsidiary will be phased in prior to January 1, 2002, and conversion costs are not expected to be significant. The EEMU's introduction of the Euro may potentially have economic and business implications, such as changes in product pricing and currency exchange risks, for businesses within the EEMU as well as for businesses outside the EEMU that do business with companies within the EEMU. The nature and extent of such effects, whether beneficial or adverse, are unknown at this time. However, the Company does not believe that such effects will have a material impact on its consolidated results of operations or financial condition, although there can be no assurance that unanticipated effects will not have an adverse impact on the Company's future results of operations. Forward-Looking Statements -- Under the Private Securities Litigation Act of 1995 Certain statements in this quarterly report are forward-looking statements, including, without limitation, statements regarding future financial results and performance, Year 2000 compliance, introduction of the Euro, increase in communication cable demand and long-term growth prospects, and the Company's or management's beliefs, expectations or opinions. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including the level of market demand for the Company's products, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, price fluctuations of raw materials and the potential unavailability thereof, foreign currency fluctuations, technological obsolescence, environmental matters and other specific factors discussed in this report, the Company's Annual Report on Form 10-K for the year ended July 31, 1998, and other Securities and Exchange Commission filings. The information contained herein represents management's best judgement as of the date hereof based on information currently available; however, the Company does not intend to update this information to reflect developments or information obtained after the date hereof and disclaims any legal obligation to the contrary. -18- PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders (a) Cable Design Technologies Corporation annual meeting of stockholders was held on December 9, 1998. (b) Proxies were solicited by Cable Design Technologies Corporation and there was no solicitation in opposition to the nominees as listed in the proxy statement. All such nominees were elected pursuant to the vote of the stockholders as follows: VOTES ----- For Withheld --- -------- Bryan C. Cressey 26,187,606 873,254 Paul M. Olson 26,188,356 872,504 George C. Graeber 26,188,556 872,304 Myron S. Gelbach, Jr. 26,162,583 898,277 Michael F.O. Harris 26,187,911 872,949 Glenn Kalnasy 26,186,781 874,079 Richard C. Tuttle 26,186,276 874,584 A proposal to adopt the Cable Design Technologies Corporation 1998 Employee Stock Purchase Plan was approved by a vote of: For: 26,846,091 Against: 182,278 Abstain: 32,491 The firm of Arthur Andersen LLP was re-elected to serve as auditors for the fiscal year ending July 31, 1999, by a vote of: For: 26,410,314 Against: 8,354 Abstain: 642,192 -19- Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 15.1 Letter of Arthur Andersen LLP regarding unaudited interim financial statement information. 27.1 Financial data schedule. 99.1 Revolving Line of Credit Letter Agreement dated December 14, 1998, between CDT and ABN AMRO Bank N.V.. 99.2 Master Revolving Line of Credit Promissory Note issued by CDT in favor of ABN AMRO Bank N.V.. (b) Form 8-Ks --------- None -20- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLE DESIGN TECHNOLOGIES CORPORATION March 16, 1999 /s/ Paul M. Olson ------------------------------------------ Paul M. Olson President and Chief Executive Officer March 16, 1999 /s/ Kenneth O. Hale ------------------------------------------ Kenneth O. Hale Vice President and Chief Financial Officer -21- EX-15.1 2 LETTER OF ARTHUR ANDERSEN LLP EXHIBIT 15.1 February 24, 1999 To the Stockholders and Board of Directors of Cable Design Technologies Corporation: We are aware that Cable Design Technologies Corporation has incorporated by reference in its Registration Statements on Form S-3 (Registration No. 333- 00554); Form S-8 (Registration No. 33-73272); Form S-8 (Registration No. 33- 78418); Form S-8 (Registration No. 333-2450); Form S-8 (Registration No. 333- 6743); and Form S-8 (Registration No. 333-17443) its Form 10-Q for the quarter ended January 31, 1999, which includes our report dated February 24, 1999, covering the unaudited interim financial statement information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act), that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP EX-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Unaudited Condensed Consolidated Balance Sheet and Statement of Income as of January 31, 1999 and the six month period then ended and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUL-31-1999 AUG-01-1998 JAN-31-1999 7,868 0 117,682 4,540 142,420 289,289 247,075 47,274 575,725 131,362 0 0 0 307 230,841 575,725 334,520 334,520 233,913 298,332 603 0 6,418 29,167 11,997 17,170 0 0 0 17,170 0.58 0.58
EX-99.1 4 CREDIT AGREEMENT LETTER EXHIBIT 99.1 December 14, 1998 Cable Design Technologies Inc. Foster Plaza 7 661 Andersen Dr. Pittsburgh, Pennsylvania 15220 Re: $35,000,000 364-Day Revolving Line of Credit Letter Agreement Ladies and Gentlemen: Upon the request of Cable Design Technologies Inc., a Washington corporation (the "Borrower"), and subject to the following terms and conditions -------- of this letter (the "Agreement") (this Agreement and all documents, instruments, --------- and agreements executed or delivered now or hereafter by or for Borrower in connection herewith or therewith, will be referred to in this Agreement as the "Loan Documents"), ABN AMRO Bank N.V. ("ABN AMRO" or "Bank") will make a - --------------- -------- ---- revolving line of credit facility available to the Borrower: 1. The Line of Credit Facility, Advances, Letters of Credit. a. The Facility. Subject to the terms and conditions of this Agreement, -- ------------ ABN AMRO hereby establishes a line of credit facility in favor of the Borrower in the maximum principal amount of THIRTY FIVE MILLION UNITED STATES DOLLARS (US$35,000,000) (the "Facility"). -------- b. Advances. Until December 12, 1999 (the "Termination Date"), and -- -------- ---------------- subject to the other terms and conditions hereof, ABN AMRO will make advances under the Facility (the "Advances" and each an "Advance") -------- ------- upon the request of Borrower in accordance with the terms hereof, provided that: (i) the aggregate amount of all Advances outstanding shall not at any time exceed US$35,000,000, (ii) no Advance shall be requested or made which, when aggregated with all other Advances then outstanding, would exceed $35,000,000, and (iii) the minimum principal amount of any Advance shall be $500,000. Within such limits and subject to the other provisions of this Agreement, Borrower may