1
EXHIBIT 4.9
THIS CONVERTIBLE DEBENTURE AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAW. NEITHER THIS CONVERTIBLE DEBENTURE NOR THESE SECURITIES
MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
FIRST REGISTERED UNDER SUCH LAWS, OR UNLESS THE COMPANY HAS RECEIVED EVIDENCE
REASONABLY SATISFACTORY TO IT THAT REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED.
THE RIGHTS OF THE HOLDER HEREOF AND OF EACH TRANSFEREE AND ASSIGNEE OF SUCH
HOLDER OR ANY SUBSEQUENT HOLDER ARE SUBJECT TO THE TERMS OF THE SUBORDINATION
AGREEMENT DATED AS OF APRIL 27, 2001, AMONG JOSEPH S. MONTGOMERY, THE CIT
GROUP/BUSINESS CREDIT, INC. AND ABLECO FINANCE LLC AND THE TERMS OF SUCH
SUBORDINATION AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.
<Table>
$2,000,000 April 27, 2001
</Table>
CANNONDALE CORPORATION
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE JUNE 28, 2005
THIS CONVERTIBLE SUBORDINATED DEBENTURE is issued by Cannondale
Corporation, a corporation organized and existing under the laws of the State of
Delaware (the "Company"), and is designated as its 8% Convertible Subordinated
Debenture Due June 28, 2005 (the "Convertible Debenture")
FOR VALUE RECEIVED, the Company promises to pay to Joseph S. Montgomery
("Holder"), or his registered assigns, the principal sum of Two Million Dollars
($2,000,000.00) or such lesser amount as shall then equal the outstanding
principal amount hereof and to pay interest on the principal sum outstanding
from time to time quarterly in arrears at the rate of 8% per annum accruing from
the date of initial issuance. Accrual of interest shall commence on the first
day to occur after the date of initial issuance and continue until payment in
full of the principal sum has been made or duly provided for. Interest shall be
payable quarterly on the last business day of each quarter, commencing on the
last business day of the third month following the date of initial issuance
(each, an "Interest Payment Date"). Unless earlier converted pursuant to Section
4 below, all unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and payable on the
earlier of (i) June 28, 2005 (the "Maturity Date") or (ii) when such amounts are
automatically due and payable upon or after the occurrence of an Event of
Default (as defined herein) (the "Acceleration Date"). If payment of accrued
interest is not made on the applicable Interest Payment Date, or if payment of
the unpaid principal and accrued interest is not made on the earlier to occur of
the Maturity Date or the Acceleration Date, then interest shall accrue on the
outstanding principal amount and on any unpaid accrued interest due hereunder
from and after such date of default to the date of the
2
payment in full of such unpaid accrued interest or such unpaid principal and
accrued interest, as the case may be, at an annual rate equal to the lesser of
15% or the maximum rate of interest permitted by applicable law. The following
is a statement of the rights of Holder and the conditions to which this
Convertible Debenture is subject, and to which the Holder hereof, by the
acceptance of this Convertible Debenture, agrees:
1. Definitions. As used in this Convertible Debenture, the following
capitalized terms have the following meanings:
(a) "Holder" shall mean Joseph S. Montgomery or any Person who shall
at the time be the registered holder of this Convertible Debenture.
(b) "Company" includes the corporation initially executing this
Convertible Debenture and any Person which shall succeed to or assume the
obligations of the Company under this Convertible Debenture.
(c) "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
2. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Convertible Debenture:
(a) Failure to Pay. The Company shall fail to pay (i) any principal
payment on the due date hereunder or (ii) any interest or other payment required
under the terms of this Convertible Debenture on the date due and such payment
shall not have been made within ten (10) days of the Company's receipt of
Holder's written notice to the Company of such failure to pay; or
(b) Breaches of Covenants. The Company shall fail in any material
respect to observe or perform any covenant, obligation, condition or agreement
contained in this Convertible Debenture and such failure shall continue for ten
(10) days following Holder's written notice to the Company of such failure; or
(c) Representations and Warranties. Any representation or warranty
made by the Company to Holder in this Convertible Debenture or the Convertible
Debenture Purchase Agreement of even date herewith (the "Convertible Debenture
Purchase Agreement") shall be untrue in any material respect when made; or
(d) Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it, or (vii) take any action for the purpose of effecting any
of the foregoing; or
2
3
(e) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within thirty (30) days of commencement.
