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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM JANUARY 1, 1998
TO JUNE 30, 1998
COMMISSION FILE NUMBER: 1-13042
RIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1571027
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8160 304TH AVENUE SOUTHEAST
PRESTON, WASHINGTON 98050
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 222-6015
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK NASDAQ NATIONAL MARKET
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of September 23, 1998, the aggregate market value of the registrant's
common stock held by nonaffiliates of the registrant was $12,618,749 based on
the closing sale price of the registrant's Common Stock on the Nasdaq Stock
Market.
As of September 23, 1998, the number of shares of the registrant's Common
Stock outstanding was 12,618,749.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) NONE
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Items 1,2,3 and 7 of this Form 10-K contain forward-looking statements within
the meaning of that term in the Private Securities Litigation Reform Act of 1995
(Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934). Statements contained herein that are not historical facts
are forward-looking statements made pursuant to the safe harbor provisions
referenced above. Forward-looking statements may include, but are not limited
to, projections of revenue, income or loss and capital expenditures, statements
regarding future operations, financing needs, compliance with financial
covenants in loan agreements, plans for acquisitions or sales of assets or
businesses and consolidation of operations of newly acquired businesses, and
plans relating to products or services of the Company, assessments of
materiality, predictions of future events and the effects of pending and
possible litigation, as well as assumptions relating to the foregoing. In
addition, the words "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and variations thereof and similar expressions are intended
to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements contained in this Annual Report. Factors that could cause such future
events or actual results to differ include, but are not limited to, those set
forth in "Item 1. Business -- Risk Factors" below.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Ride, Inc. (the "Company") is a leading designer, manufacturer and marketer
of contemporary sporting goods equipment and apparel for snowboard and wakeboard
consumers. The Company markets its equipment and apparel throughout the world
under multiple brands specifically targeted to serve certain price points,
product lines and distribution channels. This report on Form 10-K is being filed
as a result of the change in the Company's fiscal year end from December 31 to
June 30, beginning with the six month period ended June 30, 1998. The change in
fiscal year end was made to more closely align the Company's accounting and
reporting practices with its product cycle. References herein to "fiscal 1998"
refer to the period January 1, 1998 to June 30, 1998.
The Company was founded in September 1992 and acts as a holding company for
the following subsidiaries: Ride Snowboard Company ("Ride Snowboards"), Ride
Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc. ("Ride Canada"),
SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley"), and Carve, Inc. d/b/a
US2 Sports ("US2"). The Company acquired C.A.S. Sports International, Inc. and
C.A.S. Sports Agency, Inc. (collectively, "CAS") in August 1994. The Company
acquired Ride Manufacturing and 5150 Snowboards, Inc. ("5150") and SMP in
September and October 1995, respectively. The Company later merged 5150 with and
into Ride Snowboards. In October 1996, the Company transferred certain of its
assets and liabilities of the CAS business to Ride Canada and Ride Snowboards,
and sold the CAS entities. In June 1997, the Company acquired substantially all
of the assets (except cash and accounts receivable) and liabilities of Device
Mfg Corp. ("Device") and transferred those assets and liabilities to Ride
Snowboards. In July 1997, the Company purchased substantially all of the assets
of Galena Creek Trading Company, Inc., d/b/a Smiley Hats, and transferred those
assets to its Smiley subsidiary, which the Company formed specifically for that
purpose. Finally, in December 1997, the Company acquired US2 Sports Group, Inc.
d/b/a FullTilt Wakeboards, through a merger of that company with and into Carve,
Inc., a newly-formed corporation.
Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops. Ride Manufacturing is a
manufacturer of premium snowboards principally for Ride Snowboards and, to a
lessor extent, a limited number of other snowboard companies on an OEM basis.
SMP designs and manufactures snowboard, surf, skate, motocross and street
apparel which is sold primarily through specialty shops. Ride Canada acts as the
Company's Canadian distributor. Smiley designs and manufactures premium head and
neck wear for the winter sports industry which products are sold through
specialty shops. US2 designs, manufactures and distributes wakeboards, wakeboard
bindings and accessories under the "FullTilt" and "Sub Rosa" brand names through
sporting goods, marine and specialty retailers. Until its disposition in October
1996, CAS marketed entry-level snowboards and related products under various
brand names and on a private label basis, primarily to regional sporting goods
stores and large-format sporting goods retailers. In addition, CAS sold
snowboards and related products on an OEM basis to other
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snowboard companies and bought excess snowboard and sporting goods inventories
from manufacturers and sold such products to retailers throughout the world. The
OEM and excess inventory portions of the CAS business were sold in October 1996
while the branded and private label portions of the business were retained by
the Company and have been integrated as an additional component of the Company's
product offering.
In fiscal 1998, the Company began operating under the d/b/a "Ride Sports" to
reflect the expanded scope of sporting goods products currently offered by the
Company for outdoor sports enthusiasts.
INDUSTRY BACKGROUND
Snowboarding
Tracing its roots to surfing and skateboarding, snowboarding was invented in
the late 1970's. The first products available were unsophisticated in design and
were made almost entirely by small "backyard" manufacturers. In the early
1990's, snowboard design advanced to higher performance standards and the sport
began to attract broader demographic participation.
The majority of snowboarders continue to be young males, however, the sport
is growing in popularity among females and older sports enthusiasts, especially
downhill skiers. The sport is now welcome and promoted at nearly all of the ski
areas worldwide. Snowboarding recently made its debut with four full medal
events at the 1998 Winter Olympic Games in Nagano, Japan.
The Company believes that the growth of snowboarding is attributable in large
part to advantages the sport holds over alpine skiing. Many people find that
snowboarding not only is more natural and easier to learn than alpine skiing,
but also provides a greater degree of excitement over more diverse terrain. For
many, snowboarding equipment is also less cumbersome and more comfortable than
alpine ski equipment; poles are unnecessary and the boots are softer and lighter
than ski boots. Moreover, recent design improvements are making step-in
snowboard bindings a more attractive option for crossover skiers and others
seeking the functionality and ease of use of alpine ski step-in products.
The Company believes the snowboard industry is dominated by approximately
seven major competitors, including one industry market share leader, three
predominantly snowboard-related companies, including the Company, and three ski
manufacturers. The remainder of the market is highly fragmented among scores of
competitors. The Company believes that recent acquisitions of smaller brands by
larger competitors represents a broader consolidation trend in the industry as
weaker brands are either absorbed by larger companies or cease business
operations.
Industry data show continued growth in snowboard participation. The Company
believes that similar growth continues in the European and Japanese markets,
although the economic recession currently affecting Japan may cause growth in
that market to slow or stop until the economy improves and discretionary income
is once again available to the average consumer to expend on leisure pursuits
such as snowboarding. However, the Company believes sales at the wholesale level
in each of the past three winter seasons outpaced retail growth and that there
remains an oversupply of product at the retail level. While the Company believes
that this oversupply of product is declining, this condition persists to the
greatest degree in the Japanese market. The Company anticipates current
oversupply conditions may continue to adversely affect worldwide wholesale sales
growth opportunities in the 1998-1999 season.
Wakeboarding
The Company believes that the relatively new sport of wakeboarding shares
many functional and demographic characteristics with snowboarding and
snowboarders. In function, wakeboarding is comparable to waterskiing in the same
manner that snowboarding is comparable to alpine skiing. Appealing predominantly
to young outdoor enthusiasts, wakeboard riders are typically pulled behind a
power boat or personal water craft and perform aerial tricks and other maneuvers
on the wake of the towing vessel for recreational or competitive purposes. While
the current market for wakeboards is relatively small in comparison to
snowboarding, the Company believes that the sport is growing in popularity. The
Company believes the wakeboard market is dominated by a single competitor while
four or five other competitors, including the Company, share a smaller but
growing segment of the market, with the balance divided among twenty to thirty
smaller companies. With relatively low barriers to entry, the Company expects
there to be additional entrants into the market in the short term similar to
what occurred in the snowboard industry.
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OPERATING STRATEGY
The Company's operating strategy is to creatively market high quality,
technologically innovative contemporary sports products and extend its position
in the sporting goods equipment market into the apparel marketplace.
Brand Marketing of Sporting Goods Equipment: The Company uses a multiple
brand strategy to serve the product needs, price points and demographics of its
diverse consumer base. The "Ride" brand is specifically positioned to appeal to
a broad range of snowboard enthusiasts at mid to higher price points; "5150" is
targeted at the Company's more aggressive counterculture snowboard consumers;
"Liquid" produces entry level products at moderate price points; and "FullTilt"
and "Sub Rosa" serve the wakeboard and wakeboard binding markets.
Technology Based Products: The Company uses its in-house production
capabilities at Ride Manufacturing, an extensive engineering staff and its team
of world-class professional snowboarders and wakeboarders to develop
high-performance snowboard and wakeboard equipment incorporating the most
advanced technologies currently available. The Company believes the products
designed by these professional athletes, with production and management
oversight provided by Company engineers, gives its snowboard brands competitive
advantages in the consumer marketplace. This strategy was rewarded in 1997 with
snowboardingonline's first ever product review in which the Company's "Ride"
Timeless and Jeff Brushie snowboards were selected as the best in their
respective product categories. The awards have continued in 1998 with Mountain
Sports & Living (f.k.a. Snowcountry) naming the Company's "Ride" Timeless and
Control snowboards "Tester's Choice" in their respective categories.
Expansion into Apparel: The Company seeks to broaden its revenue base by
marketing accessories and softgoods specifically targeted to snowboard and
wakeboard enthusiasts. The Ride Snowboard Apparel brand is targeted at the high
end snowboard enthusiast who requires extensive technical features such as
waterproof breathable fabrics. The "SMP" brand, originating in Southern
California, is marketed to the Company's more fashion oriented motocross, snow,
skate and wakeboard consumers. The Company intends to expand the recognition of
its equipment brands with accessories such as backpacks, snowboard bags, gloves
and hats. Recently acquired Smiley produces high-quality head and neck-wear for
winter sports enthusiasts, further increasing the Company's presence in the
winter sports accessories marketplace.
PRODUCTS
Snowboard Equipment
"Ride"
The "Ride" brand is designed for high performance, capitalizes on the
Company's most advanced technologies and has historically been positioned toward
the higher price points in the snowboard market. In 1997, the Company began
offering moderate price point products under the "Ride" brand to target entry
and intermediate level consumers, thus expanding recognition of the "Ride" brand
name. Designed to connect the snowboarder to the snowboard, the "Ride" product
line includes both traditional "strap" snowboard bindings and boots and a
complete line of "Device-compatible" step-in snowboard bindings and boots.
Included in the Company's products for the first time in 1997, step-in snowboard
bindings provide an increased level of convenience by allowing the user to
simply step-in to the binding to connect himself to the snowboard as opposed to
sitting down in the snow to "strap-in" to traditional snowboard bindings. In
order to maximize the strength and positioning of the "Ride" product series, the
Company merged its "Preston" high end strap-in bindings into the '98-'99 "Ride"
product line. The mounting features of all of the Company's bindings are
compatible with the Company's snowboards and those offered by virtually all
competitors.
The "Ride" product line currently includes 47 sizes of snowboards within 12
board series with suggested retail prices ranging from $165 for a children's
board to $525 for a high-end expert board, five models of traditional "strap"
snowboard bindings with suggested retail prices ranging from $100 to $170, two
models of "Device-compatible" step-in snowboard bindings with suggested retail
prices from $130 to $160 and 13 models of "Device-compatible" step-in and 13
models of traditional "strap" snowboard boots with suggested retail prices
ranging from $130 to $250.
"5150"
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Incorporating many of the technologies available under the "Ride" brand, the
"5150" brand is targeted at the counter-culture niche of the snowboarding
market. The "5150" product line currently includes 15 sizes of snowboards within
four board series with suggested retail prices ranging from $325 to $430.
"Liquid"
The "Liquid" product line is aimed at entry level snowboarders who require
quality products at a competitive price. The line currently includes 28 sizes of
snowboards within seven board series with suggested retail prices ranging from
$230 to $300, nine models of traditional "strap" snowboard bindings with
suggested retail prices ranging from $35 to $85, one model of
"Device-compatible" step-in snowboard bindings with a suggested retail price of
$115 and one and four models, respectively, of "Device-compatible" step-in and
traditional snowboard boots with suggested retail prices ranging from $80 to
$110.
Apparel
The Company believes that clothing is an important element of the
snowboarding subculture and that the demand for snowboarding apparel will grow
with the popularity of the sport. In addition, snowboard apparel has crossed
over into everyday fashion, thereby increasing the potential market for the
Company's apparel products.
The Company has developed and introduced for the 1998-1999 season a new line
of technical snowboard outerwear and apres snowboard apparel under the "Ride
Snowboard Apparel" brand name. Previously produced under the "Cappel" brand
name, this product line extends the "Ride" brand's reputation for equipment
quality and performance to the snowboard apparel market. "Ride" brand apparel is
intended for the consumer who desires technology and function in his or her
snowboard clothing. Retail value for outerwear ranges from $90 for an entry
level pair of pants to $270 for the line's full featured waterproof, breathable
parka.
Developed by San Diego-based SMP Clothing, the "SMP" product line includes
clothing and accessory items used in snowboarding, surfing, skateboarding, and
motocross, as well as pants, shirts, sweaters and other street and beach wear.
SMP apparel is targeted at a more fashion conscious consumer desirous of
technically advanced features with retail prices ranging from $15 for fashion
T-shirts to $240 for a high-end snowboard jacket.
Accessories
The Company offers a variety of snow and wakeboarding accessories, including
snowshoes, gloves, bags, packs, hats and caps under the "Ride," "5150,"
"Liquid,", "SMP," "FullTilt" and "Smiley" brands. The Company's subsidiary,
Smiley, offers high quality head and neck wear for wintersports enthusiasts
ranging from basic wool hats to alternative synthetic fleece hats and headbands.
Smiley's products generally retail for $10 to $40. The Company also offers a
line of "Slim" snowboard tools for adjustment of snowboard bindings and
maintenance during use.
Wakeboards and Wakeboard Bindings
The Company's December 1997 acquisition of US2 Sports Group has extended the
Company's product line to wakeboards and wakeboard bindings. The Company offers
15 models of wakeboards under the "FullTilt" brand with suggested retail prices
ranging from $270 to $700 and five models of wakeboard bindings under the "Sub
Rosa" brand with suggested retail prices ranging from $100 to $280. These
products are distributed through specialty retailers, marine dealerships and
large format sporting goods chains. In 1998, the Company moved its wakeboard
production to its state-of-the-art Ride Manufacturing facility in Corona,
California. The move is reflected in the enhanced quality and technologically
advanced features of the Company's 1999 "FullTilt" wakeboard product line.
The following table sets forth the contribution to net sales (in thousands
and as a percentage of net sales) attributable to each of the Company's product
groups for the year ended December 31, 1997 and the six month period ended June
30, 1998.
<TABLE>
<CAPTION>
Dec 31, 1997 June 30, 1998
------------ -------------
<S> <C> <C> <C> <C>
Snowboards........... $12,520 34% $2,034 28%
Bindings............. 8,287 23 863 12
Boots................ 3,714 10 115 2
Skate, wake and other 971 3 1,277 17
------- -- ------ --
Total hard goods..... 25,492 70 4,289 59
Apparel.............. 8,387 23 2,649 36
Accessories.......... 2,596 7 341 5
------- -- ------ --
Total soft goods..... 10,983 30 2,990 41
------- --- ------ --
Net sales............ $36,475 100% $7,279 100%
======= === ====== ===
</TABLE>
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TIERED DISTRIBUTION STRATEGY
The Company's worldwide distribution strategy is centered around a policy of
limited distribution and market segmentation. Although the Company believes that
more rapid sales growth might be achieved in the short term by selling all
brands across all distribution channels, the Company believes that continued
growth and brand loyalty can be best achieved by selling each of the Company's
brands primarily through those retailers that best serve the market segment to
which the particular brand is targeted.
North America
The Company distributes its branded products to retailers through its
independent sales representatives and a limited number of employee sales
representatives. The following table details the Company's tiered distribution
strategy for each of its brands:
<TABLE>
<CAPTION>
PRIMARY RETAIL OUTLETS
----------------------
REGIONAL SPORTING LARGE-FORMAT
SPECIALTY SNOW, GOODS AND APPAREL SPORTING GOODS
AND SKI SHOPS CHAINS RETAILERS
------------- ------ ---------
<S> <C> <C> <C>
Snowboard Equipment & Accessories Ride, 5150 & Ride & Liquid Liquid
Smiley
Apparel Ride & SMP SMP
</TABLE>
The three main retail channels of distribution for the Company's branded
products in North America are defined as follows:
Specialty Snowboard and Ski Shops. These retailers generally operate one to
three relatively small sized shops specifically targeted at the core of their
respective markets. Providing the highest amount of customer service and
significantly influencing the purchasing decisions of consumers, they tend to
cater to experienced snowboarders, a majority of whom are repeat buyers, as well
as intermediate snowboarders, cross-over skiers and other winter sports
enthusiasts. These retailers primarily sell the Company's premium and mid-priced
snowboards, including "Ride," and "5150" snowboards, bindings, boots and
accessories and "Ride Snowboard Apparel" and "SMP".
Regional Sporting Goods Stores and Apparel Chains. These retailers typically
have 10 or more large to moderate size stores within a large geographical area,
target their product lines at specific sport sectors and generally appeal to
intermediate and novice sports enthusiasts. Accordingly, they offer trained
sport specific sales assistance for their customers at the moderate to upper
price points. These stores primarily sell the Company's "Ride" and "Liquid"
product lines. The Company's "SMP" brand is widely distributed through this
channel by multiple location young men's apparel chains typically found in most
major shopping malls.
Large-Format Sporting Goods Retailers. These retailers sell primarily to
first-time and price-sensitive buyers. Offering the broadest range of sporting
goods equipment, these stores maximize volume based on providing price point
products and offer a modest amount of sales and service support for their
customers. These retailers typically carry the Company's "Liquid" product line.
International
The Company has historically generated the largest portion of its
international revenues in the Japanese marketplace through sales of its "Ride",
"5150", and "SMP" brands to independent distributors who, in turn, sell these
product lines to Japanese retailers. Due to the oversupply of snowboard
equipment in the Japanese marketplace, the Company determined that its ability
to maintain market share and control its "Ride" brand image is directly related
to the level of control the Company has over its distribution channels in that
marketplace. During 1997, the Company implemented a two-tiered distribution
strategy in Japan for the "Ride" brand whereby it sells directly to the top
retailers in that market and distributes to specialty retailers through a
sub-distributor.
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Throughout the rest of the world, the Company sells to independent
distributors who in turn market and sell products to retailers in their
respective markets, except in France and Great Britain, where the Company sells
directly to retailers through independent sales representatives. The Company
works closely with its international distributors to ensure that its policies of
limited distribution and market segmentation are followed worldwide.
The Company's North American and export sales (in thousands) are set forth
below for the year ended December 31, 1997 and the six-month period ended June
30, 1998. No customer accounted for more than 10% of sales in either period. See
"--Risk Factors--Risks of International Business."
<TABLE>
<CAPTION>
Dec 31, 1997 June 30, 1998
------------ -------------
<S> <C> <C> <C> <C>
North America...... $24,907 68% $5,976 82%
Japan.............. 7,989 22 821 11
Europe and other... 3,579 10 482 7
----- -- --- -
Net sales.......... $36,475 100% $7,279 100%
======= === ====== ===
</TABLE>
INNOVATIVE PRODUCT DESIGNS
A key component of the Company's progressive image and operating strategy is
its commitment to be the industry leader in technologically innovative product
design. Unlike many other snowboard companies, which rely largely on third-party
design technicians and engineers, the Company uses in-house product development
teams in collaboration with Company team riders to develop high-performance
products that incorporate the most advanced snowboarding technology. The Company
continues advances in the use of light weight, durable materials in the
construction of its snowboards. For the 1998/1999 snowboard product line, the
Company has introduced several new construction styles, including the "Concept"
board, designed especially for freestyle riding, which is lighter than any board
the Company has produced to date, and the "Enigma" board that incorporates an
innovative variable angle cap. The Company is applying this same approach to the
development of its 1999 wakeboard product line. The Company pioneered the use of
lightweight and durable aircraft-grade aluminum in traditional "strap-in"
snowboard bindings. Research and development expenses totaled approximately
$417,000 and $338,000 in 1996 and 1997, respectively, and $180,000 in fiscal
1998. The Company expects to spend comparable amounts the 1999 fiscal year as it
has in recent past fiscal years on research and development efforts for
snowboard equipment and apparel while increasing its expenditures on wakeboards
and wakeboard bindings.
IN-HOUSE MANUFACTURING CAPABILITY
The Company's September 1995 acquisition of Ride Manufacturing significantly
expanded its snowboard development, production and quality assurance
capabilities. To date, the Company has been able to lower its snowboard
production costs, reduce reliance on outside suppliers and enhance product
development efforts. In fiscal 1998, the Company produced virtually all of its
snowboards in this factory and anticipates to continue doing so in 1999 fiscal
year. The Company devoted the majority of the Ride Manufacturing production
efforts toward construction of "Ride," "5150" and "Liquid" brand snowboards in
fiscal 1998. In addition, the Company produced a limited number of OEM and
promotional snowboards to the mix. The Company anticipates to repeat this
production pattern in 1999 fiscal year. The Company successfully moved the
"FullTilt" wakeboard production to the Ride Manufacturing factory in fiscal
1998. The Company anticipates this production shift will consume production time
and capacity in the fall and early winter months when the factory would
otherwise be idle due to the seasonality of snowboard production. See "-- Risk
Factors -- Manufacturing."
MARKETING
The Company has established its flagship "Ride" brand name as an aggressive,
technologically advanced brand on the leading edge of snowboarding. The Company
has established different brands for other target markets and seeks to increase
consumer awareness of these brands without jeopardizing the "Ride" brand image.
An important element of this strategy is the Company's "Ride," "5150," "SMP,"
and "FullTilt" professional snowboard and wakeboard riders, who are prominently
featured in the Company's print advertising in leading industry magazines and
several "underground" snow/surf/skate/wakeboard publications. Participating in
their respective sports approximately 250 days a year, the Company's
professional teams provide significant brand exposure through
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photographic and editorial coverage in major industry magazines and at organized
events. The Company also sponsors top local riders in various markets with free
products. Additionally, the Company's product demo program, "We Put the Ass Back
in Passion," provides trial rides to customers and potential customers at ski
areas around the country through the Company's five demo vans. The Company has
also increased its efforts to bring industry media attention to the
technological features of its products through Company-sponsored tours of its
state-of-the-art Ride Manufacturing factory and on-hill demonstration events. In
fiscal 1998, the Company employed a public relations firm to further enhance the
Company's exposure in important industry media and events. These programs are
each designed to improve the visibility of the Company's products while
enhancing the high-performance reputation of the "Ride," "5150," and "FullTilt"
brands. The Company also markets its products through regular attendance at
industry trade shows.
SUPPLIERS
In fiscal 1998, the Company sourced all of its "strap" and
"Device-compatible" step-in snowboard bindings from the Taiwan-based Snowboard
Factory, Inc. ("SFI") to capitalize on lower product cost opportunities
available in the Far East. The Company expects to continue this arrangement in
1999. The Company's apparel, boot and accessory products will continue to be
sourced through a variety of U.S. and foreign manufacturers.
The Company generally does not have contracts with its manufacturing sources
and competes with other companies for the production capacity of certain
manufacturers. Although the Company believes that it has established close
relationships with its principal manufacturing sources, its future success may
depend on its ability to maintain such relationships. If the Company's
relationship with any of its binding, boot, apparel or other product
manufacturers were interrupted, the Company could find it difficult to locate
another source with sufficient production capacity to meet the Company's
short-term needs, and the Company could miss the retailing season for that
product. The establishment of new manufacturing relationships involves numerous
uncertainties, including those relating to payment terms, costs of
manufacturing, adequacy of manufacturing capacity, quality control and
timeliness of delivery, and the Company is unable to predict whether such
relationships would be on terms that the Company regards as satisfactory. Should
an unexpected change in binding, boot, apparel or other product suppliers become
necessary, the Company would likely experience increased costs, as well as a
substantial disruption and a potential loss of sales. In addition, from time to
time manufacturers in the snowboard industry have experienced shortages and, in
some cases, price increases in certain raw materials, and such shortages or
price increases may recur. At times, the Company has also experienced delays in
the receipt of products from its suppliers as a result of shortages in raw
materials, including fiberglass and P-Tex. Although the Company believes that it
is well-positioned to minimize the impact of raw material shortages and delays
in supplier shipments, such shortages and delays could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "-- Risk Factors -- Dependence on Outside Manufacturers."
COMPETITION
Both the snowboarding and wakeboarding businesses are highly competitive and
have relatively few technological or manufacturing barriers to entry. The
Company's technology is generally not proprietary. The Company competes with a
number of established manufacturers and distributors whose brand names enjoy
recognition that exceeds that of the Company's brand names. In all its product
categories, the Company competes with numerous manufacturers and distributors
that have significantly greater financial, distribution, advertising and
marketing resources than the Company. There can be no assurance that the Company
will compete successfully in the future. Moreover, the current industry
oversupply position, future events affecting the Company or its competitors,
consumer buying patterns, the introduction of new products by the Company or its
competitors, weather patterns that may affect the demand for the Company's
products, product supply fluctuations in the Company's markets, regulations
affecting the Company's products, the financial condition of the Company's
suppliers and the entry of additional competitors in the Company's markets,
among other factors, could result in insufficient or excess inventory levels,
missed market opportunities or higher markdowns, any of which could have a
material adverse effect on the Company's financial condition and results of
operations. See "-- Risk Factors -- Competition."
LICENSING
The Company is currently licensing its recently acquired "Device Compatible"
step-in snowboard binding technology to several competitors in the snowboard
boot and binding market and anticipates licensing this technology to additional
snowboard boot and binding manufacturers in the future. The Company expects
these licensing arrangements will increase the market penetration of its "Device
Compatible" snowboard boot and binding system in North America, Europe and
Japan. The Company is also licensing its
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"Liquid" brand name for worldwide apparel distribution, and the "SMP" brand for
distribution in specific regions outside the United States.
INTELLECTUAL PROPERTY
The Company aggressively seeks to protect its intellectual property rights
such as trademarks, product designs and new concepts. These rights are protected
through trademark registrations, the maintenance of trade secrets, the
development of trade dress and, when necessary, appropriate action against those
who are, in the Company's opinion, unfairly competing. In addition, the Company
is seeking and, when appropriate, will continue to seek patent protection for
product function and design innovations.
The Company has applied for or been granted trademark registration in the
United States and certain foreign jurisdictions for "Ride," "Liquid," "5150,"
"Preston," "Cappel," "SMP," "Device," "Smiley," "FullTilt," and "Sub Rosa" as
well as certain associated logos. The Company also claims rights to the
foregoing and to various other trademarks arising out of use of such marks.
Although the Company believes these rights are enforceable, there can be no
assurance that any of these trademarks are enforceable or that the Company is
otherwise capable of protecting the goodwill associated with them. The Company
believes that the failure to protect its trademarks could have a material
adverse effect on the Company's business. See "-- Risk Factors -- Limited
Protection of Technology;" "Item 3. Legal Proceedings."
RECENT DEVELOPMENTS
On August 31, 1998, the Company entered into a Loan and Security Agreement
with CIT Group/Credit Finance, Inc. ("CIT") whereby the Company was extended a
$15.0 million credit facility, which is increased to $17.0 million during the
October 15 - December 15 time period. On the same date, the Company entered into
a Consent, Reaffirmation, and Release Agreement with US Bank NA, pursuant to
which the Company retained a $3.0 million credit facility with that institution.
The CIT facility has a term of three years, expiring August 30, 2001, and is
secured by substantially all of the assets of Ride and its subsidiaries. The US
Bank facility has a term of one year, expiring August 30,1999, and is secured by
a $1.8 million note receivable, the personal guarantee of one of the Company's
outside directors (including certain real property owned by that director), and
a second position on the other assets of Ride and its subsidiaries.
In August 1998, the Company, together with the individually named
defendants, entered into a Memorandum of Understanding with the plaintiffs in
the lawsuit filed by certain current and/or former shareholders of the Company
styled Murray v. Ride, Inc., et al., wherein the parties have agreed to settle
the lawsuit upon the following principal terms: (1) the creation of a settlement
fund consisting of: (a) $3,000,000 cash paid by the Company's insurance carrier;
and (b) warrants to purchase 600,000 shares of the Company's Common Stock,
exercisable for a four year period ending December 31, 2002 at a price of $3.00
per share; and (2) the dismissal of the lawsuit against all named defendants
with prejudice. The Memorandum of Understanding is to be reduced to a
Stipulation of Settlement, which will be presented to the Court for approval.
While the Company is hopeful such approval will be forthcoming, there can be no
assurance such approval will be given. In the event Court approval of the
settlement is denied, the Company expects the litigation will resume and the
Company will renew its vigorous defense of the claims.
On June 16, 1998, Robert E. Hall resigned his position as the Company's Chief
Executive Officer and President, and as a member of the Company's Board of
Directors; and Bruce Manke resigned his position as the Company's Senior Vice
President of Board Sports and Administration. Contemporaneous with the
resignations, Robert F. Marcovitch, formerly the Company's Senior Vice President
of International and Apparel, was appointed President and Chief Executive
Officer, and Greg Cook, formerly President of the Company's Ride Canada
subsidiary, was appointed Chief Operating Officer. Mr. Marcovitch was also
appointed to the Company's Board of Directors to fill the position left vacant
by Mr. Hall's resignation. Effective August 31, 1998, Scott Stewart resigned his
position as the Company's Vice President, Chief Financial Officer and Treasurer.