borrow, repay, and reborrow under the Facility in accordance with the terms and conditions hereof. c. Advance Requests, Purpose of Facility. -- ------------------------------------- i. Prior to the Termination Date, Borrower may request an Advance by providing ABN AMRO a written request therefor (each, an "Advance ------- Request") in accordance with the terms of the Note (as defined ------- hereinafter). ii. Advances by ABN AMRO shall be made by wire transfer to Borrower's account as ABN AMRO is instructed by Borrower in the applicable Advance Request. iii. Advances shall be used by Borrower for working capital and other general corporate purposes, including intercompany transfers for the general corporate purposes of its affiliates, and in no event contrary to law. Cable Design Technologies Inc. December 14, 1998 Page 2 2. The Note, Payment. a. The Note. Amounts payable under the Facility shall be evidenced by a -- -------- promissory note of Borrower, dated as of the date hereof (the "Note"). ---- The Note is hereby incorporated herein by reference and made a part hereof; Borrower shall make all payments required by the Note. In no event shall the interest rate applicable to principal amounts outstanding under the Note exceed the maximum rate of interest allowed by applicable law; any payment of interest or in the nature of interest in excess of such limitation shall be credited as a payment of principal unless Borrower requests the return of such amount. b. Payments. All payments made under the Note shall be made in lawful -- -------- currency of the United States ("Dollars") in immediately available funds by wire transfer to ABN AMRO Bank N.V., New York, New York Branch, ABA Routing Number 026009580, for credit to ABN AMRO Bank N.V., Chicago Branch CPU, Account Number 650-001-1789-41, Reference: CPU-Cable Design Technologies or to such location as ABN AMRO shall direct in writing. ABN AMRO is authorized to enter on the books and records of Bank the date and amount of each Advance, the interest rate applicable thereto, each payment of principal under the Facility, together with the amount of interest and other charges accrued thereon, interest and charges paid, and similar information, which entries shall be conclusive absent manifest error. 3. Fees. Borrower shall pay to the Bank in immediately available funds: (i) the Facility Fee described in the Note, payable as set forth therein, and (ii) a commitment fee in the amount of US$105,000, payable upon the execution of this Agreement by Borrower. An unutilized amount held by Bank pursuant to a previously executed commitment letter shall be credited against the above referenced commitment fee and other fees and costs set forth herein, to the extent of such amount. 4. Certain Definitions. As used in the Agreement, the following terms shall have the respective meanings set forth below: "Business Day", shall mean any day other than a Saturday, a Sunday, or a ------------ day on which banks are required or permitted by law to close in Chicago, Pittsburgh, New York, or the location of the money market from which funds for the relevant Advance are sought. 5. Conditions. a. The making of any Advance hereunder is subject to the satisfaction of the following conditions precedent: at the time of a request for an Advance, there shall exist no Event of Default (defined hereinafter) or circumstance which, with the passage of time or giving of notice or both, would constitute an Event of Default (any such circumstance being referred to herein as a "Potential Default") and each of the ----------------- representations and warranties set forth or incorporated herein shall be true and correct in all material respects with the same force and effect as if the representations and warranties had been made on and as of such time, except to the extent that any representation or warranty may expressly relate solely to an earlier date. b. ABN AMRO shall have received from Borrower, in form and substance satisfactory to ABN AMRO, the following: i. On or prior to the date of the first Advance, guaranties, in form and substance satisfactory to ABN AMRO, from Cable Design Technologies Corporation ("Parent") and all material domestic ------ subsidiaries of Borrower (the Parent and such subsidiaries are collectively referred to herein as the "Guarantors") of the ---------- obligations of Borrower arising under the Loan Documents. Cable Design Technologies Inc. December 14, 1998 Page 3 ii. Within twenty (20) days of the date of the first Advance, copies of Borrower's and each Guarantors' Certificate or Articles of Incorporation, certified by the relevant Secretary of State, and Bylaws certified to Bank by the appropriate corporate Secretaries, together with copies of the resolutions of the Boards of Directors of Borrower and the Guarantors authorizing the execution, delivery, and performance of this Agreement and the other Loan Documents by a specified number of authorized officers whose specimen signatures and such resolutions are certified by the appropriate corporate Secretary, and a good standing certificate of Borrower and each Guarantor, certified by the relevant Secretary of State; iii. Within ten (10) days of the date of the first Advance, an opinion of counsel to Borrower and the Guarantors substantially in the form provided in connection with the Existing Credit Agreement (defined hereinafter); and iv. Such additional documents as ABN AMRO may reasonably request. 6. Incorporation of Existing Credit Agreement. a. Credit Agreement, Definitions. Capitalized terms not otherwise defined -- ----------------------------- in this Agreement shall have in this Section 6 the respective meanings ascribed to them by that Credit Agreement, dated as of April 10, 1997, as amended as of July 31, 1998, among Borrower, Cable Design Technologies Corporation, Nordx/CDT, Inc., BankBoston, N.A., Paribas, Paribas Bank of Canada, Bank of America NT & SA, Bank of America Canada, and the Banks from time to time parties thereto (as such agreement is amended, modified, or waived from time to time, the "Existing Credit Agreement"). ------------------------- b. Incorporation. As long as the Facility remains available or any -- ------------- Advance remains outstanding and except solely to the extent not permitted by Section 7.12 of the Existing Credit Agreement: (i) Borrower as of the date hereof hereby restates and makes directly to ABN AMRO all of the representations and warranties made by Borrower in the Credit Agreement (except to the extent that any such representation or warranty may expressly relate solely to an earlier date, and except to the extent that any Schedule submitted to ABN AMRO by Borrower on or before the date hereof may modify any such representation or warranty) and (ii) Borrower hereby makes and restates directly to ABN AMRO, and promises and covenants to remain in compliance with, all of the affirmative covenants set forth at Section 6 of the Existing Credit Agreement