3. Rights of Holder upon Default. Upon the occurrence or existence of any
Event of Default (other than an Event of Default referred to in Sections 2(d)
and 2(e) hereof) and at any time thereafter during the continuance of such Event
of Default, Holder may, by written notice to the Company, declare all
outstanding obligations payable by the Company hereunder to be immediately due
and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived, anything contained herein to the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Sections 2(d) and 2(e) hereof, immediately and without
notice, all outstanding obligations payable by the Company hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding. In addition
to the foregoing remedies, upon the occurrence or existence of any Event of
Default, Holder may exercise any other right, power or remedy granted to it or
otherwise permitted to it by law, either by suit in equity or by action at law,
or both.
4. Conversion. The Holder of the Convertible Debenture shall have
the following conversion rights:
(a) Conversion Right. At any time commencing on the date the 8%
Convertible Subordinated Debenture Due April 28, 2004 issued to James R. Pyne
(the "Pyne Convertible Debenture") is no longer outstanding (whether by
conversion, redemption, payment in full of the principal sum, or otherwise) and
prior to the payment in full of this Convertible Debenture (including, without
limitation, after the occurrence of an Event of Default), the Holder of this
Convertible Debenture shall be entitled, upon the written election of such
Holder to the Company and without the payment of any additional consideration,
to convert the unpaid principal amount of the Convertible Debenture or any
portion thereof (but not any accrued interest thereon) (the "Unpaid Principal
Balance") into shares of the Company's common stock (the "Common Stock") at an
initial conversion price equal to the closing price for the Company's Common
Stock on the trading day immediately preceding the Closing Date (as such term is
defined in the Convertible Debenture Purchase Agreement), subject to adjustment
pursuant to Section 5 below (the "Conversion Price").
(b) No Fractional Shares. No fractional shares of Common Stock will
be issued upon conversion of this Convertible Debenture. In lieu of any
fractional share to which the holder would otherwise be entitled upon conversion
of this Convertible Debenture, the Company shall pay to the Holder an amount in
cash equal to the product of (x) such fractional share times (y) the Conversion
Price.
(c) Mechanics and Effect of Conversion. To convert all or part of
the Unpaid Principal Balance of this Convertible Debenture into shares of Common
Stock pursuant to this Section 4, the Holder of this Convertible Debenture shall
surrender this Convertible Debenture, duly endorsed, at the principal offices of
the Company, together with a written notice in the form
3
4
attached hereto as Exhibit A (the "Conversion Notice"), to the Company of the
Holder's election to convert. The Holder shall have the option to convert all or
less than all of the then outstanding Unpaid Principal Balance into Common Stock
at the time of conversion. At its expense, the Company will, as soon as
practicable thereafter, and in any event within three (3) business days
thereafter, issue and deliver to the Holder a certificate or certificates for
the number of shares of Common Stock to which the Holder is entitled upon such
conversion (bearing the securities legend set forth on this Convertible
Debenture and any other legends that may be required by applicable state or
federal securities law in the opinion of legal counsel for the Company),
together with any other securities or property to which the Holder is entitled
upon such conversion under the terms of this Convertible Debenture, including a
check payable to the order of the Holder for any cash amounts payable as
provided above as a result of the conversion of this Convertible Debenture into
a fractional share of Common Stock. Upon full conversion of the entire Unpaid
Principal Balance of this Convertible Debenture and the payment of any unpaid
and accrued interest thereon, the Company will be released from all of its
obligations and liabilities under this Convertible Debenture.
(d) When Conversion Effected. A conversion of all or part of the
Unpaid Principal Balance of this Convertible Debenture shall be deemed to have
been effected immediately prior to the close of business on the business day on
which this Convertible Debenture and the corresponding conversion notice is
surrendered to the Company as provided above, and at such time, the person in
whose name any certificates for shares of Common Stock shall be issuable upon
conversion as provided herein shall be deemed to be the record holder of such
shares of Common Stock as of such date for all purposes.