Mr. Cook has assumed Mr. Stewart's role as the Company's principal financial and
accounting officer.
Fiscal 1998 results include non-recurring charges totaling approximately
$1,046,000. The charges include a $280,000 expense for the restructure of the
Company's SMP operations, which includes asset write-downs, lease termination
and severance charges. The Company's agreement to settle the securities class
action lawsuit, while a positive step for the business of the Company, requires
the Company to issue warrants to purchase 600,000 shares of the Company's Common
Stock. The Company has accrued a charge of $500,000 in fiscal 1998 representing
the fair value and costs
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of issuing the warrants as well as related settlement expenses. An additional
charge of $266,000 has been taken to cover severance and other expenses
resulting from the resignations of Mr. Hall and Mr. Manke and related management
transition costs.
EMPLOYEES
As of September 23, 1998, the Company had 237 full-time (including seasonal)
employees. None of the Company's employees are subject to a collective
bargaining agreement. The Company considers its employee relations to be good.
RISK FACTORS
In evaluating the Company's business, careful consideration should be given
to the following factors in addition to the other information presented in this
Annual Report on Form 10-K:
Liquidity; Dependence on Line of Credit. The Company operates a seasonal
business and generates the majority of its sales in the quarters ending
September 30 and December 31. In order to manufacture product during the
remainder of the year, the Company has a revolving line of credit arrangement
with an asset-based lender, CIT Group/Credit Finance, Inc. ("CIT"), to finance
import letters of credit and working capital needs (the "CIT Line"). The term of
the line is three years, expiring August 30, 2001. The maximum amount available
under the line is $15 million, which is extended to $17 million between October
15 and December 15 of each year during the term. In addition to the CIT Line,
the Company has retained a line of credit with US Bank NA ("US Bank") in the
reduced amount of $3.0 million (the "US Bank Line"). The term of the US Bank
Line expires on August 30, 1999. The Company believes the CIT Line is adequate
to meet the current needs of its business. There is, however, no assurance the
CIT Line is sufficient to fund the demands of the Company's future growth. To
this end, the Company and CIT have agreed to review the line in March 1999 with
a view to increasing same if then current business conditions warrant doing so.
However, there can be no assurance such an increase in the CIT Line will be
available even if the Company's business prospects at that time require and
warrant doing so. In addition, availability of funds under the CIT Line is at
all times conditioned on the Company achieving certain collateral requirements.
There can be no assurance such requirements will be achieved or, if achieved,
that they can be consistently maintained. The Company's inability to increase
the CIT Line or meet or maintain specific collateral requirements could each
have a material adverse impact on the Company's financial condition and could
result in a substantial limitation or reduction in the scope of the Company's
business. With respect to the US Bank Line, the Company is obligated to satisfy
all sums due thereunder on or before its August 30, 1999 expiration date. There
can be no assurance the Company will be successful in doing so. The Company's
inability to successfully satisfy or extend the US Bank Line, if necessary,
could have a material adverse impact on the Company's financial condition.
Risks of International Business. In fiscal 1998, approximately 18% of the
Company's sales were outside of North America. The Company's business is subject
to the risks generally associated with doing business internationally, such as
fluctuations in exchange rates, foreign governmental regulation, product
distribution patterns and changes in economic conditions. These factors, among
others, could influence the Company's ability to sell its products in
international markets, as well as its ability to procure products or components.
The Company sources all of its binding and boot production in China. A large
portion of its apparel is manufactured in Asia as well. While the Company
believes the financial health of its Asian suppliers to be good, there can be no
assurance that the economic slowdown affecting Asia today will not have an
adverse effect on the Company's Asian suppliers' ability to source or fund their
production requirements, or fulfill the Company's orders. The Company ships its
Asian-sourced products in sea-borne containers from a central facility in Hong
Kong to central distribution centers in North America and Europe, and to
individual customers in Japan. The economic slowdown in Asia has dramatically
reduced the availability of such containers and increased the cost of those
containers that are available. The Company's inability to timely ship its
Asian-sourced products, or its being forced to use alternative, higher cost air
freight, as a result of the paucity of sea-borne containers available to the
Company's shipper may adversely effect the Company's business, financial
condition and results of operations. In addition, the Company believes that its
relationship with its current Japanese retailer customers is good and that they
will continue to do business with the Company. However, the Company believes
that current adverse economic conditions in Japan may negatively affect end-user
buying patterns in that country, which may in turn cause a reduction in future
orders from its Japanese retailer customers. Any such reduction may adversely
effect the Company's business and results of operations. The Company purchases
many of its products and components from sources outside of the United States,
with purchase prices often denominated in foreign currencies. From time to time,
the Company enters into foreign currency forward contracts to either buy or sell
foreign currencies at future dates in order to minimize currency risk. Despite
this hedging program, unanticipated or long-term changes in the value of the
U.S. dollar relative to that of certain foreign currencies could have a material
adverse effect on the Company's results of operations through either higher
product
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costs or reduced export sales prices and/or export sales volumes. The Company is
also subject to risks inherent in hedging programs and in 1997 and 1996 the
Company recognized losses on foreign currency contracts totalling $17,000 and
$160,000, respectively. In addition, the Company's business is subject to the
risks associated with the imposition of legislation and regulation relating to
imports, including quotas, duties or taxes and other charges, restrictions or
retaliatory actions on imports to the United States and other countries in which
the Company's products are sold or manufactured. The Company cannot predict
whether the foregoing legislation and regulation will be imposed by the United
States or other countries, nor can it predict what effect such imposition would
have on its business or results of operations.
Issuance of Preferred Stock; Dilution. In December 1997, the Company issued
3,000 shares of Series B 5% Cumulative Convertible Preferred Stock (the "Series
B Preferred Stock") to a single institutional investor. Subject to certain
adjustments, the Series B Preferred Stock converts to Common Stock at the lesser
of $2.68 per share or 90% of the market price (as defined) of the Common Stock
at the time of the conversion. During the period ended June 30, 1998, 716 shares
of Series B Preferred Stock were converted into 441,687 shares of Common Stock.
As of September 21, 1998, approximately 2.8 million shares of Common Stock would
have been issuable upon conversion of all of the remaining Series B Preferred
Stock. Any unconverted Series B Preferred Stock converts automatically to Common
Stock in December 2000.
The Board of Directors may, without shareholder approval, issue additional
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power and other rights of the holders of
the Common Stock. In the event of additional issuances, the preferred stock
could be utilized, under certain conditions, as a method of delaying, deterring
or preventing a change in control of the Company. Although the Company has no
current plans to issue any additional shares of preferred stock, there can be no
assurance that it will not do so in the future.
Potential Applicability of "Penny Stock Restrictions"; Potential to Fail to
Meet Continuing Nasdaq Listing Requirements. Stocks selling for less than $5.00
per share, excluding broker or dealer commissions, may be designated as "penny
stocks" and may be subject to certain requirements imposed by Rules 15g-1
through 15g-9 under the Exchange Act. The net effect of these regulations may be
to delay transactions in stocks that are deemed to be penny stocks. The
Company's Common Stock is currently trading for less than $5.00 per share,
however the "penny stock restrictions" are not applicable based on exemptions
provided in Rule 3a51-1 under the Exchange Act, which among other things
provides an exemption from the penny stock restrictions for securities that are
quoted on the Nasdaq and for those that have tangible assets in excess of $2.0
million. If the Company's Common Stock were to be delisted from Nasdaq and its
net worth drop below $2.0 million at a time when its stock price was less than
$5.00 per share, and if no other exemption from the penny stock restrictions
were available to the Company, then its Common Stock could be subject to such
restrictions and sales of the Company's Common Stock by brokers and dealers and
resales by investors would likely be adversely affected. To meet the continued
listing requirements for the Nasdaq National Market, among other things, the
minimum bid price of the Common Stock must be $1.00. If the minimum bid price of
the Common Stock were for a continuing period of time to be less than $1.00, the
Common Stock could be delisted from the Nasdaq National Market which would
adversely affect the ability of shareholders to buy and sell shares of Common
Stock.
Year 2000 Problem. The "year 2000 problem" is the result of computer
programs being written using two digits rather than four to define the
applicable year. Software programs and systems that have date-sensitive features
may recognize a date using "00" as the year 1900 instead of the year 2000. The
Company has assessed its year 2000 needs and has purchased and is presently
installing year 2000-compliant software in all its known non-compliant hardware
and software systems, which installation the Company anticipates will be
completed by the June 30, 1999 year-end. The cost of the purchase and
installation of the year 2000-compliant software is anticipated to exceed
$250,000. The Company is in the process of reviewing with each of its material
suppliers, service providers and customers the steps each is taking to insure
their respective computer systems are presently or will be year 2000-compliant
in a timely fashion. The Company's shipper has confirmed to the Company it has
installed year 2000-compliant software in all of its material systems. There can
be no assurance the computer systems of third parties on whose commercial
efforts the Company directly or indirectly relies, will be year 2000-compliant
in a timely fashion. Because the Company has not completed its review of its
material third party suppliers, service providers and customers, it has not
created a contingency plan setting forth what steps will be taken if such third
parties are not year 2000 compliant by December 31, 1999. Based on information
received from its third party vendors, service providers and customers, the
Company intends to have a contingency plan in place by June 1999. The failure of
third parties to be year 2000 compliant could cause material delays in the
design, manufacture and shipment of products, delay in payment for products, and
delay in the availability of credit or funds necessary to operate the business
of the Company. The failure of the Company's or one or more third-party's
computer systems as a result of year 2000 non-compliance may have a material
adverse effect on the Company's business and results of operations.
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Industry and Product Concentration. The Company's current product offerings
consist predominantly of snowboards and related products. As a result of this
concentration, the Company's future success will depend in large part on the
continued growth of the snowboard market. Snowboarding is a relatively new
sport, and there can be no assurance that the sport will continue to grow at the
rate experienced in recent years, or that its popularity will not decline.
Moreover, the market for snowboards is characterized largely by image-conscious,
brand-driven younger consumers, and the Company's future success depends on its
ability to regularly update its products and maintain its progressive,
cutting-edge image, particularly with respect to its flagship "Ride" brand. Any
failure by the Company to accurately predict and target future trends or to
maintain its progressive image could have a material adverse effect on its
results of operations.
The Company believes that controlling its channels of distribution is
critical to maintaining the premium image of its brands. While the Company can
control the initial wholesale distribution of its products, it has limited
ability to monitor or control the resale of its products through alternative
channels. Failure to adequately control distribution of its products could have
an adverse effect on its brand image and sales which in turn could have a
material impact on the Company's financial position and results of operations.
In addition, supply and demand imbalances in the snowboard industry could also
have a material adverse effect on the Company's growth prospects, financial
condition and results of operations. The Company believes that its future
success will depend, among other things, on its ability to introduce innovative,
well-received products, and there can be no assurance of its ability to do so.
In addition, a major innovation by one or more of the Company's competitors
could have a negative effect on the sales of one or more of the Company's
product lines or brands.
Acquisition-Related Risks; Ability to Manage Change. During 1997 the Company
completed three acquisitions. In June, the Company purchased substantially all
of the assets (except cash and accounts receivable) and the liabilities of
Device Mfg Corp., a manufacturer of step-in snowboard bindings. In July, the
Company purchased substantially all of the assets of Galena Creek Trading
Company, Inc. (dba Smiley Hats), a manufacturer of winter head and neckwear. In
December, the Company purchased the stock of US2 Sports Group, Inc., a
manufacturer of wakeboards and related products. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks associated with
entering markets or conducting operations with which the Company has no or
limited direct prior experience, and the potential loss of key employees of the
acquired company. Moreover, there can be no assurance that the anticipated
benefits of an acquisition will be realized. Acquisitions also place
considerable demands on existing financial and management control systems.
Acquired operations entail transition of key systems, establishment of new
systems and often require improvement, upgrade or replacement of existing
financial and management control systems. Failure to adequately absorb acquired
operations into the Company's systems or difficulties encountered during such
improvements and upgrades could adversely affect the Company's financial
condition and results of operations. The Company may, when and if the
opportunity arises, acquire other businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expense related
to goodwill and other tangible assets, all of which could materially adversely
affect the Company's financial condition and results of operations.
Dependence on Outside Manufacturers. Many of the Company's products are
manufactured by outside suppliers. In 1998, the Company sourced its entire line
of "Ride," "Liquid" and "Slim" traditional "strap" and "Device compatible"
step-in bindings from Taiwan-based Snowboard Factory, Inc. In addition, all of
the Company's snowboard boots and the majority of its apparel are manufactured
to the Company's specifications by independent contractors. The Company
generally does not have contracts with its manufacturing sources and competes
with other companies for the production capacity of certain manufacturers.
Although the Company believes that it has established close relationships with
its principal manufacturing sources, its future success may depend on its
ability to maintain such relationships. If the Company's relationship with any
of its binding, boot, apparel or other product manufacturers were interrupted,
the Company could find it difficult to locate another source with sufficient
production capacity to meet the Company's short-term needs, and the Company
could miss the retailing season for that product. The establishment of new
manufacturing relationships involves numerous uncertainties, including those
relating to payment terms, costs of manufacturing, adequacy of manufacturing
capacity, quality control and timeliness of delivery, and the Company is unable
to predict whether such relationships would be on terms that the Company regards
as satisfactory. Should an unexpected change in binding, boot, apparel or other
product suppliers become necessary, the Company would likely experience
increased costs, as well as a substantial disruption and a potential loss of
sales. In addition, from time to time manufacturers in the snowboard industry
have experienced shortages and, in some cases, price increases in certain raw
materials, and such shortages or price increases may recur. At times, the
Company has also experienced delays in the receipt of products from its
suppliers as a result of shortages in raw materials, including fiberglass and
P-Tex. Although the Company believes that it is well-positioned to minimize the
impact of raw material shortages and delays in
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supplier shipments, such shortages and delays could have a material adverse
affect on the Company's business, financial condition and results of operations.
Seasonality; Fluctuations in Quarterly Operating Results. Because
snowboarding is traditionally a winter sport and the Company's sales are
concentrated in the northern hemisphere, sales of the Company's products
predominantly occur in what was traditionally the Company's quarters ending
September 30 and December 31. Although the Company believes that its recent
entry into the wakeboard industry should reduce overall seasonality, the Company
expects that for the foreseeable future the majority of net sales will continue
to be generated in the quarters ending September 30 and December 31. Because
relatively lower net sales are to be realized in the quarters ending March 31
and June 30 of each year, the Company expects to incur operating losses in such
quarters for the foreseeable future. Apart from seasonal factors, demand for the
Company's products fluctuates in response to consumer buying patterns, weather
conditions, discretionary spending habits, general economic conditions in the
United States and abroad, product supply fluctuations in the United States and
abroad and other factors. In addition to seasonal fluctuations, the Company's
operating results fluctuate from quarter to quarter as a result of the timing of
order shipments, new product introductions and new retailer openings.
Furthermore, the Company's gross margins will fluctuate with product mix, the
timing of product price adjustments, the mix of international and domestic sales
and in-house production cost fluctuations. The Company's operating results for
any interim period may not be indicative of the results for the entire year.
Risks Associated With the Apparel Business. Fashion trends are volatile, and
there can be no assurance that the Company will accurately anticipate shifts in
fashion trends and adjust its merchandise mix to appeal to changing consumer
tastes in a timely manner. If the Company is unsuccessful in responding to
changes in fashion trends or market demand, the Company could experience
insufficient or excess inventory levels, missed market opportunities or higher
markdowns, any of which would have a material adverse effect on the Company's
financial condition and results of operations.
Manufacturing. As a manufacturer of certain of the Company's products, the
Company continually faces risks regarding the availability and cost of raw
materials and labor, the potential need for additional capital equipment,
increased manufacturing costs, potential organized labor issues, plant and
equipment obsolescence, worker's safety and compensation issues and quality
control. A disruption in the Company's production or distribution could have a
material adverse effect on the Company's results of operations. Like certain of
its suppliers, the Company has experienced delays in the receipt of raw
materials used in the manufacturing process.
Dependence on Third-Party Selling Efforts. The Company primarily relies on
third parties to sell, and in some cases to distribute, its products to
retailers. In the United States and Canada, the Company generally uses
independent sales representatives who work under contract. Generally, such
contracts may be terminated by either party upon 30 days' notice. The Company
uses distributors under long-term contractual arrangements in certain
international markets. Loss of services, poor performance or difficulties
encountered with any of the Company's independent sales representatives or
distributors could each have a material adverse effect on the Company's results
of operations.
Dependence on Key Individuals. The Company's future success depends in large
part on the continued service of Robert F. Marcovitch, the Company's President
and Chief Executive Officer and Greg Cook, the Company's Chief Operating Officer
and acting Chief Financial Officer. The loss of the services of either of these
officers could have a material adverse effect on the Company's business.
Further, the Company believes that the market for key personnel in its industry
is highly competitive. There can be no assurance that the Company will be able
to attract and retain key personnel with the skills and expertise necessary to
manage the Company's business, both in the United States and abroad.
Competition. The snowboarding and wakeboarding businesses are highly
competitive and have relatively few technological or manufacturing barriers to
entry. The Company's technology is generally not proprietary. The Company
competes with a number of established manufacturers and distributors whose brand
names enjoy recognition that exceeds that of the Company's brand names. In all
its product categories, the Company competes with numerous manufacturers and
distributors that have significantly greater financial, distribution,
advertising and marketing resources than the Company. There can be no assurance
that the Company will continue to compete successfully in the future. Moreover,
the current industry oversupply position, future events affecting the Company or
its competitors, consumer buying patterns, the introduction of new products by
the Company or its competitors, weather patterns that may affect the demand for
the Company's products, product supply fluctuations in the Company's markets,
regulations affecting the Company's products, the financial condition of the
Company's suppliers and the entry of additional competitors in the
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Company's markets, among other factors, could result in insufficient or excess
inventory levels, missed market opportunities or higher markdowns, any of which
could have a material adverse effect on the Company's financial condition and
results of operations.
Product Liability. The Company's products are often used in relatively
high-risk recreational settings. Consequently, the Company is exposed to the
risk of product liability claims in the event that users of the Company's
products are injured in connection with such use. In many cases, users of the
Company's products may engage in imprudent or even reckless behavior while using
such products, thereby increasing the risk of injury. The Company maintains
product liability, general liability and excess liability insurance coverage.
There can be no assurance that such coverages will continue to be available on
acceptable terms, or will be available in sufficient amounts to cover one or
more large claims, or that the insurer will not disclaim coverage as to any
claim. The successful assertion of one or more large claims against the Company
that exceed available insurance coverage or changes in the Company's insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on the Company's
financial condition and results of operations.
Limited Protection of Technology. Most of the Company's products are not
based on proprietary technology. As a result, there are relatively few
technological or other barriers to entry, and the Company's products may be
replicated by competitors. There can be no assurance that current or future
competitors will not offer products substantially identical to the Company's
products, or competing products to customers at lower prices. The Company has
filed for trademark and patent registration in the United States and certain
foreign countries for certain of its trademarks and product designs and/or
functions. There can be no assurance that trademark or patent protection, as the
case may be, will be granted in any or all of the countries in which
applications are currently pending, or granted on the breadth of the current
description of goods or designs. The Company has substantial international
sales; the laws of foreign countries treat the protection of proprietary rights
and intellectual property differently from, and may not protect the Company's
proprietary or intellectual property rights to the same extent as do, the laws
in the United States.
Volatility of Stock Price. The market price of the Common Stock has
fluctuated substantially in the past. There can be no assurance that the market
price of the Common Stock will not significantly fluctuate from its current
level. Future announcements concerning the Company or its competitors, quarterly
variations in operating results, the introduction of new products or changes in
product pricing policies by the Company or its competitors, weather patterns
that may be perceived to affect the demand for the Company's products, changes
in earnings estimates by analysts, changes in accounting policies, future
inventory supply situations and events in current or future legal proceedings,
among other factors, could cause the market price of the Common Stock to
fluctuate substantially. In addition, stock markets have experienced extreme
price and volume volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many smaller public
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock.
Legal Proceedings. In March 1997, a shareholder filed a lawsuit against the
Company and four of its current or former officers and directors, styled Murray
v. Ride, Inc. et al. The lawsuit alleges violations of certain federal
securities laws and state laws, and purports to seek unspecified monetary
damages on behalf of a class of shareholders who purchased the Company's common
stock during the period of August 10, 1995 through December 30, 1996. In August
1998, the Company, together with the individually named defendants, entered into
a Memorandum of Understanding with the plaintiffs in the lawsuit, wherein the
parties have agreed to settle the lawsuit upon the following principal terms:
(1) a settlement fund will be created consisting of: (a) $3,000,000 cash paid by
the Company's insurance carrier; and (b) warrants to purchase 600,000 shares of
the Company's Common Stock, exercisable for a four year period ending December
31, 2002 at a price of $3.00 per share; and (2) the dismissal of the lawsuit
against all named defendants with prejudice. The Memorandum of Understanding is
presently being reduced to a Stipulation of Settlement, which will be presented
to the Court for approval. While the Company anticipates approval will be
forthcoming, there can be no assurance the Court will approve the settlement. In
the event Court approval of the settlement is denied, the Company expects the
litigation will resume and the Company will renew its vigorous defense of the
claims. In the event of a renewal of the litigation, an award of monetary
damages against the Company in excess of applicable insurance, if any, the
expenditure of significant sums in the defense thereof or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.
The Company is also engaged in legal proceedings against Switch Manufacturing,
Inc. alleging patent infringement and seeking monetary damages. While the
Company intends to vigorously prosecute the lawsuit, there can be no assurance
that the Company will prevail in the action. The expenditure of significant sums
in the prosecution of the action could have a material adverse effect on the
Company's financial condition and results of operations.
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Potential Adverse Effect of Environmental Regulations. The Company is subject
to federal, state and local governmental regulations relating to the storage,
use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals
used in its manufacturing process. There can be no assurance that changes in
environmental regulations or in the kinds of raw materials used by the Company
will not impose the need for additional capital equipment or other requirements.
Any failure by the Company to control the use of, or adequately restrict the
discharge of, hazardous substances under present or future regulations could
subject the Company to substantial liability or could cause its manufacturing
operations to be suspended. Such liability or suspension of manufacturing
operations could have a material adverse effect on the Company's results of
operations.
ITEM 2. PROPERTIES
Ride Snowboards leases approximately 82,400 square feet of office and
warehouse space in Preston, Washington, under a lease that expires December 31,
2003. The Company is currently subleasing approximately 3,900, 12,600, and 4,300
square feet under agreements which expire in November 1998, May 2002, and
September 2002, respectively, and is seeking to sublet additional office space.
Ride Canada leases approximately 13,000 square feet of warehouse and office
space in Etobicoke, Ontario, pursuant to a lease that expires on November 30,
2001.
Ride Manufacturing occupies a 25,000 square foot manufacturing and office
facility in Corona California under a lease expiring August 31, 2001. Ride
Manufacturing also occupies a 16,300 square foot facility adjacent to the 25,000
square foot facility under a sublease expiring March 31, 1999.
SMP leases approximately 26,250 square feet of office, warehouse and light
manufacturing space in Chula Vista, California, pursuant to a lease that expires
June 30, 1999.
Smiley Hats leases approximately 21,000 square feet of office, warehouse and
light manufacturing space in Sparks, Nevada, under a lease that expires in
September 1999. Smiley Hats subleases roughly 5,000 square feet of this space
under an agreement expiring in September 1999.
US2 leased approximately 11,300 square feet of office, warehouse and
manufacturing space in Woodinville, Washington under an agreement which expires
in September 2001. In 1998, the Company assigned its interest in the lease
agreement to a third party for the remaining term of the lease, but remains
secondarily liable in the event of default by the assignee.
In connection with the Company's acquisition of Device Mfg Corp, the Company
assumed a lease for approximately 5,100 square feet of office and manufacturing
space in Boulder, Colorado expiring in January 2000. The Company has subleased
this space for the remaining term of the lease.
The Company anticipates that its current facilities will satisfy its needs
through at least 1999.
ITEM 3. LEGAL PROCEEDINGS
On March 14, 1997, a shareholder filed a lawsuit against the Company and four
of its current or former officers and directors in the United States District
Court for the Western District of Washington at Seattle, styled Murray v. Ride,
Inc. et al., Civil Action No. C97-0402-Z. In August 1998, the Company, together
with the individually named defendants, entered into a Memorandum of
Understanding with the plaintiffs in the lawsuit, wherein the parties have
agreed to settle the lawsuit upon the following principal terms: (1) a
settlement fund will be created consisting of: (a) $3,000,000 cash paid by the
Company's insurance carrier; and (b) warrants to purchase 600,000 shares of the
Company's Common Stock, exercisable for a four year period ending December 31,
2002 at a price of $3.00 per share; and (2) the dismissal of the lawsuit against
all named defendants with prejudice. The Memorandum of Understanding is
presently being reduced to a Stipulation of Settlement, which will be presented
to the Court for approval. While the Company anticipates approval will be
forthcoming, there can be no assurance the Court will approve the settlement. In
the event Court approval of the settlement is denied, the Company expects the
litigation will resume and the Company will renew its vigorous defense of the
claims. In the event of a renewal of the litigation, an award of monetary
damages against the Company in excess of applicable insurance, if any, the
expenditure of significant sums in the defense thereof or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.
15
<PAGE> 16
In 1996, the Company initiated legal proceedings against Switch
Manufacturing, alleging infringement by Switch of certain of the Company's
patented binding technologies and seeking monetary damages. The case is pending
in the United States District Court for the Northern District of California as
Raines, et al. v. Switch Manufacturing, Civil Action No. C96-2648-DLJ. The
Company intends to vigorously prosecute this lawsuit. However, there can be no
assurance that the Company will prevail in the action. An expenditure of
significant sums in the prosecution of the Switch action could have a material
adverse effect on the Company's financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 18, 1998. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year.
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Robert E. Hall 9,282,467 1,385,072
Cory J. Hechler 9,812,300 855,239
Mark M. Salter 9,338,225 118,023
</TABLE>
The proposal to increase the Company's authorized amount of Common Stock from
20,000,000 shares to 40,000,000 shares was approved as follows:
<TABLE>
<CAPTION>
In Favor Opposed Withheld
-------- ------- --------
<S> <C> <C>
9,385,519 1,221,518 60,502
</TABLE>
The proposal to ratify Ernst & Young LLP as the Company's independent public
accountants for the 1998 fiscal year was approved as follows:
<TABLE>
<CAPTION>
In Favor Opposed Withheld
-------- ------- --------
<S> <C> <C>
10,606,145 40,700 20,694
</TABLE>
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
STOCK TABLE
The following table sets forth for the calendar quarters indicated the high
and low closing bid prices as reported by NASDAQ:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Quarter
Ended:
March 31 $33.5000 $13.8750 $7.1250 $3.1250 $2.8750 $1.8750
June 30 14.1875 10.3750 5.1250 3.3750 2.5625 1.5000
September 30 13.3750 9.2500 3.9375 2.8125
December 31 12.4375 5.8125 3.1875 1.7813
</TABLE>
The prices quoted reflect inter-dealer quotations, without retail mark-ups,
mark-downs or commissions, and do not necessarily represent actual transactions.
As of September 23, 1998, there were 676 record holders of the Company's common
stock.
Except for distributions paid to shareholders when the Company was an S
Corporation, the Company has never paid dividends on its common stock and does
not anticipate paying regular cash dividends in the foreseeable future. The
Company's bank loan agreement restricts the payment of dividends.
SALES OF UNREGISTERED SECURITIES
In the six month period ended June 30, 1998, the Company issued unregistered
securities in the amounts, at the dates and for the aggregate amounts of
consideration given below. The issuances were made in reliance upon Section 4(2)
of the Securities Act of 1933, as amended (the "Act"), and/or Regulation 506
promulgated under the Act.
On January 22, 1998, the Company issued 44,237 shares of common stock valued
at $66,000 to one accredited individual in connection with the retirement of a
note payable.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months
Year ended December 31, Ended June 30,
---------------------------------------------------- ------------------
1993 1994 (1) 1995 (2) 1996 (3) 1997 (4) 1997 1998
------ -------- -------- ------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $5,877 $25,349 $74,850 $75,728 $ 36,475 $ 7,559 $ 7,279
Cost of goods sold 3,879 18,398 54,988 61,641 26,656 5,567 8,287
------ ------- ------- ------- -------- ------- --------
Gross profit (loss) 1,998 6,951 19,862 14,087 9,819 1,992 (1,008)
Selling, general and
administrative expenses 1,373 4,022 10,868 20,487 18,278 8,392 10,735
Goodwill write down -- -- -- -- 8,600 -- --
Restructuring charges -- -- -- 2,500 -- -- --
------ ------- ------- ------- -------- ------- --------
Operating income (loss) 625 2,929 8,994 (8,900) (17,059) (6,400) (11,743)
Interest expense (130) (1) (18) (268) (426) (43) (147)
Interest income 2 72 406 333 195 103 117
Gain on sale of subsidiary -- -- -- 482 -- -- --
------ ------- ------- ------- -------- ------- --------
Income (loss) before income
taxes and extraordinary item 497 3,000 9,382 (8,353) (17,290) (6,340) (11,773)
Income taxes provision (benefit) -- 1,134 3,427 (2,863) (595) (1,904) --
------ ------- ------- ------- ------- ------- --------
Income (loss) before
extraordinary item 497 1,866 5,955 (5,490) (16,695) (4,436) (11,773)
Extraordinary item (83) -- -- -- -- -- --
------ ------- ------- ------- ------- ------- --------
Net income (loss) $ 414 $ 1,866 $ 5,955 $(5,490) $(16,695) $(4,436) $(11,773)
====== ======= ======= ======= ======== ======= ========
Pro Forma net income (loss) (5) $ 343
======
Net income (loss) per share:
Basic -- $ 0.29 $ 0.67 $ (0.52) $ (1.51) $ (0.41) $ (0.99)
Diluted -- $ 0.28 $ 0.59 $ (0.52) $ (1.51) $ (0.41) $ (0.99)
Pro forma $ 0.08 -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ -------------------
1993 1994 1995(2) 1996(3) 1997(4) 1997 1998
------ ------- ------- ------- -------- ------- --------
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital $1,046 $ 7,663 $26,104 $20,941 $ 14,823 $15,644 $ 2,489
Total assets 2,431 15,718 57,599 50,655 40,610 50,728 34,604
Long-term obligations -- -- -- 832 1,582 555 979
Shareholders' equity 1,152 11,524 46,495 42,309 31,070 39,627 19,252
</TABLE>
- -------
(1) Results for the year ended December 31, 1994 reflect the Company's August
18, 1994 acquisition of CAS Sports.