and all of the negative covenants set forth at Section 7 of the Existing Credit Agreement which are applicable to Borrower, in each instance mutatis mutandis. Accordingly: (A) except solely to the extent not permitted by Section 7.12 of the Existing Credit Agreement, all such representations, warranties, and covenants are hereby incorporated herein and made a part hereof as if all such representations, warranties, and covenants were fully set forth herein and made directly by Borrower to ABN AMRO, mutatis mutandis (collectively, the "Incorporated Provisions"), and (B) Borrower shall provide to ABN AMRO all reports, financial statements, notices, compliance certificates, and the like required to be provided to any Agent or Lender under the Existing Credit Agreement (to the extent not otherwise provided by Borrower directly to ABN AMRO under the Existing Credit Agreement) as and when required thereunder. In furtherance of the foregoing, the following interpretive rules shall apply with respect to the Incorporated Provisions as incorporated herein: (a) all references in the Incorporated Provisions to the Agents (or any of them), to the Lenders (or any of them), or to the Majority Lenders shall be deemed to refer solely to ABN AMRO hereunder; (b) all references in the Incorporated Provisions to Lender Debt, Loans, Revolving Loans, Letters of Credit, or Commitments shall be deemed to refer solely to the Facility established hereby and Advances hereunder; (c) all references in the Cable Design Technologies Inc. December 14, 1998 Page 4 Incorporated Provisions to Loan Documents shall be deemed to refer solely to the Loan Documents as defined herein; (d) all references in the Incorporated Provisions to any Default or Event of Default shall be deemed to refer solely to an Event of Default as defined herein; and (e) references in the Incorporated Provisions to the Credit Parties shall be deemed to refer solely to the Borrower and each Guarantor hereunder. c. Compliance. Upon the time that Borrower shall no longer be subject -- ---------- to Section 7.12 of the Existing Credit Agreement, Borrower hereby agrees with ABN AMRO to remain in compliance with all affirmative and negative covenants applicable to Borrower set forth in Sections 6 or 7 of the Existing Credit Agreement. 7. Representations, Warranties, and Covenants. Borrower hereby represents, warrants, and covenants to Bank as follows: (i) Borrower is and shall remain a corporation (A) that is wholly-owned by Parent, and (B) in good standing under the laws of Washington, and Borrower has and shall maintain the lawful power to engage in the business it presently conducts and is and shall remain duly licensed and qualified, and in good standing, in each jurisdiction where the nature of the business transacted by it makes any such licensing or qualification necessary; (ii) the execution, delivery, and performance hereof have been duly authorized by all necessary corporate action, require no governmental approval, and neither now nor hereafter shall contravene, conflict with, nor result in a breach of any law, regulation, order, judgment, charter, certificate or articles of incorporation, bylaws, or other organizational documents, or any document, instrument or agreement governing or binding upon Borrower, any Guarantor, or any of their property; (iii) as of the date hereof, there exit no Liens (as such term is defined in the Existing Credit Agreement) on any material property of the Borrower or any Guarantor (including on any shares of stock or other ownership interests of Parent or any of its subsidiaries), except as described on Schedule A hereto, (iv) the obligations of Borrower and the Guarantors under the Loan Documents rank and, subject to the proviso directly below, shall rank at least pari passu in priority of payment with all other material Indebtedness (as such term is defined in the Existing Credit Agreement) of any of Borrower and any Guarantors, provided, however, that Borrower and Guarantors shall not be required to provide Liens (in this clause, as such term is defined in the Credit Agreement) to ABN AMRO to secure the obligations arising under the Loan Documents to the extent not permitted by the Existing Credit Agreement and, provided further, that Borrower shall, at the time any Lien is granted to secure the obligations under the Existing Credit Agreement, endeavor, but not be bound, to cause the Existing Credit Agreement to be appropriately modified to permit such Liens to be granted to ABN AMRO, (v) any U.S. party that becomes a Guarantor under (and as defined by) the Existing Credit Agreement after the date hereof shall execute and deliver to ABN AMRO a guaranty agreement substantially similar to that referred to in Section 5.b.i. hereof, and (vi) Borrower, Parent, and their respective subsidiaries have reviewed the areas within their business and operations which could be adversely affected by, and have developed or shall develop a program to address on a timely basis, the risk that computer applications used by Borrower, Parent, and their respective subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to, and any date on or after, December 31, 1999 (the "Year 2000 Problem"), and Borrower, Parent, and their respective ----------------- subsidiaries have made or shall make related appropriate inquiry of material suppliers and vendors and, based on such review and program, Borrower believes that the Year 2000 Problem will not have a material adverse effect on Borrower, Parent, or any of their respective material subsidiaries taken as a whole, and Borrower or its Parent is required to publicly report on the Year 2000 Problem as it affects Borrower, Parent, and their respective subsidiaries taken as a whole and shall continue to do so. Cable Design Technologies Inc. December 14, 1998 Page 5 8. Events of Default. a. If any Event of Default (hereinafter defined) shall occur, Bank may (and, upon the occurrence of any Event of Default described in Clause b.iii. below, Bank shall) (i) declare all obligations, indebtedness, and liabilities arising under or in connection with any of the Loan Documents of Borrower to Bank of whatever nature, whether contingent or absolute, matured or unmatured (the "Obligations") to be forthwith ----------- due and payable without presentment, demand, protest, or any other notice or demand of any kind, all of which are hereby expressly waived by Borrower, (ii) refuse to make any Advance, and (iii) require Borrower to, and Borrower thereupon shall, make payment, without presentment, demand, protest, or any other notice or demand of any kind, all of which are hereby expressly waived by Borrower, of all Obligations; and, Bank may do all other things provided for by law or equity or by any agreement between Borrower and Bank to enforce its rights hereunder and under any other Obligation of Borrower to Bank and to collect all amounts owing to Bank by Borrower. b. Each of the following shall be an "Event of