(e) Conversion Restrictions. If the Common Stock is then listed for
trading on the Nasdaq Stock Market and the Company has not obtained the
Stockholder Approval (as defined below), then the Company shall not issue shares
of Common Stock upon conversion of this Convertible Debenture which, together
with shares of Common Stock previously issued upon the conversion of the Pyne
Convertible Debenture (if any), would exceed 1,505,682 shares (which equals
19.999% of the number of shares of Common Stock outstanding on the Closing Date)
(such number of shares, subject to adjustment for stock splits, reverse stock
splits, stock dividends and similar events affecting the Common Stock, the
"Issuable Maximum"). If, on any date of conversion pursuant to Section 4(a)
above (A) the Common Stock is listed for trading on the Nasdaq Stock Market, (B)
the Conversion Price then in effect is such that the aggregate number of shares
of Common Stock that would then be issuable upon conversion of this Convertible
Debenture, together with shares of Common Stock previously issued upon the
conversion of the Pyne Convertible Debenture (if any), would exceed the Issuable
Maximum, and (C) the Company shall not have previously obtained the vote of
stockholders, if any, as may be required by the applicable rules and regulations
of the Nasdaq Stock Market to approve the issuance of shares of Common Stock in
excess of the Issuable Maximum pursuant to the terms hereof (the "Stockholder
Approval"), then the Company shall issue a number of shares of Common Stock to
the Holder equal to the difference between the number of shares of Common Stock
issued upon the previous conversion of the Pyne Convertible Debenture (if any)
and the Issuable Maximum. In such event, the Company (1) shall use its best
efforts to obtain the Stockholder Approval applicable to such issuance as soon
as possible, but in any event no later than 90 days after the date of conversion
giving rise to the obligation to seek Stockholder Approval (such 90th day, the
"Target Date") or (2) pay to the Holder, within three (3) business days from the
request therefor, an amount in cash equal to the product of (x) the Non-Issued
Debenture Shares multiplied by (y) the closing sales price of the Common Stock
on (a) the
4
5
Target Date or (b) the date of conversion giving rise to the obligation to seek
Stockholder Approval, whichever is greater (the "Cash Payment"). In the event
the Holder has elected to require the Company to seek the Stockholder Approval
pursuant to clause (1) of the immediately preceding sentence and the Company
does not obtain the Stockholder Approval on or prior to the Target Date, then,
on the Target Date, the Company shall pay the Cash Payment to the Holder. The
Company and the Holder understand and agree that shares of Common Stock issued
upon conversion of this Convertible Debenture and then held by the Holder or an
affiliate thereof may not cast votes or be deemed outstanding for purposes of
any vote to obtain the Stockholder Approval.
5. Adjustments to Conversion Price. The Conversion Price in effect from
time to time shall be subject to adjustment from and after the date of issuance
of this Convertible Debenture and through the earlier of (i) the Maturity Date
or (ii) the effective date of conversion of the Convertible Debenture, as
follows:
(a) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock or the
combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Conversion Price shall, simultaneously with the
happening of such dividend, subdivision or combination, be adjusted by
multiplying the then-effective Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event. An adjustment made
pursuant to this Section 5(a) shall be given effect (i) in the case of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis), and (ii) in the case of such a subdivision or combination, immediately
as of the effective date thereof.
