Copyright 2003, Roadracing World Publishing, Inc.

By David Swarts

Bicycle and motorcycle manufacturer Cannondale Corporation (Nasdaq: BIKE) announced Monday, January 27 that it “intends to file a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code” Tuesday, according to a press release from Cannondale.

In the release, Cannondale states it has reached agreements with its lenders CIT/Business Credit, Inc. and Pegasus Partners II, L.P. where the lenders will provide Cannondale with “post-petition financing” to continue its bicycle business.

“The interim financing will be used to continue the operation of our bicycle business,” Cannondale Founder and President Joe Montgomery is quoted as saying in the release.

Cannondale and Pegasus also have an “agreement in principle” where Pegasus would purchase most of Cannondale’s bicycle business and continue operations with current management, pending court approval.

In a separate transaction, Pegasus would also purchase Cannondale’s motorsports operation – the source of the company’s troubles. Montgomery is quoted as saying, “The motorsports division was threatening the bicycle division. Although we believe in the value of our motorsports products, we did not have sufficient financial resources to make the additional investments necessary. We look forward to bringing a renewed focus to our core bicycle business and to working through this present challenge with the greatest possible speed.”

According to a January 27 report by Dow Jones Business News, Cannondale had first quarter profits of $628,000 for its bicycle business in 2002 with a pre-tax loss of $7.4 million for its motorsports division.

In the meantime, Cannondale has suspended all motorsports operations, pending the potential sale.

Cannondale’s subsidiaries in Europe, Japan and Australia – which accounted for about 42% of Cannondale’s total sales in 2002 – are not included in the filing.

Workers laid off from Cannondale’s Bedford, Pennsylvania bicycle factory will be recalled, but laid off workers from Cannondale’s motorsports factory in the same city will not be recalled.