Default" hereunder: ---------------- i. the non-payment when due of any of the principal amount of the Obligations; or the non-payment for more than three (3) Business Days after the date when due of any other amount of the Obligations; or, Borrower or any Guarantor shall fail to comply with, or there shall occur a breach of, any other agreement, term, covenant, or condition of this Agreement or any other Loan Document (including any of the Incorporated Provisions) and such failure to comply therewith or breach thereof shall continue for thirty (30) days after notice thereof has been provided by ABN AMRO to Borrower, except that no such grace period shall apply to a failure to comply with, or a breach of, any of Sections 6.1, 6.3, 6.6 through 6.10, 6.13, 6.15, and Section 7 (as such enumerated provisions are incorporated herein in the form of Incorporated Provisions) of the Existing Credit Agreement (to the extent that Section 7.12 of the Existing Credit Agreement permits the incorporation of such Sections herein); or any representation or warranty made by Borrower or any other Guarantor in this Agreement or any other Loan Document (including any representation or warranty incorporated herein as an Incorporated Provision) shall prove to be incorrect, false, or misleading in any material respect when made or when deemed made; ii. The payment of any indebtedness of Borrower or of any obligation of any Guarantor, in either case arising under the Existing Credit Agreement or any document, instrument, guaranty, or agreement relating thereto, shall be accelerated by the holders thereof prior to the stated maturity thereof; iii. the failure of the Borrower or any Guarantor to generally pay its debts (other than with respect to such debt as is addressed in Clause (ii) directly above) as they become due; or, the admission in writing by Borrower or any Guarantor of its inability to pay its debts as they come due generally; or, Borrower's or any Guarantor's insolvency, liquidation, winding up, reorganization, arrangement, adjustment, protection from creditors, relief, or composition of its debts, under any laws relating to bankruptcy, insolvency or reorganization; or, the seeking of the entry of an order for relief or the appointment of a receiver, trustee or other similar official for the Borrower or any Guarantor or for any substantial part of any of their respective property in a bankruptcy or similar proceeding; or, the taking of any action by the Borrower or any Guarantor to authorize any of the foregoing. Cable Design Technologies Inc. December 14, 1998 Page 6 9. General Provisions. (a) Bank and Borrower shall execute and deliver or cause to be executed and delivered such further instruments or documents and do or cause to be done such further acts as may be reasonably necessary or proper to carry out more effectively the provisions and purposes of this Agreement; (b) all notices, requests, and demands hereunder shall be provided in a commercially reasonable manner including by telecopier; and shall be deemed to have been given at the date and time when received at the address or telecopier number, as the case may be, set forth below adjacent to the respective signature of Borrower or Bank, and Bank shall be entitled to rely on the authority of any individual, reasonably believed by ABN AMRO to be authorized by Borrower, transmitting or executing a telecopy facsimile purportedly on behalf of Borrower; (c) as used herein, the singular shall include the plural and vice versa, the words "hereby," ------ "hereof," "herein," "hereunder," and words of similar import shall refer to ------ ------ --------- this Agreement as a whole, and the word "including" is not a term of limitation and means "including without limitation"; (d) Borrower shall pay ---------------------------- and indemnify Bank for, and hold it harmless from and against, any and all obligations, liabilities, losses, damages, costs, expenses (including costs, disbursements, and reasonable legal fees of counsel to Bank), penalties, judgments, suits, actions, claims, and disbursements imposed on, asserted against, or incurred by Bank (i) relating to the preparation, negotiation, execution, administration, or enforcement of or collection under this Agreement or any other Loan Document, including in any bankruptcy proceeding; (ii) relating to any amendment, modification, waiver, or consent thereunder or hereunder or relating to any telecopy transmission purporting to be by or from Borrower; (iii) in any way relating to or arising out of any Loan Document or any action taken or omitted to be taken by Bank hereunder or thereunder; (iv) arising directly or indirectly from the activities of Borrower or any subsidiary or affiliate of Borrower or any officers, directors, employees, or agents of Borrower, any predecessor, subsidiary, or affiliate of Borrower, or any third party with whom Borrower has or has had a contractual relationship; or (v) arising directly or indirectly from the violation or asserted violation of any environmental protection, health, labor, import, export, or safety law or regulation of any jurisdiction and regardless whether any such claims are asserted by any governmental entity or any other person or entity, except to the extent that any of the foregoing in this Clause (d) is caused by the gross negligence or willful misconduct of Bank; (e) this Agreement shall be binding upon and inure to the benefit of Bank and Borrower, and their respective successors and assigns, except that Borrower may not assign or delegate any of its rights or obligations hereunder without the prior written consent of Bank; (f) Borrower hereby authorizes Bank, from time to time without notice to Borrower, to provide any information pertaining to the financial condition, business operations, or creditworthiness of Borrower to or at the direction of any governmental authority as required by such authority, to the subsidiaries and affiliates of Bank, and to any of its or their directors, officers, employees, auditors, and professional advisors who need such information in connection with the Loan Documents, to any person or entity which in the ordinary course of its business makes credit reference inquiries, to any person or entity which may succeed to or participate in all or part of Bank's interest hereunder, and as may be necessary or advisable for the preservation of Bank's rights hereunder; (g) this Agreement shall be subject to the internal laws of the Commonwealth of Pennsylvania without regard to conflict of laws principles; (h) all covenants, agreements, representations, and warranties made or incorporated herein are material and shall be deemed to have been relied upon by Bank and shall survive the execution hereof and all covenants and agreements of Borrower relating to the payment of costs, expenses, or indemnification shall survive payment in full of the Obligations; (i) section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation hereof in any respect; (j) no modification or waiver with respect to this Agreement or any document related hereto shall be effective unless it is in a writing executed by Borrower and Bank, and a waiver by Bank on any one occasion shall not be a waiver of the same or any other right or remedy of Bank on any future occasion, and the rights and remedies of Bank as provided herein or in any other documents related hereto are cumulative and not exclusive of any of the other rights or remedies provided therein or by law or equity and all such rights and remedies may be exercised in any order, singularly or in any combination or successively; (k) any reference herein to this Agreement or any other Loan Document shall be deemed to refer to any and all amendments, modifications, extensions, renewals, and the like thereof; (l) if any provision of any Loan Document shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such provision shall Cable Design Technologies Inc. December 14, 1998 Page 7 as to such jurisdiction be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or of the remaining provisions hereof in any jurisdiction; (m) this Agreement may be executed in any number of separate counterparts, each of which when so executed and delivered shall be an original, and all such counterparts shall together constitute one and the same instrument; and (n) telecopy transmission to Bank of signature pages of this Agreement and any of the other Loan Documents purporting to be signed on behalf of Borrower shall constitute effective and binding execution and delivery hereof and of such Loan Documents by Borrower. The rights of the Bank under this Section are in addition to other rights and remedies which the Bank may have. 10. Consent to Jurisdiction; Waiver of Jury Trial. a. Consent to Jurisdiction. Each of Borrower and ABN AMRO hereby -- ----------------------- irrevocably submits to the jurisdiction of any Pennsylvania state or federal court sitting in Pittsburgh, Pennsylvania, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, and each of Borrower and Bank hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Pennsylvania state or federal court. Each of Borrower and ABN AMRO hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of any such action or proceeding. Each of Borrower and ABN AMRO hereby agree that service of copies of a summons and complaint and any other process in any action or proceeding may be made by mailing or delivering a copy of such process to such party at its address set forth herein. Each of Borrower and ABN AMRO agree that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions (or political subdivisions thereof) by suit on the judgment or in any other manner provided by Law. b. Non-exclusive Jurisdiction. Nothing in this Agreement shall affect -- -------------------------- the right of either party hereto to serve legal process in any other manner permitted by law or affect the right of either party hereto to bring any action or proceeding against the other or any of its property in the courts of any other jurisdictions. c. Waiver of Jury Trial. EXCEPT AS PROHIBITED BY LAW, EACH PARTY HEREBY -- -------------------- WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE OTHER DOCUMENTS OR TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN; each party hereby acknowledges and agrees that the foregoing waiver is a material inducement to its execution of this Agreement and the other Loan Documents. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] Cable Design Technologies Inc. December 14, 1998 Page 8 If Borrower is in agreement with the foregoing terms and conditions, please complete and sign below this Agreement and return it to our attention. ABN AMRO BANK N.V. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: with a copy to: ABN AMRO Bank N.V. ABN AMRO Bank N.V. 208 S. LaSalle Street, Suite 1500 One PPG Place, Suite 2950 Chicago, IL 60604-1003 Pittsburgh, PA 15222-5401 Attn: Loan Administration Attn: Christopher S. Helmeci Phone: 312-992-5151 Phone: 412-566-2250 Fax: 312-992-5156 Fax: 412-566-2266 For Financial Information: ABN AMRO Bank N.V. 208 S. LaSalle Street Chicago, IL 60604 Attn: Kenneth Keck Phone: 312-992-5134 Fax: 312-992-5111 ACCEPTED AND AGREED ------------------- All of the foregoing representations and warranties of Cable Design Technologies Inc., are hereby made and all of the foregoing terms and conditions are hereby agreed to and accepted as of this 14th day of December, 1998, with the intent to be legally bound hereby. CABLE DESIGN TECHNOLOGIES INC. By: (SEAL) Name: Title: Cable Design Technologies Inc. Foster Plaza 7 661 Andersen Dr. Pittsburgh, Pennsylvania 15220 Telecopier No: 412 937 9690 EX-99.2 5 PROMISSORY NOTE EXHIBIT 99.2 MASTER REVOLVING LINE OF CREDIT PROMISSORY NOTE US$35,000,000 December 14, 1998 FOR VALUE RECEIVED, and intending to be legally bound hereby, CABLE DESIGN TECHNOLOGIES INC., a Washington corporation (the "Borrower"), hereby promises to pay to the order of ABN AMRO BANK N.V. (which, together with its endorsees, successors and assigns, is referred to herein as the "Bank"), at its office located at One PPG Place, Suite 2950, Pittsburgh, Pennsylvania 15222-5400 (or at such other place of payment designated by the holder hereof to the Borrower), the lesser of (i) the principal sum of THIRTY FIVE MILLION UNITED STATES DOLLARS (US$35,000,000) or (ii) the aggregate unpaid principal balance of all advances made by Bank to or for the benefit of Borrower (each, an "Advance") pursuant to that letter agreement, dated as of the date hereof, between Borrower and Bank (as amended, modified, extended, supplemented, or the like from time to time, the "Agreement"), in lawful money of the United States of America ("US") in immediately available funds, payable at the earlier of December 12, 1999 (the "Termination Date"), or as otherwise set forth in the Agreement. Capitalized terms, not otherwise defined herein, shall have the respective meanings ascribed to them by the Agreement. Borrower hereby further promises to pay to the order of Bank, at the place of payment, interest on the unpaid principal amount of each Advance from the date such Advance is made until the maturity thereof (whether at stated maturity, by acceleration, or otherwise), at one or another of the following interest rate options (each an "Interest Rate Option") which Borrower shall select in accordance with the terms hereof: (a) upon the selection of a Base Rate option (the "Base Rate Option"), a fluctuating rate of interest per annum equal to the Base Rate of Bank (as hereinafter defined), or (b) upon the selection of a LIBOR option (the "LIBOR Option"), the Applicable Margin (as hereinafter defined) plus LIBOR (as hereinafter defined). For each new Advance, and with respect to each outstanding Advance for which an applicable Interest Period is expiring, Borrower shall select either a Base Rate Option or a LIBOR Option to be applicable to such Advance; such