(2) Results for the year ended December 31, 1995 reflect the Company's
September 1, 1995 acquisitions of Ride Manufacturing, Inc. and 5150
Snowboards, Inc. and the October 20, 1995 acquisition of SMP Clothing,
Inc.
(3) Results for the year ended December 31, 1996 include the CAS Sports excess
inventory and OEM businesses from January 1, 1996 through October 11,
1996, the date those businesses were sold.
(4) Results for the year ended December 31, 1997 reflect the Company's June
12, 1997 acquisition of the assets and liabilities of Device Mfg Corp, the
July 22, 1997 acquisition of the assets of Galena Creek Trading Company
(dba Smiley Hats), and the December 19, 1997 acquisition of US2 Sports
Group, Inc.
(5) For the year ended December 31, 1993, the Company was exempt from the
payment of federal income taxes as a result of its election to be treated
as an S Corporation. The pro forma net income (loss) per share for these
periods include pro forma provisions for income taxes as if the Company
had been subject to such taxes for the periods presented. Historical net
income (loss) per share data is not presented because per share amounts of
an S Corporation may not be meaningful.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
This report of Form 10-K is being filed as a result of the change in the
Company's fiscal year end from December 31 to June 30, beginning with the six
month period ended June 30, 1998. The change in fiscal year end was made to more
closely align the Company's accounting and reporting practices with its product
cycle. In the following discussion, the six month period ended June 30, 1998
will be compared to the corresponding unaudited six month period ended June 30,
1997. The Liquidity and Capital Resources discussion is as of June 30, 1998.
The Company is a leading designer, manufacturer and marketer of snowboards
and related products through its subsidiaries: Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc.
("Ride Canada"), SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley") and
Carve, Inc. ("US2"). The Company was founded in September 1992 and acquired
C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. (collectively,
"CAS") in August 1994, Ride Manufacturing in September 1995 and SMP in October
1995. The Company also acquired 5150 Snowboards, Inc. ("5150") in September 1995
and later merged 5150 with and into Ride Snowboards. In October 1996, the
Company transferred substantially all of the Canada-based operating assets and
liabilities of CAS (other than fixed assets) into Ride Canada, a newly formed
corporation, and all of the US-based operating assets and liabilities of CAS
into Ride Snowboards, and sold the CAS entities. In June 1997, the Company
acquired substantially all of the assets and liabilities of Device Mfg Corp. and
transferred those assets and liabilities to Ride Snowboards. In July 1997, the
Company's newly formed Smiley subsidiary acquired substantially all of the
assets of Galena Creek Trading Corp. In December 1997, the Company acquired US2
Sports Group Inc. through a merger of that company with and into Carve, Inc., a
newly formed corporation. The results of operations of these acquired
subsidiaries are included in the Company's financial statements from their
respective dates of acquisition through their applicable dates of disposition.
Because snowboarding traditionally is a winter sport and the Company's sales
are concentrated in the northern hemisphere, sales of the Company's products
predominantly occur in the months of July through December, the Company's first
and second fiscal quarters. Because relatively lower net sales are realized in
the months of January through June of each year, the Company expects to incur
operating losses in its third and fourth fiscal quarters for the foreseeable
future. The Company expects the addition of wakeboarding products to its product
line-up through its acquisition of US2 will help to supplement sales in the
third and fourth fiscal quarters of the year in future periods. In addition to
seasonal fluctuations, the Company's operating results fluctuate from quarter to
quarter as a result of the timing of order shipments, new product introductions,
new retailer openings, consumer buying patterns, weather conditions,
discretionary spending habits, general economic conditions in the United States
and abroad and other factors. Furthermore, the Company's gross margins fluctuate
with product mix, the timing of product price adjustments and the mix of
international and domestic sales. See "Business - Risk Factors - Seasonality;
Fluctuations in Quarterly Operating Results."
The Company accumulates a backlog of orders beginning in February as a result
of preseason orders placed in connection with winter sports trade shows. The
backlog decreases beginning in late spring as product begins to be shipped.
19
<PAGE> 20
Backlog in the snowboarding industry is subject to delay or cancellation. The
Company's backlog of orders as of June 15, 1998 was approximately $37 million,
compared to a backlog of $26 million as of June 1997.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Net sales decreased 4% to $7.3 million for the six months ended June 30, 1998
from $7.6 million for the corresponding period in 1997. Device, Smiley and US2
contributed a total of $1.2 million to net sales in the fiscal 1998 period. The
remaining net decrease was due primarily to higher sales of closeout products in
the 1997 period as the Company worked down its excess inventories remaining for
the 1996 calendar year.
SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
---- ----
(DOLLARS IN 000'S)
<S> <C> <C> <C> <C>
Snowboards $2,362 31% $2,034 28%
Bindings 527 7 863 12
Boots 360 5 115 2
Skate, wake and other 540 7 1,277 17
------ -- ------ --
Total hard goods 3,789 50 4,289 59
Apparel 3,510 46 2,649 36
Accessories 260 4 341 5
------ -- ------ --
Total soft goods 3,770 50 2,990 41
------ -- ------ --
Total $7,559 100% $7,279 100%
====== == ====== ==
</TABLE>
Snowboard hardgood sales, comprising boards, boots and bindings, decreased
by $237,000 from the corresponding period of 1997. Sales from January through
June of each year are traditionally closeout in nature and are highly dependent
on market price at the time of sale. Hardgood sales of wake, skate and other are
up $737,000 due to the inclusion of the Fulltilt brand of wake boards in 1998.
In the first six months of 1998, sales in North America made up 82% of
total sales with international sales making up the remaining 18%. Amounts for
the corresponding period in the previous year were 68% and 32%, respectively.
The change in sales mix was primarily due to a decline in apparel sales in
Japan.
Gross profit for the six months ended June 30, 1998 was negative $1.0
million versus a profit of $2.0 million for the first six months of 1997. A
number of factors contributed to this change. In fiscal 1998, the Company
transferred its US2 operations to Ride Manufacturing incurring closure and
consolidation costs, had close out sales at lower than expected margins, and
increased its inventory reserves for the remaining close out merchandise due to
the continued soft market conditions.
Selling, general and administrative expenses for the first six months of
1998 were $10.7 million versus $8.4 million for the corresponding period in
1997. Approximately $1.0 million of the increase was due to non-recurring costs
associated with the settlement of the Class Action Lawsuit, certain severance
and other costs associated with management reorganization, and restructuring
SMP. Bad debt expense increased by approximately $700,000 in the 1998 period due
to slower than expected collection of accounts receivable from 1997 and write
off of the remaining CAS sales accounts receivable. The balance was attributable
to additional administrative cost related to the inclusion of Device, Smiley
Hats, and US2 acquisitions made in the second half of 1997 and included in the
first six months of 1998.
Interest expense increased by $104,000 in fiscal 1998 due to higher
borrowing levels attributed to the Company's cash losses.
For the six months ended June 30, 1998, there was no income tax benefit
recorded as the Company was in a net operating loss carryforward position. For
the six months ended June 30, 1997, a tax benefit was recorded based upon the
amount of income tax that was recoverable in carryback periods.
20
<PAGE> 21
As a result of the foregoing, the Company's net loss increased to $11.8
million in the first six months of 1998 from a loss $4.4 million in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales decreased 52% to $36.5 million in 1997 from $75.7 million in 1996.
Device, Smiley and US2 contributed a total of $2.5 million to net sales in 1997,
subsequent to their respective acquisition dates. The CAS excess inventory and
OEM businesses contributed $15.4 million to sales in 1996 through their October
11, 1996 disposition date. The remaining net decrease was due primarily to soft
market conditions throughout the industry due to an oversupply of snowboard
products.
SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1997
---- ----
(DOLLARS IN 000'S)
<S> <C> <C> <C> <C>
Snowboards $39,926 53% $12,520 34%
Bindings 12,241 16 8,287 23
Boots 4,458 6 3,714 10
Skate, wake and other 3,464 5 971 3
------- --- ------- ---
Total hard goods 60,089 80 25,492 70
------- --- ------- ---
Apparel 13,597 18 8,387 23
Accessories 2,042 2 2,596 7
------- --- ------- ---
Total soft goods 15,639 20 10,983 30
------- --- ------- ---
Total $75,728 100% $36,475 100%
======= === ======= ===
</TABLE>
Net sales of hard goods (snowboards, bindings, boots, wakeboards and
skateboards) represented 70% of total sales in 1997 while soft goods (apparel
and accessories) made up 30%. In 1996, hard goods comprised 80% of total sales
and soft goods 20%. The increase in percentage of soft goods sales to total
sales is attributable to additional sales added by the Smiley acquisition and to
relatively smaller declines in sales of soft goods as compared to hard goods due
to relatively less severe oversupply conditions. In the hard goods categories,
snowboards declined to 34% of sales in 1997 from 53% in 1996 due to the
disposition of the CAS entities. Snowboard bindings increased to 23% of sales in
1997 from 16% in 1996 due to the relative strength of the Company's "Preston"
brand strap-in series of bindings and the step-in binding sales added from the
acquisition of Device. Boots increased to 10% of sales in 1997 compared to 6% in
the prior year due to the 1997 introduction of boots under the Ride label as
well as the step-in boot sales added as a result of the acquisition of Device.
Skate, wake and other hard goods declined to 3% of sales in 1997 from 5% in 1996
primarily due to the disposition of the CAS excess inventory business which was
involved in numerous non-snowboard close-out categories. Apparel increased to
23% of sales in 1997 from 18% in 1996 due to smaller net declines than seen in
the hard goods categories. Accessories increased to 7% of net sales in 1997 due
primarily to the addition of Smiley in July 1997.
In 1997, net sales in North America made up 68% of total sales with
international sales making up the remaining 32%. In 1996, North American sales
comprised 54% and international sales 46%. The decrease in international sales
in 1997 is attributable to the relatively more severe excess inventory
conditions in the Japanese market.
Gross profit decreased to $9.8 million in 1997 from $14.1 million in 1996
while gross margins increased to 27% in 1997 from 19% in 1996. The dollar
decrease was due to the large drop in sales volume in 1997. The increase in
gross margins was due to the $6.5 million inventory write down taken by the
Company in 1996 related to canceled commitments from the Company's principal
Japanese distributor. Absent the 1996 inventory write down, gross margins would
also have been 27% in 1996. Gross margins in 1997 were positively impacted by
the sale of the CAS businesses, which generally had lower gross margins than
other divisions, the addition of the relatively high gross margin Smiley
business, and cost savings associated with moving the Company's binding
operations offshore.
Offsetting these improvements was the sale of lower margin 1996 close out
products and the under-utilization of the Company's manufacturing facility as a
result of the decline in snowboard sales volumes. The Company began moving the
"FullTilt" wakeboard production to its Corona facility in April 1998. The
Company anticipates that this production shift will consume production time and
capacity in the fall and early winter months when the factory would otherwise be
operating below capacity due to the seasonality of snowboard production.
21
<PAGE> 22
Selling, general and administrative expenses decreased 11% to $18.3 million
in 1997 from $20.5 million in 1996. This decrease was due primarily to staff
reductions, lower executive salaries, lower variable expenses associated with
the lower sales volumes (primarily commissions and bad debt accruals) and the
disposition of the CAS businesses, offset partly by increased occupancy and
legal expenses as well as the expenses of Device, Smiley and US2 acquired in
1997. The primary components of selling, general and administrative expenses
were salaries, wages, commissions and other compensation ($7.5 million in 1997
and $8.6 million in 1996), advertising, promotion and team ($3.7 million in 1997
and $4.3 million in 1996), and occupancy, depreciation and amortization expense
($2.1 million in 1997 and $1.9 million in 1996).
Also included in operating expenses in 1997 is an $8.6 million loss on
impairment of goodwill. FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, requires the
Company to periodically review the events and circumstances affecting its
operations for indications that the Company's long-lived assets might be
impaired. During the fourth quarter of 1997, the Company determined that
reorders for its primary products would not meet previously anticipated levels
and the Company realized pricing pressure on its lower-end products, thus
suggesting that the Company's current production capacity and infrastructure
were underutilized. Based on this evaluation, the Company determined that the
$13.9 million of goodwill associated with its acquisitions of CAS, SMP and Ride
Manufacturing was impaired and wrote it down by $8.6 million. The Company's
estimates of the discounted cash flows expected to be generated from these
entities indicate that the remaining carrying amounts are expected to be
recovered. However, it is possible that the current industry oversupply of
snowboard products may be a sign of a permanent shift in demand and there can be
no assurance that the carrying value of the goodwill associated with these
acquisitions will be fully recoverable. Operating expenses in 1996 included $2.5
million in restructuring charges associated with the moving the Company's
snowboard binding operations offshore and the withdrawal of snowboard production
from two outside snowboard manufacturers. The primary components of the
restructuring charges are write-offs of abandoned equipment, tooling and
leasehold improvements, accrual of future lease costs and vendor cancellation
fees.
Interest income decreased to $195,000 in 1997 from $333,000 in 1996. The
decrease was due to lower invested cash balances on hand in 1997 as a result of
operating losses incurred in 1996 and 1997. Interest expense increased to
$426,000 in 1997 from $268,000 in 1996. This increase was due principally to
higher seasonal utilization of the Company's line of credit for working capital
purposes. Also included in the 1996 results is a gain of $482,000 on the
disposition of the CAS excess inventory and OEM businesses.
At December 31, 1997, the Company was in a tax loss carryforward position.
Accordingly, the Company's tax benefit is limited to the amount of income taxes
recoverable from prior years, or approximately $0.6 million, resulting in an
effective tax rate of 3.4%. The effective tax rate in 1996 was 34.3% which
reflects full recoverability of tax losses through carryback of such losses
against taxes paid in 1994 and 1995.
As a result of the foregoing, the Company's net loss increased to $16.7
million in 1997 from $5.5 million in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales increased 1% to $75.7 million in 1996 from $74.9 million in 1995.
Ride Manufacturing, 5150 and SMP contributed a total of $7.6 million to net
sales in 1995, subsequent to their respective acquisition dates, and $16.1
million in 1996. The remaining difference is due to the inclusion of the CAS
excess inventory and OEM businesses for the full year in 1995 as opposed to 1996
when they were included only through their October 11, 1996 disposition date.
SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996
---- ----
(DOLLARS IN 000'S)
<S> <C> <C> <C> <C>
Snowboards $50,304 67% $39,926 53%
Bindings 5,334 7 12,241 16
Boots 5,056 7 4,458 6
Skate and other 6,437 9 3,464 5
------ -- ------ --
Total hard goods 67,131 90 60,089 80
------ -- ------ --
Apparel 6,699 9 13,597 18
Accessories 1,020 1 2,042 2
------ -- ------ --
Total soft goods 7,719 10 15,639 20
------ -- ------ --
Total $74,850 100% $75,728 100%
====== == ====== ==
</TABLE>
22
<PAGE> 23
Net sales of hard goods represented 80% of total sales in 1996 while soft
goods made up 20%. In 1995, hard goods comprised 90% of total sales and soft
goods 10%. As a percentage of sales, snowboards decreased to 53% in 1996 from
67% in 1995. The decline was due to a substantial decrease in OEM snowboard
business in 1996, both at Ride Manufacturing where factory production was
utilized almost exclusively for internal production as well as brokered OEM
snowboards sold by CAS. In addition, sales decreased in the retained CAS branded
and private label businesses due to increased competition at the lower price
points where these products were targeted. The increase in snowboard binding
sales in 1996 is due primarily to the market success of the Company's "Preston"
brand aluminum bindings. The decrease in other hard goods was due to the sale of
the CAS excess inventory business which was involved in numerous non-snowboard
close-out categories. The increase in apparel sales is attributable primarily to
the inclusion of SMP for the entire year in 1996 as opposed to 1995 when SMP was
included only from its October 20, 1995 acquisition date.
In 1996, net sales in North America made up 54% of total sales with
international sales making up the remaining 46%. In 1995, North American sales
comprised 67% and international sales 33% of total sales. The increase in
international sales in 1996 was attributable primarily to the addition of SMP
for the entire year in 1996 as a majority of that company's sales were to
international markets.
Gross profit decreased to $14.1 million in 1996 from $19.9 million in 1995
while gross margins dropped to 19% in 1996 from 27% in 1995. These decreases
were due to a $6.5 million inventory write down taken by the Company in December
1996. This write down was necessitated by excess inventories resulting primarily
from canceled commitments from the Company's principal Japanese distributor.
Without the inventory write down, gross margins would have been 27% in 1996. The
addition of Ride Manufacturing in September 1995 allowed the Company to
internally manufacture 45% of its branded snowboards in 1996 compared to only
10% in 1995. Cost savings from this change had a positive impact on gross
margins. In addition, the inclusion of a full year of higher-margin SMP sales in
1996 also served to increase gross margins. Offsetting these gains was an
aggressive fourth quarter 1996 discounting program offered by the Company in an
attempt to reduce the amount of excess inventory on hand.
Selling, general and administrative expenses increased 88% to $20.5 million
in 1996 from $10.9 million in 1995. The increase was due to the inclusion of the
operations for Ride Manufacturing and SMP for the entire year in 1996 as well as
the increased scope of the Company's operations in 1996. In addition, the
Company incurred $1.0 million in management transition expenses in 1996
associated with the 1996 changes in top management. The primary components of
selling, general and administrative expenses were salaries, wages, commissions
and other compensation ($8.6 million in 1996 and $5.5 million in 1995),
advertising, promotion and team ($4.3 million in 1996 and $1.9 million in 1995)
and occupancy, depreciation and amortization expense ($1.9 million in 1996 and
$735,000 in 1995).
Operating expenses in 1996 also included $2.5 million in restructuring
charges associated with the moving the Company's snowboard binding operations
offshore and the withdrawal of snowboard production from two outside snowboard
manufacturers. The primary components of the restructuring charges are
write-offs of abandoned equipment, tooling and leasehold improvements, accrual
of future lease costs and vendor cancellation fees.
Interest income decreased to $333,000 in 1996 from $406,000 in 1995. The
decrease was due to higher cash balances on hand in 1995 from the Company's
secondary stock offering in August 1995 and the proceeds from exercise of common
stock warrants. Interest expense increased to $268,000 in 1996 from $18,000 in
1995. This increase was due to principally to seasonal utilization of the
Company's line of credit for working capital purposes. Also included in the 1996
results is a gain of $482,000 on the disposition of the CAS excess inventory and
OEM businesses.
The provision for income taxes represents a 36.5% effective tax rate for 1995
compared with a 34.3% effective rate for 1996. The decrease is due primarily to
expense for state income tax purposes lowering the overall tax benefit of the
1996 loss.
As a result of the foregoing factors, including the non-recurring
restructuring charges, inventory write down and management transition expenses,
the Company incurred a net loss of $5.5 million in 1996 compared to net income
of $6.0 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
23
<PAGE> 24
The Company requires capital for the development of its technology and
products, procurement of raw materials and finished goods manufactured by
others, and capital equipment. The Company financed its 1998 and 1997 operations
from seasonal borrowings under its lines of credit and through a $3.0 million
private placement of convertible preferred stock in December 1997. The Company
financed its 1996 operations through cash and securities remaining from its 1995
secondary stock offering and from seasonal borrowings under its lines of credit.
Net cash used in operating activities totaled $2.6 million in 1998, $4.0 million
in 1997 and $10.8 million in 1996. The decrease in cash used in operations in
1998 was attributable primarily to decreases in accounts receivable, partially
offset by increases in inventory balances. The decrease in cash used in
operations in 1997 was attributable primarily to decreases in accounts
receivable and inventory balances, net of amounts received in acquisitions and
income tax refunds received. Net inventory balances increased approximately 10%
at December 31, 1997 compared to December 31, 1996, primarily due to inventories
received in the Device, Smiley and US2 acquisitions. Due to the seasonal nature
of its business, the Company's need for cash has been greater in the months of
July through December, when working capital has been invested in accounts
receivable and inventories.
Net cash used in investing activities totaled $818,000 in 1998, $3.0 million
in 1997 and $1.2 million in 1996. The 1998 amount pertains primarily to
$738,000 of capital expenditures. The 1997 amount included approximately $2.0
million expended in the Company's acquisitions of Device, Smiley and US2 and
$753,000 in capital expenditures. Net cash used in investing activities in 1996
included $5.4 million in capital expenditures, offset by liquidation of
securities and investments of $3.8 million and $884,000 in net cash received
from the sale of the CAS businesses. Principal capital expenditures in 1998 and
1997 included manufacturing equipment, new business software and snowboard
molds and tooling. The Company expects to invest similar amounts in capital
expenditures during 1999. The Company intends to finance 1999 capital
expenditures through internally generated funds, through leasing or from
borrowings under its line of credit.
Net cash provided by financing activities totaled $2.3 million in 1998, $5.0
million in 1997 and $0.9 million in 1996. Financing sources in 1998 were
principally net advances on the Company's line of credit of $2.6 million.
Financing sources in 1997 included $2.8 million in net proceeds received on a
private placement of convertible preferred stock, $307,000 in exercises of stock
options and $2.0 million in net advances on the Company's line of credit.
Financing sources in 1996 included $1.1 million in exercises of stock options
and $750,000 in long term debt proceeds associated with the Company's tenant
improvements, offset by $1.0 million in repayments of acquisition notes payable.
The Company operates in a highly seasonal business, generating the majority
of its sales in the months of July through December. The Company's cash receipts
from its North American customers are received predominantly in the months of
December, January and February while its international customers generally pay
by cash in advance or letter of credit. In order to finance operations and
manufacture and purchase products during the remainder of the year, the Company
has historically utilized a revolving line of credit.
In December 1997, the Company issued 3,000 shares of Series B 5% Cumulative
Convertible Preferred Stock for $3,000,000 ("Series B Preferred"). In connection
with this transaction, the Company also issued warrants to purchase 283,720
shares of common stock for an exercise price of approximately $2.68 per share
("the Warrants"). Dividends on the Series B Preferred accrue quarterly, are
payable in cash or stock and must be paid before dividends can be declared and
paid on the Company's Common Stock. Portions of the Series B Preferred may be
converted into the Company's Common Stock, at the option of the holders,
beginning in March 1998. All the Series B Preferred automatically converts to
common stock in December 2000. Subject to certain adjustments, the Series B
Preferred converts to Common Stock at the lesser of $2.68 per share or 90% of
the market price (as defined) of the Company's Common Stock at the time of
conversion. The Company has reserved approximately 2,245,000 shares of Common
Stock for issuance upon conversion of the Series B Preferred and exercise of the
warrants. The 10% discount from market price of the conversion of
24
<PAGE> 25
preferred stock is accounted for as a preferred stock dividend. The dividend is
required to be included in earnings per share computations over the period from
the date of issuance through the date the security is first convertible. The
Company has therefore included a $30,000 preferred stock dividend in its net
loss per share calculations for the year ended December 31, 1997 and an
additional $270,000 preferred stock dividend in its net income (loss) per share
for fiscal 1998.
On August 31, 1998, the Company entered into a Loan and Security Agreement
("Agreement") with CIT Group/Credit Finance, Inc. ("CIT") which credit facility
replaces the Company's prior credit facility. The Company's line of credit under
the new credit facility is up to $15.0 million (to be increased to $17.0 million
from October 15, 1998 to December 15, 1998) for a term of three years. The
amount that may be borrowed is also limited to the sum of (i) 85% of eligible
accounts receivable, so long as dilution does not exceed 5.0% and after
implementation of an 11.0% dilution reserve against loan availability during the
season, and (ii) 55% of eligible finished goods inventory, not to exceed $6.5
million during April through September, $3.25 million in October, $2.5 million
in November, and $2.0 million in December. There will be no advances against
inventory during January through March of each year. The new facility provides
for a maximum letter of credit subline of $8.0 million.
The facility bears interest at the Prime interest rate plus 1.5% and is
collateralized by substantially all the assets of the Company. The Company was
required to pay a closing fee of $75,000 at the time of closing. Additionally,
the facility requires an annual facility of 0.50% due each anniversary of the
closing and a monthly letter of credit fee of 1.5% per annum of the face amount
of any standby and documentary letters of credit.
Simultaneous with the execution of the Agreement, the Company entered into a
Consent, Reaffirmation, and Release Agreement with US Bank NA. Pursuant to which
the Company retained a $3.0 million credit facility with that institution. The
US Bank facility bears interest at Prime Rate plus 1.5% per annum until February
28, 1999 and Prime rate plus 2.0% per annum from March 1, 1999 through and
including the date Borrower repays the principal amount owed hereunder, is
subordinated to the CIT credit line, has a term of one year and is secured by
$1.8 million of promissory notes from Global Sports, Inc. Additionally, the
facility is secured by the personal guarantee of one of the Company's outside
directors, including certain real property owned by that director.
The Company believes the CIT Line is adequate to meet the current needs
of its business. There is, however, no assurance the CIT Line is sufficient to
fund the demands of the Company's future growth. To this end, the Company and
CIT have agreed to review the line in March 1999 with a view to increasing same
if then current business conditions warrant doing so. However, there can be no
assurance such an increase in the CIT Line will be available even if the
Company's business prospects at that time require and warrant doing so. In
addition, availability of funds under the CIT Line is at all times conditioned
on the Company achieving certain collateral requirements. There can be no
assurance such requirements will be achieved or, if achieved, that they can be
consistently maintained. The Company's inability to increase the CIT Line or
meet or maintain specific collateral requirements could each have a material
adverse impact on the Company's financial condition and could result in a
substantial limitation or reduction in the scope of the Company's business.
With respect to the US Bank Line, the Company is obligated to satisfy all sums
due thereunder on or before its August 30, 1999 expiration date. There can be
no assurance the Company will be successful in doing so. The Company's
inability to successfully satisfy or extend the US Bank Line, if necessary,
could have a material adverse impact on the Company's financial condition.
Although the Company cannot accurately anticipate the effects of inflation,
the Company does not believe inflation has had or is likely to have a material
effect on its results of operations or liquidity.
Except for distributions paid to shareholders when the Company was an S
Corporation, the Company has never paid dividends on its common stock. The
Company's present policy is to retain any earnings to finance the Company's
business. Any future dividends will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
acquisition plans and plans for expansion, and any other factors which the
Company's Board of Directors deems relevant. The Company's bank loan agreement
restricts the payment of dividends. The Company has no present intention of
paying dividends on its common stock in the foreseeable future.
The "year 2000 problem" is the result of computer programs being written using
two digits rather than four to define the applicable year. Software programs and
systems that have date-sensitive features may recognize a date using "00" as the
year 1900 instead of the year 2000. The Company has assessed its year 2000 needs
and has purchased and is presently installing year 2000-compliant software in
all its known non-compliant hardware and software systems, which installation
the Company anticipates will be completed by the June 30, 1999 year-end. The
cost of the purchase and installation of the year 2000-compliant software is
anticipated to exceed $250,000. The Company is in the process of reviewing with
each of its material suppliers, service providers and customers the steps each
is taking to insure their respective computer systems are presently or will be
year 2000-compliant in a timely fashion. The Company's shipper has confirmed to
the Company it has installed year 2000-compliant software in all of its material
systems. There can be no assurance the computer systems of third parties on
whose commercial efforts the Company directly or indirectly relies, will be year
2000-compliant in a timely fashion. Because the Company has not completed its
review of its material third party suppliers, service providers and customers,
it has not created a contingency plan setting forth what steps will be taken if
such third parties are not year 2000 compliant by December 31, 1999. Based on
information received from its third party vendors, service providers and
customers, the Company intends to have a contingency plan in place by June 1999.
The failure of third parties to be year 2000 compliant could cause material
delays in the design, manufacture and shipment of products, delay in payment for
products, and delay in the availability of credit or funds necessary to operate
the business of the Company. The failure of the Company's or one or more
third-party's computer systems as a result of year 2000 non-compliance may have
a material adverse effect on the Company's business and results of operations.
MARKET RISK
The Company's Ride Canada subsidiary operates and maintains its accounting
records using the Canadian dollar as its functional currency. In accordance with
generally accepted accounting principles, upon consolidation the assets,
liabilities, revenues and expenses of this subsidiary are translated into US
dollars at the appropriate exchange rate prevailing during the period and are
therefore subject to fluctuations in the exchange rates between the Canadian
dollar and the US dollar.
The Company purchases certain raw materials from foreign suppliers with
payments denominated in foreign currencies. In order to protect against changes
in the exchange rate between these currencies and the US dollar, the Company,
from time to time, enters into forward foreign exchange contracts with financial
institutions to fix the cost of these purchases. Although the Company believes
that these contracts decrease the Company's overall exposure to gains and losses
from currency fluctuations, such exposure cannot be entirely eliminated. In
addition, during the contractual periods, the Company is exposed to certain
losses in the event of nonperformance by the counterparties to the forward
contracts. At December 31, 1997 and June 30, 1998, the Company did not have any
open forward contracts.