(b) Sale of Common Stock. In the event the Company shall at any
time, or from time to time, issue, sell or exchange any shares of Common Stock
(including shares held in the Company's treasury, but excluding any shares of
Common Stock issued upon the exercise of Excluded Options (as defined in Section
5(c) hereof)), for a consideration per share less than the applicable Conversion
Price in effect immediately prior to the issuance, sale or exchange of such
shares, then, and thereafter successively upon each such issuance, sale or
exchange, the applicable Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced to an
amount determined by multiplying such Conversion Price by a fraction:
(i) the numerator of which shall be the sum of (x) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock (excluding treasury shares) plus all shares of
Common Stock issuable upon conversion, exercise or exchange of the Convertible
Debenture or any outstanding options, warrants, rights or convertible or
exchangeable securities, plus (y) the number of shares of Common Stock which the
Net Aggregate Consideration (as defined herein) received by the Company for the
total number of such additional shares of Common Stock so issued would purchase
at the Conversion Price (prior to adjustment), and
(ii) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares
5
6
of Common Stock (excluding treasury shares) plus all shares of Common Stock
issuable upon conversion, exercise or exchange of the Convertible Debenture or
any outstanding options, warrants, rights or convertible or exchangeable
securities, plus (y) the number of such additional shares of Common Stock so
issued.
(c) Sales of Options, Rights or Convertible Securities. In the event
the Company shall at any time or from time to time, issue options, warrants or
rights to subscribe for shares of Common Stock (other than options which are
granted to officers, directors, employees, consultants, advisors or agents of
the Company pursuant to employee stock option plans and programs approved by the
Company's Board of Directors and stockholders (collectively, the "Excluded
Options")), or issue any securities convertible into or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined herein), by the aggregate number of
shares of Common Stock that would be issued if all such options, warrants,
rights or convertible or exchangeable securities were exercised, converted or
exchanged to the fullest extent permitted by their terms) less than the
applicable Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible or exchangeable securities, then the
applicable Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible or exchangeable securities shall
forthwith be reduced to an amount determined by multiplying such Conversion
Price by a fraction:
(i) the numerator of which shall be the sum of (x) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
options, rights or convertible or exchangeable securities (excluding treasury
shares) plus all shares of Common Stock issuable upon conversion, exercise or
exchange of the Convertible Debenture or any outstanding options, warrants,
rights or convertible securities, plus (y) the number of shares of Common Stock
which the total amount of consideration received by the Company for the issuance
of such options, warrants, rights or convertible or exchangeable securities plus
the minimum amount set forth in the terms of such security as payable to the
Company upon exercise, conversion or exchange thereof (the "Net Aggregate
Consideration") would purchase at such Conversion Price (prior to adjustment),
and
(ii) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such options, warrants, rights or convertible or exchangeable securities
(excluding treasury shares) plus all shares of Common Stock issuable upon
conversion, exercise or exchange of the Convertible Debenture or any outstanding
options, warrants, rights or convertible or exchangeable securities, plus (y)
the aggregate number of shares of Common Stock that would be issued if all such
options, warrants, rights or convertible or exchangeable securities were
exercised, converted or exchanged.
(d) Expiration or Change in Price. If the consideration per share
provided for in any options, warrants or rights to subscribe for shares of
Common Stock or any securities exchangeable for or convertible into shares of
Common Stock changes at any time, the Conversion Price in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such options, warrants, rights or convertible or
exchangeable securities provided for such changed consideration per share
(determined as provided in Section 5(c) hereof), at the time initially granted,
issued or sold; provided, that such adjustment of the Conversion Price will be
made only as and to the extent that the Conversion Price effective upon such
adjustment remains less than or equal to the Conversion Price that
6
7
would be in effect if such options, warrants, rights or convertible or
exchangeable securities had not been issued. No adjustment of the Conversion
Price shall be made under this Section 5 upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any options, warrants
or other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible or exchangeable securities if
an adjustment shall previously have been made upon the issuance of such options,
warrants, rights or convertible or exchangeable securities. Any adjustment of
the Conversion Price shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the options, warrants,
rights or convertible or exchangeable securities which gave rise to such
adjustment expire or are canceled, in whole or in part, without having been
exercised, converted or exchanged, so that the Conversion Price effective
immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional subsequent adjustments as would have been made to such Conversion
Price under this Section 5 had the expired or canceled warrants, options, rights
or convertible securities not been issued.