selection shall be communicated to Bank by irrevocable notice (in writing by telex, telecopier, telegram, cable, or delivery) (A) which, in the case of a LIBOR Option selection, shall be provided to Bank by 11:00 a.m. (Pittsburgh time) three (3) Business Days prior to the date on which the relevant new Advance is proposed to be made or three (3) Business Days prior to the last day of the then current Interest Period applicable to such outstanding Advance, and (B) which, in the case of a Base Rate Option selection, shall be provided to Bank no later than 11:00 a.m. Pittsburgh time on the Business Day on which such requested new Advance is proposed to be made or on which an Interest Period for such outstanding Advance is to expire. If no Interest Rate Option is timely selected at the end of any Interest Period for an Advance, Borrower shall be deemed to have selected a Base Rate Option for such Advance. In no event shall the interest rate(s) applicable to principal outstanding hereunder exceed the maximum rate of interest allowed by applicable law, as amended from time to time; any payment of interest or in the nature of interest in excess of such limitation shall be credited as a payment of principal unless Borrower requests the return of such amount. A Base Rate Option applicable to an existing Advance may at any time be converted to a LIBOR Option for such Advance upon the selection of an Interest Period therefor and the giving of appropriate prior irrevocable notice (in writing by telex, telecopier, telegram, cable, or delivery) of such conversion by Borrower to Bank by 11:00 a.m. (Pittsburgh time) three (3) Business Days prior to the date of conversion, subject to the terms hereof. Unless the applicable breakfunding fees (referred to in the 17th paragraph hereof) are paid, a LIBOR Option applicable to an existing Advance may be converted to a Base Rate Option only on the last Business Day of the Interest Period applicable to such Advance subject to appropriate prior notice thereof by Borrower to Bank in accordance with the terms hereof. The making of Advances, the conversion of a Base Rate Option to a LIBOR Option with respect to an Advance, and the continuation of the LIBOR Option upon the last day of an Interest Period for an Advance may occur only on a Business Day (as hereinafter defined). Interest on each Base Rate Option Advance shall be due and payable in arrears on the last Business Day of each January, April, July, and October hereafter and at maturity and after maturity on demand. Interest on each LIBOR Option Advance shall be due and payable in arrears on the last day of each Interest Period for such Advance (except that, with respect to Advances having an Interest Period of six months, interest shall be paid as if a three month Interest Period were applicable thereto), commencing on the first such date to occur after the date hereof, and at maturity, after maturity on demand, and on the date of any payment of any such Advance on the amount paid. The outstanding principal amount of a LIBOR Option Advance may be prepaid, in whole or in part, at the end of an Interest Period applicable thereto; without the prior written consent of Bank, no Advance subject to the LIBOR Option may be prepaid prior to the date of the maturity thereof (at stated maturity, by acceleration, or otherwise), except on the last Business Day of the Interest Period therefor (and only upon three (3) Business Days prior irrevocable notice (in writing by telex, telecopier, telegram, cable, or delivery) from Borrower to Bank thereof); provided, however, that all pre-payments of a LIBOR Option Advance shall be in a minimum principal amount of US$500,000 and a multiple of US$500,000, or such lesser principal balance of the LIBOR Option Advance outstanding. The outstanding principal amount of a Base Rate Option Advance may be pre-paid, in whole or in part, at any time; provided, however, that pre-payments of the outstanding principal amount of any Base Rate Option Advance shall be in a minimum principal amount of $500,000 or such lesser principal balance of the Advance outstanding. At no time shall more than four (4) Advances to which the LIBOR Option applies be outstanding at any one time. Borrower hereby further promises to pay to the order of the Bank, on demand, at the place of payment, interest on the unpaid principal amount of each Advance after maturity thereof (whether at stated maturity, by acceleration, or otherwise), at a rate per annum equal to the higher (redetermined daily) of (i) two percent (2%) per annum in excess of the interest rate in effect just prior to maturity, or (ii) the sum of two percent (2%) per annum and the Base Rate of the Bank from time to time in effect. Borrower hereby further promises to pay to Bank a nonrefundable facility fee, (as described herein the "Facility Fee") for the period from and including the date hereof to the earlier of indefeasible and final payment in full of this Promissory Note or the Termination Date, equal to the product of (a) the Facility Fee Rate (as hereinafter defined) and (b) the average daily amount of the Facility (regardless of usage) during the period for which such Facility Fee is calculated (computed on the basis of a year of 360 days for the actual number of days elapsed), payable quarterly in arrears on the last Business Day of each January, April, July, and October and on the Termination Date. Such payments shall commence on January 31, 1999, and such first payment shall be for the period from the date hereof through January 31, 1999. Bank is hereby authorized by Borrower to record on its books and records, the principal amount and borrowing date of each Advance made hereunder, the interest rate, Interest Period, and interest payment dates applicable thereto, the maturity date thereof and all payments of principal and interest made thereon. The books and records of Bank shall be conclusive and binding upon the Borrower, absent manifest error. All payments due hereunder shall be made by the Borrower to the holder hereof no later than 11:00 a.m. Pittsburgh time at the place of payment, in US dollars and in funds immediately available and freely transferable at the place of payment, free and clear of, and without deduction for, any present or future taxes, levies, withholding, or similar deductions of any nature whatsoever ("Deductions"). Payments received after such time shall be deemed received by the holder hereof on the next succeeding Business Day at such place of payment. In the event that the Borrower is compelled for any reason to make any Deductions, it shall pay to the holder hereof such amounts (after giving effect to all Deductions on all additional payments to be made hereunder) as will result in the receipt by the holder hereof of the amount such holder would have received had no such Deductions been required to be made. If any payment shall fall due hereunder on a day that is not a Business Day, payment shall be 2 made on the next