25
<PAGE> 26
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Ride, Inc.
We have audited the accompanying consolidated balance sheets of Ride, Inc.
and subsidiaries as of December 31, 1996 and 1997, and June 30, 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997 and the
six months ended June 30, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ride, Inc. and
subsidiaries at December 31, 1996 and 1997, and June 30, 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 and for the six months ended
June 30, 1998 in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company has incurred significant operating losses and
negative cash flows from operations for the years ended December 31, 1996, and
1997, and for the six months ended June 30, 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
ERNST & YOUNG LLP
Seattle, Washington
September 11, 1998
26
<PAGE> 27
RIDE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1996 1997 1998
---- ---- ----
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 3,232 $ 1,332 $ 165
Accounts receivable, less allowance for doubtful
accounts of $655 in 1996, $925 in 1997, and $981 in 1998 14,193 12,588 4,487
Inventories (Note 7) 5,986 6,564 9,752
Prepaid expenses and other current assets 450 728 887
Income taxes receivable 2,836 1,569 1,571
Deferred tax assets (Note 10) 1,423 -- --
------- -------- --------
Total current assets 28,120 22,781 16,862
Plant and equipment, net (Note 8) 5,757 5,670 5,792
Notes receivable, net of discount of $116 in 1996 (Note 5) 1,884 1,600 1,400
Goodwill, net of accumulated amortization of $514 in 1996,
$842 in 1997, and $1,044 in 1998 (Note 3) 14,292 9,358 9,205
Other assets 602 1,201 1,345
------- -------- --------
Total assets $50,655 $ 40,610 $ 34,604
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,631 $ 3,719 $ 5,918
Accrued expenses and other current liabilities 2,161 1,555 2,911
Accrued restructuring charges (Note 6) 387 -- --
Short-term borrowings (Note 9) -- 1,995 5,236
Notes payable (Note 9) -- 689 308
------- -------- --------
Total current liabilities 7,179 7,958 14,373
Other long-term liabilities 832 1,582 979
Deferred income taxes (Note 10) 335 -- --
Commitments and contingencies (Note 14)
Shareholders' equity:
Convertible preferred stock, no par value, 10,000
shares authorized
Series A: 100 shares issued and outstanding
Aggregate liquidation preference of $500 (Note 11) 500 500 500
Series B: 3 shares 1977, and 2 shares in 1998
issued and outstanding
Aggregate liquidation preference of $3,000 (Note 11) -- 2,841 2,332
Common stock, no par value, 40,000 shares
authorized with 10,760 in 1996, 12,092 in 1997, and
12,619 in 1998 issued and outstanding, respectively 39,583 42,393 43,257
Accumulated other comprehensive loss -- (125) (163)
Retained earnings (deficit) 2,226 (14,539) (26,674)
------- -------- --------
Total shareholders' equity 42,309 31,070 19,252
------- -------- --------
Total liabilities and shareholders' equity $50,655 $ 40,610 $ 34,604
======= ======== ========
</TABLE>
See accompanying notes.
27
<PAGE> 28
RIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
---------------------- ENDED
1995 1996 1997 JUNE 30, 1998
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Net sales $ 74,850 $ 75,728 $ 36,475 $ 7,279
Cost of goods sold 54,988 61,641 26,656 8,287
-------- -------- -------- --------
Gross profit (loss) 19,862 14,087 9,819 (1,008)
Selling, general and administrative expenses 10,868 20,487 18,278 10,735
Loss on impairment of goodwill (Note 3) -- -- 8,600 --
Restructuring charges (Note 6) -- 2,500 -- --
-------- -------- -------- --------
Operating expenses 10,868 22,987 26,878 10,735
-------- -------- -------- --------
Operating income (loss) 8,994 (8,900) (17,059) (11,743)
Interest expense (18) (268) (426) (147)
Interest income 406 333 195 117
Gain on sale of subsidiary (Note 5) -- 482 -- --
-------- -------- -------- --------
Income (loss) before income taxes 9,382 (8,353) (17,290) (11,773)
Income tax expense (benefit) (Note 10) 3,427 (2,863) (595) --
-------- -------- -------- --------
Net income (loss) $ 5,955 $ (5,490) $(16,695) $(11,773)
======== ======== ======== ========
Net income (loss) per share (Note 17):
Basic $ 0.67 $ (0.52) $ (1.51) $ (0.99)
======== ======== ======== ========
Diluted $ 0.59 $ (0.52) $ (1.51) $ (0.99)
======== ======== ======== ========
Share used in the computation of
net income (loss) per share:
Basic 8,872 10,614 11,128 12,261
======== ======== ======== ========
Diluted 10,132 10,614 11,128 12,261
======== ======== ======== ========
</TABLE>
28
<PAGE> 29
RIDE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK OTHER
SERIES A SERIES B COMMON STOCK COMPREHENSIVE RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT LOSS EARNINGS TOTAL
------ ------ ------ ------ ------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 100 $500 -- -- 7 ,710 $9,193 -- $1,831 $11,524
Net income for the year 5,955 5,955
Preferred stock dividends (35) (35)
Public offering of common
stock, net of offering costs 1,465 23,311 23,311
Exercise of warrants 1,239 4,515 4,515
Common stock issued in
SMP acquisition 28 593 593
Stock option exercises 72 571 571
Issuance of common stock under
employee stock purchase plan 4 61 61
------ ------ ----- ----- ------ ------ ------ ------- -------
Balances at December 31, 1995 100 500 -- -- 10,518 38,244 -- 7,751 46,495
Net loss for the year (5,490) (5,490)
Preferred stock dividends (35) (35)
Stock option exercises 231 1,258 1,258
Issuance of common stock under
employee stock purchase plan 11 81 81
------ ------ ----- ----- ------ ------ ------ ------- -------
Balances at December 31, 1996 100 500 -- -- 10,760 39,583 -- 2,226 42,309
Net loss for the year (16,695) (16,695)
Preferred stock dividends 30 (70) (40)
Stock option exercises 98 307 307
Issuance of common stock under
employee stock purchase plan 24 53 53
Issuance of preferred
stock, net of offering costs 3 2,811 2,811
Common stock issued in
acquisitions 1,210 2,450 2,450
Foreign currency translation loss (125) (125)
------ ------ ----- ----- ------ ------ ------ ------- -------
Balances at December 31, 1997 100 500 3 2,841 12,092 42,393 (125) (14,539) 31,070
Net loss for the period (11,773) (11,773)
Preferred stock dividends 270 41 75 (362) (17)
Conversion of preferred stock (1) (779) 442 734 (45)
Other common stock issued 35 42 42
Issuance of common stock under
employee stock purchase plan 9 13 13
Foreign currency translation loss (38) (38)
------ ----- ----- ----- ------ ------ ------ ------- -------
Balances at June 30, 1998 100 $500 2 $2,332 12,619 $43,257 $(163) $(26,674) $19,252
====== ===== ===== ====== ====== ======= ===== ======== =======
</TABLE>
See accompanying notes.
29
<PAGE> 30
RIDE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX
YEAR ENDED DECEMBER 31, MONTHS
----------------------- ENDED
1995 1996 1997 JUNE 30, 1998
---- ---- ---- -------------
OPERATING ACTIVITIES
Reconciliation of net income (loss) to net cash
provided by (used in) operations:
<S> <C> <C> <C> <C>
Net income (loss) $ 5,955 $ (5,490) $(16,695) $(11,773)
Depreciation 196 1,288 1,560 616
Amortization 190 421 453 227
Deferred income tax (benefit) expense (27) (876) 1,088 --
Loss on impairment -- -- 8,600 --
Non-cash restructuring charges -- 2,397 -- --
Gain on sale of subsidiary -- (482) -- --
Amortization of discount on notes receivable -- (34) (116) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (8,076) (637) 2,689 8,101
(Increase) decrease in inventories (1,316) (1,577) 308 (3,188)
(Increase) decrease in prepaid expenses and other assets (590) 294 (227) (159)
(Increase) decrease in income taxes receivable (15) (2,894) 1,267 --
Increase (decrease) in accounts payable 3,649 (3,065) (1,652) 2,199
Decrease in accrued expenses and other current liabilities (698) (102) (1,247) 1,354
-------- -------- ------- -------
Net cash used in operating activities (732) (10,757) (3,972) (2,623)
INVESTING ACTIVITIES
Purchases of plant and equipment (1,910) (5,364) (753) (738)
Acquisitions, net of cash acquired (13,039) -- (1,979) --
Sales of (purchases) of securities available-for-sale (3,840) 3,840 -- --
Proceeds from sale of subsidiary, net of costs -- 884 -- --
Cash received from note receivable -- -- -- 200
Increase in other assets (157) (532) (223) (280)
-------- -------- ------- -------
Net cash used in investing activities (18,946) (1,172) (2,955) (818)
FINANCING ACTIVITIES
Net advances on line of credit -- -- 1,995 2,552
Net proceeds from sale of preferred stock -- -- 2,811 (45)
Proceeds from exercise of common stock options 267 1,087 307 --
Proceeds from sale of common stock 23,372 -- -- --
Proceeds from exercise of common stock warrants 4,515 -- -- --
Proceeds from Employee Stock Purchase Plan -- 81 53 13
Proceeds from long-term borrowings -- 750 -- --
Repayments of notes payable and long-term borrowings -- (993) (99) (229)
Dividends paid (35) (35) (40) (17)
-------- -------- ------- -------
Net cash provided by financing activities 28,119 890 5,027 2,274
-------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents 8,441 (11,039) (1,900) (1,167)
Cash at beginning of period 5,830 14,271 3,232 1,332
-------- -------- ------- -------
Cash at end of period $ 14,271 $ 3,232 $ 1,332 $ 165
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE
Cash paid for interest $ 8 $ 275 $ 414 $ 123
Cash paid for income taxes $ 3,505 $ 910 $ 68 $ --
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock and notes payable issued in acquisitions $ 1,531 $ -- $ 2,450 $ --
Issuance of Common stock to retire note payable $ -- $ -- $ -- $ 66
</TABLE>
See accompanying notes.
30
<PAGE> 31
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The consolidated financial statements include the accounts of Ride, Inc.
("Ride" or the "Company") and its subsidiaries: Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc.
("Ride Canada"), SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley") and
Carve, Inc. ("US2"). The Company was founded in September 1992 and acquired
C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. (collectively,
"CAS") in August 1994, Ride Manufacturing in September 1995 and SMP in October
1995. The Company also acquired 5150 Snowboards, Inc. ("5150") in September 1995
and later merged 5150 with and into Ride Snowboards. In October 1996, the
Company transferred substantially all of the Canada-based operating assets and
liabilities of CAS (other than fixed assets) into Ride Canada, a newly formed
corporation, and all of the US-based operating assets and liabilities of CAS
into Ride Snowboards, and sold the CAS entities. In June 1997, the Company
acquired substantially all of the assets and liabilities of Device Mfg Corp. and
transferred those assets and liabilities to Ride Snowboards. In July 1997, the
Company's newly formed Smiley subsidiary acquired substantially all of the
assets of Galena Creek Trading Corp. In December 1997, the Company acquired US2
Sports Group Inc. through a merger of that company with and into Carve, Inc., a
newly formed corporation. The results of operations of these acquired
subsidiaries are included in the Company's financial statements from their
respective dates of acquisition through their applicable dates of disposition.
See Notes 4 and 5.
Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops. Ride Manufacturing is a
manufacturer of premium snowboards which are produced principally for Ride
Snowboards. Ride Manufacturing also produces a limited number of snowboards for
other snowboard companies on an OEM basis. SMP designs and manufactures
snowboard, surf, skate, motocross and street apparel which is sold primarily
through specialty shops. Ride Canada acts as the Company's Canadian distributor
for the Company's branded products. Smiley designs and manufactures premium head
and neck wear for the winter sports industry and is sold through specialty
shops. US2 designs, manufactures and distributes wakeboards, wakeboard bindings
and accessories under the "FullTilt" and "Sub Rosa" brand names through marine
and specialty retailers. Until its disposition in October 1996, CAS marketed
entry-level snowboards and related products under various brand names and on a
private label basis primarily to regional sporting goods stores and large-format
sporting goods retailers. In addition, CAS sold snowboards and related products
on an OEM basis to other snowboard companies and bought excess snowboard and
sporting goods inventories from manufacturers and sold such products to
retailers throughout the world. The OEM and excess inventory portions of the CAS
business were sold in October 1996 (see Note 5) while the branded and private
label portions of the business were retained by the Company.
Liquidity
The Company has incurred losses of $5.5 million, $16.7 million and $11.8
million for the years ended December 31, 1996 and 1997, and for the six months
ended June 30, 1998, respectively. The Company used $17.4 million of cash in
operations during these periods which resulted in a decrease in working capital
to $2.5 million at June 30, 1998. The financial statements have been prepared
assuming the Company will continue as a going concern and do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets and liabilities that may result from this uncertainty.
The Company operates a seasonal business and generates the majority of its
sales in the quarters ending September 30 and December 31. In order to
manufacture product during the remainder of the year, the Company has a
revolving line of credit arrangement with an asset-based lender, CIT, to finance
import letters of credit and working capital needs. The Company believes the CIT
Line is adequate to meet the current needs of its business. There is, however,
no assurance the CIT Line is sufficient to fund the demands of the Company's
future growth. In addition, availability of funds under the CIT Line is at all
times conditioned on the Company achieving certain collateral requirements.
There can be no assurance such requirements will be achieved or, if achieved,
that they can be consistently maintained. The Company's inability to increase
the CIT Line or meet or maintain specific collateral requirements could each
have a material adverse impact on the Company's financial condition and could
result in a substantial limitation or reduction in the scope of the Company's
business.
31
<PAGE> 32
In June 1998, the Company replaced certain members of management and
reorganized its operations. Subsequent thereto, operational changes have been
put in place to reduce fixed costs to a level that can be supported by
forecasted sales and gross margin levels. Additional financing has been obtained
in August 1998 and the Company anticipates increasing its lines of credit or
seeking other sources of financing through long term debt or additional equity
financing. However, there can be no assurance that the Company will meet its
sales and gross margin forecast for fiscal year ended June 30, 1999, control
expenditures to an acceptable level, or that such additional sources of
financing will be available on favorable terms or at all. The Company's
inability to meet the above business plan would have a material adverse impact
on the Company's financial condition and may require the Company to further
reduce its expenditures, curtail certain operations, or dispose of operating
assets to enable the Company to continue its operations at least through June
1999.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Foreign Currency
The local currency is considered the functional currency of the Company's
Canadian operations. The financial statements of the Company's Canadian
subsidiary are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities and the average exchange rate for
the period for revenues and expenses. Resulting translation adjustments are
recorded as a separate component of shareholders' equity.
The Company enters into foreign currency forward contracts, generally with
terms of 270 days or less, as a hedge against some of its foreign currency
commitments. Offsetting gains and losses on these contracts are recognized
concurrently with the exchange gains and losses stemming from the associated
commitments. During the contractual periods, the Company is exposed to certain
losses in the event of nonperformance by the counterparties to the forward
contracts. At June 30, 1998, the Company did not have any open forward
contracts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out method.
Plant and Equipment
Plant and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
five to ten years. Leasehold improvements are amortized over the lesser of the
estimated useful life of the asset or
32
<PAGE> 33
the term of the related lease. Snowboard and snowboard binding molds are
amortized to cost of goods sold over one to three years based on the number of
related snowboards and bindings sold.
Goodwill
Goodwill is being amortized over 15 to 40 years using the straight-line
method. The Company periodically reviews the carrying value of goodwill to
determine if the facts and circumstances suggest that the value may be impaired.
See Note 3.
Revenue Recognition
The Company recognizes revenue from the sale of its products when the
products are shipped to customers.
Research and Development Costs
Research and development costs are charged to expense as incurred and
totaled approximately $217,000 in 1995, $417,000 in 1996, $338,000 in 1997 and
$180,000 for the six months ended June 30, 1998.
Advertising Costs
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense totaled $528,000 in 1995, $847,000
in 1996, $1,090,000 in 1997 and $596,000 for the six months ended June 30, 1998.
Warranty Costs
The Company generally offers a one-year warranty on its products from the
time of retail sale. Anticipated net costs associated with warranties are
charged to expense at the time of the sale of its products. The Company is
reimbursed for a portion of the cost of defective products by the manufacturers.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
Net Income (Loss) Per Share
Basic earnings per share is computed by dividing net income (loss) by the
average number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income (loss) by the average number of
common and dilutive common equivalent shares outstanding during the period.
Stock Based Compensation
The Company has elected to apply the disclosure-only provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation." Accordingly, the
Company accounts for stock-based compensation using the intrinsic method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Compensation cost for stock
options is measured at the excess, if any, of the fair value of the Company's
common stock at the date of the grant over the stock option price.
Comprehensive income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and the foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130. The Company's
total comprehensive income (loss) for the years ended December 31, 1995, 1996,
and 1997 and the six months ended June 30, 1998 was $5,955,000, ($5,490,000),
($16,820,000), and ($11,811,000), respectively.
Reclassifications
Certain reclassifications have been made to prior year balances to conform
with current year presentation.
33
<PAGE> 34
2. CHANGE IN YEAR END
The Company's Board of Directors approved a change in the Company's fiscal
year-end from December 31 to June 30, beginning with the six month period ended
June 30, 1998. The change in fiscal year end was made to more closely align the
Company's accounting and reporting practices with its product cycle.
Comparative information for the six month periods ended June 30, 1997 and 1998
are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales $ 7,559 $ 7,279
Gross profit (loss) 1,992 (1,008)
Operating loss (6,400) (11,743)
Income tax benefit (1,904) --
Net loss (4,436) (11,773)
Net loss per share - diluted $ (0.41) $ (0.99)
</TABLE>
3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, the Company
periodically reviews the events and circumstances affecting its operations for
indications that the Company's long-lived assets might be impaired. In December
1997, the Company determined that reorders for its primary products would not
meet previously anticipated levels and the Company realized pricing pressure on
its lower-end products, thus suggesting that the Company's current production
capacity and infrastructure were underutilized. Based on this evaluation, the
Company determined that the $13.9 million of goodwill associated with its
acquisitions of CAS, SMP and Ride Manufacturing was impaired and wrote it down
by $8.6 million. The Company's estimates of the discounted cash flows expected
to be generated from these entities indicate that the remaining carrying amounts
are expected to be recovered. However, it is possible that the current industry
oversupply of snowboard products may be a sign of a permanent demand shift and
there can be no assurance that the carrying value of the goodwill related to
these acquisitions will be recoverable which could result in additional
write-down of goodwill in the future.
4. ACQUISITIONS
Ride Manufacturing and 5150
On September 1, 1995, the Company acquired all of the capital stock of Ride
Manufacturing, a snowboard manufacturer, and 5150, a marketer of snowboards, for
$11.9 million in cash. The acquisition has been accounted for as a purchase with
the excess of the purchase price over the fair value of the assets acquired
allocated primarily to goodwill.
SMP
On October 20, 1995, SMP, a newly-formed, wholly owned subsidiary of the
Company acquired certain assets (primarily inventories, fixed assets, trademarks
and other intangibles) of Sex Money Power Clothing, Inc., a manufacturer of
snowboard, surf, skate and street apparel. The aggregate purchase price of $2.46
million was comprised of $937,500 in cash, $937,500 in short-term notes payable,
and 28,409 newly-issued shares of Common Stock valued at $593,000. The
transaction has been accounted for as a purchase with the excess of the purchase
price over the fair value of the assets acquired allocated primarily to
goodwill.
Device
On June 12, 1997, the Company purchased substantially all of the assets
(except cash and accounts receivable) and liabilities of Device, a manufacturer
of step-in snowboard bindings and boots based in Boulder, Colorado. The purchase
price was comprised of approximately $1.0 million in assumed liabilities and
276,220 newly-issued shares of Common Stock valued at $764,900. The transaction
has been accounted for as a purchase with the excess of the purchase price over
the fair value of the assets acquired allocated primarily to goodwill. During
1998, the Company took back 9,045 common shares valued at $25,000 previously
issued as consideration, pursuant to a performance adjustment provision in the
purchase agreement.
34
<PAGE> 35
Smiley Hats
On July 22, 1997, the Company purchased substantially all of the assets of
Galena Creek Trading Company, Inc. (d.b.a. Smiley Hats), a manufacturer of
winter hats based in Sparks, Nevada. The purchase price was comprised of
approximately $550,000 in cash and 320,000 shares of Common Stock valued at
$750,000. Galena Creek Trading Company was majority owned and controlled by the
Company's then Chief Executive Officer. The transaction has been accounted for
as a purchase with the excess of the purchase price over the fair value of the
assets acquired allocated primarily to goodwill.
US2
On December 19, 1997, Carve, Inc., a newly-formed, wholly owned subsidiary
of the Company acquired the stock of US2 Sports Group, Inc., a manufacturer of
wakeboards and wakeboard bindings. The purchase price was comprised of 605,263
newly-issued shares of Common Stock valued at $910,000 plus the assumption of
net liabilities of $652,000. The transaction has been accounted for as a
purchase with the excess of the purchase price over the fair value of the assets
acquired allocated primarily to goodwill. During 1998, the Company issued 44,237
shares of its common stock in settlement of a $66,000 note payable to a former
owner of US2.
Summarized unaudited pro forma results of operations, assuming the Device,
Smiley Hats and US2 acquisitions took place on January 1 of each year, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales $ 84,345 $ 80,569 $ 40,595
Net income (loss) 6,716 (6,185) (18,743)
Net income (loss) per share - diluted $ 0.66 $ (0.53) $ (1.56)
</TABLE>
5. DISPOSITION
On October 11, 1996, the Company sold the stock of CAS to Gen-X Equipment,
Inc., a company formed by two former Company executives and a number of CAS
employees. The $3.0 million sales price was comprised of $1,000,000 in cash and
short-term notes and $2.0 million in long-term notes. The Company recognized a
pre-tax gain of $482,000 in connection with this sale.
The long-term notes are secured by the stock of the sold corporations and
bear interest at prime. Principal payments of $100,000 plus interest are due
quarterly through September 2002. The balance outstanding on the note at June
30, 1998 was $1.8 million and the $400,000 current portion of the notes due in
fiscal year 1999 is included in Accounts Receivable.
In May 1998, Gen-X was sold to Global Sports, Inc. (GSI) and the notes
payable to Ride were assumed by GSI. GSI, a publicly held company, designs and
markets branded footwear and distributes off-price athletic sporting goods.
Realization of the Company's $1.8 million notes receivable is dependent on GSI's
successful conduct of future operations. The eventual outcome of these matters
cannot be determined at this time.
6. RESTRUCTURING AND INVENTORY WRITE-DOWN
On December 12, 1996 the Company's Board of Directors approved a plan to
writedown excess inventories and restructure the Company's manufacturing
operations. Due to canceled commitments from the Company's principal Japanese
distributor and an oversupply of snowboards from other manufacturers, the
Company recognized a $6.5 million write-down of its inventories. This amount has
been included in cost of sales for the year ended December 31, 1996. In
addition, the Company recognized a $2.5 million restructuring charge in
connection with moving the Company's binding production offshore and the
withdrawal of snowboard production from two outside snowboard manufacturers used
in 1996. The primary components of this charge were write-offs of abandoned
equipment, tooling and leasehold improvements, cancellation fees paid to U.S.
vendors and future lease costs. The Company anticipates future cash outlays will
not exceed the $228,000 included in other long-term liabilities for future
minimum lease payments and will be funded through normal operating cash flows.
7. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished goods $ 9,415 $ 6,186 $ 8,283
Work in process 96 228 491
Raw materials and supplies 2,391 2,189 2,425
Obsolescence reserve (5,916) (2,039) (1,447)
------- ------- -------
$ 5,986 $ 6,564 $ 9,752
======= ======= =======
</TABLE>
35
<PAGE> 36
8. PLANT AND EQUIPMENT
Plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1996 1997 1998
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Office equipment $1,364 $ 1,609 $ 1,828
Production equipment and tooling 2,674 3,147 3,413
Leasehold improvements 2,126 2,211 2,264
Vehicles and other 588 753 831
Construction in process -- 205 327
------ ------- -------
6,752 7,925 8,663
Accumulated depreciation (995) (2,255) (2,871)
------ ------- -------
$5,757 $ 5,670 $ 5,792
====== ======= =======
</TABLE>
9. LINE OF CREDIT AND LONG-TERM DEBT
At June 30, 1998, Ride had a $11.0 million revolving credit line agreement
with US Bank NA to finance its import letters of credit and working capital
needs. Advances on the line bear interest at 1% over the bank's prime rate
(effective rate of 9.5% at June 30, 1998). At June 30, 1998, the Company had
outstanding advances of $5,236,000 and $5,764,000 in outstanding import letters
of credit drawn against this line.
On August 31, 1998, the Company entered into a Loan and Security Agreement
("Agreement") with CIT Group/Credit Finance, Inc. ("CIT") which credit facility
replaces the Company's prior credit facility. The Company's line of credit under
the new credit facility is up to $15.0 million (to be increased to $17.0 million
from October 15, 1998 to December 15, 1998) for a term of three years. The
amount that may be borrowed is also limited to the sum of (i) 85% of eligible
accounts receivable, so long as dilution does not exceed 5.0% and after
implementation of an 11.0% dilution reserve against loan availability during the
season, and (ii) 55% of eligible finished goods inventory, not to exceed $6.5
million during April through September, $3.25 million in October, $2.5 million
in November, and $2.0 million in December. There will be no advances against
inventory during January through March of each year. The new facility provides
for a maximum letter of credit subline of $8.0 million.
The facility bears interest at the Prime interest rate plus 1.5% and is
collateralized by substantially all the assets of the Company. The Company was
required to pay a closing fee of $75,000 at the time of closing. Additionally,
the facility requires an annual facility of 0.50% due each anniversary of the
closing and a monthly letter of credit fee of 1.5% per annum of the face amount
of any standby and documentary letters of credit. The bank loan agreement
restricts the payment of dividends.
Simultaneous with the execution of the Agreement, the Company entered into a
Consent, Reaffirmation, and Release Agreement with US Bank NA. Pursuant to which
the Company retained a $3.0 million credit facility with that institution. The
US Bank facility bears interest at Prime Rate plus 1.5% per annum until February
28, 1999 and Prime rate plus 2.0% per annum from March 1, 1999 through and
including the date Borrower repays the principal amount owed hereunder, is
subordinated to the CIT credit line, has a term of one year and is secured by
$1.8 million of promissory notes from Global Sports, Inc. (see Note 5).
Additionally, the facility is secured by the personal guarantee of one of the
Company's outside directors, including certain real property owned by that
director.
During 1996, the Company's landlord loaned the Company $750,000 to fund a
portion of the expansion and improvement of the Company's Preston, Washington
office and warehouse facilities. The loan has an effective interest rate of
approximately 3% and is due in monthly payments of principal and interest of
$9,100 through December 2003. The total amount outstanding at June 30, 1998 was
$554,000 of which $103,000 is current.
10. INCOME TAXES
Deferred tax assets and (liabilities) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 102 $ 2,931 $ 6,279
Goodwill writedown -- 2,924 2,924
Inventory reserves 914 641 929
Allowance for bad debts 213 220 431
Warranty reserves 119 82 35
Restructuring reserves 122 68 152
Other accruals 55 165 141
-------- -------- --------
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
Total deferred tax assets 1,525 7,031 10,891
Less: Valuation allowance for deferred tax assets -- (6,646) (10,158)
-------- -------- --------
1,525 385 733
Deferred tax liabilities:
Depreciation and amortization (437) (385) (733)
-------- -------- --------
Total deferred tax liabilities (437) (385) (733)
-------- -------- --------
Net deferred tax assets $ 1,088 $ -- $ --
======== ======== ========
Balance sheet classification:
Current assets $ 1,423 $ -- $ --
Noncurrent liabilities (335) -- --
-------- -------- --------
$ 1,088 $ -- $ --
======== ======== ========
</TABLE>
At June 30, 1998, the Company had net operating loss carryforwards for
income tax purposes of $18.2 million, which are available to offset future
federal taxable income, if any. The federal operating loss carryforwards begin
to expire in 2007 through 2018. Recognition of approximately $3.2 million of the
Company's federal operating loss carryforwards may be limited pursuant to
Section 382 of the Internal Revenue Code. The valuation allowance was
established for the deferred tax assets in excess of deferred tax liabilities.
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------- ENDED
1995 1996 1997 JUNE 30, 1998
---- ---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal $ 3,147 $(1,713) $(1,760) --
State 164 106 -- --
Canada 143 (380) 77 --
------- ------- ------- -------
3,454 (1,987) (1,683) --
------- ------- ------- -------
Deferred:
Federal (48) (928) 996 --
State 21 52 301 --
Canada -- -- (209) --
------- ------- ------- -------
(27) (876) 1,088 --
------- ------- ------- -------
Total provision (benefit) $ 3,427 $(2,863) $ (595) $ --
======= ======= ======= =======
</TABLE>
37
<PAGE> 38
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------ ENDED
1995 1996 1997 JUNE 30, 1998
---- ---- ---- -------------
<S> <C> <C> <C> <C>
U.S. federal statutory tax rate 34.0% (34.0%) (34.0%) (34.0%)
Change in tax rate resulting from:
State income taxes, net of federal benefit 1.3 1.2 (1.7) --
Foreign taxes 0.8 0.5 (0.2) --
Nondeductible goodwill amortization 0.3 0.3 0.1 0.2
Benefit of foreign sales corporation -- (1.1) -- --
Valuation allowance -- -- 32.1 29.8
Other 0.1 (1.2) 0.3 4.0
==== ==== ==== ====
Effective tax rate 36.5% (34.3%) (3.4%) (0.0%)
==== ==== ==== ====
</TABLE>
11. SHAREHOLDERS' EQUITY
Preferred Stock
Series A
On December 31, 1993, the Company issued 100,000 shares of Series A 7%
cumulative convertible nonvoting preferred stock for $500,000 ("Series A
Preferred"). Dividends on the Series A Preferred accrue quarterly and must be
paid before dividends can be declared and paid on the Company's Common Stock. In
the event of liquidation, the holders of the Series A Preferred will be entitled
to $5.00 per share plus unpaid dividends before any payments are made to the
holders of Common Stock. The Series A Preferred is convertible at the holder's
option into 200,000 shares of Common Stock. The Series A Preferred may be
redeemed by the Company at $5.00 per share beginning January 1, 1999 and ending
December 31, 2004. The Company has reserved 200,000 shares of Common Stock for
issuance upon the conversion of the Series A Preferred.
