Updated: Finden-Crofts About Derby's Chapter 11 Filing

GUERNSEY, Channel Islands, UK (September 6) - Executive Chairman Alan Finden-Crofts says that the decision to enter Chapter 11 bankruptcy protection in the US was made to ensure that the successful bidder for the group inherits a financially and legally secure enterprise, with no fears about possible litigation in the future. He emphasized that in contrast with Schwinn/GT, it is a technical bankruptcy, as all the group's supplier creditors are being paid and will continue to be paid on time. Chapter 11 was on the cards from the first day he returned to lead the group in its restructuring, and "is not to stop people being paid their dues: it's to protect those who are going to buy the company from being pursued afterwards," he said. Explaining the necessity for the process, he said "Anything that we get for the rest of the business after the sale of Gazelle goes to the bond holders, as they effectively own the business. The reason we are going into Chapter 11 is that it's very difficult to know who the bond holders actually are, as they hold bearer bonds and there's no register. The bonds are tradable and although we know most of the current bond holders, we can't be sure we know them all." The problem is that once the company is sold, some small bondholders or other interested parties might not make a claim and then sue at a later stage, although Finden-Crofts says the likelihood is slim. "This is the only way for us to be certain that we're not going to be sued and that we have title to the business." Comparisons are inevitable between the Schwinn/GT bankruptcy and the situation at Derby, but Finden-Crofts points out that there is a vast difference between them. In contrast to Schwinn/GT, for example, all of Derby's creditors continue to be paid up. Some observers have questioned why the MBO bid is offering US$20 million cash for Derby, while Huffy is bidding US$60 million for Schwinn/GT. Finden-Crofts stresses that Huffy's offer excludes any liabilities, while the Cycle Bid offer is completely free of all representations and warranties. Including Derby's US$48 million in liabilities and at least another US$6 million as additional purchase price according to future equity value, the MBO offer totals at least US$74 million, comparing like with like. The sale agreement with Perseus, one of Derby's main equity holders, came about because each party wanted to be sure they were not bidding against each other, and that Finden-Crofts would stay on the team. Finden-Crofts holds all of the voting ordinary shares in the buyout vehicle. Regarding the cut-off date of September 28 for a decision to made on the bid, Finden-Crofts said that the future of the company needs to be settled before Interbike begins, as uncertainty would surely affect order-taking. He said that at this stage nearly all parties are satisfied, although the shareholders have suffered the consequences of their mismanagement of the business. "One last caveat is that we could be outbid. It's unlikely, but we could be," he cautioned. (TK)