(e) Other Adjustments. If the Common Stock issuable upon the
conversion of the Convertible Debenture shall be changed into the same or
different number of shares of any class or classes of stock, whether by
reorganization, reclassification or otherwise (other than a subdivision,
combination of shares, stock dividend or other event provided for elsewhere in
this Section 5), then and in each such event, the Holder of the Convertible
Debenture shall have the right thereafter to convert such share into the kind
and amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by holders of the number
of shares of Common Stock into which the Convertible Debenture might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(f) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then in each such event lawful provision shall be made so that the
Holder of the Convertible Debenture shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Company which they would have received had the
Convertible Debenture been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5 with respect to the rights of the holder of the
Convertible Debenture.
(g) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Company will furnish to the holder of the Convertible
Debenture a certificate, prepared by the chief financial officer of the Company,
showing such adjustment or readjustment and stating in detail the facts upon
which such adjustment or readjustment is based.
6. Redemption. The Company shall have the right to redeem all or any
portion of the principal amount of this Convertible Debenture upon at least five
(5) business days prior written notice to the Holder, at a price equal to 115%
of the then outstanding principal balance of the Convertible Debenture (the
"Redemption Price"). The Company shall pay to the Holder,
7
8
within three (3) business days of the redemption date set forth in the Company's
notice of redemption (the "Redemption Date"), the Redemption Price plus any
accrued and unpaid interest through the Redemption Date. Notwithstanding the
foregoing, the Holder shall have the right to convert all or any portion of the
principal amount of this Convertible Debenture pursuant to Section 4 hereof
prior to the Redemption Date.
7. Subordination.
(a) The indebtedness evidenced by this Convertible Debenture is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all of the Company's
Senior Indebtedness, as hereinafter defined.
(b) As used in this Convertible Debenture, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all current and future indebtedness of the Company to banks, commercial finance
lenders, insurance companies or other financial institutions regularly engaged
in the business of lending money, which is for money borrowed by the Company
(whether or not secured), (ii) any such indebtedness or any debentures, notes or
other evidence of indebtedness issued in exchange for or to refinance such
Senior Indebtedness, or any indebtedness arising from the satisfaction of such
Senior Indebtedness by a guarantor, and (iii) the indebtedness of the Company to
James R. Pyne or his registered assigns for the $2,000,000 loan made by Mr. Pyne
to the Company as evidenced by the Company's 8% Convertible Subordinated
Debenture due April 28, 2004.
(c) If there should occur any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, reorganization or arrangement with
creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale
of all or substantially all of the assets, dissolution, liquidation or any other
marshalling of the assets and liabilities of the Company, or if this Convertible
Debenture shall be declared due and payable upon the occurrence of an event of
default with respect to any Senior Indebtedness, then (i) no amount shall be
paid by the Company in respect of the principal of or interest on this
Convertible Debenture at the time outstanding, unless and until all of the
principal of and interest on the Senior Indebtedness then outstanding shall be
satisfied, and (ii) no claim or proof of claim shall be filed with the Company
by or on behalf of the Holder of this Convertible Debenture that shall assert
any right to receive any payments in respect of the principal of and interest on
this Convertible Debenture, except subject to the satisfaction of all of the
principal of and interest on all of the Senior Indebtedness then outstanding. If
there occurs an event of default that has been declared in writing with respect
to any Senior Indebtedness, or in the instrument under which any Senior
Indebtedness is outstanding, permitting the holder of such Senior Indebtedness
to accelerate the maturity thereof, then, unless and until such event of default
shall have been cured or waived or shall have ceased to exist, or all Senior
Indebtedness shall have been satisfied, no payment shall be made in respect of
the principal of or interest on this Convertible Debenture.
(d) Subject to the rights, if any, of the holders of Senior
Indebtedness under this Section 7 to receive cash, securities or other
properties otherwise payable or deliverable to the Holder of this Convertible
Debenture, nothing contained in this Section 7 shall impair, as between the
Company and the Holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the Holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent the Holder of this
Convertible Debenture, upon default hereunder, from exercising all rights,
powers and remedies otherwise provided herein or by applicable law.
8
9
(e) Subject to the payment in full of all Senior Indebtedness and
until this Convertible Debenture shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 7(c) above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of this Convertible Debenture; and for the purposes of such subrogation,
no payments or distributions to the holders of Senior Indebtedness to which the
Holder would be entitled except for the provisions of this Section 7 shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness.