Series B
On December 19, 1997, the Company issued 3,000 shares of Series B 5%
cumulative convertible nonvoting preferred stock for $3,000,000 ("Series B
Preferred"). In connection with this transaction, the Company also issued
warrants to purchase 283,720 shares of common stock for an exercise price of
approximately $2.68 per share ("the Warrants"). Dividends on the Series B
Preferred accrue quarterly, are payable in cash or stock and must be paid before
dividends can be declared and paid on the Company's Common Stock. The Series B
Preferred is convertible into the Company's Common Stock at the option of the
holders through December 2000 at which time all of the remaining shares
automatically convert to common stock. Subject to certain adjustments, the
Series B Preferred converts to Common Stock at the lesser of $2.68 per share or
90% of the market price (as defined) of the Company's Common Stock at the time
of conversion. During the six month period ended June 30, 1998, 716 shares of
Series B Preferred were converted into 441,687 shares of common stock. The
Company has reserved approximately 3,000,000 shares of Common Stock for issuance
upon conversion of the remaining shares of Series B Preferred and exercise of
the warrants.
The 10% discount from market price of the conversion of preferred stock has
been accounted for as a preferred stock dividend. The dividend is required to be
included in earnings per share computations over the period from the date of
issuance through the date the security is first convertible. Accordingly, the
Company has recorded preferred stock dividends relating to this discount of
$30,000 for the year ended December 31, 1997 and $270,000 for the six months
ended June 30, 1998.
Stock Purchase Plan
In 1995, the Company adopted an Employee Stock Purchase Plan which allows
eligible employees to buy the Company's Common Stock at a 15% discount from
market price utilizing payroll deductions. A total of 100,000 shares have been
reserved for issuance under this Plan. During the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1998, 3,971, 11,123, 23,600
and 8,690 shares of Common Stock were purchased by employees under this Plan,
respectively. As of June 30, 1998, 52,616 shares were available for future sale
under the Plan.
38
<PAGE> 39
12. STOCK-BASED COMPENSATION
The Company adopted two stock option plans in 1994 that provide for the
grant of incentive and nonqualified stock options to the Company's employees,
officers, and directors. At June 30, 1998, the Company had 2,103,513 shares of
Common Stock reserved for issuance pursuant to these plans. Options generally
vest over a four-year period commencing one year from the date of grant.
Pro forma information regarding net income (loss) per share is required by
FASB Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
value for these options was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected dividend yield 0% 0% 0% 0%
Expected stock price volatility 37.6% 48.5% 61.3% 64.9%
Risk-free interest rate 6.9% 6.1% 6.1% 5.8%
Expected life of options in years 4.5 3.1 3.1 3.1
</TABLE>
For purposes of pro forma disclosures, the estimated weighted average value
of the options granted of $3.05, $4.91, $2.65 and $0.93 per share during the
years ended December 31,1995, 1996 and 1997 and the six months ended June 30,
1998, respectively, is amortized to expense over the options' vesting period.
The Company's pro forma information is as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) - as reported $ 5,955 $ (5,490) $ (16,695) $ (11,773)
Net income (loss) - pro forma $ 5,459 $ (6,731) $ (17,586) $ (12,007)
Diluted earnings per share - as reported $ 0.59 $ (0.52) $ (1.51) $ (0.99)
Diluted earnings per share - pro forma $ 0.54 $ (0.64) $ (1.59) $ (1.01)
</TABLE>
A summary of options granted and outstanding are as follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
------- ---------
<S> <C> <C>
Balance at January 1, 1995 974 $ 3.65
Granted 1,067 $ 8.54
Exercised (72) $ 4.01
Forfeited/Canceled (114) $ 5.70
-----
Balance at December 31, 1995 (exercisable 237) 1,855 $ 6.32
Granted 278 $ 13.43
Exercised (231) $ 4.80
Forfeited/Canceled (222) $ 9.94
-----
Balance at December 31, 1996 (exercisable 801) 1,680 $ 7.21
Granted 492 $ 5.74
Exercised (98) $ 3.17
Forfeited/Canceled (566) $ 10.19
-----
Balance at December 31, 1997 (exercisable 904) 1,508 $ 5.29
Granted 571 $ 1.98
Exercised --
Forfeited/Canceled (202) $ 4.82
-----
Balance at June 30, 1998 (exercisable 1,081) 1,877 $ 4.34
=====
</TABLE>
39
<PAGE> 40
Included in the 1997 option grants are approximately 400,000 employee
options repriced to $6.50 per share.
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
------ -------------- ---- ----- -------------- -----
<S> <C> <C> <C> <C> <C>
$ 1.88-$ 2.80 505 9.8 years $ 1.98 -- --
$ 2.80-$ 4.20 438 6.1 years $ 3.20 429 $ 3.18
$ 4.20-$ 6.30 558 6.8 years $ 5.47 443 $ 5.42
$ 6.30-$17.50 376 7.8 years $ 7.13 209 $ 7.45
----- -----
1,877 7.6 years $ 4.34 1,081 $ 4.92
===== =====
</TABLE>
At June 30, 1998 options to purchase 226,906 shares were available for
future grant.
13. FOREIGN CURRENCY TRANSACTIONS
The Company enters into foreign currency forward contracts, generally with
terms of 270 days or less, as a hedge against some of its foreign currency
commitments. Derivative financial instruments held by the Company are generally
used to manage well-defined foreign exchange and interest rate risks which occur
in the normal course of business. Forward foreign exchange contracts are used by
the Company to reduce the potential impact of unfavorable fluctuations in
foreign exchange rates. The Company regularly has off balance sheet commitments
to buy and sell foreign currencies relating to foreign exchange contracts to
hedge against future currency fluctuations.
Gains and losses on foreign currency contracts not intended to hedge
operating requirements are reported currently in other income. Gains and losses
on foreign currency contracts intended to meet firm commitments are deferred and
recognized as part of the cost of the underlying transaction being hedged.
Counterparties to the foreign exchange contracts are typically major
international financial institutions. The Company's theoretical risk in these
transactions is the cost of replacing, at current market rates, these contracts
in the event of default by the counterparty. Management believes the risk of
incurring such losses as a result of a default by a counterparty is remote.
During 1996 and 1997, the Company recognized losses on foreign currency
contracts totaling approximately $160,000 and $17,000, respectively. The Company
recognized approximately $646,000 in gains on foreign currency futures and
forward contracts during the year ended December 31, 1995. These amounts are
included in cost of goods sold in the accompanying statements of operations. The
Company had no open foreign currency contracts at December 31, 1997 or June 30,
1998.
14. COMMITMENTS AND CONTINGENCIES
Leases
The Company is committed under noncancelable operating leases expiring at
various dates through 2003 for warehouse, manufacturing and office facilities.
The leases generally require that the payments of taxes, insurance and
maintenance are the responsibility of the Company.
40
<PAGE> 41
At June 30, 1998, the Company's future minimum rental payments with respect
to capital leases, non-cancelable operating leases with terms in excess of one
year and related sublease receivables were as follows:
<TABLE>
<CAPTION>
RENTS
RECEIVABLE
CAPITAL OPERATING UNDER
YEARS ENDING JUNE 30, LEASES LEASES SUBLEASES
--------------------- ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1999 $127 $1,292 $ 267
2000 116 1,100 255
2001 110 1,041 214
2002 102 835 135
2003 85 806 8
Thereafter -- 399 --
------ ------ -----
$540 $5,473 $ 879
====== =====
Amount representing interest (94)
------
Present value of minimum lease
payments (including current portion
of $70) $446
======
</TABLE>
Rent expense, net of sublease income, for the years ended December 31, 1995,
1996 and 1997 and for the six month period ended June 30, 1998 was approximately
$406,000, $1,042,000, $1,053,000, and $401,000, respectively.
Class Action Lawsuit
In August 1998, the Company, together with the individually named
defendants, entered into a Memorandum of Understanding with the plaintiffs in
the lawsuit filed by certain current and/or former shareholders of the Company
styled Murray v. Ride, Inc., et al., wherein the parties have agreed to settle
the lawsuit upon the following principal terms: (1) the creation of a settlement
fund consisting of: (a) $3,000,000 cash paid by the Company's insurance carrier;
and (b) warrants to purchase 600,000 shares of the Company's Common Stock,
exercisable for a four year period ending December 31, 2002 at a price of $3.00
per share; and (2) the dismissal of the lawsuit against all named defendants
with prejudice. The Memorandum of Understanding is to be reduced to a
Stipulation of Settlement, which will be presented to the Court for approval.
While the Company is hopeful such approval will be forthcoming, there can be no
assurance such approval will be given. In the event Court approval of the
settlement is denied, the Company expects the litigation will resume and the
Company will renew its vigorous defense of the claims.
From time to time, the Company is subject to various other pending and
threatened legal actions that arise in the normal course of business. In the
opinion of management, liabilities arising from these claims will not have a
material effect on the financial position of the Company.
15. EMPLOYEE BENEFIT PLANS
Beginning January 1996, the Company provided a 401(k) plan covering
substantially all of its U.S. employees. Under this plan, participating
employees may defer up to 15% of their pre-tax earnings, subject to certain
Internal Revenue Service limitations. The Company provides matching
contributions which vest 20% annually over a five year period equal to 25% of
each employee's contribution. The Company's 1996 and 1997 matching contributions
for this plan were approximately $31,000 and $39,000, respectively.
Contributions for the period ending June 30, 1998 were $21,000.
16. CONCENTRATION OF CREDIT RISK AND GEOGRAPHICAL INFORMATION
The Company sells its products to customers predominantly located throughout
North America, Japan and Europe. The concentrations of credit risk with respect
to trade receivables are considered minimal due to the Company's ongoing credit
evaluations of its customers. Based on the Company's assessment of credit risk,
sales in the United States and Canada are made on open credit, C.O.D., cash in
advance, or by postdated check. International sales are generally made on a cash
in advance or letter of credit basis. In 1995 and 1996, sales to the Company's
principal Japanese distributor accounted for approximately 22% and 17% of net
sales,
41
<PAGE> 42
respectively. In 1996, sales to another of the Company's Japanese distributors
accounted for 12%. No one customer accounted for more than 10% of revenues in
1997 or 1998.
Worldwide sales of the Company's products were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30
1995 1996 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
North America $50,212 $41,016 $24,907 $ 5,976
Japan 17,051 28,470 7,989 821
Europe and other 7,587 6,242 3,579 482
------- ------- ------- -------
$74,850 $75,728 $36,475 $ 7,279
======= ======= ======= =======
</TABLE>
17. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
---------------------------------------- ENDED
1995 1996 1997 JUNE 30, 1998
-------- -------- -------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 5,955 $ (5,490) $(16,695) $(11,773)
Preferred stock dividends (35) (35) (70) (362)
-------- -------- -------- --------
Numerator for basic earnings per share -
income available to common stockholders 5,920 (5,525) (16,765) (12,135)
Effect of dilutive securities:
Preferred stock dividends 35 -- -- --
======== ======== ======== ========
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions $ 5,955 $ (5,525) $(16,765) $(12,135)
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share -
weighted average shares 8,872 10,614 11,128 12,261
Effect of dilutive securities: (1)
Employee stock options 1,060 -- -- --
Convertible preferred stock 200 -- -- --
-------- -------- -------- --------
Dilutive potential common shares 1,260 -- -- --
-------- -------- -------- --------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 10,132 10,614 11,128 12,261
======== ======== ======== ========
Basic earnings per share $ 0.67 $ (0.52) $ (1.51) $ (0.99)
======== ======== ======== ========
Diluted earnings per share $ 0.59 $ (0.52) $ (1.51) $ (0.99)
======== ======== ======== ========
</TABLE>
(1) The effects of potential common securities are excluded from the diluted
calculation for 1996, 1997 and 1998 as their effects would be antidilutive.
18. BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company has
adopted Statement 131 for the six months ended June 30, 1998 but has not
retroactively adjusted previously reported segments because it was impractical
to do so.
The Company reports operating results in two segments due to distinct
product differences. These two segments include the Company's hardgoods and
softgoods product lines. The hardgoods segment includes snowboards, snowboard
bindings, snowboard boots, wakeboards, and wakeboard boots. The softgoods
segment includes apparel and accessories.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended June 30, 1998
- --------------------------------------------------------------------------------
Apparel/
Accessories Hardgoods Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues from external customers
USA $ 2,285 $ 2,968 $ 5,253
Foreign 705 1,321 2,026
------- ------- --------
Total $ 2,990 $ 4,289 $ 7,279
======= ======= ========
Interest expense $ 13 $ 134 $ 147
Depreciation and amortization expense 147 696 843
Segment loss (2,262) (9,511) (11,773)
Segment assets 6,661 27,943 34,604
Expenditures for long-lived assets 70 668 738
- --------------------------------------------------------------------------------
</TABLE>
The SMP apparel and Smiley Hats subsidiaries are stand alone units and make
up approximately 84% of the Apparel and Accessory segment. The remaining 16% is
comprised of the Ride apparel and accessory lines which are sold through the
traditional hardgoods distribution units, namely Ride Snowboards and Ride
Canada. The Sales for this remaining portion are specifically calculated.
Expenses and assets for the Apparel and Accessory segments of Ride Snowboards
and Ride Canada are allocated based on sales.
Plant and equipment, goodwill and other long-lived assets of $16,342,000
represent $16,075,000 located in the United States, the Company's country of
domicile, and $267,000 located in Canada.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996:
Net sales $ 12,777 $ 13,501 $ 35,329 $ 14,121
Gross profit (loss) 3,387 4,164 11,344 (4,808)(1)
Net income (loss) (982) 411 3,642 (8,561)(2)
Net income (loss) per share (basic) (0.09) 0.04 0.34 (0.80)
Net income (loss) per share (diluted) (0.09) 0.04 0.32 (0.80)
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C>
Balance sheet data (at end of quarter):
Accounts receivable, net 9,404 13,993 28,257 14,193
Inventories 6,153 11,865 16,302 5,986
Working capital 23,584 23,411 26,920 20,941
1997:
Net sales $ 5,034 $ 2,525 $ 18,215 $ 10,701
Gross profit 1,328 664 5,824 2,003
Net income (loss) (2,182) (2,254) 661 (12,920)(3)
Net income (loss) per share (basic) (0.20) (0.21) 0.06 (1.12)
Net income (loss) per share (diluted) (0.20) (0.21) 0.06 (1.12)
Balance sheet data (at end of quarter):
Accounts receivable, net 8,311 6,339 17,300 12,588
Inventories 6,289 10,111 11,065 6,564
Working capital 18,435 15,644 16,768 14,823
1998:
Net sales $ 4,417 $ 2,862
Gross profit (loss) 877 (1,885)
Net income (loss) (3,980) (7,793)
Net income (loss) per share (basic) (0.35) (0.63)
Net income (loss) per share (diluted) (0.35) (0.63)
Balance sheet data (at end of quarter):
Accounts receivable, net 5,990 4,487
Inventories 7,766 9,752
Working capital 11,165 2,489
</TABLE>
(1) Includes $6.5 million inventory write-down. See Note 6.
(2) Includes $6.5 million inventory write-down and $2.5 million restructuring
charge. See Note 6.
(3) Includes $8.6 million loss on impairment of goodwill. See Note 3.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Directors of the Registrant are as follows:
Cory J. Hechler, age 33, has served as a director of the Company since
December 1993. Mr. Hechler joined Bear Stern Securities, Inc., an investment
banking firm, in January 1986 and has been a Senior Managing Director since
September 1993. Mr. Hechler received his B.A. degree from the State University
of New York at Oneonta.
Robert F. Marcovitch, age 41, was elected as a director of the Company
on June 16, 1998 to fill the vacancy created by the resignation of Robert E.
Hall. Mr. Marcovitch was also appointed to serve as the Company's President and
Chief Executive Officer. Prior to that time, Mr. Marcovitch served as Sr. Vice
President of the Company's Apparel and International divisions since October
1996. Before that he was employed by C.A.S. Sports International, Inc., a
Canadian-based former subsidiary of the Company, where he served as President
from August 1994 through October 1996. From December 1992 to August 1994, Mr.
Marcovitch was Director of Apparel for Nike Canada, where he was responsible for
all of Nike's non-footwear business in Canada. From 1989 to 1992, Mr. Marcovitch
was Strategic Account Manager of Nike Canada's apparel division. Mr. Marcovitch
attended Concordia University in Montreal.
43
<PAGE> 44
Mark M. Salter, age 38, has been a director of the Company since April
1993, and served as Vice Chairman of the Board from November 1993 to December
1995. He also served as the Company's Director of Investor Relations from
October 1994 until September 1995. Mr. Salter has been the Director of fixed
Income Securities for Amherst Securities Group, Inc., a Houston-based securities
broker-dealer, since October 1995. From 1989 to 1994, he was Executive Vice
President and Director of Trading for Westcap Securities L.P., a Houston-based
fixed income securities firm. Mr. Salter received his B.A. degree from York
University in Toronto.
The Executive Officers of the Registrant who are not also Directors are as
follows:
Mark Braiser, 34, joined the Company in June 1995 as Vice President of
Sales for the Company's C.A.S. Sports International subsidiary. He was promoted
to Vice President of Sales for the Company's Special Products Group in October
1996 and was appointed the Company's Vice President of Sales in June 1998. Prior
to joining the Company, Mr. Brasier owned his own Independent Sales
Representative agency for the preceding 10-year period. Mr. Brasier graduated
from the University of Western Ontario with a BA in Business.
Gregory S. Cook, 50, joined the Company in March 1996 as Chief
Financial Officer and Chief Operating Officer for the Company's C.A.S. Sports
International subsidiary. In October 1996, Mr. Cook was appointed President of
the Company's Ride Canada subsidiary, a position he served until his appointment
as the Company's Chief Operating Officer in June 1998. Mr. Cook served as
President of Head/Tyrollia Sports Canada from 1985 until his departure in 1996
to join the Company. Mr. Cook is a Certified Management Accountant and holds a
degree in Business Administration and Accounting from Mohawk College in
Hamilton, Ontario.
David H. Davis, 39, joined the Company as Secretary and General Counsel
in September 1996. Prior to that he served as Corporate Counsel and Assistant
Secretary of Egghead, Inc., a reseller of computer software, hardware and
peripherals, where he was employed from September 1994 through August 1996.
Before joining Egghead, Mr. Davis was an associate attorney with the Seattle law
firm of Stanislaw Ashbaugh from April 1990 through September 1994. Mr. Davis
earned his BA degree from Whitman College and his JD from the University of
Oregon.
Former executive officer Robert E. Hall, age 50, joined the Company in
August 1996 as Chief Executive Officer and President, was appointed to the Board
of Directors in September 1996, and resigned as a director and employee of the
Company in June 1998.
Former executive officer Bruce Manke, age 55, joined the Company in
September 1996 as Senior Vice President of Winter Sports and Administration and
resigned his position in June 1998.
Scott C. Mavis, 30, joined the Company in March 1993 as its Customer
Services Manager. Mr. Mavis worked his way through the organization, performing
duties as an Assistant Product Manager, an Inventory Trafficking Manager and
International Sales Coordinator, before being appointed to Managing Director of
European Sales, a position he held until being promoted to the Company's Vice
President of Marketing in June 1998. Mr. Mavis graduated from the University of
Vermont with a BS in Business Administration with a focus on International
Marketing.
Former executive officer G. Scott Stewart, 36, served as the Company's
Vice President from April 1995 until September 1996, when he was appointed
Senior Vice President of Finance, a position he held until his resignation in
August 1998.
ITEM 11. EXECUTIVE COMPENSATION.
Executive Compensation
The following table sets forth annual and long-term compensation for
services rendered during the six months ended June 30, 1998 and the years ended
December 31, 1997, 1996 and 1995 by the Named Executive Officers.
Summary Compensation Table
44
<PAGE> 45
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
Other
Annual Securities All Other
Name and Compen- Underlying Compensation
Principal Position Year Salary ($) Bonus ($) sation($) Options (#) ($)
- ------------------ ---- ---------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Hall (1) 1998 105,000 0 5,152 30,000 0
Former Chief 1997 200,000 0 6,855 62,500 0
Executive 1996 76,590 0 5,255 62,500 0
Officer and President 1995 N/A N/A N/A N/A N/A
Bruce Manke (2) 1998 82,500 0 2,500 27,500 0
Former Sr. Vice President 1997 148,750 20,000 5,751 22,500 0
Board Sports and 1996 49,800 0 2,375 15,000 0
Administration 1995 N/A N/A N/A N/A N/A
Robert F. Marcovitch (3) 1998 100,000 0 913 27,500
President and Chief 1997 200,000 0 1,957 7,500 0
Executive Officer 1996 200,000 0 1,957 0 0
1995 214,683 0 2,190 80,000 0
G. Scott Stewart (4) 1998 60,000 0 4,150 27,500 0
Former Vice President, 1997 110,000 0 4,550 7,500 0
Chief Financial Officer and 1996 100,000 15,000 1,479 0 0
Treasurer 1995 48,657 10,000 0 30,000 0
Gregory S. Cook (5) 1998 50,000 0 4,000 14,500 0
Chief Operating Officer 1997 100,000 0 8,571 12,500 0
1996 79,167 4,166 6,884 0 0
1995 NA NA NA NA NA
David H. Davis (6) 1998 55,000 0 1,375 14,500 0
Secretary and General 1997 103,332 0 2,375 12,500 0
Counsel 1996 33,334 0 792 10,000 0
1995 N/A N/A N/A N/A N/A
Mark Brasier (7) 1998 75,000 0 2,515 14,500 0
Vice President, Sales 1997 150,000 0 5,986 17,500 0
1996 150,000 6,250 5,507 0 0
1995 75,000 10,000 2,750 2,000 0
Scott Mavis (8) 1998 25,000 0 625 8,500 0
Vice President, Marketing 1997 50,000 0 1,250 4,500 0
1996 50,000 2,083 1,250 0 0
1995 50,000 4,166 1,250 0 0
</TABLE>
45
<PAGE> 46
(1) Mr. Hall joined the Company in August 1996 and resigned on June,
16, 1998; the salaries shown for each of 1996 and the six months ending June 30,
1998 are for a partial year's employment. The amount shown for other annual
compensation represents contributions by the Company to the Company's 401(k)
savings plan on behalf of Mr. Hall and an automobile allowance. Stock option
grants for 1997 include the cancellation, repricing and reissuance of 62,500
options originally issued in 1996.
(2) Mr. Manke joined the Company in September 1996 and resigned from
his position on June 16, 1998; the salaries shown for each of 1996 and the six
months ending June 30, 1998 are for a partial year's employment. The amount
shown for other annual compensation represents contributions by the Company to
the Company's 401(k) savings plan on behalf of Mr. Manke. Stock option grants
for 1997 include the cancellation, repricing and reissuance of 15,000 options
originally issued in 1996.
(3) The amount shown for other annual compensation for Mr. Marcovitch
represents contributions by the Company to the Company's Retirement Savings Plan
on behalf of Mr. Marcovitch.
(4) Mr. Stewart joined the Company in April 1995 and resigned his
position in August 1998; the salary shown for 1995 is for a partial year's
employment. The amount shown for other annual compensation represents
contributions by the Company to the Company's 401(k) savings plan on behalf of
Mr.
Stewart and an automobile allowance in 1997 and 1998.
(5) Mr. Cook joined the Company in March 1996; the salary shown for
that year is for a partial year's employment. The amount shown for other annual
compensation represents contributions by the Company to the Company's Retirement
Savings Plan on behalf of Mr. Cook and an automobile allowance.
(5) Mr. Davis joined the Company in September 1996; the salary shown
for that year is for a partial year's employment. The amount shown for other
annual compensation represents contributions by the Company to the Company's
401(k) savings plan on behalf of Mr. Davis. Stock option grants for 1997 include
the cancellation, repricing and reissuance of 10,000 options originally issued
in 1996.
(6) Mr. Braiser joined the Company in June 1995; the salary shown for
that year is for a partial year's employment. The amount shown for other annual
compensation represents contributions by the Company to the Company's Retirement
Savings Plan on behalf of Mr. Brasier and an automobile allowance.
(7) The amount shown for other annual compensation represents
contributions by the Company to the Company's 401(k) savings plan on behalf of
Mr. Mavis.
46
<PAGE> 47
Option Grants in 1998
The following table provides information on option grants to the Named
Executive Officers in 1998.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed Annual
Securities Options/SARs Rates of Stock Price
Underlying Granted to Exercise Appreciation for Option
Options/SARs Employees in or Base Term (2)
Granted Fiscal Year Price Expiration -----------------------
(#) (1) ($/Sh) Date 5% 10%
------------ ------------ ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Hall 30,000 5.26% $ 2.000 9/13/1998 $ 3,000 $ 6,000
Bruce Manke 7,500 1.31% $ 1.875 9/14/1998 $ 703 $ 1,406
20,000 3.51% $ 2.000 9/14/1998 $ 2,000 $ 4,000
Robert F. Marcovitch 7,500 1.31% $ 1.875 1/2/2008 $ 8,843 $ 22,411
20,000 3.51% $ 2.000 5/19/2008 $ 25,155 $ 63,749
G. Scott Stewart 7,500 1.31% $ 1.875 1/2/2008 $ 8,843 $ 22,411
20,000 3.51% $ 2.000 5/19/2008 $ 25,155 $ 63,749
David H. Davis 2,500 0.44% $ 1.875 1/2/2008 $ 2,947 $ 7,470
12,000 2.10% $ 2.000 5/19/2008 $ 15,093 $ 38,249
Greg Cook 2,500 0.44% $ 1.875 1/2/2008 $ 2,947 $ 7,470
12,000 2.10% $ 2.000 5/19/2008 $ 15,093 $ 38,249
Mark Braiser 2,500 0.44% $ 1.875 1/2/2008 $ 2,947 $ 7,470
12,000 2.10% $ 2.000 5/19/2008 $ 15,093 $ 38,249
Scott Mavis 2,500 0.44% $ 1.875 1/2/2008 $ 2,947 $ 7,470
6,000 1.5% $ 2.00 5/19/2008 $ 7,546 $ 19,124
-------
164,500
</TABLE>
(1) Based on an aggregate of 570,500 stock options granted to employees
during the six month period ended June 30, 1998.
(2) Potential realizable value is based on an assumption that the value
of the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. This formula is
calculated based on SEC requirements and does not reflect the Company's estimate
of future stock price growth.
The Company's Stock Option Plan is administered by the Compensation
Committee of the Board of Directors, which consists of Messrs. Hechler, and
Salter. The Compensation Committee determines to whom options are granted, the
number of shares subject to each option, the vesting schedule and the exercise
price. The exercise price may not be less than the fair market value of the
Common Stock on the date of grant. Options generally vest over four years and
have a duration of ten years. The exercise price may be paid in cash, by
delivering shares of Common Stock already owned by the option holder or by
complying with any other payment mechanism approved by the plan administrator.
Subject to certain limitations, the Compensation Committee may modify the terms
of and reprice outstanding options.
Option Exercises and Fiscal Year-End Option Values
The following table shows data relating to stock options exercised by
the Company's Named Executive Officers and unexercised options held by such
persons at June 30, 1998.
47
<PAGE> 48
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Acquired Underlying Unexercised Options In-the-Money Options
on Exercise Value Realized at Fiscal Year-End (#) at Fiscal Year-End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
---- --------------- -------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Robert E. Hall -0- N/A 15,625 / 0 $0 / $0
Bruce Manke -0- N/A 5,625 / 0 $0 / $0
Robert F. Marcovitch -0- N/A 48,125/ 59,375 $0 / $0
G. Scott Stewart -0- N/A 19,375/ 40,625 $0 / $0
David H. Davis -0- N/A 3,125/ 23,875 $0 / $0
Greg Cook -0- N/A 3,125 / 21,375 $0 / $0
Mark Braiser -0- N/A 12,625 / 21,875 $0 / $0
</TABLE>
(1) The amount shown is the aggregate number of shares of Common Stock
that may be purchased pursuant to the exercise of outstanding options,
multiplied by the difference between the closing price of the Common Stock
reported on Nasdaq National Market on September 23, 1998, $1.00, and the per
share exercise price of such options.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not compensated for
service as directors. Non-employee directors of the Company receive $1,000 per
board meeting attended in person. The Company also reimburses each director for
reasonable expenses incurred in attending meetings of the Board of Directors. In
addition, in June 1998 the Directors approved, subject to shareholder approval,
a Non-Employee Directors' Nonqualified Stock Option Plan whereby upon election
or appointment to the Board of Directors, each non-employee director receives an
option under such Plan to purchase 5,000 shares of Common Stock. The option
vests and is exercisable on the earlier of one year from the date of grant or
the last business day preceding the next following Annual Shareholders' Meeting.