succeeding Business Day and interest thereon shall be payable for such extended time, provided, however, that with respect to any payment of interest based upon the LIBOR Option, if such succeeding Business Day shall fall into a new calendar month, payment shall be made on the next preceding Business Day. The Bank's determination of LIBOR and the Base Rate as provided herein shall be conclusive, absent manifest error. "Applicable Margin" shall herein mean, for any day with respect to an Advance subject to the LIBOR Option, the applicable basis points per annum set forth below in the Pricing Grid under the caption "Applicable LIBOR Margin" and corresponding to the Leverage Ratio then existing at the time of determination, provided that the Applicable Margin shall be adjusted (retroactively if necessary) as of the first day of the month following the date on which the Bank is to receive the financial statements required to be delivered to Bank pursuant to the incorporation into the Agreement of Sections 6.1(a), 6.1(b), and 6.1(e) of the Existing Credit Agreement, and provided further that the Applicable Margin commencing as of the date hereof shall be determined on the basis of those financial statements prepared or to be prepared as of October 31, 1998. PRICING GRID
- --------------------------------------------------------------- (basis points per annum) - -------------------------------------------------------------------------------------------------------- Leverage Ratio Facility Fee Applicable Rate LIBOR Margin - -------------------------------------------------------------------------------------------------------- Greater than 3.0x & less than or equal 20.0 105.0 to 3.5x - -------------------------------------------------------------------------------------------------------- Greater than 2.7x & less than or equal 20.0 92.5 to 3.0x - -------------------------------------------------------------------------------------------------------- Greater than 2.0x & less than or equal 15.0 85.0 to 2.7x - -------------------------------------------------------------------------------------------------------- Greater than 1.25x & less than or equal 15.0 72.5 to 2.0x - -------------------------------------------------------------------------------------------------------- Greater than 0.75x & less than or equal 15.0 60.0 to 1.25x - -------------------------------------------------------------------------------------------------------- Less than or equal to 0.75x 10.0 52.5 - --------------------------------------------------------------------------------------------------------
"Base Rate" shall herein mean that fluctuating rate of interest equal to the higher (redetermined daily) of (i) the per annum rate of interest announced by the Bank from time to time at its principal office in Chicago as its prime rate for US dollar loans (with any change in such prime rate to become effective as of the start of business on the date on which such prime rate change shall be made), or (ii) the per annum rate of interest at which overnight federal funds are from time to time offered to the Bank by any bank in the interbank market in an amount equal to the principal amount outstanding of such Advance, plus one- half of one percent (0.5%) per annum. Interest shall accrue on any Advance hereunder that will be outstanding for less than a one month Interest Period at a rate equal to the Base Rate. Interest will be calculated on the basis of the actual number of days elapsed over a year of 365 days. "Facility Fee Rate" shall herein mean for any day the applicable basis points per annum set forth on the Pricing Grid above under the caption "Facility Fee Rate" and corresponding to the Leverage Ratio then existing at the time of determination, provided that the Facility Fee Rate shall be adjusted (retroactively if necessary) as of the first day of the month following the date on which the Bank is to receive the financial statements required to be delivered to Bank pursuant to the incorporation into the Agreement of Sections 6.1(a), 6.1(b), and 6.1(e) of the Existing Credit Agreement, and provided further that the Facility Fee Rate commencing as of the date hereof shall be determined on the basis of those financial statements prepared or to be prepared as of October 31, 1998. 3 "Interest Period" shall herein mean successive one-month, three-month, or six-month periods (as selected from time to time by the Borrower by irrevocable notice (in writing by telex, telecopier, telegram, cable, or delivery) provided to the Bank by 11:00 a.m. (Pittsburgh time) three (3) Business Days prior to the first day of each respective Interest Period) commencing on the date of a new Advance subject to the LIBOR Option or commencing on the date on which a Base Rate Option applicable to an Advance is converted to a LIBOR Option or commencing on the date on which the LIBOR Option is continued for an Advance for which the previous Interest Period is expiring; provided that: (i) each such one-month, three-month, or six-month period occurring after the initial such period shall commence on the day on which the next preceding period expires; (ii) no Interest Period for any Advance shall be selected that would expire after the Termination Date; and (iii) if for any reason the Borrower shall fail to timely select an Interest Period for an Advance to which the LIBOR Option is to apply, then it shall be deemed to have selected a one-month Interest Period, subject to clause (ii). "Leverage Ratio" shall be used herein as defined in the Existing Credit Agreement. "LIBOR" shall herein mean with respect to an Advance to which the LIBOR Option applies for any Interest Period, the per annum rate of interest determined by Bank by dividing (the resulting quotient rounded upward to the nearest 1/16th of 1% per annum) (i) the rate of interest per annum at which US dollar deposits of an amount comparable to the amount of such Advance and for a period equal to the relevant Interest Period are offered generally to the Bank in the London interbank market at 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period, with such rate to remain fixed for such Interest Period, by (ii) a number equal to 1.00 minus the Reserve Percentage (as hereinafter defined). LIBOR shall be adjusted with respect to any Advance subject to the LIBOR Option as of the effective date of any change in the Reserve Percentage. "Reserve Percentage" shall herein mean the maximum percentage (expressed as a decimal rounded upward to the nearest 1/100th of 1%), as determined by Bank, which is in effect during any relevant period: (i) as prescribed by the Board of Governors of the Federal Reserve System (or any successor) (the "Board") for determining the reserve requirements (including supplemental, marginal, and emergency reserve requirements and without benefit of or credit for proration, exceptions, or offsets which may be available to Bank from time to time under Regulation D of the