(f) By its acceptance of this Convertible Debenture, the Holder
agrees to execute and deliver such documents as may be reasonably requested from
time to time by the Company or the holder of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 7.
8. Successors and Assigns. Subject to the restrictions on transfer
described in Sections 10 and 11 below, the rights and obligations of the Company
and Holder shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.
9. Waiver and Amendment. Any provision of this Convertible Debenture
may be amended, waived or modified upon the written consent of the Company
and Holder or pursuant to Section 10.3 of the Convertible Debenture Purchase
Agreement.
10. Transfer of this Convertible Debenture or Common Stock Issuable on
Conversion Hereof. This Convertible Debenture and the shares of Common Stock
into which this Convertible Debenture may be converted may only be transferred
in accordance with Section 9 of the Convertible Debenture Purchase Agreement.
11. Treatment of Convertible Debenture.
(a) To the extent permitted by generally accepted accounting
principles, the Company will treat, account and report the Convertible Debenture
as debt and not equity for accounting purposes and to the extent permitted by
applicable law, the Company will treat the Convertible Debenture as indebtedness
with respect to any returns filed with federal, state or local tax authorities.
12. Notices. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) five (5) days after
deposit with the U.S. Postal Service or other applicable postal service, if
delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid or (d) one business day
after the business day of a facsimile or e-mail transmission, if delivered by
facsimile or e-mail transmission with copy by first class mail, postage prepaid,
and shall be addressed (i) if to the Holder, at the Holder's address on the
register maintained by the Company, and (ii) if to the Company, at the address
of
9
10
its principal corporate offices (Attn: Chief Financial Officer), or at such
other address as a party may designate by written notice to the other party
pursuant to the provisions above.
Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given when delivered if delivered
personally, by messenger or by telecopy, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
13. Payment. Payment shall be made in lawful tender of the United
States.
14. Usury. This Convertible Debenture is hereby expressly limited so that
in no event whatsoever, whether by reason of acceleration of maturity of the
loan evidenced hereby or thereby, or otherwise, shall the amount paid or agreed
to be paid to the Holder hereunder for the loan, use, forbearance or detention
of money exceed that permissible under applicable law. If at any time the
performance of any provision hereof or of this Convertible Debenture or any
other such agreement involves a payment exceeding the limit of the price that
may be validly charged for the loan, use, forbearance or detention of money
under applicable law, then automatically and retroactively, ipso facto, the
obligation to be performed shall be reduced to such limit, it being the specific
intent of the Company and the Holder that all payments under this Convertible
Debenture are to be credited first to interest as permitted by law, but not in
excess of (i) the agreed rate of interest set forth herein or therein or (ii)
that permitted by law, whichever is the lesser, and the balance toward the
reduction of principal. The provisions of this Section 14 shall never be
superseded or waived and shall control every other provision of this Convertible
Debenture and all other agreements between the Company and the Holder.
15. Governing Law. This Convertible Debenture and all actions arising out
of or in connection with this Convertible Debenture shall in all respects be
governed by and construed and enforced in accordance with the laws of the State
of Connecticut, as such laws apply to contracts entered into and wholly to be
performed within such state.
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be issued as of the date first written above.
CANNONDALE CORPORATION
a Delaware corporation
By: /s/ William A. Luca
---------------------------------
Name: William A. Luca
Title: Vice President
10
11
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the registered Holder in order to Convert the Convertible
Debenture)
The undersigned hereby irrevocably elects to convert $___________
of the principal amount of the above Convertible Debenture into Shares of Common
Stock of CANNONDALE CORPORATION (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion
------------------------------------------------------------
Applicable Conversion Price
---------------------------------------------------
Accrued Interest
---------------------------------------------------------------
Number of Shares to be Issued
------------------------------------------------------------
Name of Holder
------------------------------------------------------------
Signature of Holder
------------------------------------------------------------
Address for Delivery of Shares
or DTC Account Number for
Electronic Deposit of Shares:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
11