Unvested and unexpired options terminate upon the first of the following events:
(i) ten years from the date of grant; (ii) the expiration of 90 days from the
date of an optionee's termination as a director for any reason other than death
or disability; or (iii) the expiration of one year from the date of death of an
optionee or cessation of the optionee's service as a director by reason of
disability.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Common Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of September 21, 1998 by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the Company's Common Stock; (ii) by each director; (iii) by the group of
individuals collectively referred to as "the Named Executive Officers"
consisting of all individuals serving as the Company's Chief Executive Officer
or acting in a similar capacity during the six months ended June 30, 1998, and
the other five most highly paid executive officers of the Company other than the
Chief Executive Officer; and (iv) by all directors and executive officers of the
Company as a group.
Table of Beneficial Ownership
<TABLE>
<CAPTION>
Name of Beneficial Owner (1) Amount and Nature of Percent of Shares
Beneficial Ownership Outstanding
- --------------------------------------------------------------------------------------------
<S> <C> <C>
James J. Salter 1,013,764(2) 8.03%
2700 Dufferin Street, #B3
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
Name of Beneficial Owner (1) Amount and Nature of Percent of Shares
Beneficial Ownership Outstanding
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Toronto, Ontario Canada M6B 4J3
Mark M. Salter 1,164,818(3) 9.2%
1900 W. Loop South, #550
Houston, TX 77027
Cory J. Hechler 419,000(4) 3.3%
Robert F. Marcovitch 54,909(5) *
G. Scott Stewart 26,681(6) *
Robert E. Hall 16,240(7) *
Bruce Manke -0- *
Mark Braiser 7,875(8) *
David H. Davis 10,374(9) *
Greg Cook 3,125(10) *
All directors and executive officers as a 2,728,983 21.62%
group (11 persons)
</TABLE>
* Less than 1%
(1) Except as otherwise noted in these footnotes, each of the persons
named in the table has sole voting and investment power with respect to the
shares shown beneficially owned by such person. As noted in these footnotes,
shares beneficially owned may include shares subject to options that are
exercisable on or before November 20, 1998.
(2) Includes 893,764 shares held by DLS Financial Holdings, Inc., a
trust controlled by Mr. Salter and 120,000 shares subject to options that are
currently exercisable or exercisable on or before November 20, 1998.
(3) Includes: (i) 835,000 shares held by Salter Family Partners, Ltd.,
a limited partnership of which Mark Salter and his wife are the sole general
partners, with shared voting and investment control; (ii) 6,000 shares held by
Mark Salter as custodian for his two minor children, for which Mr. Salter
disclaims beneficial ownership; (iii) 200,000 shares that are issuable upon the
conversion of 100,000 shares of the Company's Series A Convertible Preferred
Stock held by Salter Family Partners, Ltd.; and (iv) 123,818 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.
(4) Includes 339,000 shares owned directly and 80,000 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.
(5) Includes 534 shares owned directly and 54,375 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.
(6) Includes 2,306 shares owned directly and 24,375 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998. Mr. Stewart resigned from the Company on August 31, 1998, but remains as a
consultant to the Company. Under his consulting agreement, Mr. Stewart continues
to participate in the Company's employee stock option plan in accordance with
the terms of such plan.
(7) Includes 9,240 shares owned directly, and 7,000 shares held by the
Robert E. Hall Family Trust, a trust controlled by Mr. Hall.
(8) Represents 7,875 shares subject to options that are currently
exercisable or exercisable on or before November 20, 1998.
(9) Includes 4,749 shares owned directly and 5,625 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.
(10) Represents 3,125 shares subject to options that are currently
exercisable or exercisable on or before November 20, 1998.
49
<PAGE> 50
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements.
<TABLE>
<CAPTION>
FORM 10-K
PAGE NUMBER
<S> <C>
A. Report of Ernst & Young LLP, Independent Auditors.............. 26
B. Consolidated Balance Sheets as of December 31, 1996
and 1997 and June 30, 1998..................................... 27
C. Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1998..................................... 28
D. Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1995, 1996 and 1997 and
the six months ended June 30, 1998............................. 29
E. Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1998..................................... 30
F. Notes to Consolidated Financial Statements..................... 31
</TABLE>
2. Financial Statement Schedules.
<TABLE>
<CAPTION>
FORM 10-K
PAGE NUMBER
<S> <C>
Schedule II - Valuation and Qualifying Accounts.................... 56
Financial statements and schedules not included herein have been
omitted because of the absence of conditions under which they are
required or because the required information, where material,
is shown in the consolidated financial statements or notes
thereto.
</TABLE>
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Restated Articles of Incorporation and Certificate of Designation
of Relative Rights and Preferences of the Series A 7% Cumulative
Nonvoting Preferred Stock (1)
3.2 Bylaws of the Company (1)
3.3 Articles of Amendment to Articles of Incorporation (9)
3.4 Articles of Amendment to Articles of Incorporation (11)
3.5 Articles of Correction (12)
3.6 Amendment to Certificate of Designation of Relative Rights and
Preferences of the Series A 7% Cumulative Nonvoting Preferred
Stock (26)
3.7 Certificate of Designation of Relative Rights and Preferences of
the Series B 5% Cumulative Convertible Nonvoting Preferred Stock
(27)
4.1 Article VI of the Articles of Incorporation regarding Shareholder
Rights (See Exhibit 3.1) (1)
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.2 Article VIII of the Articles of Incorporation regarding Voting
Rights (See Exhibit 3.1) (1)
4.3 Specimen Stock Certificate (2)
10.10 Exclusive Distributorship Agreement dated December 7, 1992, by
and between Ride Snowboard Company and Far East Trading Co., Ltd.
(3)
10.24 Exchange Agreement dated December 31, 1993, between Ride
Snowboard Company and Mark M. Salter (1)
10.25 Employment Agreement, dated August 18, 1994, by and between Ride
Snowboard Company and James J. Salter (4)
10.26 Form of Employment Agreement between Ride Snowboard Company and
Roger B. Madison, Jr.(1)
10.27 Employment Agreement, dated January 1, 1995, by and between Ride
Snowboard Company and Timothy G. Pogue(7)
10.28 Form of Ride Snowboard Company 1994 Stock Option Plan(1)
10.29 Form of Ride Snowboard Company 1994 Directors' Nonqualified Stock
Option Plan(1)
10.30 Lease Agreement with Teachers Insurance & Annuity Association
dated January 10, 1994(1)
10.32 Amended Form of Underwriting Agreement(5)
10.34 Standard Form Multiple Occupancy Lease, dated November 29, 1994,
by and between Ride Snowboard Company and BDC Preston Properties
One Limited Partnership(6)
10.35 Business Loan Agreement, dated June 30, 1997, by and between
Ride, Inc. and U.S. Bank of Washington, N.A.(25)
10.36 Stock Purchase Agreement, dated August 18, 1994, between Ride
Snowboard Company and James J. Salter, the James Salter Family
Trust, Kenneth Finkelstein Family Trust, The Snow Trust, Robert
Marcovitch, Kerry Wasserman, Rick Clarfield, Howard Cohen, Gary
Kell, Sandra Pelegrin, Alan Langer, Dan Opyc, C.A.S. Sports
International, Inc. and C.A.S. Sports Agency, Inc.(8)
10.45 Ride Snowboard Company 1995 Employee Stock Purchase Plan(9)
10.46 Ride Snowboard Company 1995 Foreign Subsidiary Employee Stock
Purchase Plan(9)
10.47* Exclusive OEM Agreement, dated July 26, 1995, by and between Ride
Snowboard Company and Straight Line Water Sports, Inc.(11)
10.48 Employment Agreement, dated September 1, 1995, between the
Company and David A. Janes, Jr.(13)
10.49 Employment Agreement, dated September 1, 1995, between the
Company and Bernard Gervasoni(13)
10.50 Employment Agreement, dated October 19, 1995, between the Company
and David Milo Myers(14)
10.51 Registration Rights Agreement dated October 19, 1995, between the
Company and David Milo Myers, Lawrence Kraus and Michael Wise(14)
10.52 Stock Purchase Agreement, dated September 1, 1995, between the
Company and the shareholders and option holders of 5150
Snowboards, Inc. and Thermal Snowboards, Inc.(15)
10.53 Asset Purchase Agreement, dated October 19, 1995, among the
Company, Sex Money Power Clothing, Inc., David Milo Myers,
Lawrence Kraus and Michael Wise(16)
10.54 Form of Underwriting Agreement by and between the Company and
Hambrecht & Quist LLC and Dain Bosworth Incorporated(17)
10.55* Amendment No.1 to Exclusive Distributorship Agreement, dated
October 24, 1995, by and between Ride Snowboard Company, 5150
Snowboards, Inc., SMP Clothing, Inc. and Far East Trading Company
Ltd.(18)
10.56 Employment Agreement, dated October 14, 1995, by and between the
Company and Kenneth J. Finkelstein(19)
10.57 Employment Agreement, dated January 1, 1996, by and between
C.A.S. Sports International, Inc. and Robert F. Marcovitch(19)
10.58 First Amendment, dated August 4, 1995, to Lease Agreement by and
between Ride Snowboard Company and BDC Preston Properties One
Limited Partnership(19)
10.59 Second Amendment, dated November 21, 1995, to Lease Agreement by
and between Ride Snowboard Company and BDC Preston Properties One
Limited Partnership(19)
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.60 Third Amendment, dated March 26, 1996, to Lease Agreement by and
between Ride Snowboard Company and BDC Preston Properties One
Limited Partnership(19)
10.61 Amendment No. 2 to Exclusive Distributorship Agreement, dated
March 1996, by and between Ride Snowboard Company, SMP Clothing,
Inc. and Far East Trading Company Ltd.(20)
10.63 Agreement, dated May 7, 1996, by and between Ride, Inc. and James
J. Salter(21)
10.64 Agreement, dated August 2, 1996, by and between Ride, Inc. and
Kenneth J. Finkelstein(21)
10.65 Agreement, dated August 7, 1996, by and between Ride, Inc. and
Robert E. Hall(21)
10.66 Stock Purchase Agreement, dated October 11, 1996, by and between
Ride, Inc. and Gen-X Equipment, Inc.(22)
10.67 Amendment No. 1 to Resignation Agreement, dated October 11, 1996,
by and between Ride, Inc. and James J. Salter.(22)
10.68 Amendment No. 1 to Resignation Agreement, dated October 11, 1996,
by and between Ride, Inc. and Kenneth J. Finkelstein.(22)
10.69 Resignation and Release Agreement, dated October 28, 1996, by and
between Ride, Inc. and Timothy G. Pogue(23)
10.70 Letter agreement, dated December 6, 1996, by and between Ride
Inc. and Straight Line Water Sports, Inc.(23)
10.71 Letter agreement, dated December 12, 1996, by and between Ride
Inc. and Straight Line Water Sports, Inc.(23)
10.72* Financial Advisory Agreement, dated January 15, 1997, by and
between Ride, Inc. and Roger Madison, Jr.(24)
10.73 Asset Purchase Agreement, dated July 15, 1997, by and between
Ride, Inc. and Galena Creek Trading Company, Inc. (dba Smiley
Hats)(25)
10.74 Subscription Agreement, dated December 19, 1997 by and between
Ride, Inc. and Advantage Fund II, Ltd.(28)
10.75 Registration Rights Agreement, dated December 19, 1997 by and
between Ride, Inc. and Advantage Fund II, Ltd.(28)
10.76 Warrant Agreement, dated December 18, 1997 by and between Ride,
Inc. and Rochon Capital Group, Ltd.(28)
10.77 Placement Agency Agreement, dated December 18, 1997 by and
between Ride, Inc. and Rochon Capital Group, Ltd.(28)
10.78 Common Stock Purchase Warrant issued to Advantage Fund II, Ltd.
dated December 19, 1997(28)
10.79 Common Stock Purchase Warrant issued to Rochon Capital Group,
Ltd. dated December 19, 1997(29)
10.80 Loan and Security Agreement, dated August 31, 1998, by and
between CIT Group/Credit Finance, Inc., Ride Snowboard Company,
Ride Manufacturing, Inc., SMP Clothing, Inc., and Smiley Hats,
Inc.
10.81 Consent, Reaffirmation and Release Agreement, dated August 31,
1998, by and between US Bank NA, Ride, Inc., Carve, Inc., Preston
Binding Company, Ride International, Inc., Ride Manufacturing,
Inc., Ride Snowboard Company, Smiley Hats, Inc., and SMP
Clothing, Inc.
21.1 Schedule of Subsidiaries of Ride, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- ----------
(1) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form SB-2, file no.
33-75770-LA.
(2) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Amendment No. 1 to Registration Statement on Form
SB-2, file no. 33-75770-LA.
52
<PAGE> 53
(3) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form SB-2, file no.
33-75770-LA, with confidential portions omitted and filed separately
with the Commission pursuant to a Request of Confidential Treatment
under Rule 406 of the Securities Act of 1933.
(4) Exhibit is incorporated by reference to Exhibit No. 10.1 to the
Company's Current Report on Form 8-K, dated August 31, 1994.
(5) Exhibit is incorporated by reference to Exhibit No. 1.1A to the
Company's Amendment No. 1 to Registration Statement on Form SB-2, file
no. 33-75770-LA.
(6) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(7) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Post-Effective Amendment No. 1 to the Registration
Statement on Form SB-2, file no. 33-75770-LA.
(8) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Post-Effective Amendment No. 2 to the Registration
Statement on Form SB-2, file no. 33-75770-LA.
(9) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form S-1, file no. 33-94814.
(10) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1,
file no. 33-94814.
(11) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1,
file no. 33-94814, with confidential portions omitted and filed
separately with the Commission pursuant to a Request of Confidential
Treatment under Rule 406 of the Securities Act of 1933.
(12) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 2 to the Company's Registration Statement on Form S-1,
file no. 33-94814.
(13) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated September 1, 1995.
(14) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated October 20, 1995.
(15) Exhibit is incorporated by reference to Exhibit No. 2.1 to the
Company's Current Report on Form 8-K, dated September 1, 1995.
(16) Exhibit is incorporated by reference to Exhibit No. 2.2 to the
Company's Current Report on Form 8-K, dated October 20, 1995.
(17) Exhibit is incorporated by reference to Exhibit No. 1.1 to the
Company's Registration Statement on Form S-1, file no. 33-94814.
(18) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q, for the fiscal quarter
ended September 30, 1995.
(19) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(20) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
(21) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
53
<PAGE> 54
(22) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated October 11, 1996.
(23) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(24) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
(25) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997.
(26) Exhibit is incorporated by reference to exhibit 4.6 to the Company's
Current Report on Form 8-K, dated January 8, 1998.
(27) Exhibit is incorporated by reference to exhibit 4.5 to the Company's
Current Report on Form 8-K, dated January 8, 1998.
(28) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated January 8, 1998.
(29) Exhibit is incorporated by reference to exhibit 4.4 to the Company's
Current Report on Form 8-K, dated January 8, 1998.
* Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an Application for Confidential
Treatment.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated December 19, 1997, related to the
private placement of Series B Convertible Preferred Stock.
54
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RIDE, INC.
(Registrant)
/s/ ROBERT F, MARCOVITCH
-------------------------------------
Robert F. Marcovitch
Chief Executive Officer and President
DATE: September 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated
<TABLE>
<S> <C> <C>
/s/ ROBERT F. MARCOVITCH Chief Executive Officer, President and Date: September 28, 1998
- ------------------------- Director (Principal Executive Officer)
Robert F. Marcovitch
/s/ GREG COOK Vice President and Date: September 28, 1998
- ------------------------- Chief Operating Officer
Greg Cook (Principal Financial
and Accounting Officer)
/s/ MARK M. SALTER Director Date: September 28, 1998
- -------------------------
Mark M. Salter
/s/ CORY J. HECHLER Director Date: September 28, 1998
- -------------------------
Cory J. Hechler
</TABLE>
55
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
MANUAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
21.1 Schedule of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
56
<PAGE> 57
RIDE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
--------- -------- -------- -------- ------
ADDITIONS
------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 925 $ 735 $ 679(2) $ 981
Inventory reserves $2,039 $ 859 $ 1,451(3) $ 1,447
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 655 $ 361 $ 109(1) $ 200(2) $ 925
Inventory reserves $5,916 $ 42(1) $ 3,919(3) $ 2,039
YEAR ENDED DECEMBER 31, 1996
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 359 $ 495 $ 199(2) $ 655
Inventory reserves $ 100 $ 6,500 $ 684(3) $ 5,916
YEAR ENDED DECEMBER 31, 1995
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 143 $ 253 $ 44(1) $ 81(2) $ 359
Inventory reserves $ -- $ 60 $ 130(1) $ 90(3) $ 100
</TABLE>
(1) Amounts acquired in purchase acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
(3) Cost of goods sold in excess of net realized value and obsolete inventories
written off, net of recoveries.
57
<PAGE> 1
EXHIBIT 10.80
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or other entity
identified in Section 10.5(C) and its successors and assigns. If
more than one Borrower is specified in Section 10.5(C), all
references to Borrower shall mean each of them, jointly and
severally, individually and collectively, and the successors and
assigns of each.
1.2 The "Lender" is THE CIT GROUP/CREDIT FINANCE, INC. and its agents,
designees, representatives, successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("Revolving
Loans") in amounts requested by Borrower from time to time, but not
in excess of the Net Availability existing immediately prior to the
making of the requested Revolving Loan and provided the requested
Revolving Loan would not cause the outstanding Obligations to exceed
the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section
10.1(A).
(b) The "Gross Availability" is at any time (i) the
product of the outstanding amount of Eligible Accounts, multiplied by the
Eligible Accounts Percentage set forth in Section 10.1(B), plus: (ii) the
product obtained by multiplying the Eligible Inventory Percentage set forth in
Section 10.1(B) by the values (as determined by Lender based on the lower of
cost or market) of Eligible Inventory, but the amount so added shall not exceed
any sublimits set forth in Section 10.1(C).
(c) The "Net Availability" shall be calculated at any
time as an amount equal to the Gross Availability minus the aggregate amount of
all then-outstanding Obligations to Lender.
-1-
<PAGE> 2
(d) "Eligible Accounts" are accounts created by Borrower
or Ride Canada, Inc. ("Ride Canada") in the ordinary course of the respective
businesses of such entities which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its reasonable credit judgment,
on fifteen (15) days' prior written notice to Borrower. Lender shall, in
general, deem and continue to deem accounts to be Eligible Accounts if: (1) such
accounts arise from bona fide completed transactions and have not remained
unpaid for more than the number of days after the invoice date set forth in
Section 10.1(D); (2) the amounts of the accounts reported to Lender are
absolutely owing to Borrower or Ride Canada and payment is not conditional or
contingent, (such as consignments, guaranteed sales or right of return or other
similar terms); (3) the account debtor's chief executive office or principal
place of business is located in the United States or, only in the case of
accounts owing to Ride Canada, Canada; (4) such accounts do not arise from
progress billings, retainages or bill and hold sales; (5) there are no contra
relationships, setoffs, counterclaims or disputes existing with respect thereto
and there are no other facts existing or threatened which would impair or delay
the collectibility of all or any portion thereof; (6) the goods giving rise
thereto were not at the time of the sale subject to any liens except those
permitted in this Agreement; (7) such accounts are not accounts with respect to
which the account debtor or any officer or employee thereof is an officer,
employee or agent of or is affiliated with Borrower, directly or indirectly,
whether by virtue of family membership, ownership, control, management or
otherwise, provided that this clause (7) shall not render ineligible accounts
owing to Borrower by Global Sports or Lamar Snowboards based upon Jamie Salter's
being an officer of such account debtors; (8) there has been compliance with the
Assignment of Claims Act or similar State or local law, if applicable, if the
account debtor is the United States or any domestic governmental unit; (9)
Borrower has delivered to Lender such documents as Lender may have requested
pursuant to Section 5.9 hereof in connection with such accounts and Lender shall
have received verifications of such accounts, satisfactory to it, if sent to the
account debtors or any other obligors or any bailees pursuant to Section 5.5
hereof; (10) there are no facts known by Borrower, Ride Canada or Lender
existing or threatened which might result in any adverse change in the account
debtor's financial condition; (11) accounts owed by an account debtor and its
affiliates do not represent more than twenty percent (20%) of all otherwise
Eligible Accounts (the amount exceeding twenty percent (20%) shall not be
eligible); (12) not more than fifty percent (50%) of the accounts of an account
debtor or its affiliates owed to Borrower or Ride Canada are more than the
number of days set forth in Section 10.1(D); (13) such accounts are owed by
account debtors whose total indebtedness to Borrower or Ride Canada does not
exceed the amount of any customer credit limits as established from time to time
on notice to Borrower or Ride Canada (the amount exceeding the credit limit
shall not be eligible); and (14) such accounts are owed by account debtors
deemed creditworthy at all times by Lender.
-2-
<PAGE> 3
(e) "Eligible Inventory" is finished goods inventory for
the current or subsequent model year owned by Borrower or Ride Canada which is
and remains acceptable to Lender for lending purposes and is located at one of
the addresses set forth in Section 10.5(E). "In-transit" inventory may also
qualify as Eligible Inventory if it satisfies the foregoing requirements and, in
addition, is subject to transit and delivery terms acceptable to Lender,
including without limitation, such matters as insurance, purchase orders and
title documents, and shipping delivery dates and locations.
(f) Lender shall have a continuing right to reduce the
Gross Availability by implementing Reserves ("Reserves"), and to increase and
decrease such Reserves from time to time, if and to the extent that, in Lender's
sole judgment, such Reserves are necessary to protect Lender against any state
of facts which does, or would, with notice or passage of time or both,
constitute an Event of Default or have an adverse effect on any Collateral.
Without limiting the generality of the foregoing, if Lender provides Borrower
with accommodations consisting of letters of credit, Lender will reduce Gross
Availability as follows:
(i) for commercial letters of credit for the
purchase of Eligible Inventory, Gross Availability will be reduced by an
amount equal to the product of (A) 45% and (B) the cost of such Eligible
Inventory, plus duty and freight; and
(ii) for standby letters of credit, Gross
Availability will be reduced by an amount equal to 100% of the face
amount of each such letter of credit.
(g) If a voluntary or involuntary petition under the Bankruptcy
Code is filed against the Borrower, then Lender need not make Revolving Loans.
(h) Revolving Loans will not at any time exceed the Gross
Availability (as it may be reduced by any applicable reserve) unless Lender has
consented.
2.2 Term Loan. Intentionally Deleted.
2.3 Accommodations.
(a) Subject to the terms and conditions contained herein, Lender
may in its sole discretion, issue or cause to be issued, from time to time at
Borrower's request and on terms and conditions and for purposes satisfactory to
Lender, credit accommodations consisting of letters of credit, bankers'
acceptances, merchandise purchase guaranties or other guaranties or indemnities
for Borrower's account ("Accommodations"). Borrower shall
-3-
<PAGE> 4
execute and perform additional agreements relating to the Accommodations in form
and substance acceptable to Lender and the issuer of any Accommodations, all of
which shall supplement the rights and remedies granted herein. Any payments made
by Lender or any affiliate of Lender in connection with the Accommodations shall
constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower shall pay
monthly to Lender, on the first day of each month, a charge on the face amount
of all outstanding Accommodations computed daily from the date of issuance until
termination or payment, at the rate set forth in Section 10.3A(A) (the
"Accommodation Charges").
(c) No Accommodation will be issued unless the full amount of
the Accommodation requested plus fees and costs for issuance, is less than the
Net Availability existing immediately prior to the issuance of the requested
Accommodations, or if the requested Accommodation would cause the sum of the
outstanding Obligations to exceed the Maximum Credit, or cause the sum of the
open amount of Accommodations to exceed, at any time, the Accommodation sublimit
set forth in Section 10.3A(B).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation, (ii) all amounts
charged or chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and
other charges of any issuer of any Accommodation; and (iv) all duties, freight,
taxes, costs, insurance and all such other charges and expenses which may
pertain directly or indirectly to any Obligations or Accommodations or to the
goods or documents relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences to any
Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptance thereunder, including any such
loss or claim due to any action taken by an issuer of any Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold
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Lender harmless under this provision shall not be modified or diminished for any
reason or in any manner whatsoever, except for Lender's wilful misconduct.
Borrower agrees that any charges made to Lender by any issuer of any
Accommodation shall be conclusive on Borrower and may be charged to Borrower's
account.
(f) Lender shall not be responsible for: the conformity of any
goods to the documents presented; the validity or genuineness of any documents;
delay, default, or fraud by Borrower or shipper and/or anyone else in connection
with the Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if taken in
good faith, or any action taken by an issuer of any Accommodation, under or in
connection with any Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof Lender shall,
upon an Event of Default or if Lender is directly collecting the accounts
pursuant to Section 5.5, have the full right and authority to clear and resolve
any questions of non-compliance of documents; to give any instructions as to
acceptance or rejection of any documents or goods; to execute for Borrower's
account any and all applications for steamship or airway guarantees, indemnities
or delivery orders; to grant any extensions of the maturity of, time of payment
for, or time of presentation of, any drafts, acceptances, or documents; and to
agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications or
Accommodations. All of the foregoing actions may be taken in Lender's sole name,
and the issuer thereof shall be entitled to comply with and honor any and all
such documents or instruments executed by or received solely from Lender, all
without notice to or any consent from Borrower. None of the foregoing actions
described in this subsection (g) may be taken by Borrower without Lender's
express written consent.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest on the Revolving Loans shall be payable by Borrower
on the first day of each month, calculated upon the closing daily balances in
the loan account of Borrower for each day during the immediately preceding
month, at the per annum rate set forth as the Interest Rate in Section 10.3(A).
The Interest Rate shall increase or decrease by an amount equal to each increase
or decrease, respectively, in the Prime Rate (as defined below), effective as of
the date of each such change. On and after any Event of Default or termination
or non-renewal hereof, interest on all unpaid Obligations shall accrue at a rate
equal to two percent (2%) per annum in excess of the Interest Rate otherwise
payable until
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such time as all Obligations are indefeasibly paid in full (notwithstanding
entry of any judgment against Borrower or the exercise of any other right or
remedy by Lender), and all such interest shall be payable on demand. Interest
shall in no month be less than the Interest Rate multiplied by the Minimum
Borrowing set forth in Section 10.1(E). In no event shall charges constituting
interest exceed the rate permitted under any applicable law or regulation, and
if any provision of this Agreement is in contravention of any such law or
regulation, such provision shall be deemed amended to conform thereto.
The "Prime Rate" is the rate of interest publicly announced by The Chase
Manhattan Bank in New York, New York, or its successors and assigns from time to
time as its prime rate.
3.2 Fees. Borrower shall pay to Lender:
(a) Closing Fee. At closing a Closing Fee in the amount set
forth in Section 10.3(C).
(b) Facility Fee. A Facility Fee (fully earned at closing or the
beginning of any renewal term) payable in installments at each anniversary of
closing or renewal term as set forth in Section 10.3(D).
(c) Collateral Handling Fee. At closing and on each anniversary
of closing, including each anniversary occurring during any renewal term, a
Collateral Handling Fee (fully earned at closing and on each anniversary date)
in the amount set forth in Section 10.3(E).
(d) Unused Line Fee. Intentionally Omitted.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and performance in
full of all Obligations, Borrower hereby grants to Lender a continuing
security interest in and lien upon, and a right of setoff against, and
Borrower hereby assigns and pledges to Lender, all of the Collateral,
including any Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Accommodations and
all other indebtedness, liabilities and obligations of every kind,
nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest,
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charges, fees and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term
or after the commencement of any case with respect to Borrower under the
United States Bankruptcy Code or any similar statute, whether direct or
indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or howsoever
acquired by Lender including from any other entity outright,
conditionally or as collateral security, by assignment, merger with any
other entity, participations or interests of Lender in the obligations
of Borrower to others, assumption, operation of law, subrogation or
otherwise and shall also include all amounts chargeable to Borrower
under this Agreement or in connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of Borrower:
(a) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of all: accounts, interests in goods
represented by accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; chattel paper;
investment property; general intangibles (including, but not limited to, tax and
duty refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims, and existing and future
leasehold interests in equipment and fixtures); documents; instruments; letters
of credit, bankers' acceptances or guaranties; cash moneys, deposits,
securities, bank accounts, deposit accounts, credits and other property now or
hereafter held in any capacity by Lender, its affiliates or any entity which, at
any time, participates in Lender's financing of Borrower or at any other
depository or other institution; agreements or property securing or relating to
any of the items referred to above;
(b) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of goods, including, but not limited
to:
(i) All inventory, wherever located, whether now owned
or hereafter acquired, of whatever kind, nature or description, including all
raw materials, work-in-process, finished goods, and materials to be used or
consumed in Borrower's business; and all names or marks affixed to or to be
affixed thereto for purposes of selling same by the seller, manufacturer, lessor
or licensor thereof;
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(ii) All equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including, without limitation, all
machinery, equipment, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and accessions
thereof and thereto; and
(iii) All consumer goods, farm products, crops, timber,
minerals or the like (including oil and gas), wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or description;
(c) All now owned and hereafter acquired right, title and
interests of Borrower in, to and in respect of any personal property in or upon
which Borrower has or may hereafter have a security interest, lien or right of
setoff;
(d) All present and future books and records relating to any of
the above including, without limitation, all computer programs, printed output
and computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party; and
(e) All products and proceeds of the foregoing in whatever form
and wherever located, including, without limitation, all insurance proceeds and
all claims against third parties for loss or destruction of or damage to any of
the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower will, at Borrower's expense and in the manner
requested by Lender from time to time, direct that all remittances and
all other proceeds of accounts and other Collateral be sent to a lock
box designated by Lender, and deposited into a bank account selected by
Lender with acceptable arrangements with the bank providing among other
things, that following the occurrence of an Event of Default all funds
deposited in the bank account shall be transferred solely to Lender.