Board) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" by Regulation D of the Board); and (ii) to be maintained by Bank as required for reserve liquidity, special deposit, or a similar purpose by any governmental or monetary authority of any country or political subdivision thereof (including any central bank), against (A) any category of liabilities that includes deposits by reference to which LIBOR is to be determined, or (B) any category of extension credit or other assets that includes any Advance to which the LIBOR Option applies. If, for any reason (including as a result of any Event of Default), any Advance subject to the LIBOR Option is paid or prepaid in whole or in part on a day other than the last day of the Interest Period therefor or if any request for an Advance subject to the LIBOR Option, or for the continuation of or conversion to the LIBOR Option with respect to an Advance, is revoked or denied (expressly, by later inconsistent notices, or otherwise), the Borrower shall indemnify the Bank against any loss, cost, or expense (including loss of margin, loss or expense incurred in liquidating or redeploying deposits from third parties or incurred in terminating or unwinding any contracts or incurred in connection with funds acquired or to be acquired to fund or maintain Advances) incurred or sustained by Bank as a consequence. If the Bank shall have determined, in good faith (which determination shall be conclusive, absent manifest error), prior to the commencement of any Interest Period that (a) US Dollar deposits of sufficient amount and maturity for funding any Advance are not available to the Bank in the London interbank market in the ordinary course of business, or (b) by reason of circumstances affecting the relevant market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to an 4 Advance, the Bank will promptly notify the Borrower thereof and no such Advance will be made or, if already made, such Advance shall be immediately due and payable on the last Business Day of the then existing Interest Period applicable thereto, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower for all purposes hereof. If, after the date hereof, the introduction of, or any change in, any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental authority or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending office, shall, in the opinion of counsel to the Bank, make it unlawful for the Bank to make or maintain any LIBOR Option Advance, then the Bank shall promptly notify the Borrower thereof and no such Advance will be made or, if already made, such Advance shall be immediately due and payable on the last Business Day of the then existing Interest Period applicable thereto or on such earlier date as required by law, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower. If any law, rule, or regulation or any action of any judicial, administrative, or other governmental authority of any jurisdiction or political subdivision thereof (whether or not having the force of law) adopted or taken after the date hereof: (i) subjects Bank to any tax or changes the basis of taxation with respect to this Promissory Note (except for taxes on the overall net income of Bank), or (ii) imposes, modifies, or deems applicable (A) any reserve, special deposit, or similar requirement against credits or commitments to extend credit extended by, or assets (funded or contingent) of, deposits with or for the account of, or other acquisitions of funds by, Bank or any affiliate of Bank involved in any Advance under this Promissory Note (any "Bank Affiliate"), or (B) any capital adequacy or similar requirement (x) against assets (funded or contingent) of, or credits or commitments to extend credit extended by, Bank or any Bank Affiliate, or (y) otherwise applicable to the obligations arising in connection with this Promissory Note, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon Bank or any Bank Affiliate with respect to this Promissory Note (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on Bank's or its holding company's capital, taking into consideration Bank's and its holding company's customary policies with respect to capital adequacy) by an amount which Bank in its sole discretion deems to be material, Bank shall from time to time notify Borrower in writing of the amount determined in good faith (using any averaging and attribution methods employed in good faith) by Bank (which determination shall be conclusive absent manifest error) to be necessary to compensate Bank or any Bank Affiliate (or its holding company) for such increase in cost, reduction of income, or additional expense; and, such amount shall be due and payable by Borrower to Bank ten (10) Business Days after such notice is given. Such written notice shall contain a description of the matters giving rise to Bank's charge under this paragraph, including such calculations as are necessary under the circumstances and in sufficient detail to allow Borrower to reasonably understand the nature and basis for such charge and the calculation of the amount thereof. In no event, however, shall Borrower be required to pay any amount otherwise required by this paragraph if such amount relates to a period which ended more than ninety (90) days prior to receipt by Borrower of such notice from Bank. This Promissory Note is the Note referred to in, and is entitled to the benefits of, the Agreement and the other Loan Documents referred to therein. Reference is made to the Agreement for a description of the relative rights and obligations of Borrower and Bank, including rights and obligations of prepayment, collateral (if any) securing payment hereof, events of default, and rights of acceleration of maturity in the event of default. 5 No delay on the part of the holder hereof in exercising any of its options, powers, or rights, or partial or single exercise thereof, shall constitute a waiver thereof. The options, powers, and rights specified herein of the holder hereof are in addition to those otherwise created or permitted by law, the Agreement, and the other Loan Documents. There are no claims, set-offs, or deductions of any nature as of the date hereof that could be made or asserted by Borrower against Bank or against any amount due or to become due under this Promissory Note; all such claims, set-offs, or deductions are hereby waived. Telecopy transmission to Bank of the signature page of this Promissory Note purporting to be signed on behalf of Borrower shall constitute effective and binding execution and delivery hereof by Borrower. This Promissory Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to conflict of laws principles. IN WITNESS WHEREOF and intending to be legally bound hereby, the Borrower has executed this Promissory Note as of the date hereof by its duly authorized officer with the intention that it constitute a sealed instrument. CABLE DESIGN TECHNOLOGIES INC. By: (SEAL) Name: Title: 6 -----END PRIVACY-ENHANCED MESSAGE-----