Borrower shall bear all risk of loss of any funds deposited into such
account. In connection therewith, Borrower shall execute such lock box
and bank account agreements as Lender shall specify. Any collections or
other proceeds received by Borrower shall be held in trust for Lender
and Borrower shall cause all such collections or other proceeds to be
remitted immediately to Lender in kind.
Borrower will cause Ride Canada to collect all of Ride Canada's accounts
and other proceeds of Collateral and promptly deposit such collections and
proceeds in a bank account selected by Lender with arrangements with such bank
that Ride Canada will have
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access and control of such account but that upon notice by Lender to the bank of
an occurrence of an Event of Default, Ride Canada shall have no right of
withdrawal or use of any funds in such account and all funds at any time
deposited in such account shall be promptly transferred and deposited into a
bank account maintained in the name of Lender. Borrower shall cause Bank Canada
to execute such bank account agreements relating to the foregoing as Lender
shall specify. Bank Canada shall also acknowledge and agree that following an
Event of Default any collections of accounts or other proceeds shall be held in
trust for Lender and be immediately deposited into the above account or be
remitted to Lender.
5.2 Charges to Loan Account. At Lender's option, all payments of principal,
interest, fees, costs, expenses and other charges provided for in this
Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due, as principal
to any loan account of Borrower maintained by Lender. Interest, fees for
Accommodations and any other amounts payable by Borrower to Lender based
on a per annum rate shall be calculated on the basis of actual days
elapsed over a 360-day year.
5.3 Payments.
(a) All Obligations shall be payable at Lender's Office set
forth in Section 10.5(A) or at Lender's bank designated in Section 10.5(B) or at
such other bank or place as Lender may expressly designate from time to time for
purposes of this Section. All payments due under this Agreement, all loans and
Accommodations to be provided by Lender to Borrower hereby, all determinations
of the amount of Eligible Accounts and the value of Eligible Inventory, and all
other calculations and transactions contemplated under this Agreement will be in
United States Dollars. Lender shall apply all proceeds of accounts or other
Collateral received by Lender and all other payments in respect of the
Obligations to the Revolving Loans or to any other Obligations then due, in
whatever order or manner Lender shall determine.
(b) For purposes of determining Gross Availability and Net
Availability and for the calculation of the Minimum Borrowing, remittances and
other payments will be treated as credited to the loan account of Borrower
maintained by Lender and Collateral balances to which they relate, upon the date
of Lender's receipt of advice from Lender's bank that such remittances or other
payments have been credited to Lender's account or in the case of remittances or
other payments received directly in kind by Lender, upon the date of Lender's
deposit thereof at Lender's bank, subject to final payment and collection. In
computing interest charges, the loan account of Borrower will be credited with
remittances
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and other payments for the number of days set forth in Section
10.3(B) after the day Lender has received advice of receipt of remittances in
Lender's account at Lender's Bank. For purposes of this Agreement, "BUSINESS
DAY" shall mean any day other than a Saturday, Sunday or any other day on which
Lender or banks located in states where Lender has its offices, are authorized
to close.
5.4 Loan Account Statements. Lender shall render to Borrower monthly a loan
account statement. Each statement shall be considered correct and
binding upon Borrower as an account stated, except to the extent that
Lender receives, within sixty (60) days after the mailing of such
statement, written notice from Borrower of any specific exceptions by
Borrower to that statement.
5.5 Direct Collections. Lender may, at any time, (a) notify any account
debtor that the accounts and other Collateral which includes a monetary
obligation have been assigned to Lender by Borrower or Ride Canada, as
applicable, and that payment thereof is to be made to the order of and
directly to Lender, (b) send, or cause to be sent by its designee,
requests (which may identify the sender by a pseudonym) for verification
by telephone, in writing or otherwise of accounts and other Collateral
directly to any account debtor or any other obligor or any bailee with
respect thereto, (c) demand, collect or enforce payment of any accounts
or such other Collateral, but without any duty to do so, and Lender
shall not be liable for any failure to collect or enforce payment
thereof, (d) take or bring, in the name of Lender or Borrower or Ride
Canada, as applicable, all steps, actions, suits or proceedings deemed
by Lender necessary or desirable to effect collection of or other
realization upon the accounts and other Collateral, (e) after an Event
of Default, change the address for delivery of mail to Borrower or to
Ride Canada, as applicable, and to receive and open mail addressed to
Borrower or to Ride Canada, as applicable, and (f) after an Event of
Default, extend the time of payment of, compromise or settle for cash,
credit, return of merchandise, and upon any terms or conditions, any and
all accounts or other Collateral which includes a monetary obligation
and discharge or release the account debtor or other obligor, without
affecting any of the Obligations. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall
state that the accounts and such other Collateral have been assigned to
Lender and are payable directly and only to Lender .
5.6 Attorney-in-Fact. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact and authorizes Lender at Borrower's sole
expense, to exercise at any times in Lender's discretion all or any of
the powers necessary for Lender to obtain information about the
Collateral or to enforce Lender's rights.
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5.7 Liability. Borrower hereby releases and exculpates Lender, its officers
and employees from any liability arising from any acts under this
Agreement or in furtherance thereof, including, without limitation, from
liability for any withholding taxes imposed by any Province of Canada,
except for gross negligence or willful misconduct. Lender will not have
any liability to Borrower for lost profits or other special or
consequential damages.
5.8 Administration of Accounts. After written notice by Lender to Borrower
or without notice after an Event of Default, Borrower shall not, and
shall not permit Ride Canada to: (a) amend, modify, settle or compromise
any of the accounts or any other Collateral which includes a monetary
obligation, (b) release in whole or in part any account debtor or other
person liable for the payment of any of the accounts or any such other
Collateral, or (c) grant any credits, discounts, allowances, deductions,
return authorizations or the like with respect to any of the accounts or
any such other Collateral.
5.9 Documents. Borrower shall deliver to Lender, as Lender may request, all
documents, schedules, invoices, proofs of delivery, purchase orders,
statements, contracts and all other information evidencing or relating
to the Collateral, in form and substance satisfactory to Lender and duly
executed by Borrower or Ride Canada, as applicable. Without limiting the
provisions of Section 5.5, Borrower's or Ride Canada's, as applicable,
granting of credits, discounts, allowances, deductions, return
authorizations or the like will be promptly reported to Lender in
writing. In no event shall any schedule or confirmatory assignment (or
the absence thereof or omission of any of the accounts or other
Collateral therefrom) limit or in any way be construed as a waiver,
limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered
to Lender by Borrower may be destroyed or otherwise disposed of by
Lender six (6) months after receipt by Lender, unless Borrower requests
their return in writing in advance and makes prior arrangements for
their return at Borrower's expense.
5.10 Access. Lender shall have access, prior to an Event of Default during
reasonable business hours and on or after an Event of Default at any
time, to all of the premises where Collateral is located for the
purposes of inspecting or copying the Collateral, and all Borrower's or
Ride Canada's, as applicable, books and records. Lender, at no charge,
may use such of Borrower's or Ride Canada's, as applicable, personnel,
equipment, including computer equipment, programs, printed output and
computer
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readable media, supplies and premises for the collection of accounts and
realization on other Collateral as Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants and
third parties to disclose and deliver to Lender at Borrower's expense
all financial information, books and records, work papers, management
reports and other information in their possession regarding Borrower.
5.11 Environmental Audits. From time to time, but not more frequently than
semi-annually (provided Borrower is not in default) as requested by
Lender, at the sole expense of Borrower, Borrower shall provide Lender,
or its designee, complete access to all of Borrower's facilities for the
purpose of conducting an environmental audit of such facilities as
Lender may deem necessary.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the following, the
truth and accuracy of which, and compliance with which, shall be continuing
conditions of the making of loans or other credit accommodations by Lender to
Borrower:
6.1 Financial and Other Reports.
(a) Borrower shall keep and maintain its books and records in
accordance with generally accepted accounting principles, consistently applied.
Borrower shall, at its expense on or before Wednesday of each week, deliver to
Lender true and complete weekly inventory reports for Borrower and Ride Canada
relating to the prior week. Borrower shall, at its expense, deliver to Lender:
(i) true and complete agings of its and Ride Canada's accounts receivable and
accounts payable on or before the tenth (10th) day of each month relating to the
prior month; (ii) weekly perpetual inventory reports on finished goods for
Borrower and Ride Canada; (iii) monthly inventory reports covering Borrower's
and Ride Canada's respective raw materials and work in process by location on or
before the thirtieth (30th) day of each month relating to the prior month, and
(iv) internally prepared interim financial statements on or before the thirtieth
(30th) day of each month relating to the prior month. Annually, Borrower shall
deliver audited consolidated financial statements of Borrower accompanied by the
report and opinion thereon of independent certified public accountants
acceptable to Lender, as soon as available, but in no event later than ninety
(90) days after the end of Borrower's fiscal year. Concurrent with the delivery
to Lender of such audited consolidated financials, Borrower shall deliver to
Lender internally prepared consolidating financial statement (which shall be
consistent with the audited statements).
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Borrower shall provide cash flow projections in a format and at such intervals
as may be acceptable to Lender. All of the foregoing shall be in such form and
together with such information with respect to the business of Borrower, Ride
Canada or any guarantor, as Lender may in each case request.
(b) Borrower shall deliver to Lender promptly upon Borrower's
filing thereof, copies of all reports to or other documents filed by Borrower
with the Securities and Exchange Commission under the Securities Exchange Act of
1934 and the regulations promulgated thereunder, and all reports, notices, or
statements sent or received by Borrower to or from the holders of any equity
interests of Borrower (other than routine non-material correspondence sent to
Borrower by shareholders of Borrower) or of any debt for borrowed money of
Borrower registered under the Securities Act of 1933 or to or from the trustee
under any indenture under which the same is issued.
6.2 Trade Names. Borrower and Ride Canada may from time to time render
invoices under Borrower's and Ride Canada's trade names set forth in
Section 10.5(g) and, Borrower represents that: (a) each trade name does
not refer to another corporation or other legal entity, (b) all accounts
and proceeds thereof (including any returned merchandise) invoiced under
any such trade names are owned exclusively by Borrower or Ride Canada
and (c) Lender may receive, endorse and deposit to any loan account of
Borrower maintained by Lender all checks or other remittances made
payable to any trade name of Borrower or Ride Canada representing
payment with respect to such sales or services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any loss,
damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material
adverse change in Borrower's or Ride Canada's business, assets,
liabilities or condition, financial or otherwise.
6.4 Books and Records. Borrower's and Ride Canada's books and records
concerning accounts and the respective chief executive offices of
Borrower and Ride Canada are and shall be maintained only at the address
set forth in Section 10.5(d) and (e). Borrower's and Ride Canada's only
other places of business and the only other locations of Collateral, if
any, are and shall be the addresses set forth in Section 10.5(f) hereof,
except Borrower or Ride Canada may change such locations or open a new
place of business after thirty (30) days prior written notice to Lender.
Borrower shall execute and deliver or cause Ride Canada to execute and
deliver to Lender such financing statements, amendments, financing
documents and security and other agreements as Lender may reasonably
require.
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6.5 Title. Borrower or Ride Canada has and at all times will continue to
have good and marketable title to all of the Collateral, free and clear
of all liens, security interests, claims or encumbrances of any kind
except in favor of Lender, Permitted Liens, and those, if any set forth
on Schedule A hereto. For purposes of this Section 6.5, the term
"Permitted Liens" means:
(a) Liens for taxes not delinquent or statutory liens for taxes
in an amount not to exceed $250,000 provided that the payment of such taxes
which are due and payable is being contested in good faith and by appropriate
proceedings diligently pursued and as to which adequate financial reserves have
been established on Borrower's books and records and a stay of enforcement of
any such lien is in effect;
(b) deposits under worker's compensation, unemployment
insurance, social security and other similar laws, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure indemnity, performance or other similar bonds for the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations (other than liens arising under the Employee
Retirement Income Security Act of 1974 and the regulations promulgated
thereunder or any environmental protection statute) or surety or appeal bonds,
or to secure indemnity, performance or other similar bonds in the ordinary
course of business;
(c) Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like individuals or
entities, provided that if any such lien arises from the nonpayment of such
claims or demand when due, such claims or demands do not exceed $50,000 in the
aggregate; and
(d) Judgment and other similar liens arising in connection with
court proceedings to the extent the attachment or enforcement of such liens
would not result in an Event of Default hereunder.
6.6 Disposition of Assets. Borrower shall not, without Lender's prior
written consent, directly or indirectly, or permit Ride Canada, directly
or indirectly, to: (a) sell, lease, transfer, assign, abandon or
otherwise dispose of any part of the Collateral or any material portion
of its other assets (other than sales of inventory to buyers in the
ordinary course of business) or (b) consolidate with or merge with or
into any other entity, or permit any other entity to consolidate with or
merge with or into Borrower or Ride Canada or (c) form or acquire any
interest in any firm, corporation or other entity.
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6.7 Insurance. Borrower shall at all times maintain, with financially sound
and reputable insurers, adequate insurance (including, without
limitation, at the option of Lender, earthquake and flood insurance)
with respect to the Collateral and other assets. All such insurance
policies shall be in such form, substance, amounts and coverage as may
be satisfactory to Lender and shall provide for thirty (30) days' prior
written notice to Lender of cancellation or reduction of coverage.
Lender may obtain at Borrower's expense, any such insurance should
Borrower fail to do so and adjust or settle any claim or other matter
under or arising pursuant to such insurance or to amend or cancel such
insurance. Borrower shall provide evidence of such insurance and a
lender's loss payable endorsement satisfactory to Lender. Borrower shall
deliver to Lender, in kind, all instruments representing proceeds of
insurance received by Borrower. Lender may apply any insurance proceeds
received at any time to the cost of repairs to or replacement of any
portion of the Collateral and/or, at Lender's option, to payment of or
as security for any of the Obligations in any order or manner as Lender
determines.
6.8 Compliance With Laws. Borrower is and at all times will continue to be,
and Borrower shall cause Ride Canada at all times to be, in compliance
with the requirements of all material laws, rules, regulations and
orders of any governmental authority relating to its business (including
laws, rules, regulations and orders relating to income, withholding
(including any applicable Canadian withholding laws), excise, property
and social security taxes, minimum wages, employee retirement and
welfare benefits, employee health and safety, or environmental matters)
and all material agreements or other instruments binding on Borrower or
Ride Canada or any of their property. Borrower shall pay and discharge,
and shall cause Ride Canada to pay and discharge, all taxes, assessments
and governmental charges against Borrower, Ride Canada or any Collateral
when due, unless the same are being contested in good faith. Lender may
establish Reserves for the amount contested and penalties which may
accrue thereon.
6.9 Accounts. With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge that
any of the criteria for eligibility are not or are no longer satisfied
and the eligibility criteria will continue to be satisfied. All
statements made and all unpaid balances and other information appearing
in the invoices, agreements, proofs of rendition of services and
delivery of goods and other documentation relating to the accounts, and
all confirmatory assignments, schedules, statements of account and books
and records with respect thereto, are true and correct and in all
respects what they purport to be.
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6.10 Equipment. With respect to Borrower's equipment, Borrower shall keep the
equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.11 Financial Covenants. Intentionally omitted.
6.12 Affiliated Transactions. Borrower will not, directly or indirectly: (a)
lend or advance money or property to, guarantee or assume indebtedness
of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; or (b) declare, pay or make any
dividend (other than regularly-scheduled, but not accelerated or prepaid
dividends on Borrower's shares of Class A and Class B Preferred Stock),
redemption or other distribution on account of any shares of any class
of stock of Borrower now or hereafter outstanding; or (c) make any
payment of the principal amount of or interest on any indebtedness owing
to any officer, director, shareholder, or affiliate of Borrower; or (d)
make any loans or advances to any officer, director, employee,
shareholder or affiliate of Borrower, (e) enter into any sale, lease or
other transaction with any officer, director, employee, shareholder or
affiliate of Borrower on terms that are less favorable to Borrower than
those which might be obtained at the time from persons who are not an
officer, director, employee, shareholder or affiliate of Borrower.
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights
in the Collateral, this Agreement and all other existing and future
agreements or documents contemplated herein or related hereto, including
any amendments, waivers, supplements or consents which may hereafter be
made or entered into in respect hereof, or in any way involving claims
or defense asserted by Lender or claims or defense against Lender
asserted by Borrower, any guarantor or any third party directly or
indirectly arising out of or related to the relationship between
Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the
initial or any renewal Term or after the commencement of any case with
respect to Borrower or any guarantor under the United States Bankruptcy
Code or any similar statute: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing
taxes and fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) all title insurance and
other insurance premiums, appraisal fees, fees incurred in connection
with any environmental report,
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audit or survey and search fees; (c) all fees as then in effect relating
to the wire transfer of loan proceeds and other funds and fees then in
effect for returned checks and credit reports; (d) all expenses and
costs heretofore and from time to time hereafter incurred by Lender
during the course of periodic field examinations of the Collateral and
Borrower's operations including field examiner travel, food and lodging,
plus a per diem charge at the rate set forth in Section 10.3(G) for
Lender's examiners in the field and office; and (e) the costs,
disbursements and fees of in-house and outside counsel to Lender,
including but not limited to such fees and disbursements incurred as a
result of a workout, restructuring, reorganization, liquidation,
insolvency proceeding or litigation between the parties hereto, any
third party and in any appeals arising therefrom.
6.14 Further Assurances. At the request of Lender, at any time and from time
to time, at Borrower's sole expense, Borrower shall execute and deliver
or cause Ride Canada or any other party to execute and deliver to
Lender, such agreements, documents and instruments, including waivers,
consents and subordination agreements from mortgagees or other holders
of security interests or liens, landlords or bailees, and do or cause to
be done such further acts as Lender, in its discretion, deems necessary
or desirable to create, preserve, perfect or validate any security
interest of Lender in the Collateral and otherwise to effectuate the
provisions and purposes of this Agreement. Borrower hereby authorizes
Lender to file financing statements or amendments against Borrower in
favor of Lender with respect to the Collateral, without Borrower's
signature and to file as financing statements any carbon, photographic
or other reproductions of this Agreement or any financing statements
signed by Borrower.
6.15 Environmental Condition. None of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous
substance disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any
environmental protection statute has attached to any revenues or to any
real or personal property owned by Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency any
action or omission by Borrower resulting in the releasing, or otherwise
exposing of hazardous waste or hazardous substances into the
environment. Borrower is and will continue to be in compliance (in all
material respects) with all statutes, regulations, ordinances and other
legal requirements pertaining to the production, storage, handling,
treatment, release, transportation or disposal of any hazardous waste or
hazardous substance.
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6.16 Year 2000 Compliance. The Borrower shall take all action necessary to
assure that its and Ride Canada's computer-based systems are able to
effectively process data including dates and date sensitive functions.
The Borrower represents and warrants that the Year 2000 problem, as it
relates to its and Ride Canada's computer based systems will not result
in a material adverse effect on the Borrower's or Ride Canada's business
condition. Upon request, the Borrower shall provide assurance acceptable
to the Lender that the Borrower's and Ride Canada's computer systems and
software are or will be Year 2000 compliant on a timely basis. The
Borrower shall immediately advise Lender in writing of any material
changes in the Borrower's or Ride Canada's Year 2000 plan, timetable or
budget.
6.17 State of Incorporation. If Borrower is a corporation, it is duly
organized, existing and in good standing under the laws of the state set
forth in Section 10.5(h).
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and payable,
without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate
automatically, upon the termination or non-renewal of this Agreement or,
at Lender's option, upon or at any time after the occurrence or
existence of any one or more of the following "EVENTS OF DEFAULT":
(a) Borrower fails to pay when due any of the Obligations or
fails to perform any of the terms of this Agreement or any other existing or
future financing, security or other agreement between Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or otherwise, or to any affiliate of Lender, shall prove
inaccurate or misleading;
(c) Any guarantor revokes, terminates or fails to perform any of
the terms of any guaranty, endorsement or other agreement of such party in favor
of Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of the
amount set forth in Section 10.5(i) or any injunction or attachment is obtained
against Borrower or any guarantor, which remains unstayed for a period of ten
(10) days or is enforced;
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(e) Borrower or any guarantor dies or ceases to exist or the
usual business of Borrower or any guarantor ceases or is suspended;
(f) Any change in the controlling ownership of Borrower;
(g) Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower or any
guarantor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any guarantor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such guarantor which
Lender believes may have a material adverse effect on the Collateral or
Borrower's business;
(j) Any default or event of default occurs on the part of
Borrower under any material agreement, document or instrument to which Borrower
is a party or by which Borrower or any of its property is bound;
(k) Lender in good faith believes that either (i) the prospect
of payment or performance of the Obligations is impaired or (ii) the Collateral
is not sufficient to secure fully the Obligations; or
(l) Any material change occurs in the nature or conduct of
Borrower's business.
7.2 Remedies. Upon the occurrence of an Event of Default and at any time
thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code and other applicable law, all of which rights and
remedies may be exercised without notice to Borrower, all such notices
being hereby waived, except such notice as is expressly provided for
hereunder or is not waiveable under applicable law. All rights and
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remedies of Lender are cumulative and not exclusive and are enforceable,
in Lender's discretion, alternatively, successively, or concurrently on
any one or more occasions and in any order Lender may determine. Without
limiting the foregoing, Lender may (a) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender, (b) with or
without judicial process or the aid or assistance of others, enter upon
any premises on or in which any of the Collateral may be located and
take possession of the Collateral or complete processing, manufacturing
and repair of all or any portion of the Collateral, (c) require
Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time
designated by Lender, (d) collect, foreclose, receive, appropriate,
setoff and realize upon any and all Collateral, (e) sell, lease,
transfer, assign, deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with respect
thereto, by public or private sales at any exchange, broker's board, any
office of Lender or elsewhere) at such prices or terms as Lender may
deem reasonable, for cash, upon credit or for future delivery, with the
Lender having the right to purchase the whole or any part of the
Collateral at any such public sale, all of the foregoing being free from
any right or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower. If any
of the Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice
of disposition of Collateral is required by law, ten (10) days prior
notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice. In the
event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrower waives
the posting of any bond which might otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral other than accounts actually received by Lender from any
sale, lease, foreclosure or other disposition of the Collateral to
payment of any of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain
liable to Lender for the payment of any deficiency together with
interest at the highest rate provided for herein and all costs and
expenses of collection or enforcement, including reasonable attorneys'
fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its
option, cure any default by Borrower under any agreement with a third
party or pay or bond on appeal any judgment entered against Borrower,
discharge taxes, liens, security interests or
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other encumbrances at any time levied on or existing with respect to the
Collateral and pay any amount, incur any expense or perform any act
which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral.
Lender may charge Borrower's loan account for any amounts so expended,
such amounts to be repayable by Borrower on demand. Lender shall be
under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR
LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES
TO THE RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER
BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this
Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating thereto, except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to the
nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.5(a) is
located and any other State where any Collateral is located with respect
to any action or proceeding arising out of this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating
thereto. In any such action or proceeding, Borrower waives personal
service of the summons and complaint or other process and papers therein
and agrees that the service thereof may be made by mail directed to
Borrower at its chief executive office set forth herein or other address
thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under
the rules of either of said Courts. Any such action or proceeding
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commenced by Borrower against Lender will be litigated only in a Federal
Court located in the district, or a State Court in the State and County,
in which the office of Lender designated in Section 10.5(a) is located
and Borrower waives any objection based on FORUM NON CONVENIENS and any
objection to venue in connection therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its
rights or remedies unless such waiver shall be in writing and signed by
an authorized officer of Lender. A waiver by Lender of any right or
remedy on any one occasion shall not be construed as a bar to or waiver
of any such right or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and
effect for a term set forth in Section 10.6 from the date hereof and
shall be deemed automatically renewed, based upon all of the terms and
provisions of this Agreement, for successive terms of equal duration
thereafter unless terminated as of the end of the initial or any renewal
term (each a "TERM") by either party giving the other written notice at
least sixty (60) days' prior to the end of the then current Term.
9.2 Early Termination. Borrower may also terminate this Agreement by giving
Lender at least thirty (30) days prior written notice and payment in
full of all of the Obligations as provided herein, including the Early
Termination Fee, unpaid Facility Fee and any other fees. Thirty days
after receipt of such early termination notice, Lender need not make any
further loans or accommodations. Lender shall also have the right to
terminate this Agreement at any time upon or after the occurrence of an
Event of Default. If Lender terminates this Agreement upon or after the
occurrence of an Event of Default, Borrower shall pay Lender forthwith,
in full, payment in all Obligations, including the Early Termination
Fee, unpaid Facility Fee and any other fees. In view of the
impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits, the Early Termination fee shall be the percentage
of the Maximum Credit set forth in Section 10.3(h). Provided no Event of
Default has occurred and is continuing at the time of Lender's receipt
and satisfactory review of Borrower's March 31, 1999 financial statement
and reports, Lender agrees, upon written request of Borrower given to
Lender on or before delivery of such financials, to negotiate with
Borrower an increase in the Maximum Credit and a decrease in the
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Interest Rate. If Borrower and Lender are unable to reach a mutually
satisfactory agreement, Borrower may, at its option but upon written
notice provided at least 30 days prior to the first anniversary of the
closing, terminate this Agreement on the first anniversary date, and
shall pay in full all of the outstanding Obligations plus a ----
termination fee equal to one percent (1%) of the then Maximum Credit.
All other fees required to be paid as described above, including but not
limited to any unpaid Facility Fee, Collateral Handling Fee or Early
Termination Fee, shall be waived.
9.3 Termination Indemnity Deposit. Upon termination of this Agreement by
Borrower, as permitted herein, in addition to payment of all Obligations
which are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is necessary to secure Lender from loss,
cost, damage or expense, including reasonable attorneys' fees, in
connection with any open Accommodations or remittance items or other
payments provisionally credited to the Obligations and/or to which
Lender has not yet received final and indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and demands
hereunder shall be (a) made to Lender at its address set forth in
Section 10.5(A) and to Borrower at its chief executive office set forth
in Section 10.5(D), or to such other address as either party may
designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if by hand,
immediately upon delivery; if by telex, telegram or telecopy (fax),
immediately upon receipt; if by overnight delivery service, one day
after dispatch; and if by first class or certified mail, three (3) days
after mailing.
9.5 Severability. If any provision of this Agreement is held to be invalid
or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not
contain the particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement contains the
entire agreement of the parties as to the subject matter hereof, all
prior commitments, proposals and negotiations concerning the subject
matter hereof being merged herein. Neither this Agreement nor any
provision hereof shall be amended, modified or discharged orally or by
course of conduct, but only by a written agreement signed by an
authorized officer of Lender. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns, except that any obligation of Lender under this
Agreement shall not be assignable nor inure to the successors and
assigns of Borrower.
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9.7 Discharge of Borrower. No termination of this Agreement shall relieve or
discharge Borrower of its Obligations, grants of Collateral, duties and
covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including,
without limitation, the continuation and survival in full force and
effect of all security interests and liens of Lender in and upon all
then existing and thereafter-arising or acquired Collateral and all
warranties and waivers of Borrower.
9.8 Usage. All terms used herein which are defined in the Uniform Commercial
Code shall have the meanings given therein unless otherwise defined in
this Agreement and all references to the singular or plural herein shall
also mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set
forth in Section 10.5(A) below is located.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
<TABLE>
<S> <C> <C>
10.1 (a) Maximum Credit: $15,000,000, provided that the Maximum
Credit shall increase to $17,000,000 only
for the period of October 15, 1998 through
and including December 15, 1998.
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 85%, provided that the Dilution
Percentage does not exceed 5%.
The Dilution Percentage is the
sum of Borrower's or Ride
Canada's credits, allowances,
discounts, write-offs,
contra-accounts and offsets and
deductions which reduce the value
of accounts receivable divided by
gross invoices. The initial dilution
percentage hereunder until
May 31, 1999 shall be 11%.
</TABLE>
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<TABLE>
<S> <C> <C>
Thereafter Lender shall calculate
the Dilution Percentage on a
trailing 13 month average basis.
If the Dilution Percentage is 5%
or less, the Eligible Accounts
Percentage will not be reduced. If
the Dilution Percentage exceeds
5%, then the Eligible Accounts
Percentage shall be reduced by
1% for each percent of dilution
(for example a 7% Dilution
Percentage shall reduce an 85%
Eligible Accounts Percentage to a
78% Eligible Accounts
Percentage).
The aggregate Revolving Loans outstanding at
any one time based upon the Eligible
Accounts and the Eligible Inventory of Ride
Canada shall not exceed one-third (1/3) of
Borrower's total outstanding Revolving
Loans.
Eligible Inventory Percentages:
Finished Goods 55%
Raw Materials N/A%
(c) Inventory Sublimit(s): $6,500,000 from April 1st
through September 30th of
each year;
$3,250,000 during October of
each year;
$2,500,000 during November
of each year;
$2,000,000 during December of
each year; and
</TABLE>
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<TABLE>
<S> <C> <C>
Lender shall make no Revolving
Loans based upon the Eligible
Inventory of Borrower or Ride
Canada from January 1st through
and including March 31st of each
year.
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days, provided that accounts
with extended terms may not be
outstanding for more than 30 days
past due date or 180 days past
invoice date.
(e) Minimum Borrowing: $N/A
10.2 Term Loan: Intentionally Deleted
10.3 Interest, Fees & Charges:
(a) Interest Rate: Prime Rate
plus % per annum 1.50%; provided, however, such
interest rate margin shall be
permanently reduced to 0.50% if,
based upon the financial
statements delivered by Borrower
to Lender hereunder, Lender
determines that Borrower has
positive net income on a
consolidated basis for the trailing
twelve-month period ending
June 30, 1999 or for the trailing
twelve-month period ending at the
end of any subsequent fiscal
quarter of Borrower.
(b) Clearance: 3 Business
Days
</TABLE>
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<TABLE>
<S> <C> <C>
(c) Closing Fee: $75,000, provided
that Lender
acknowledges prior
receipt from
Borrower of one-
half ($37,500) of
such fee.
(d) Facility Fee:
First Anniversary: 0.50% of the then applicable
Maximum Credit.
Second Anniversary: 0.50% of the then applicable
Maximum Credit.
(e) Collateral Handling Fee: $25,000
(f) Unused Line Fee: per annum N/A %
(g) Field Examination per diem
charge per examiner Lender's prevailing
rate (currently $650)
(h) Early Termination Fee:
First year: 3.0% of the
Maximum Credit.
Second year: 1.0% of the
Maximum Credit.
Third year
or during any renewal term: 1.0% of the
Maximum Credit.
10.3A Accommodations:
(a) Lender's Charge for Accommodations 1.5% per annum (over a
360 - day year) of the face
amount of any standby or
documentary letter of
credit plus any fees and
costs incurred by Lender
from the issuing bank.
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Sublimit for Accommodations: $8,000,000
10.4 Financial Covenants: Intentionally Omitted
10.5 (a) Lender's Office: 300 South Grand Avenue
3rd Floor
Los Angeles, California 90071
(b) Lender's Bank: Bank of America, N.T. & S.A.
(c) Borrower: Ride Snowboard Company
Ride Manufacturing, Inc.
SMP Clothing, Inc.
Smiley Hats, Inc.
(d) Borrower's Chief Executive Office: 8160-304th Avenue, S.E.
Preston, Washington 98050
(e) Locations of Eligible Inventory
Collateral: SMP Clothing, Inc.
1670 Brandywine, Ste. A
Chula Vista. CA 91911
Smiley Hats, Inc.
423 Obermyer Road
Sparks, NV 89431
Ride Manufacturing, Inc.
150 Klug Circle
Corona, CA 91720
Ride Manufacturing
248 Glider Circle
Corona, CA 91720
Ride Canada, Inc.
185 Carlingview Drive, #1
Etobicoke, ON Canada
M9W 5E8
</TABLE>
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<TABLE>
<S> <C> <C>
(f) Borrower's Other Offices and Locations
of Collateral: WMI - Kamloops,
B.C., Canada
Expeditors -
Brussels, Belgium
Expeditors - Hong Kong
(g) Borrower's Trade Names for Invoicing: Ride Sports;
Ride Snowboards;
SMP Clothing;
Smiley Hats; and
Ride Canada
(h) Borrower's State of Incorporation: Ride Snowboard Company
Washington
Ride Manufacturing, Inc.
California
SMP Clothing, Inc.
Washington
Smiley Hats, Inc.
Nevada
(i) Judgment Amount $50,000.00
10.6 Term: 3 Years
</TABLE>
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<PAGE> 30
IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this ____ day of August, 1998.
LENDER BORROWER:
THE CIT GROUP/CREDIT
FINANCE, INC. RIDE SNOWBOARD COMPANY
By:____________________ By:______________________
Title:__________________ Title:_____________________
RIDE MANUFACTURING, INC.
By:______________________
Title:_____________________
SMP CLOTHING, INC.
By:______________________
Title:_____________________
SMILEY HATS, INC.
By:______________________
Title:_____________________
ACKNOWLEDGED AND AGREED:
RIDE CANADA, INC.
By:______________________
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<PAGE> 31
Title:_____________________
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<PAGE> 32
RIDE, INC.
By:______________________
Title:_____________________
PRESTON BINDING COMPANY
By:______________________
Title:_____________________
CARVE, INC.
By:______________________
Title:_____________________
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SCHEDULE A
Permitted Liens
The security and other interests reflected in each of the following
financing statements shall constitute Permitted Liens:
1. UCC-1 Financing Statement No. 95-345-0499 filed by Textron
Financial Corporation on December 11, 1995 with the Washington
State Department of Licensing;
2. UCC-1 Financing Statement No. 98-110-0505 filed by Key Corp
Leasing, a Division of Key Corporate Capital Inc. on April 20, 1998
with the Washington State Department of Licensing;
3. UCC-1 Financing Statement No. 98-110-0506 filed by Key Corp
Leasing, a Division of Key Corporate Capital Inc. on April 20, 1998
with the Washington State Department of Licensing;
4. UCC-1 Financing Statement No. 98-110-0507 filed by Key Corp
Leasing, a Division of Key Corporate Capital Inc. on April 20, 1998
with the Washington State Department of Licensing;
5. UCC-1 Financing Statement No. 98-113-0231 filed by Key Corp
Leasing, a Division of Key Corporate Capital Inc. on April 23, 1998
with the Washington State Department of Licensing;
6. UCC-1 Financing Statement No. 98-191-0124 filed by Key Corp
Leasing, a Division of Key Corporate Capital Inc. on July 10, 1998
with the Washington State Department of Licensing;
7. UCC-1 Financing Statement No. 98-182-0122 filed by U.S. Bank
N.A., on July 1, 1998 with the Washington State Department of
Licensing;
8. UCC-1 Financing Statement No. 97-258-0047 filed by U.S. Bank, on
September 15, 1997 with the Washington State Department of
Licensing;
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9. UCC-1 Financing Statement No. 97-192-0335 filed by U.S.
Bank, on July 11, 1997 with the Washington State
Department of Licensing;
10. UCC-1 Financing Statement No. 94-138-0019 filed by U.S.
Bank of Washington N.A., on May 18, 1994 with the
Washington State Department of Licensing;
11. UCC-1 Financing Statement No. 96-190-0273 filed by U.S.
Bank of Washington N.A., on July 8, 1996 with the
Washington State Department of Licensing;
12. UCC-1 Financing Statement No. 9716048 filed by U.S.
Bank, on September 22, 1997 with the Nevada Secretary of
State.
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EXHIBIT 10.81
CONSENT, REAFFIRMATION, AND RELEASE AGREEMENT
This Consent, Reaffirmation, and Release Agreement (the
"Agreement") is entered into this ___ day of August, 1998, between and among
U.S. Bank National Association ("U.S. Bank"); Ride, Inc. ("Borrower"); and
Carve, Inc., Preston Binding Company, Ride International, Inc., Ride
Manufacturing, Inc., Ride Snowboard Company, Smiley Hats, Inc., and SMP
Clothing, Inc. (the "Guarantors").
RECITALS
A. U.S. Bank extended an operating credit facility to Borrower
pursuant to the terms of a business loan agreement dated as of June 30, 1997 (as
such loan agreement has been amended by the first amendment thereto dated as of
June 17, 1998 and the second amendment thereto dated August 25, 1998)
(collectively, the "Loan Agreement"). Borrower executed a security agreement
granting U.S. Bank liens and security interests in all or substantially all of
Borrower's personal property to secure Borrower's obligations to U.S. Bank
pursuant to the Loan Agreement.
B. The Guarantors executed guaranty agreements whereby they
guaranteed the payment of Borrower's obligations to U.S. Bank in respect of the
credit facility extended pursuant to the Loan Agreement. In addition, the
Guarantors executed security agreements granting U.S. Bank liens and security
interests in all or substantially all of the Guarantors' personal property to
secure the obligations of the Guarantors and Borrower to U.S. Bank. The security
agreements executed by Borrower and the Guarantors in favor of U.S. Bank are
referred to herein collectively as the "Security Agreements."
C. The total amount owed by Borrower pursuant to the Loan
Agreement and the promissory note executed in connection therewith is referred
to below as the "Obligations." The Obligations include legal fees and costs
incurred by U.S. Bank in connection with its banking relationship with Borrower.
D. As of August 27, 1998, Borrower owed U.S. Bank the principal
amount of $8,724,006.24 plus accrued interest of $55,632.67, plus fees and costs
of approximately $15,000. Interest continues to accrue on the amount Borrower
owes U.S. Bank on and after August 27, 1998.
E. The credit facility extended by U.S. Bank pursuant to the Loan
Agreement expires on September 1, 1998. At that time, the Obligations become due
and payable in full.
F. Borrower has negotiated a new financing arrangement with CIT
Group/Credit Finance, Inc. ("CIT") that would replace the operating credit
facility provided by U.S. Bank to Borrower. However, the amount that CIT is
willing to lend to Borrower thereunder would not result in payment in full of
the Obligations.
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<PAGE> 2
G. Borrower has requested U.S. Bank to agree to the proposed
refinancing transaction between Borrower and CIT and to accept a promissory note
from Borrower with respect to the $3,000,000 difference between the amount of
the Obligations and the refinancing proceeds (which difference is referred to
below as the "Residual Debt"). U.S. Bank is willing to do so, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties to this Agreement
agree as follows:
AGREEMENT
SECTION I
THE RESIDUAL DEBT
I.1 Agreement to Residual Debt. U.S. Bank hereby agrees that if
it receives collected funds in the amount of the Obligations less $3,000,000
(the "Payment") on or before September 1, 1998, from Borrower with respect to
the Obligations, Borrower deposits with U.S. Bank cash in the amount of
$2,350,509.84 (the "Cash Deposit") (which deposit is to ensure and secure the
payment of banker's acceptances and letters of credit issued by U.S. Bank on
behalf of Borrower) on or before September 1, 1998, and the conditions precedent
specified in paragraph 1.2 below have been satisfied by that date, U.S. Bank
will agree to accept payment of the Residual Debt pursuant to the terms and
conditions of this Agreement and the Note (as that term is defined below).
I.2 Conditions Precedent. This Agreement shall be effective only
if on or before September 1, 1998, U.S. Bank receives the following (which in
the case of the documents and instruments described in items (a) through (f)
below must be fully and duly executed):
(a) This Agreement;
(b) A promissory note from Borrower payable to U.S. Bank in the
amount of $3,000,000 in a form acceptable to U.S. Bank (the "Note")
(following the execution and delivery of the Note, references to the
Obligations shall include amounts owed pursuant to the Note);
(c) A guaranty from Mark M. Salter, Abigail N. Salter, and Salter
Family Partners, Ltd. (the "New Guarantors") with respect to the Note,
this Agreement, and the Security Agreements in a form acceptable to U.S.
Bank;
(d) A trust deed with respect to real property in San Miguel
County, Colorado, located at 109 Gold Hill Circle, Mountain Village,
Colorado (the "Colorado Property"), securing the Obligations, in a form
acceptable to U.S. Bank (the "Colorado Trust Deed");
(e) A security agreement executed by the New Guarantors in favor
of
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<PAGE> 3
U.S. Bank with respect to the Obligations in a form acceptable to
U.S. Bank (the "New Security Agreement");
(f) An intercreditor agreement among Borrower, U.S. Bank, and CIT
in a form acceptable to U.S. Bank (the "Intercreditor Agreement");
(g) A copy of the fully executed loan agreement among CIT,
Borrower, and those of the Guarantors party thereto (the "CIT Loan
Agreement"), the terms of which must be consistent with the terms of the
Intercreditor Agreement; and
(h) Delivery to U.S. Bank of the Gen-X Assets (as defined in
paragraph 2.5 below), except, however, that delivery of the Stock (as
defined below) may be delayed pursuant to paragraph 2.5 below.
At the time this Agreement becomes effective, it will supersede the Loan
Agreement as the document governing the credit facility U.S. Bank extends to
Borrower. The Loan Agreement shall remain in full force and effect until such
time, if any, that all of the above-described conditions precedent have been
satisfied.
I.3 Subordination of Lien Position. CIT's agreement to enter into
the above-described refinancing transaction is conditioned upon its obtaining
first priority liens and security interests in the personal property of Borrower
and those of the Guarantors that are parties to the CIT Loan Agreement (other
than the Gen-X Assets, as that term is defined below). Upon receipt of the
Payment and the Cash Deposit, and timely satisfaction of the conditions
precedent specified in paragraph 1.2 of this Agreement, U.S. Bank will
subordinate its security interests and liens in the Collateral (other than the
Gen-X Assets and any Collateral owned by entities that are not parties to the
CIT Loan Agreement) to CIT's liens and security interests therein pursuant to
the terms of the Intercreditor Agreement.
I.4 Use of Cash Deposit; Conversion to Guaranty. U.S. Bank is
authorized to apply the Cash Deposit, or any portion thereof, to pay any draw
under a letter of credit or to satisfy any banker's acceptance that is not
timely paid. In the event that a letter of credit secured by the Cash Deposit
has expired, or a banker's acceptance secured by the Cash Deposit is satisfied
from a source other than the Cash Deposit, U.S. Bank may distribute an amount of
the Cash Deposit equal to the undrawn portion of the letter of credit or the
amount of the banker's acceptance as requested by CIT, provided no Event of
Default (as defined below) has occurred. U.S. Bank agrees that upon request it
will release the Cash Deposit, in a manner requested by CIT, provided that (a)
no Event of Default (as defined below) has occurred and is continuing, (b) U.S.
Bank receives a written guarantee from CIT, in a form and with terms reasonably
acceptable to U.S. Bank, of Borrower's outstanding banker's acceptances and
letters of credit provided by U.S. Bank, and (c) there has been no material
adverse change in the financial condition of CIT from the date of this
Agreement.
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<PAGE> 4
SECTION II
CONTINUING VALIDITY OF GUARANTIES AND SECURITY AGREEMENTS
II.1 Consent of Guarantors. The Guarantors hereby acknowledge
that they are familiar with the terms of the Note and consent to those terms and
to Borrower executing that note and this Agreement.
II.2 Reaffirmation of Existing Guaranties. The Guarantors hereby
reaffirm their guaranties of all obligations and indebtedness of Borrower to
U.S. Bank, and hereby reaffirm and ratify the terms and conditions of their
guaranties. In that regard, the Guarantors acknowledge and agree that they are
obligated to immediately pay U.S. Bank all amounts owed by Borrower with respect
to the Obligations, including all amounts owed under the Note, if Borrower fails
to do so, and that U.S. Bank has no obligation to proceed first against
Borrower, or the Collateral, to recover the amount owed. The Guarantors hereby
waive their right to revoke their guaranties until the Note is paid in full.
II.3 Acknowledgment and Reaffirmation of Security Agreements.
Borrower and the Guarantors (collectively, the "Obligors") hereby reaffirm their
obligations under the Security Agreements, and hereby reaffirm and ratify the
terms and conditions of the Security Agreements. The Obligors acknowledge and
agree that the security interests in the Collateral granted in the Security
Agreements secure payment of the Obligations, including those evidenced by the
Note, and any and all modifications, renewals, and extensions of the Note (or
substitutions or replacements thereof), whether or not evidenced by new or
additional instruments.
II.4 Financing Statements and Other Documents. Until the Note has
been repaid in full, the Obligors will:
(a) Join with U.S. Bank in executing such financing statements
(including amendments thereto and continuation statements thereof) and
other documents in form satisfactory to U.S. Bank as U.S. Bank may
specify, in order to perfect, or continue the perfection of, the rights
in the Collateral granted in the Security Agreements;
(b) Pay, or reimburse U.S. Bank for paying, all costs, expenses,
and taxes of filing or recording the same in such public offices as U.S.
Bank may designate; and
(c) Take such other steps as U.S. Bank may direct to perfect (or
continue the perfection of) U.S. Bank's interest in the Collateral.
II.5 U.S. Bank's Lien in the Gen-X Assets. Borrower is in
possession of two promissory notes dated October 11, 1996, payable to Borrower
by Gen-X Equipment, Inc., in the original principal amounts of $1,022,376 and
$977,624 and has an interest in the Canco stock and the C.A.S. Sports Agency
stock (the "Stock"), as more particularly described in the documents and
agreements executed contemporaneously with the promissory notes referred to
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<PAGE> 5
in this sentence (which notes and Stock are referred to herein as the "Gen-X
Assets"). Borrower hereby grants U.S. Bank a security interest in the Gen-X
Assets, including payments thereon and proceeds thereof, to secure payment of
the Obligations and agrees to deliver the Gen-X Assets to U.S. Bank
contemporaneously with the execution of this Agreement, provided, however, that
if Borrower or its agents do not possess the Stock as of the date of execution
of this Agreement, Borrower shall use its good faith best efforts to deliver the
Stock to U.S. Bank and take such other actions as to provide U.S. Bank with a
perfected interest in the Stock. The Gen-X Assets are part of the Collateral.
II.6 Release of Claims Against U.S. Bank. The Obligors hereby
release and forever discharge U.S. Bank, and U.S. Bank_s affiliates, agents,
principals, successors, assigns, employees, officers, directors, and attorneys,
and each of them (collectively, the "Releasees"), of and from any and all
claims, demands, damages, suits, rights, or causes of action of every kind and
nature that the Obligors, or any of them, have or may have against the
Releasees, or any of them, as of the date of this Agreement, whether known or
unknown, contingent or matured, foreseen or unforeseen, asserted or unasserted,
including, but not limited to, all claims for compensatory, general, special,
consequential, incidental, and punitive damages, attorney fees, and equitable
relief.
SECTION III
REPRESENTATIONS AND WARRANTIES
III.1 Representations and Warranties. To induce U.S. Bank to
enter into this Agreement, the Obligors represent and warrant as of the date
hereof as follows:
(a) The Obligors are corporations duly organized, validly
existing, and in good standing under the laws of their respective
jurisdictions of incorporation;
(b) The Obligors have the lawful power to own their respective
properties and to engage in the respective business they conduct, and
are duly qualified and in good standing as foreign corporations in the
jurisdictions wherein the nature of the business transacted by them or
property owned by them makes such qualification necessary;
(c) None of the Obligors are in default with respect to any of
their existing material indebtedness (except as previously has been
disclosed in writing by or to U.S. Bank);
(d) The making and performance of this Agreement and the Note
will not (immediately, with the passage of time, the giving of notice,
or both) violate the certificates or articles of incorporation or bylaws
of any of the Obligors, or violate any laws or result in a default under
any material contract, agreement, or instrument to which any of the
Obligors is a party or by which the Obligors or any of their properties
are bound;
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<PAGE> 6
(e) The Obligors have the power and authority to enter into and
perform this Agreement and the Note, and to incur the obligations herein
and therein provided for, and have taken all actions necessary to
authorize the execution, delivery, and performance of this Agreement and
the Note;
(f) This Agreement and the Note are, or when delivered will be,
valid, binding, and enforceable in accordance with their respective
terms;
(g) The Obligors have good and indefeasible title to the
Collateral;
(h) The security interests in the Collateral granted to U.S. Bank
under the Security Agreements create first and prior liens, except for
the liens and security interests of CIT (when such liens and security
interests are granted and U.S. Bank_s liens become subordinate thereto),
upon all of the Collateral; and
(i) The principal balances of the notes that are part of the
Gen-X Assets are $922,376 and $877,624 with interest paid to June 24,
1998, that the regular quarterly payments required to be made pursuant
to those notes are accrued interest plus $100,000, and that the
obligations under such notes are not subject to reduction by any claim
of defense, offset, or recoupment.
All of the representations and warranties set forth in paragraph 3.1 of this
Agreement shall be deemed made as of the date hereof, and shall survive and
continue until the Note has been paid in full.
SECTION IV
REPORTING REQUIREMENTS
IV.1 Quarterly Reports. Within 45 days after the end of each
calendar quarter until the Note has been paid in full, Borrower shall provide
U.S. Bank with (a) a consolidated statement of cash flows and a consolidated
statement of retained earnings of the Obligors for such quarter and for the year
to date; (b) a consolidated statement of operations of the Obligors for such
quarter and for the year to date; and (c) a consolidated balance sheet of the
Obligors as of the end of such quarter and for the year to date. All of the
foregoing shall be in reasonable detail, and shall be certified by the
president, vice president, or chief financial officer of Borrower to have been
prepared accurately and in accordance with generally accepted accounting
principles (consistently applied) ("GAAP"), subject to year-end adjustments.
IV.2 Annual Reports. Within 120 days after the close of each
fiscal year until the Note has been paid in full, Borrower shall provide U.S.
Bank with (a) a consolidated statement of cash flows and a consolidated
statement of stockholders' equity of the Obligors for such fiscal year; (b) a
consolidated statement of operations of the Obligors for such fiscal year; and
(c) a consolidated balance sheet of the Obligors as of the end of such fiscal
year. The statements and balance sheets shall be audited by an independent
certified public accountant
-6-
<PAGE> 7
selected by Borrower and certified by such accountants to have been prepared in
accordance with GAAP and to present fairly the consolidated financial position
and results of operations of the Obligors.
IV.3 Other Information; Access to Books and Records. The
Obligors will make available for inspection and audit during normal business
hours by duly authorized representatives of U.S. Bank any of their records and
furnish U.S. Bank with any information that U.S. Bank reasonably may request
regarding their business affairs and financial condition within a reasonable
time after written request therefor.
SECTION V
DEFAULT
V.1 Events of Default. The occurrence of any one or more of the
following events (each an "Event of Default") shall constitute a default under
this Agreement:
(a) Borrower shall fail to pay any installment of principal or
interest payable under the Note within 3 days of the date such payment
is due;
(b) Any of the Obligors shall fail to observe or perform any
other obligation to be observed or performed by it hereunder, under the
Security Agreements, or under any other agreement with U.S. Bank and
such failure shall continue for a period of 30 days after such party
receives notice of such failure from U.S. Bank;
(c) The occurrence of an event of default under the CIT Loan
Agreement (and such failure shall continue beyond any applicable grace
period so as to result in the actual acceleration of the Obligors'
obligations thereunder);
(d) There is a default by the New Guarantors under the Colorado
Trust Deed or the New Security Agreement, which is not cured in the
time, if any, provided in such document;
(e) Proceedings in bankruptcy, or for reorganization of the
Obligors, or any of them, or for the readjustment of any of their debts,
under the United States Bankruptcy Code, or under any other laws,
whether state or federal, for the relief of debtors, now or hereafter
existing, shall be commenced against or by any of the Obligors, and with
respect to any such proceedings initiated against any of the Obligors,
shall not be dismissed or discharged within 60 days of their
commencement; or
(f) A receiver or trustee shall be appointed for any of the
Obligors, or for any substantial part of its or their assets, or any
proceedings shall be instituted for the dissolution or the full or
partial liquidation of any of the Obligors, and such receiver or trustee
shall not be discharged within 60 days of his appointment, or such
proceedings shall not be dismissed or discharged
-7-
<PAGE> 8
within 60 days of their commencement, or any of the Obligors shall
discontinue business or materially change the nature of its or their
business.
V.2 Remedies. Following the occurrence of an Event of Default
(and subject to the terms of the Intercreditor Agreement), U.S. Bank immediately
and without notice to the Obligors may exercise any or all of its rights and
remedies under this Agreement, the Note, the Security Agreements, any other
agreements between or among the parties, and applicable law, all of which rights
and remedies are cumulative.
SECTION VI
MISCELLANEOUS PROVISIONS
VI.1 Construction. The provisions of this Agreement shall be in
addition to those of any guaranty, pledge or security agreement, note, or other
evidence of liability now or hereafter held by U.S. Bank, all of which shall be
construed as complementary to each other. Nothing herein contained shall prevent
U.S. Bank from enforcing any or all other guaranties, pledge or security
agreements, notes, or other evidences of liability in accordance with their
respective terms.
VI.2 Notice of Default. The Obligors shall notify U.S. Bank
immediately if they become aware of the occurrence of any Event of Default or of
any fact, condition, or event that with the giving of notice or passage of time
or both, would become an Event of Default or if they become aware of any
material adverse change in the financial condition (including, without
limitation, proceedings in bankruptcy, insolvency, reorganization or the
appointment of a receiver or trustee), or results of operations of the Obligors
or of the failure of the Obligors to observe any of their undertakings hereunder
or under the other documents or instruments executed in favor of U.S. Bank.
VI.3 Change in Location of Collateral. The Obligors hereby agree
to notify U.S. Bank of any change in the location of any of the Collateral, of
the change in the location of any of their places of business, or of the
establishment of any new (or the discontinuance of any existing) place of
business within 45 days following any such change, establishment, or
discontinuance.
VI.4 Further Assurance. From time to time, the Obligors will
execute and deliver to U.S. Bank such additional documents and will provide such
additional information as U.S. Bank reasonably may require to carry out the
terms of this Agreement and be informed of the status and affairs of the
Obligors.
VI.5 Enforcement and Waiver by U.S. Bank. Subject to the terms of
the Intercreditor Agreement, U.S. Bank shall have the right at all times to
enforce the provisions of this Agreement, the Note, the Guarantors' guaranties,
and the Security Agreements in strict accordance with the terms hereof and
thereof, notwithstanding any conduct or custom (if any) on the part of U.S. Bank
in refraining from doing so at any time or times. The failure of U.S. Bank at
any time or times to enforce its rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner
-8-
<PAGE> 9
contrary to specific provisions of this Agreement, or as having in any way or
manner modified or waived the same. All rights and remedies of U.S. Bank are
cumulative and concurrent and the exercise of one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
VI.6 Expenses of U.S. Bank. The Obligors will, on demand,
reimburse U.S. Bank for all expenses, including the reasonable fees and expenses
of legal counsel for U.S. Bank, title insurance with respect to the Colorado
Property, and appraisal fees incurred by U.S. Bank in connection with the
administration, amendment, modification, and the enforcement of this Agreement,
the other documents and instruments executed in favor of U.S. Bank, and the
collection or attempted collection of the Note, whether occurring before or
after an Event of Default hereunder.
VI.7 Notices. Any notices or consents required or permitted by
this Agreement shall be in writing and shall be deemed to have been given or
made when actually received or if sent by certified mail, postage prepaid,
return receipt requested, upon the earlier of actual receipt or 5 days after
mailing, and addressed, as follows, unless such address is changed by written
notice hereunder:
(i) If to Borrower or the Guarantors:
8160 304th Avenue S.E.
Preston, Washington 98050
Attention: Chief Financial Officer
(ii) If to U.S. Bank:
U.S. Bank National Association
111 S.W. Fifth Avenue (T-8)
Portland, Oregon 97204
Attention: Roger C. Lundeen
VI.8 Applicable Law. This Agreement is subject to and shall be
construed and enforced in accordance with the laws of the state of Oregon,
without regard to principles of conflicts of law.
VI.9 Binding Effect, Assignment, and Entire Agreement. This
Agreement shall inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties hereto. The Obligors
have no right to assign any of their rights or obligations hereunder without the
prior written consent of U.S. Bank. U.S. Bank may assign its rights hereunder
without the consent of Borrower, the Guarantors, or the New Guarantors. This
Agreement and the documents executed and delivered pursuant hereto constitute
the entire agreement among the parties and may be amended only by a writing
signed on behalf of each party.
VI.10 Severability. If any provisions of this Agreement shall be
held invalid
-9-
<PAGE> 10
under any applicable laws, such invalidity shall not affect any other provision
of this Agreement that can be given effect without the invalid provision, and,
to this end, the provisions hereof are severable.
VI.11 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
VI.12 Statutory Notice. UNDER OREGON LAW, MOST AGREEMENTS,
PROMISES, AND COMMITMENTS MADE BY U.S. BANK CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES, OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION,
AND BE SIGNED BY U.S. BANK TO BE ENFORCEABLE. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
U.S. BANK NATIONAL ASSOCIATION PRESTON BINDING COMPANY
By:___________________________
Roger C. Lundeen By____________________________
Vice President Title_________________________
RIDE, INC. RIDE INTERNATIONAL, INC.
By____________________________
Title_________________________ By____________________________
Title_________________________
CARVE, INC.
RIDE MANUFACTURING, INC.
By____________________________
Title_________________________ By____________________________
Title_________________________
RIDE SNOWBOARD COMPANY SMP CLOTHING, INC.
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<PAGE> 11
By______________________________ By____________________________
Title___________________________ Title_________________________
SMILEY HATS, INC.
By_____________________________
Title__________________________
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<PAGE> 1
EXHIBIT 21.1
Subsidiary List
as of September 28, 1998
The following sets forth the wholly-owned subsidiary corporations of Ride, Inc.
(a Washington corporation):
1. Ride Manufacturing, Inc. (a California corporation)
2. SMP Clothing, Inc. (a Washington corporation)
3. Ride Snowboard Company (a Washington corporation)
(a) Preston Binding Company (a Washington corporation) (a
subsidiary of Ride Snowboard Company)
4. Ride Canada, Inc. (an Ontario corporation)
5. Ride International, Inc. (a Barbados corporation)
6. Smiley Hats, Inc. (a Nevada corporation)
7. Carve, Inc. (a Washington corporation)
58
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-92034) pertaining to the Ride Snowboard Company 1994 Stock Option
Plan and Ride Snowboard Company 1994 Directors Nonqualified Stock Option Plan,
the Registration Statement (Form S-8 No. 33-81029) pertaining to the Ride, Inc.
1995 Employee Stock Purchase Plan and Ride, Inc. foreign Subsidiary 1995
Employee Stock Purchase Plan, and in Amendment No. 3 to the Registration
Statement (Form S-3 No. 333-44637) pertaining to the registration of 2,608,729
shares of its common stock, of our report dated September 11, 1998, with respect
to the consolidated financial statements and schedule of Ride, Inc. included in
its Annual Report (Form 10-K) for the six months ended June 30, 1998 filed with
the Securities and Exchange Commission.
Seattle, Washington
September 28, 1998 ERNST & YOUNG LLP
59
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